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Lean Startups & Big Companies: Challenges and Recommendations

Posted on | February 9, 2012 | 7 Comments

How do “lean startup” techniques work in large companies?

Over the last year or so I’ve worked with a few large organizations to solve product strategy issues. Typically, the organization is working to introduce a new product line or concept to the market, and sometimes they have already entered the market but don’t have a clear understanding of what stands between the product and financial success. My observation is that large corporations have a capable process for bringing incremental products to market, but there are many issues when they try to enter a new market or create a disruptive new product for their current markets. Yet this kind of innovation is critical to the long term success of the organization.

 

This isn’t a new problem nor is it poorly studied: corporations have always struggled with disruptive innovation.

 

Challenges

There are a few recurring challenges unique to large corporations when it comes to adopting lean, iterative product development techniques:

  • Secrecy: Large corporations tend to keep projects under wraps until they are ready to launch. This makes “launch early, iterate often” tricky. It’s difficult to even create a landing page for the product that can be publicly tested, leading to a waterfall-style development style.
  • Brand risk: Large corporations are careful not to do attach their names to products that might cause a problem with their customers, markets, regulators, etc. They are risk adverse because there is a lot to lose. Startups have nothing to lose! Approval cycles, extensive legal requirements, and general risk aversion can make running a quick experiment hard.
  • Budgeting Process: The standard budgeting process at a large organization requires long term staffing and revenue projections, even for new products. There is a need to show how the product gets to high revenue fairly quickly in order to justify bothering with the product. This goes against the lean style of testing the concept out in a limited way. The project lead isn’t safe to say “We’re going to spend 500K testing this concept out to see if it resonates, but don’t expect revenue for 2+ years since this is a really new concept.” There is intense pressure to ask for more money than is needed, spend it so you don’t lose funding, and project huge earnings well before they are realistic. Uh oh!
  • Team: A tendency to hire employees who have very strong resumes from other large (non-lean) corporations, but who are not necessarily experienced with scrappy startup process. I’ve seen far too much money wasted when a team of highly compensated executives executes on a new product in a waterfall milestone-driven manner despite a mountain of data telling them to stop and change direction.
  • Need to move the needle of a huge org: There’s a ton of pressure to justify the value of a project by showing how it will generate huge revenue in year 2. If it’s a disruptive idea, it won’t! You will serve a tiny market of early adopter customers and it will take years for the wider market to adopt your disruptive innovation. The issue is that stating this in the budgeting process is likely to put the project on the chopping block pretty fast.
  • Politics: Disruptive products often attack the existing product lines or otherwise create political tension with other groups. Sometimes, there is an existing business unit that would have to compete with the new product directly. Sometimes, another department in the organization wants to own the market that is being targeted. And finally, on occasion efforts to reduce redundancies call into question supporting multiple solutions for the same problem.
  • Habit: There is benevolent pressure to adopt the existing process at the corporation, even where it does not make sense. For example, the marketing department might be planning on a huge product launch and PR campaign for V1.0. The sales department might allocate salespeople to the new product prior to launch. This can eat up needed funds and create unrealistic expectations, and reduce the ability to iterate on the product sufficiently before taking the step of ramping marketing and sales spend.
Solutions

Enough with the challenges! I do see some ways to minimize these issues and attain success in large organizations with disruptive products.

  • Get a senior sponsor: The project needs a senior sponsor who can create an environment that allows for rapid iteration and experimentation in the public eye and communicate with the other executives who determine what projects receive resources.
  • Educate: Get buy in on using an iterative approach from senior executives. Help them understand why a new approach can be more effective for disruptive innovation, and how important it is to support disruptive innovations. Communicating the stages of product development to the executive team so they can that the product team isn’t just mucking around can be a huge help to getting buy-in.
  • Assign ownership: Hire and empower a single product manager to run the project. The new project needs a sort of mini-CEO who can drive product development and who understands both the technology and business elements of the product. Otherwise, it’s likely that the default process for the organization will take over very quickly and the focus will switch from creating a successful product to simply executing on milestones blindly.
  • Stage the funding and expectations: Invest in disruptive projects like a startup investor: Invest a little capital to seed fund the concept and prove out the market need, then more and more as the risk is reduced for the new product. Align expectations with the stage of the product. For example, perhaps fund a small core team  of 2-4 with the goal of testing demand for the SaaS version of our enterprise software product with existing customers. Then invest more and more as the product is validated and the go to markt strategy better understood.
  • Be realistic: Give disruptive initiatives enough time to iterate and for the market to mature. It usually takes several years for disruptive products to be in demand by the mainstream market, and financial projections should account for this need for the market to develop. Additionally, expect that the concept will change between the inception phase and success. Leave time for iteration and experimentation.
  • Ask the sponsor to run defense for the team: Help the product team focus on the outside world, not internal politics or survival. Nothing slows progress like having to keep fending off internal attacks from other groups who see the project as competing with their unit.
  • Create a sandbox for experimentation: Can the product be rolled out under a separate brand or sub-brand to reduce the risk to the main corporate brand? This might enable the product team to take risks without engaging in extensive review and approval cycles.

 

Are “Lean” techniques valuable in large organizations?

Qualified yes! If the innovation is potentially disruptive to the market that the corporation serves, then lean techniques help the innovation create the right product more quickly. For incremental products, I’m not so sure that wholesale changes to the product management approach are justified by the increased risk of implementing the cultural and procedural change process.

 

A note about acquisitions

I suspect that many of the above issues and solutions also apply to mergers and acquisitions. This should not be a surprise, since many large corporations acquire innovative startups as a method of disruptive innovation. Perhaps some of the solution ideas above could help maximize the value of acquisitions for the acquirer?

 

Comments

7 Responses to “Lean Startups & Big Companies: Challenges and Recommendations”

  1. LeanStartupVancouver
    February 11th, 2012 @ 12:42 am

    Hi David, great post!

    Lean Startup Vancouver is hosting an event with a subject “Can We Be Lean In All Stages?” that might find some insight into this issue.  

    Hope that our conclusion is the qualified yes as well.

    link to the event: http://www.meetup.com/Lean-Startup-Vancouver/events/51905652/

  2. Alex Osterwalder
    February 24th, 2012 @ 10:53 am

    David, you nicely point out the challenges of large corporations when it comes to new products and business models.

    Regarding this topic, I usually recommend the following book as a reference: “The Other Side of Innovation” by Vijay Govindarajan and Chris Trimble. It perfectly complements my own book, Business Model Generation. 

  3. Dipak M. Patel
    February 24th, 2012 @ 9:45 pm

    Great points!

  4. Dipak M. Patel
    February 24th, 2012 @ 9:46 pm

    Great points David.  I’ve also been working with a large enterprise to “jump start” their software innovation capabilities.  All of the challenges you’ve identified are dead on.  One solution that you I’m working through is to (in true lean philosophy) tap out of trying to fit a square peg in a round hole.  Sometimes overcoming the challenges will cost more than to simply allow the “lean stuff” to occur outside of the big organization. Another benefit for the large company is to not have the existing culture that is driving current business infected by “cowboys”.  In fact, if you “spin out” or create external vehicles though investment, incubators, or accelerators, large enterprises may get the best of both worlds.

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