Tag Archives: startup

Values and Metrics Drive Emergent Strategies

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This is part of my ongoing series on Lean Disruption. Where I write about combining Innovation, Lean, Lean Startup, Agile, and Lean product development methodologies.

Clay Christensen argues that there are two types of strategies corporate leaders engage with, deliberate and emergent. Porter’s 5 Forces analysis is an attempt to use tools to pull emergent strategies based on changing environmental landscape into the corporation’s deliberate strategy. A deliberate strategy is the strategy that leaders have vocalized and intentionally invested money and resources into. Emergent strategies on the other hand are strategies that develop through metrics and actual organizational behavior. While a leader may intentionally push resources one direction another metrics that has much more value to lower level managers may require those resources to be redeployed in another context. Resulting in a different strategy to develop than what executives had originally planned.

Hoshin Kanri (Policy Deployment) plays a similar role to the 5 Forces in the Toyota Production System where leaders start with their stated 3-5 year goals and turn those into annual goals, projects, and finally the metrics by which those projects will be measured. However, the process isn’t done after a single meeting, this policy is reviewed monthly and if conditions change enough can be completely reworked or modified based on what conditions are emerging. This is important because it can, in fact, feed changes the whole way back at the the 3-5 year goal levels where if serious issues are occurring in multiple projects associated with a goal, such as lack of resource commitment, that goal must be re-evaluated or there needs to be other changes to incentivize resource commitment to those projects.

The Lean Startup and Agile approaches are likely the most closely tied to emergent strategy development. The Lean Startup approach values experimentation and customer engagement above all else which can result in initially a great deal of change in project/corporate strategy. In the Running Lean the author uses the Lean Canvas as a tool to maximize the power of emergent strategy develop and smooth the transition from emergent to deliberate strategy development. In many cases that transition is relatively easy anyway, however it is possible to see that transition occur as a corporate leader iterates through versions of the Lean Canvas resulting in less and less changes to the Canvas.

Agile similarly promotes engagement with customers and using iteration to eliminate uncertainty. In this way Agile is closer to Lean Startup than traditional Project Management and leads to emergent based products. Where the customer need is truly met. Which, over time, results in a deliberate strategy to maximize the resulting product. This product is still, likely, within the initial deliberate strategy of the leaders of the company, but may be very different than what the leadership had initially wanted or planned. This is the best of both worlds as the leaders get a product that fits their strategy, but is more effective in serving market needs than what they ever could have planned.

The values and metrics the organization uses to manage the work that it does heavily influences the direction any project or product develops. The tighter the control over metrics with less flexibility for innovation leads to more tightly aligned products to deliberate strategies. However, this can come at a cost of less innovative ideas and poor-market fit. In the case where something might significantly change the direction of the company, for that product to survive it is best to move that into a skunkworks or protected space where funding is secure with appropriately aligned staffing levels. This will allow the metrics and values to coalesce around the product, the customer, and the market needs.

Lean canvas, Lean Development, the Theory of Disruption

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In yesterday’s article I talked about how you can use a product development approach called Set Based Concurrent Design (SBCD) to avoid some of the risks associated with developing a disruptive design regardless of how integrated or modular a given technology and its platforms are. Before that I had written about a concept called Lean Canvas to include questions associated with disruption to help push the initial design into a more disruptive place to maximize the likelihood of success.

In “Running Lean” the author, either knowingly or unknowingly emulated the benefits of SBCD whenever he fully described his approach for creating Lean Canvases. Ash Maurya recommended that for any given startup to initially start with multiple different views of the initial Lean Canvas which could represent different solutions, problems, customer sets, and metrics. Each one of these is to be discussed with potential customers in interviews.

However, once you understand your customer, you’ll need to begin developing your solution. In the case of a piece of software it may be easiest to simply caret multiple wireframe mock ups that emulate the SBCD. While with physical products, you’ll need to start with several mock ups and ideally multiple different specifications for components within the design. This is important as you may need to mix and match components of your physical design based on the niche customer set that you are targeting. The best result may end up forcing you to create a product that might be difficult to make if you don’t plan for the different specification interactions from the beginning.

While building your product as  you look at each different iteration it is important to continue asking if the actual solution continues to be disruptive or if it has slid into a less disruptive niche in the market. It is also vital that you still are aware if the interaction between the changes in your product and how it impacts your customers. If your potential customer decide that there are too many features you may have pushed yourself out of the initial niches  you were striving for. This will also mean you’re moving into a market space that will force you to compete head on with your competitors.

Using these three tools, questions for disruptions, lean canvas, and setbased concurrent design, will help speed the decision to continue pursuing a specific product, problem, and customer set. The point of this early process is to speed learning as quickly as possible and the B-M-L approach coupled with a set of Lean Cavnases and Products will help rapidly increase that knowledge set. Especially when using tools to help determine the trade-offs between your choices.

