How Will Your Company Look In a Bikini?
What’s the latest buzzword? Lean! Not as in “lean in”, Sheryl Sandberg’s popular call to personal affirmative action, but as in “Lean Startup“, the extension of Agile from software development to business creation. This began as a way for a startup business to put a product out the door fast by minimizing all of the number-crunching and agonizing over a business plan. It turns out no one ever reads that stuff. The new way to start a company is to distill the important ideas onto a whiteboard and don’t be afraid to edit it as you go. That much information your team and investors can absorb and keep up-to-date with.
This approach was developed by Eric Ries and became a movement when he published his 2011 book, “The Lean Startup”. Now many people think the same principles can take root in an established corporation. There’s so much chatter about big enterprise Lean, it’s like corporations are suddenly worried about summer swimsuit season. The blogosphere enthuses; there are meetups, training courses and software packages that help a novice bring Lean to the enterprise; the likes of InformationWeek and Forbes have weighed in about its glowing prospects. The latest cheerleader is the Harvard Business Review, which published an article in this month’s issue, “Why the Lean Start-Up Changes Everything“.
Without a doubt, taking this route to starting a company is compelling. It make intuitive sense because software companies have a history of getting so excited about the cool-ness of their new technology that they forget to find a customer or make a product. Lean addresses that by focusing on those activities critical to creating customer value. On the other hand, it’s not hard to imagine things going off the rails if someone isn’t also keeping an eye on marketing, cash flow, HR, accounting and all of those tedious details usually found in the plan’s appendix and that engineers abhor. In theory that’s all covered on the white board, but the headings are things like “Key Activities”, “Key Resources”. There’s one box for “Cost Structure”. There would necessarily be many expenses that don’t fit in that box, and a lot of non-key activities that could be collectively critical.
With apologies to Despair.com
But okay, let’s agree it’s reasonable to skip over the administrative drudgery just while the company gets traction and moves from startup to going concern. The question is whether the approach really translates to new business units or product development in an existing enterprise. There are copious consulting services, training and software packages to help companies make the leap in the areas that translate well to the large firm; but these boosters treat many issues as somebody else’s problem without mentioning whose. There are areas where taking Lean outside of a small, independent organization isn’t obviously a good fit. Even the HBR article glosses over things like financing that you’d expect it to address, and simply references companies like GE and Intuit as organizations that claim to have had success with the approach. So someone is making it work; but these could be exceptions. Is it really so generally applicable as the hype implies? Let’s focus on these big blind spots instead of sweeping them under the rug and perhaps we can develop general tactics for dealing with them.
I’m certainly not the first to wonder if something is being overlooked in all the froth. Another blogger, David Marks, listed a number of “challenges” over a year ago. Most of his points come down to stumbling blocks of corporate structure, culture and politics. I’d like to add a short list of my own.
Capital Financing
Financing is trickier when the target product is vague. If you aren’t sure what you’ll be selling, you can scarcely talk about market segments, pricing models and margins let alone revenue. You don’t even know how much capital you’ll need to raise to build the product. How do you get your CFO to sign off on these kinds of planning figures? And even though it’s pretty much the expectation and part of the process, how easy is it to fund the next iteration when the first one fails? You’re asking a large corporation with lengthy planning cycles to commit to spending hundreds of thousands of dollars or more in any given quarter without knowing exactly how many thousands or when to expect some kind of a product delivery.
The only way this could go smoothly is if the Lean team is such a small business unit within the larger corporation that its expenses make no differences to the organization’s fortunes. At best it is funded as a lottery ticket, something that’s very unlikely to pay off but, hey, who really cares because the cost is so low. But whereas those who invest in startups are in the business of carefully selecting their lottery tickets and religiously checking the numbers, a large company buys lottery tickets like you do: on a whim with spare change. They are stuffed back in the wallet and forgotten, then when they’re discovered three or four months later they’re tossed away with a shrug.
Support Services
One difference between a startup and an established corporation is that the latter already has infrastructure in place. Most of the time it would not be efficient to duplicate that infrastructure in the new Lean business unit; that would be the opposite of Lean. But that means the departments the Lean team relies on must be able to respond with timeliness and flexibility not typical to a large company. Is HR ready to help you staff up over a period of weeks, not months? Can customer service accommodate the increase in their load as your minimum viable product ships? This necessity dovetails with the trend to greater commoditization of the enterprise, whereby a company bolts on or sheds support services as needed; but unless it already works that way company departments need to be ready, willing and able to provide this kind of dynamic support.
Lean While Regulated
Even if the company does everything right, the weakest link may be external partners. Lean may be off the table altogether in heavily regulated industries. How do you fail fast and iterate when you’re subject to an approval process that takes weeks or months?
Regulators occasionally demonstrate willingness to consider approaches that speed up their processes. Look at the FDA’s accelerated approval process, introduced fifteen years ago. If Lean processes become important to overall competitiveness in the marketplace, it will be necessary for regulators to become more responsive and more flexible. Perhaps more provisional approvals could be provided, with justification data allowed to follow (and no further approvals granted until it has). Where pricing requires pre-approval by regulators (as is often the case in the American insurance industry, for instance) rates could be set by the company but adjusted, or even rebates set, by the regulator once the performance has been established. But for regulators to accelerate their processes would take some intense economic and political pressure. Lean offers no direct benefit to a government agency, but considerable risk since anything that increases the speed of decision-making increases the likelihood of a bad decision.
Brand
You might think that an advantage of Lean in the enterprise is that your innovative business unit can have the strengths of a startup but the brand recognition of the mother corp. But since the premise of Lean is that the initial products will be rough or imperfect there is a risk that the brand image would be eroded as successive iterations refine the imperfect early offerings. While the Lean unit might benefit, other components of the company would suffer. In most cases, the temptation to piggy-back on the existing brands should be resisted. At most, oblique references (like “NewBrand, a division of WellKnown company”) could be used. It would be too risky to try to have it both ways.
I believe Lean is a powerful concept, and at the very least it encapsulates a mindset that any entrepreneurial manager should maintain regardless of the size of their organization. But while the practical issues I’ve raised are tractable problems, little I’ve read in any of the articles, blogs or consultants’ web sites broach them. I’m sure there are many more, too, that I haven’t thought of. As a mainstream tool, Lean is ripe for further discussion and development. Where do you think the obstacles to Lean in the enterprise lie? Are these issues I’ve mentioned solved in your company? Please add your thoughts in the comments.
