Over the past several decades, lean management techniques such as value stream mapping and root cause analysis have yielded untold billions of dollars of savings, helping businesses run more smoothly and efficiently. Still, these approaches center mainly on optimizing existing operations and provide little guidance for those who wish to introduce radical innovation in their organizations, like introducing a new product line or entering a new market.
Fortunately, a new set of tools—inspired by lean principles—are emerging to help organizations grapple with this messy and unpredictable world. This new approach, called Lean Startup (or Lean LaunchPad), emanated as a tool to help budding entrepreneurs, but is increasingly being tapped by forward-thinking organizations who aspire to increase revenue and profit through breakthrough innovation.
At the core of Lean Startup is the recognition that uncertainty and unpredictability are inherent in the process of discovery and invention. Thus, organizations who seek to improve their innovation capabilities need to become experts in navigating the inevitable risks that stem from the unknown.
Lean principles focus on eliminating waste. With innovation projects, waste comes from continuing to invest time and resources on a strategy that ultimately turns out to be wrong or suboptimal. The earlier you can detect these mistakes, the earlier you can pivot to pursue a more appropriate course of action.
How does Lean Startup help you detect and correct mistakes early in your innovation journey?
With Lean Startup, you first explicitly identify all the assumptions inherent in your new business venture, specifying them in the form of testable hypotheses. Then, you systematically test the most crucial assumptions through carefully constructed experiments designed to confirm or refute your hypotheses. The more quickly you gather data on your most critical assumptions, the more likely you are to discover errors early, and not waste valuable resources on dead ends.
To help you organize your hypotheses, Lean Startup comes with a new vocabulary, the Business Model Canvas, consisting of the nine crucial elements that often distinguish between success and failure. Through the Business Model Canvas, you delve into questions such as: Which customer segments are you targeting? What is the value proposition you are offering each customer segment? What revenues do you expect to derive from each segment?
Recently, the Mayo Clinic ran six teams, each with a new business idea, through a Lean Startup bootcamp. One of the teams was piloting a radical new invention for healing wounds. Before starting Lean Startup they were quite sure that they clearly understood the market opportunity. To their surprise, when they began to interview doctors, they found that the market segment they thought would be most receptive to this new technique actually showed little interest. But, when they began to explore a different type of wound, doctors responded much more enthusiastically. In fact, their interviews revealed that the economic value of their procedure in this new market was ten times more than they previously imagined. The team pivoted, and is now refocused on this newly discovered, more profitable, target market.
Lean Startup brings clarity, precision and focus to a world historically inhabited by wild guesses and miscalculation. Both the National Science Foundation and the National Institutes of Health have endorsed Lean Startup/Lean LaunchPad as the preferred method for invention commercialization. Over 5,000 teams have benefited from this approach, testing over 100,000 hypotheses, resulting in over 20,000 pivots.
It is well known that human beings tend to be overconfident that their beliefs are correct. The power of Lean Startup is to force you to go out and test the implicit assumptions you might otherwise take for granted. You will probably be surprised by what you find.