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How Growth Companies Can Stay ‘Lean’

September 5, 2011

The lean movement has caught fire with entrepreneurs, thanks to Eric Ries, Steve Blank, and Ash Maurya.  But how important are concepts such as minimum viable product, customer development and pivoting to larger growth companies?

Lean development means creating a successful offer before running out of resources — which is as important to growth companies as it is to startups.  As early stage companies mature, the process for creating new offers gets bogged down by internal processes:  market requirements documents (MRDs), product review committees, business plans and more.  Smart growth companies are using lean concepts to streamline their processes.

Being lean is not about being cheap – it’s about speed.  If an idea is going to fail it should ‘fail fast’, leaving the company with the market learning, time and resources to try a different approach.  The more at bats you can get with limited funding the greater the chance of getting a hit … even better, a home run! … before time runs out.

Growth companies can benefit from three important lean concepts:

  • Minimum Viable Product:  Get to market quickly with a basic offer
  • Customer Development:  Learn continuously from customer behavior
  • Pivot:  Change the offer quickly if something is not working

Minimum Viable Product

The traditional new product development process has many steps: conduct market research, create a market requirements document (MRD), design and develop an offer, test a beta version with early adopters, limit feature creep, release Rev 1.0, and hope for the best.   The time from project launch to real market feedback can be a year or longer.

The concept behind the minimum viable product (MVP) is to get into the market as quickly as possible with the most basic offer so that customers can drive decisions about features and business model.  How ‘basic’ can this offer be?  Dropbox proved that the minimum viable offer can be as basic as a web landing page with a description of a new offer to capture interest and prospect names.  Inc Magazine describes a similar MVP approach used by TPGTEX solutions.

Customer Development

In the new lexicon of lean, customer development should happen in parallel with product development.  That is, companies need to focus more on developing new customers — through trial and error with new offers.  Steve Blank describes the Four Steps to the Epiphany:

The key is to iterate on Steps 1 and 2 to validate the new offer before investing resources in scaling a new business.  This critical step is called the pivot.

Pivot

What happens when customer feedback on your MVP does not support the business model?  You pivot.  That is, you make one or more changes, grounded in customer learning, to find a better business model.  These changes might involve features, market segments, pricing, channel, or other business model elements. A sophisticated version of the pivoting process involves market experiments, or A/B testing.  Each experiment provides feedback on what to keep and what to get rid of as the company pivots its way to success.

Pivoting is not just for startups.  Larger growth companies can also avoid failure by pivoting in time:

  • The Nespresso coffer maker and its proprietary coffee capsules were too expensive for either offices or consumers; the business was nearly shutdown.  However, by targeting wealthy consumers with a personalized home delivery service (the Nespresso Club), Nespresso found a large growth market in a highly profitable segment.
  • Nearly bankrupt in 2001, Amazon recovered from an over-investment in its worldwide logistics platform by recruiting other retailers such as ToysRUs as customers.  Ten years later the company has pivoted its platform business for online retailers into the marketing leading cloud computing service: Amazon Web Services.

Action Items for Growth Companies

What steps can growth companies take to become more lean?

  1. Use customer feedback from Day 1 to design new offers.  Get members of the ‘new offer’ team out of the office and in front of customers.  In every new offer discussion ask, “What are customers telling us?”  (I continue to be amazed at the number of successful companies who don’t talk to their customers.)
  2. Shift from MRDs to MVPs.  Challenge the new offer team to get into the market much sooner with a very basic offer.
  3. Measure customer behavior versus expectations.  When it’s clear that the business model isn’t working, pivot while you have the time and resources.

Follow Dave on Twitter: @WDavidPower

4 Comments leave one →
  1. January 17, 2013 12:47 am

    I actually want to know precisely why you titled this article,
    “How Growth Companies Can Stay Lean | Barriers to Growth”.
    No matter what I actually appreciated the post!
    Many thanks-Tonya

  2. JMT permalink
    August 4, 2013 11:25 am

    Getting employees to recognize that a customer complaint is an opportunity to improve customer experience is the challenge

  3. March 13, 2014 7:26 am

    Hi wdpower,

    I must say that you share the great information and your this blog is look nice on my Ipad.

    By reading your this blog i actually know what is the reason of business development and i appreciate your work!!

    Great job!!

Trackbacks

  1. Growth Companies Can Benefit from the Concepts of the Lean Startup | Inside Startups.com

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