In the recently concluded Lean Startup 2013 Conference it was evident that enterprises of all sizes including Governments are now interested in delivering value to their customers by developing new and innovative products. Jack Welch says that Shareholder Value is a result and not the primary constituent of value delivered by a company. Customers, employees and products are the primary constituents of a corporation’s value.
Experiments Improve Learning
The Lean Startup focuses on maximizing value by minimizing waste. 60%-90% of ideas do not improve the metrics they were intended to improve. 1/3rd ideas cause statistically significant positive change, 1/3rd of them don’t result in statistically significant change and 1/3rd of them result in statistically significant negative change. Intuition and expert opinion are extremely poor gauges of value our ideas deliver to users says Ronny Kohavi(GM Experimentation Platform ,Microsoft). If we are not running experiments to test the value of new ideas before completely developing them, chances are 2/3rd of the work we do will deliver zero or negative value to our customers.
“The Lean Startup” or “Experimental Entrepreneurship” are strategies adopted by small teams innovating in conditions of extreme uncertainty. However these strategies will succeed only if we have the right organizational culture. Culture is a set of assumptions about values of an organization as perceived by its employees, vendors and customers. Getting it right at inception is important because culture is hard to change once the die is cast.
Intuit is a company which calls itself a company of thousand startups seems to have got it right. Every employee is a leader- innovation is not limited to the R & D team. Innovative ideas are incubated in 5 day workshops where even employees of Legal Department participate as members of cross functional teams. Brad Smith himself ensures that he doesn’t become a bottleneck by letting others lead. He strongly believes that “Star Culture” where “A Genius” leads many people doesn’t work.
The Portfolio Approach
Intuit applies portfolio approach to management of products. A product lifecycle is an S shaped curve as shown in the diagram. Four stages of product lifecycle are depicted by the S shaped curve- explore, exploit, sustain, retire/replace. Intuit’s portfolio consists of three horizons. Horizon 1 is current flagship and core products that are generating revenue and earning profits, Horizon 2 is evolution products , Horizon 3 is exploration products. Top management at Intuit actively considers Horizon2 and Horizon 3 products as candidates for tomorrow’s flagship products .
Innovative Structure Breeds Great Work Culture
Another example of innovation in organizational structure is WordPress. It’s a company that has no office. With 225 employees spread across 190 locations is undoubtedly the most distributed team. Teams get together at exotic destinations every quarter to bond with each other. Their headquarter in San Francisco is not used by anyone on most days. Yet it’s the most successful blogging platform with more than 20 million blogs powered by it. They achieved this success by hiring the best. Every one gets hired on trial. “You can’t manage your way out of a bad team”- says Matt Mullenweg. In the first few weeks of trial every one has to work in customer support understanding the type of problems customers face. There is no change in compensation when one becomes or stops being a lead developer. Leads are rotated to facilitate cross-pollination between teams.
Principles Behind the Best Practices
Lean thinking is historically known to have evolved in Toyota. “The Lean Startup” has its roots in these basic principles. Donald Reinertsen who often highlights the lean principles that go beyond practices followed in Toyota presented seven big ideas of lean startup.
- Converting proxy metrics to economic lifecycle profits helps decision. “The Lean Startup” tests viability by asking customers to sign up instead of feeling good about vanity metrics like number of views.
- Changes in loading have nonlinear impact on queue length depending on capacity utilization. If you have all your development capacity utilized with everyone frantically working to meet the deadline, you are not equipped to deal with unexpected emergencies. This results in long queues and delayed feedback resulting in more unexpected emergencies.
- In product development we should try to alter economic impact of variability than eliminate it. Options have value because of asymmetry in payoff function. “The Lean Startup” deals with variability by applying the portfolio approach by increasing the probability of a hit ,which compensates for several misses.
- Reduce the batch size to reduce the length of the queues. Smaller products with quicker time to market reduce the impact of uncertainty.
- The easiest way to reduce the cycle time of a process is by limiting the WIP in the process. Software work and capacity is hard to estimate. You can only indirectly limit capacity utilization by limiting queue length.
- Prioritization is made easier and effective with smaller batch size. All big monolithic batches look equally important.
- Fast Feedback exponentially reduces the cost. If you go to market sooner, you have less waste in terms of code that is not yet in production. Moreover early feedback can potentially prevent unwanted code.
The lean startup movement is not only about “startups” as commonly understood by all. Any innovative undertaking in extremely uncertain business environment can be called a “Startup”. Its strongly rooted in lean manufacturing principles evolved in Toyota. Large companies including Governments are following these principles. Its not a movement of large company haters. In fact Eric Ries says that “If you don’t like large companies why are you building one?”