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The Third Key: Developing Multiple New Businesses

The Third Key: Developing Multiple New Businesses

I proposed that management innovation requires seven keys to unlock at the same time. I will now discuss the Third Key in some detail.

Lean startup methodology, proposed by Eric Ries and popularized by his book “The Lean Startup,” has been widely written and expanded to apply to any individual, team, or company looking to introduce new products or services into the market. I will focus on key points for applying lean startup ways in developing multiple new businesses as part of management innovation.

Lean Startup to Develop Multiple Businesses

Turnaround of existing businesses will just prolong their lives, but it will most likely not be the source of new growing revenue stream. It would not give employees bright hope for the company’s future. Hence, it is essential to develop new businesses for the new era.

However, the conventional ways to develop new businesses take too long and cost too much. This is why a new approach to develop multiple businesses by lean startup became necessary.

Proceed with two to four projects with the highest priority and urgency for the company in parallel. Then 6 months later, embark on next round of projects. Consider the basic cycle time to be 6 months. 6 months after starting the project, you will decide either to GO to full-scale implementation of the new business, or decide it is a NO GO and stop and dissolve the project.

There are two phases in the 6 months process to develop the new business launch proposal. First phase (1.5 to 2 months) consists of developing the value and growth proposition, and designing the MVP (minimum viable product). You need a business idea that meets very large customer need in a large expanding market with sustainable competitive advantage. In this phase, it should become fairly clear whether the idea holds water or not.

When the proposition and idea is ready, in the next phase (4 to 4.5 months), you will develop the MVP and test it out on your customers. If the results are not as you expected, immediately pivot and correct the MVP. Then try again with the customer. Repeat this several times in rapid succession to validate business viability using the MVP.

Through phase 2, the project teams consist of a leader and a few people, and when the business launch plan is approved, immediately step up investment of people and money to accelerate. Software, hardware, regardless of the product type, the key to this approach is figuring out how to quickly validate assumptions. Two to four projects move in parallel at very fast pace.

The Challenge and Tips to Build the Value Proposition

Important starting point for lean startup is building the value proposition. To emphasize the point, I talk about value proposition that would, “Make the customer cry in delight.” The customers do not need small improvements.

They are likely to have taken some actions and devised ways for known problems. Whether it’s B2C or B2B, unless your solution is so good that they can’t resist making the switch, no one will pay attention. Furthermore, such revelation may come several months to over a year from when you have invested time and money. This happens when planning and development people wrestle by themselves.

This problem is not exclusive to information technology. In all industries and markets, there are more companies, competition is more severe, and only truly great products and services are allowed to exist. The competitors are coming from around the world and further turning up the heat.

To develop the value proposition, one must thoroughly think through who is the customer, and what specific problems do you solve for which customer—from the customer’s perspective. This requires one to regularly keep their ears on the ground and be highly in tune with market dynamics. One must be intimately in touch with customers because logic and reason alone will mislead. The fervor for great new product or service idea combined with being distant from the customers is a dangerous combination.

The CEO must lead the all out drive to disseminate customer and market centric perspective and get away from technology or product centric perspective of the past.

The problem may be that the CEO is the worst enemy of customer and market centric perspective. Of course the CEO would not be able to fathom that is the case. It’s exactly why it is dangerous, and the subordinates would see right through it and lose faith. If the CEO believes to know the customers best from past successes, this is clearly bad news.

The business environments have changed significantly between now and when the CEO was on the ground in the front lines winning business, even if it’s a matter of few years. For some, it may have been a decade ago. It is necessary for CEOs to suspect that their sensitivity is out of alignment, nine times out of ten.

Embracing Minimum Viable Product

Next important point is to embrace the concept of Minimum Viable Product or MVP. Engineers tend to want to design more complete products. The products will most likely be overdesigned if you leave it to their discretion.

This is not because the engineers are stubborn or do not understand the intent. It is because of their values, principles, company’s habits and long time practices. The CEO must lead them to put all this aside, and adapt a much faster development process.