Finally, with continual engagement with your customers and products that are narrowing down towards a completed solution, you may find that your sets of products could become a family of products. This means that your learning may even be more valuable than before.

Innovation and Lean Product Development

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This is another portion of my on-going series for Innovation, Lean, Lean Startup, and Agile, see my last one here.

So far we’ve talked about how to combine some of the various theories together. For example looking how Lean and Agile work together or Lean startup and Lean work together. Similarly we looked briefly at how Lean Startup and Agile can be meshed, but haven’t discussed this much. Today we’re going to look at how the Lean Product Development methodology can be combined with the theories purported in the Theory of Disruption. I will look at how these can be combined with yesterdays article tomorrow.

Lean Product Development is a natural outgrowth of Lean manufacturing. It is how Toyota is able to continuously develop new products at a faster rate than their North American competitors. It is how Toyota is able to create new designs that are extremely high quality and disruptive to the market.

In the Innovator’s Solution, Christensen argues that integration and modularity are on a swinging pendulum where due to the constraints on the “not good enough” technology, that a more integrative approach is required because a fully modular design would reduce performance below thresholds that customers would be willing to pay for. Christensen argues that this would occur because relationships between firms dictate how new technologies can be developed. Whenever firms work jointly on a technology there must be agreements in terms how the components interconnect with each other. These underlying interfaces between technologies evolve much more slowly whenever there are multiple firms are working at the interface of these technologies.

Allen Ward writes about Toyota’s methodology for product development. He calls this approach Set Based Concurrent Design, where there are multiple different designs for a given new product from the start. For the case of the Prius, Toyota started the process with incredibly lofty goals and over 20 initial designs. These designs were kept loose initially, until they were reduced down to four that were selected to be turned into clay molds. During this time Toyota had been working closely with their suppliers, where they had no plans to insource more of their components than for a typical car. As it stands Toyota uses suppliers to provide roughly 75% of components to their cars, while focusing on the hardest components like the Engine and body. Similarly to a gas car, for the Prius Toyota elected to keep ownership of the drive train, and the hybrid engine systems. Otherwise everything else would be managed in a similar process as any other car.

To manage for the uncertainty of their four designs, they provided their suppliers with a range of requirements. Engineers at Toyota and their suppliers developed a range of “Trade-off” curves, which provide the ranges of trades-offs between different features and the limitations of those features. For example, engine vibration will have a trade-off with the tolerances of the Pistons. These trade-off curves increase the rate of learning for a given product and reduces the risk for a new product development.

This means with more information shared between companies there is less need for companies to oscillate between heavily integrated designs and modular designs. For an organization like Toyota the desire to share information and creating a formal process to enable disruptive innovation without owning the entire new product is a huge advantage for the organization. Toyota is actively investing in new capabilities and disrupting their competition.

This of course doesn’t disprove what Christensen is saying though. This approach has worked well for Toyota but has not been adopted by many other organizations. This is one of the problems that companies are having with disruptive technology. Furthermore, Toyota inherently turns new product development into a pseudo skunk works, which is what Christensen recommends for these ventures, by making their Chief Engineer a mini CEO for the product as well as dedicating, or as close as possible, engineering and manufacturing resources to the tasks. Finally, Toyota focuses on a few key elements that will be disruptive while reusing a great deal of older technologies maximizing technology reuse and learning from historic projects.

Businesses and Silver Bullets

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I’ve been teaching Lean Process Improvement or Six Sigma for about 6 years now. I’m getting into learning Agile in a pretty deep way through reading a ton of books, seeing it in action, and working with Agile teams. I’m currently learning Business Architecture/Enterprise Architecture as well. All of these methodologies are similar but different in some dramatic ways. Lean itself isn’t a project management solution, it has some features of it, but the goal is to take action put something in place and measure the results. Inherently, you’re supposed to be done as soon as possible. Six Sigma has some pretty strong Project management capabilities built into it, but it’s not to be used to install software or some other type of function, it’s design to solve a complex problem, prevent it from happening again and moving on. Agile is totally about managing projects while with as little overhead as possible, while maximizing visibility. This is done through frequent light weight touches and less frequent demos. Finally business architecture is about defining the structure of the business then identifying root causes. I’m the least impressed with Business Architecture at this point because it seems to have the objective of keeping the people at the top in charge while minimizing the amount of empowerment throughout the organization. That’s just my first brush with it though and I could be wrong. The other methodologies are all about empowering the team and the people doing the work so they can be as effective as possible. With Lean and Six Sigma the goal is to eliminate your own job if you’re an instructor or internal consultant, it doesn’t seem the be the case with Business Architecture.

