Many entrepreneurs come up with great ideas. They decide to sell these new products and services into a market yet are often disappointed at the customers’ responses. Sales revenues do not generate adequate income to cover costs and so, the business shuts down.
Corporations, likewise, struggle with innovation. A grand technical breakthrough is converted to a commercial product. But, existing customers don’t really seem all that interested in the new features and few new customers are drawn to the brand through the new offering. The product may linger in inventory for months or years while R&D moves on to the next cool technical invention.
Study after study shows that new products fail to achieve sales targets or meet customer satisfaction goals. This is not an issue with strategic objectives but rather a matter of implementation. New product development (NPD) is not simply a matter of great ideas. New product success is a matter of meeting customer needs.
The Lean Startup Method
The Lean Startup has its roots in the lean manufacturing movement, pioneered by Toyota. In lean manufacturing, quality is baked into the product by operating with small batch sizes. If a quality issue arises, fewer products are wasted to scrap or rework. Changes can be implemented quickly to improve the products as a quality issue is resolved. In essence, learning and continuous improvement are the real products of lean manufacturing.
Similarly, learning and continuous improvement are the core concepts of the lean startup method of innovation. “The goal of a startup is to figure out the right thing to build” (pg. 20). Entrepreneurs have the initiating idea, but ideas are not perfect at birth. They need to be nurtured and groomed to grow into marketable products.
However, just as every parent claims their baby is the most beautiful and most intelligent of all children ever, entrepreneurs and new product development practitioners have blinders when first testing their new products. We tend to dismiss negative feedback by saying that those weren’t really our target customers (Chapter 3 of The Lean Startup). And we sue our optimism bias to continue to build the feature we like when potential customers give any sign of neutral or positive feedback on the feature selections.
Therefore, it is imperative that entrepreneurs and NPD teams capture and assess all potential and existing customer feedback. Consider if an automobile manufacturer knows that there is a quality defect on the assembly line. Will it cost them more or less to allow the defect to continue? Likewise, will it cost the entrepreneur more or less to continue to design and build a product that is ‘defective” (not meeting a customer’s needs)?
At the heart of the lean startup method is the “Build-Measure-Learn” feedback loop. Early, frequent, and small product concept and feature tests validate the vision for the new product. But, to grow a business, entrepreneurs must test a bevy of assumptions. These assumptions cover how we perceive customers will access and purchase the product, how they will use the product, and how they expect next generation products to be designed and integrated into their ecosystem.
In The Lean Startup, Ries gives a running example of his company IMVU, founded for the purpose of computer user to create movable avatars. The entrepreneurs assumed users would bring along their friends and by increasing the number of users, increase revenue. When they honestly assessed how people were using their product, the discovered that people really wanted to connect and make new friends.
These enlightening moments allow for a company to “pivot”. A pivot is a change in the strategic direction for a new product that is linked to the existing offering. Consider a pivot in basketball – the player can turn and change direction, as long as he keeps one foot stationary.
Product pivots should not be wholesale remodels and reinventions. The NPD team, at this point, has learned what works and what features customers value. A pivot is designed to capture new value based on what customers need for continuous improvement. And the pivot is supported by lean thinking as features that are not meeting customer needs are discarded, thus reducing waste.
Business growth is imperative whether you are a startup, entrepreneur, or an established firm. Clayton Christensen’s seminal book on disruptive innovation, The Innovator’s Dilemma, demonstrates that incremental (or sustaining) innovations provide profit for a limited time period. New technologies, new markets, and new business models are constantly being created that will disrupt existing markets. Lean thinking demands that growth actions do not stall with sustaining innovations.
In Chapter 9 of The Lean Startup, Ries tells a story of stuffing and addressing envelopes. It is counterintuitive to learn that doing the task one-at-a-time is more productive than filling all the envelopes in one step, addressing them in the next step, and sealing and stamping in a final step. When we consider any probability of errors, mistakes, or defects, the small batch (one-at-a-time) operation is best to reduce waste. Companies can use small batches to ensure that new products are meeting customer demands; and if not, they are in a situation to make rapid changes.
When – and not if – growth begins to stall, entrepreneurs and NPD practitioners can borrow another quality tool: the 5 Whys. Drilling down to the root cause of a problem reduces the risk of repeated errors and can eliminate waste. The 5 Whys can also be used as a brainstorming tool to create ideas for next generation product categories when coupled with customer insights.
Lessons from Lean Startup
By definition, innovators must be flexible and adaptive to new information and new situations. Too often entrepreneurs and new product development practitioners are blinded by their faith and optimism in an idea. They create a marketing and production plan but are disappointed (emotionally and financially) when things don’t work out how they had hoped.
The lean startup methodology championed by Eric Ries focuses on an agile approach to new product development using a continuous feedback loop: build-measure-learn. This framework supports innovation best practices with frequent and deep customer interactions, eliminating “waste” or features that don’t add value, and continuous improvement. Innovation is most successful when we test our assumptions and make honest, data-driven assessments. The results of each experiment inform us and lead us to the next product design which we will proactively test with existing and potential customers.
To learn more about innovation processes, please check out our self-study and other NPDP Workshops. In particular, the Agile NPD course builds on the lean startup method and reducing waste in development. Feel free to contact me at email@example.com or 281-280-8717. At Simple-PDH.com where we want to help you gain and maintain your professional certifications. You can study, learn, and earn – it’s simple!
Some important references for lean innovation include two books by Eric Ries: The Lean Startup and The Startup Way. Also, every innovator, entrepreneur, and new product developer should own and read a copy of Clayton Christensen’s The Innovator’s Dilemma and the follow-up text, The Innovator’s Solution. I also like Being Agile by Ekas and Will, a book that gives tips to truly move from waterfall to agile methodologies in product development.
We also discuss different NPD methods in NPDP Certification Prep: A 24-Hour Study Guide, and you can find additional references at https://globalnpsolutions.com/services/npd-resources/.
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