373: Using Lean Startup in large organizations – with Jim Euchner

Using an Innovation Stage-Gate – for product managers

Today we are talking about how Lean Startup can be used at large organizations. To tackle this topic, Jim Euchner is joining us. He has helped many large companies implement innovation practices including Lean Startup and has written the book on the topic, titled Lean Startup in Large Organizations. He has served in executive positions, responsible for innovation, at several large organizations and is the co-founder of the MIT Innovation Laboratory. 

Summary of some concepts discussed for product managers

[1:13] What are the key principles of Lean Startup?

Principles related to how you innovate:

* Lean Learning Loop—a business experiment to test a hypothesis

* Pivot or Persist Decision—using the experiment to validate or invalidate a hypothesis

* Minimum Viable Product—minimum prototype used in the experiment or as an early product

Principles related to what you’re trying to learn:

* Innovation Accounting—keeping track of your learning agenda

* Value Hypothesis—how you create value for customers

* Business Model Hypothesis—how you capture value for yourself

* Growth Hypothesis—how you scale

[8:22] Why do large organizations struggle with adopting Lean Startup?

It’s hard because large organizations are innovating inside a context. There’s an impedance mismatch between the startup principles and what needs to happen in the core business. I use the phrase “Yes, and…” Yes, you need to use Lean Startup principles and do things to make them work in the corporate environment. For example, the lean learning loop, business experiment, and pivot decision can seem very chaotic for an organization that’s used to a traditional stage-gate process. They’re not used to going wherever the customer tells them to go. To contain the chaos, use an innovation stage-gate. Use Lean Startup practices and be as Agile as you need to be in each learning phase—the customer value preposition, the business model, and the model to scale. At the end of each stage, have a deliverable that’s reviewable so people can decide to proceed or not. While a traditional stage-gate is successive refinement, an innovation stage-gate is successive elaboration.

Similarly, a minimum viable product gets a negative reaction in IT and engineering departments, because they’re afraid you’re going to take a product to market that’s not sustainable. In this case, use graduated engagement. You have free rein to build prototypes until you get to incubation, but during incubation you’ll take care of all the issues engineering raised.

Practices like these make existing functions work constructively with the innovation team. Some large companies have a separate innovation lab, but the challenge with separating innovation is you’re throwing away your advantage of being a big company.

[13:08] What other antibodies against innovation have you seen in large organizations, and how can we deal with them?

Other hypotheses core to Lean Startup like the value hypothesis, the business hypothesis, and the growth hypothesis trigger reactions at an even deeper level. Following the customer can take you places the company is not sure it wants to go. Be very clear about the opportunity space you want to operate in and the assets you want to leverage. People may worry you’ll cannibalize the core business. Develop a business model with a keen awareness of measuring its impact on the core business. Often, this will help both your new business and your core business. When your new business is growing, separate incubation from the core business and explicitly negotiate arrangements with the core business, so you’re both independent and connected.

When you’re making decisions,