Regardless, all of these methodologies indicate that our businesses are extremely sick. It’s becoming pretty clear to me that the vast majority of current state business practices are flawed and leading to under performing businesses. Lean Six Sigma, makes it clear that there are out dated and poor performing processes. Agile makes it clear that traditional software development doesn’t work and is much too expensive. Business Architecture indicates that no one knows what people are doing, why they are doing it, or where other parts of the organization are doing the same type of work.

In many cases some of the problems looking to be solved by Business Architecture are eliminated in a true Lean organization, but not always. I believe that is why Lean Startup methodology is becoming so popular in both new and old businesses. It’s a novel way to force change in an existing company, while in a Startup it helps keep the company healthy much longer. Furthermore, it forces the company to build effective organization structures early and continually test them.

With the majority of businesses being unhealthy due to out dated processes or aging systems, it’s no wonder why organizations are always looking for a silver bullet. They need a quick fix because nothing is working correctly. The goal to continually drive more and more profits prevents leaders from taking a hard look at what they are doing. Forcing investment in doing the right thing the first time or to do the right thing for the organization even if it takes more time and potentially money.

With my current process improvement classes and engagements I’m seeing a continually struggle between the way you should do Lean, focus on changing what you can, and the reality that most of the work is being done through systems. Even if I wanted to improve processes around the system there’s a limit to what I can do, because I cannot effect change on the underlying system. Changing those systems either IT or organizational can be impossible to do without a strong organizational will and clear strategy. Without either of those, any improvement or agile effort is doomed to fail.

Kickstarter, Oculus Rift, and internet rabble rousing

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The internet is mad that Facebook bought the VR company Oculus Rift. We shouldn’t be surprised that someone bought this company, it was going to have an IPO or be bought. There’s no doubt about that. The problem isn’t that it was bought, but the company that bought it.

Oculus Rift was a startup. Startups need money so they launched a Kickstarter Campaign and raised $2.4 million. Startup money typically comes from three groups of people in early stages (3Fs) – Family, Friends, and Fools. The Kickstarter campaign clearly is the fools. Not because they didn’t think the company would succeed, but that they thought they’d have a say in the end result. Kickstart has had other scams, such as the feminist blogger that was going to buy a bunch of games and show how awful they were (but didn’t). Kickstarter has always said that you are donating and has no control if you ever get anything out of it.

If a startup is successful with the money provided by the 3Fs (and this is a huge IF as this is typically called the Valley of Death in startup parlance), these companies try to get Venture Capital Funding. The VCs are the people that have a boatload of money and try to make even more by getting companies to “exit.” There are three options for “Exiting” a startup – IPO, Purchase by another company, or failure. VCs prefer your startup being purchased by another company – it has the least risk (you never can tell what your stock price will be – see Facebook’s IPO. To get this money you typically have to give up control of your company. This comes in two forms ownership and members on a board of directors. In some cases the VC will take less ownership for more members on the board. Apparently one of those people that owned a large portion of Oculus Rift was Mark Zuckerberg – he reportedly made $337 Million on the Facebook purchase of Oculus Rift. That means he owned roughly 1/6 or 16% of the company ($2 Billion sale and all). Supposedly 2 other VCs made roughly the same amount of money on the deal. Which means that the founder likely owned less than 50% of the company and could have been forced into the deal.

Effectively, the moment Mark Zuckerberg invested in Oculus Rift, the company was going to be sold to Facebook – as long as it was shown to be successful. What this means to me is that if you read or see Zuckerberg personally investing in something, expect Facebook to eventually buy it. Additionally, with Zuckerberg owning that large of a percentage of the company, there’s no way it could have been sold to any other company. It was IPO, Facebook, or bust.

With this broader context, I cannot be mad at either Luckey or the other leaders of Oculus Rift. They knew the game when they got into VC – even if you aren’t into making a lot of money when you start, your VC will push for a positive exit for themselves.

One of the angriest people about this whole thing was Notch, the Minecraft guy. He finds Facebook creepy and is upset that his $10,000 facilitated that sale. Even if he had gotten stock for his investment, he would have only had 0.42% ownership share over the company (assuming Luckey sold all his stocks through the Kickstarter which is unlikely). Unfortunately, it’s likely his stocks would have been diluted and the VCs would have controlled enough of the board and stock to force the sale to Facebook despite all the people that could have owned stock if the money had been raised through a Kickstarter alternative like Fundable.

When investing in a Kickstarter, you can’t get emotionally attached, you need to look at it as if you’re gambling. You might never get anything from it, but at least you helped someone else’s dream come a step closer to reality. I’m happy for the folks at Oculus Rift because they got lucky in a very unfair game. I don’t like Facebook either – but it was unlikely for any other outcome unfortunately.