Jonas Forslund is portfolio manager at Evli
It’s getting close to that time of year again. Snow is falling, days are getting shorter, Christmas lights are being hung up and there’s a special feeling of anticipation in the air. I’m talking of course about Slush, the world-renowned event that has become synonymous with startups and entrepreneurship.
Evli has been an official sponsor of Slush since 2012. We are glad to support the global startup movement and just as in the previous years, the winner of the Slush 100 competition will receive a significant equity investment by Evli Bank and FiBAN (Finnish Business Angel Network).
Startups, whether small or billion dollar companies have become world famous for bold moves, change and innovation. What can more traditional companies learn from them?
Eric Ries’s New York Times bestseller book “The Lean Startup” (2011) offers some advice. “The Lean Startup” has become a modern day classic among business books and created a whole movement around the Lean Startup methodology. The lean startup approach has similarities with lean manufacturing, a systematic method of eliminating excess resources within a manufacturing system, which was first associated with Toyota in the 1990s.
Based on Ries’ personal experiences as a startup entrepreneur, Lean Startup offers a method for teams or companies to effectively introduce new products or services to the market. By systematically testing products or services that are in a developmental phase with actual users or customers, the startup can effectively shorten its development cycles, take less risk, spend less money, and most importantly receive what Ries calls validated learning. The methodology favours experimentation over elaborate planning, user/client feedback over intuition and iterative design over building complete products up front.
Fail fast and keep going
Not surprisingly, many ventures or projects fail. Typically, first you write a business plan, get approval and start working on your idea. After spending time, money and resources building the product, mostly in isolation, the product is given to the sales force. In many cases, this is the first time the product receives real feedback from the customers or users. At this point, if the product is not a success, a lot of time and resources have been squandered.
According to Lean Startup the development process is not linear. Instead, the process should be viewed as a loop and the failing should be done fast. In the lean startup approach, you take your idea and build what Ries calls a minimum viable product (MVP), you measure the response of the MVP from actual users or customers, you learn from the results and based on what you’ve learned; you either make smaller adjustments or more substantial ones. After making the adjustments, you repeat the loop again by eliciting feedback and repeating the iteration process. This measurement and learning loop can be repeated as many times as necessary.
Pivot or persevere
Making a substantial change in your course is called a pivot. Pivot is a buzzword in the tech community and is frequently used among startups and VC’s. According to Wikipedia a pivot is a structured course correction designed to test a new fundamental hypothesis about the product, strategy, and engine of growth.
Without the measurement and learning loop, it’s difficult to know when to pivot or stay on course. If the results from the measurement and learning process are not moving the business drivers in the right direction, you’ll know it’s time to make a pivot.
Elephants can dance
The lean startup method was initially something for risky tech ventures, but large corporations are also embracing it. A good example is General Electric, a 138 years old mammoth company. GE’s Appliances division has adopted a lean startup approach in order to innovate and produce faster, and the results have been remarkable. Thanks to the program, GE Appliances is launching new products every year instead of every five years. Here’s an article from Harvard Business Review about GE’s endeavour.
Is the lean startup approach just consultancy talk? It all sounds very simple and straightforward, but as always, it all boils down to execution. Reading a book is easy; changing ways of doing things in organizations is difficult. The lean startup can face a range of obstacles from corporate culture, processes, hierarchy, branding issues, legal issues to management resistance.
Looking at some of the most valuable startups in the world, like Facebook, Google or Amazon, the lean startup approach seems to be working great. For these companies testing their hypothesis, eliciting user feedback, knowing when to pivot or persevere is inherent to how they operate.
With these thoughts in mind, I hope to see you at Slush this week.