Where Do Lean Startup Methods Help Most?

Written by Sean Murphy. Posted in Customer Development, Events, skmurphy

The Lean Startup 2012 conference clarified where Lean Startup principles are especially applicable:

  • Emerging markets,
  • Industries that are being disrupted,
  • Companies that have fallen behind the innovation curve.

All of these situations are characterized by the need for exploration and discovery instead of continued execution of the current business model. Firms facing these situations need to treat product ideas and business strategies as hypotheses and run experiments in short iteration loops and small batches to validate or falsify them before committing to scale. They need to engage in serious conversations with prospects, observe the actual environment where the product will be used, and determine the value of an innovation by customer adoption and payment.

Emerging Markets

In emerging markets the “rules of thumb” have yet to be established. This requires startups to leave the BatCave and go and see the ground truth of their customer’s needs and constraints. Established firms have to be willing to revisit key aspects of their product offering and go to market strategy to align them with new market expectations and requirements. Established firms have to adjust internal incentive structures that reward more efficient execution of the current business model to prioritize exploration and experimentation. Startups attempting to scale based on their initial model or established firms scaling based on a model proven in another market  will likely either fail to gain traction or be significantly outperformed by firms who had the patience to validate the key assumptions in their model.

One example of embedding exploration of customer needs into a new service offering was provided by Adam Goldstein of Hipmunk. The Hipmunk team made a text chat option available on every page of their site, answering questions directly. This allowed their customers to ask for help or report a problem without leaving the current webpage. It was now very easy for their customers to provide feedback (and for the founders to engage in short conversations) compared to a standard feedback or submit a bug form; this approach also preserved the context of what the customer was trying to accomplish. The promise of an immediate response in a short text chat offered a much lower friction channel to the customer. Although it was less efficient for the founders, it gave them access to many insights about site features and drawbacks that they might have otherwise taken much longer to learn.

A second example of new market exploration was provided by Jocelyn Wyatt of IDEO.org, who shared her experiences in rapidly validating–or disproving in several cases–some key assumptions that her team made in approaching the challenge of improving sanitation in West Africa. They ultimately arrived at solution that married a disposal service with a home toilet, turning it into a portable septic tank that is emptied three times a week.

Disrupted Industries

Industries that are being disrupted where the established incumbents need to incorporate new business models and new technologies into what are proven but obsolete offerings. Some examples are:

  • Media
  • Product development / Outsourcing
  • Health care
  • Education
  • Government

Because these industries are undergoing restructuring, companies and organizations can no longer execute business plans developed and refined years ago. They must in fact go back to the customer development, running short term experiments and testing the impact. They need take a more exploratory or discovery-driven approach to planning their operating environment makes long term forecast problematic. They also need to take a wider view of potential competition: they are as likely to be challenged by competitors from adjacent markets or even some armed with technologies initially developed for entirely different industries.

Mark Graban‘s talk outlined a very interesting approach to patient centric hospital design, arguing that some hospitals were designed to impress visitors with a large atrium that does not contribute to care, or  in a parallelogram shaped buildings that is architecturally striking but creates triangular internal rooms that have very poor utility. By analyzing traffic patterns of doctors and nurses in existing hospitals and rapidly prototyping individual treatment rooms, new hospitals and care facilities can be built more rapidly, on a smaller footprint at lower cost and yet enable a better quality of care. In addition, a continuous improvement approach to refining treatment practices once the facility is finished allows the quality of care to continue to get better. He cited a hospital in Indiana that was able to effect more than 4,000 small improvements that in the aggregate eliminated millions of dollars in cost, cut treatment delays, and improved patient outcomes.

Boosting the Innovation Curve

A third category is companies that are not actively facing disruption but realize that they have fallen behind the innovation curve and want to improve before competitors or new entrants mount a successful assault. This normally involves the need to make a series of small improvements that can catalyze further change: a “small wins” approach

One example of a company embracing their need for game changing approaches was Intuit.  There was an extended conversation among senior managers and change agents that explored how they were moving from decisions based on politics and PowerPoint to decisions based on data and customer validation.

Kuty Shalev related how the Port Authority incorporated new technologies into track management without losing any of the affordances of current solutions. Many aspects of the day-to-day operation of the trains were already computerized, but they were relying on a whiteboard to help manage context and maintenance (a whiteboard that was erased every day so history and trends were lost) and cell phones to help facilitate troubleshooting. By adding tablets that could also take pictures and allow them to be marked up they preserved the critical strengths of the current system: wireless, beeperless, and functional even if Internet connectivity was lost. His firm assisted in the transformation by focusing on small changes quickly: making initial improvements visible within a week and deploying a new system in 90 days. By focusing on small wins and meeting in a small conference room he forced trade-offs to be made by only the most interested.

Lean Startup methods recognize that new markets in particular require a scientific approach of thoughtful experimentation and iteration–-also known as “trial and error”-–to determine what will work and what won’t. It takes an engineering approach to defining the “known unknowns” about your customer, your product, and your business model but still respects the value of entrepreneurial vision and insight in crafting new hypotheses. Lean Startup principles are especially applicable to emerging markets, industries that are being disrupted and companies that have fallen behind the innovation curve.

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Comments (4)

  • Johan Glimming

    |

    We are a high-tech startup Functor AB here in Sweden. We are working with a fusion reactor (largest one in the world, JET outside Oxford) as reference customer and with some very substantial new research and IP behind us.

    For us, lean and agile help us to in the business development processes as we grow to being a market leader, as we should based on the disruptive products we have and the vast change they offer to a an area that has not changed much for over forty years, in at least one two possible target subsegments. Indeed, merely saying that we have two target subsegments suggests that lean and customer-development approaches are crucial for our research spinoff. I think in fact that for research spinoffs this kind of thinking is especially important since the technology (methodology, processes, innovations) coming from research can sometimes be disruptive and maybe are the prototypical (but absolutely not the only!) example? (IKEA, also Swedish, is based on innovations in terms of business models, which where truly disruptive, this seems undeniable – distribution chains and much more, also behind e.g. Apple I believe, are also innovations but of a different kind to research, and can be disruptive according to the literature I have digested on the topic to this date at least.)

    So, put shortly, we must adapt to the customer needs quickly and the reasoning presented above seems very suitable to being applied to us. Thanks for this blog entry, in other words!

    Btw, we are looking for investors right now to really take off. We have 25+ people working although not all actively. We have over eight developers some working well over full time. And we have two products, one with six years of academic development and design behind it before we productified it. (This is the Scalor™ product from us at Functor AB, Kista Sweden.)

    Please get in touch if you wish to discuss with me about how to apply the notes on disruptive technologies and emerging and new markets. I would be glad to discuss this topic at a very concrete level with others with same interests to take this into a more detailed level which is not suitable here. I am glimming on Skype and my username on Google Chat/Voice and MSN at j@functor.se (infrastructure being deployed for the latter to work).

    By the way I take this opportunity to invite discussion partners via this LinkedIn profile link and even investors here. As an entrepreneur I am not shy to combine more than one thing in one big step. ;-) Else we can communicate with twitter DM’s etc >@glimming or even @functors possibly. Look forward to a fruitful interchange and suggest that we then consider a LinkedIn group to follow thiis up – dedicated to Lean Disruptive Business Development (an open moderated group perhaps?) We always look for partners in general, too. Let me know. If you got here, we might possibly have some common ground or even a shared network actually.

    Best R.
    Johan Glimming, PhD
    CEO at Functor AB

    Reply

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