This may go against all common beliefs, so the message will not sink in unless the CEO repeatedly assures everyone, “It’s OK and exactly what we need. The old ways no longer does the job.” And, the goal setting, performance review, and corporate messaging must be changed to be exactly consistent with these words. All eyes of engineers and other employees are on the CEO to see if this is a temporary thing, just a good idea, or the CEO is really seriously committed to make the change.

CEOs’ who have delegated new business development to others require special care. In management innovation process, if the CEO simply reprimands, “Why aren’t we able to execute lean startup?” the CEO will not gain the faith of the subordinates, and new business development is unlikely to make much progress. Such CEOs are disqualified as a leader; they lack understanding of how difficult management innovation is, and his role to make it successful.

Development Using Fractions of Time and Cost

Lean startup methodology is applicable to new business development in all fields beyond information technology related products and services. It is a universal discipline to “Develop value proposition that makes the customer cry in delight,” then to demonstrate it through development of MVP and “cycle of building assumptions, validation, and adjustment—in rapid succession.”

It is fundamentally different from conventional product and technology oriented business development. No matter how great the development people think the product is, if it does not resonate with the customers, it is just a figment of imagination and a waste of time. The concept is simple and straightforward.

It does not mean doing things roughly and cutting corners at all. The development based on building assumptions, validation, and adjustment will accelerate when done properly. Because we are continuously validating the product with the customer from the get-go rather than waiting months or years, it can be done in fractions of time and cost of the legacy ways.

When small minority of charismatic CEOs proudly say, “I don’t listen to customers because they don’t really understand what they want,” don’t take their word at face value. They are successful because they have exceptional foresight and talent, and they make unhuman efforts. For most companies, this kind of approach simply leads to self-serving products.

Growth through Healthy Competition between Teams

Developing multiple new businesses increase the probability of success, and foster growth through healthy competition. If there is only one project, it inevitably becomes unhurried and slow-paced. When you bet the future of the company on one project, it creates an aura of privileged elite.

The competitive nature of developing multiple businesses in parallel destroys the chance for such hazards. Competition motivates project leaders and members to keep going all out.

Know how is accumulated at furious pace. The teams are all fired up and the ideas just keep on coming. They are working on different new businesses, but useful shared know-how accumulates, for example, conducting customer interviews, methods to build assumptions and develop the MVP, and team communication style.

To foster this type of competition and sharing know how, the new business development teams should be in the same building, same floor, in neighboring areas so that they are in full view of one another. It should be possible to bring them together like this for the 6 months process to develop the new business launch proposal. The cost to accommodate such an arrangement is very cheap compared to the productivity gains and increased probability of success.

Probabilistic Approach (Not Deterministic) to Develop New Business

By developing multiple new businesses using lean startup methodology, you can challenge areas with potential in parallel at the fraction of conventional development time and cost. There may be situations that require legacy deterministic approach to pour large resources to few projects with the objective to make it successful no matter what it takes, and how long it takes. The better approach is more probabilistic.

To put it plainly, make them run all out in parallel, and pour more resources to survivors with good aptitude to grow the new business. Serial deterministic approach takes way too long and cost too much. In this world that demands speed, go faster, cheaper, and in parallel; then grow the new business opportunities that emerge as the best of the best.

 
For any suggestions or questions, please feel free to send me a mail to info@b-t-partners.com. I will get back to you right away.
Linkedin: http://www.linkedin.com/in/yujiakaba

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▼ 7keys to accelerate Management Innovation
The Seven Keys to Accelerate Management Innovation
Need to Unlock Seven Keys to Start and Accelerate Management Innovation
The First Key:Change Vision and Strategy, and Let Everybody Know
The Second Key:Rapid Improvement of Existing Businesses
The Third Key:Developing Multiple New Businesses
The Fourth Key:Management Innovation Team
The Fifth Key:Human Resource Development Committee
The Sixth Key:Innovation in Boss-subordinate Relationship
The Seventh Key:Positive Feedback and Active Listening