Principles of a lean startup – part8 Adapt and Innovate

The last two chapters – before we end tEric Ries - The Lean Startuphis session with the epilogue and a conclusion tomorrow – are Adapt and Innovate. Eric Ries discussed Innovate in great detail and talks also about the obstacles we can be confronted with in larger companies when we want to change existing structures. It´s pretty interesting as well but just too much for this article. So I´ve set a focus and give an overview about his chapter after talking about Adapt and building an adaptive organization.

Adapt

Building an adaptive organization.

Eric Ries strongly recommends to invest in a training program for new employees. He gives an example of his business IMVU, where they wound up building a training program that was so good, new hires were productive on their first day of employment. Within just a few weeks, those employees were contributing at a high level. It required a huge effort to standardize our work processes and prepare a curriculum of the concepts that new employees should learn. Every new engineer would be assigned a mentor. The performance of the mentor and mentee were linked, so the mentors took this education seriously.

What is interesting is that they never stopped work and decided that they needed to build a great training program. Instead, the training program evolved organically out of methodical approach to evolving their own process. This process of orientation was subject to constant experimentation and revision so that It grew more effective – and less burdensome – over time.

Eric Ries calls this building an adaptive organization, one that automatically adjusts its process and performance to current conditions.

The wisdom of the five WHYs

To accelerate, Lean Startups need a process that provides a natural feedback loop. When we are going too fast, we cause more problems. Adaptive processes force you to slow down and invest in preventing the kinds of problems that are currently wasting time. As those preventive efforts pay off, we naturally speed up again.

Let´s return to the training program for new employees. Without a program, new employees will make mistakes while in their learning curve that will require assistance and intervention from other team members, slowing everyone down. How do you decide if the investment in training is worth the benefit of speed due to reduced interruptions?  That´s a challenging question and until a company can justify the return on investment from building a full program, most companies generally do nothing.

The alternative is to use a system called the Five WHYs to make incremental investments and evolve a startup´s processes gradually. The core idea of the Five WHYs is to tie investments directly to the prevention of the most problematic symptoms.

When confronted with a problem, have you ever stopped and asked WHY five times? It is difficult to do even though it sounds easy. For example, suppose a machine stopped functioning:

  1. Why did the machine stop? (There was an overload and the fuse blew)
  2. Why was there an overload? (The bearing was not sufficiently lubricated)
  3. Why was it not lubricated sufficiently? (The lubrication pump was not pumping sufficiently)
  4. Why was it not pumping sufficiently? (The shaft of the pump was worn and rattling)
  5. Why was the shaft worn out? (There was no strainer attached and metal scrap got it)

Repeating WHY five times, like this, can help uncover the root problem and correct it. If this procedure were not carried through, one might simply replace the fuse or the pump shaft. In that case, the problem would recur within a few months.

Make a proportional investment

Here is how to use Five WHYs analysis to build an adaptive organization: consistently make a proportional investment at each of the five levels of the hierarchy. In other words, the investment should be smaller when the symptom is minor and larger when the symptom is more painful. We don´t make large investments in prevention unless we are coping with large problems.

The curse of the five blames

Instead of using the Five WHYs to find and fix problems, managers and employees can fall into the trap of using the Five Blames as a means for venting their frustrations and calling out colleagues for systematic failures. Eric Ries recommends several tactics for escaping the Five Blames.

The first is to make sure that everyone affected by the problem is in the room during the analysis of the root cause. The meeting should include anyone who discovered or diagnosed the problem, including customer service representatives who fielded the calls, if possible. Included should be anyone else who tried to fix the symptom or is involved anyhow. This may make for a crowded room, but it is essential.

When blame inevitably arises, the most senior people in the room should repeat this mantra: if a mistake happens, shame on us for making it so easy to make that mistake. (That one is great regarding to Derek Sivers article “It´s my fault” I wrote about in December 2012!)

Getting started!

Here are a few tips on how to get started with the Five WHYs that are based on Eric Ries´ experience introducing this technique at many companies.

He asks teams to adopt these simple rules:

  1. Be tolerant of all mistakes the first time.
  2. Never allow the same mistake to be made twice.

The first rule encourages people to get used to being compassionate about mistakes, especially the mistakes of others. Remember, most mistakes are caused by flawed systems, not bad people. The second rule gets the team started making proportional investments in prevention. This simplified system works well but such a simplified system does not work effectively over the long term, as he found out firsthand.

The strength and weakness of the simplified system is that it invites questions such as “what counts as the same problem? What kinds of mistakes should we focus on? …” For a team that is just getting started, these questions are thought-provoking and can lay the groundwork for more elaborate methods to come. Ultimately, though, they do need answering. They need a complete adaptive process such as the Five WHYs.

Facing unpleasant truths

You will need to be prepared for the fact that Five WHYs is going to turn up unpleasant facts about your organization, especially at the beginning.

Start small, be specific

Once you are ready to begin, Eric Ries recommends starting with a narrowly targeted class of symptoms. For example, the first time he used the Five WHYs successfully, he used it to diagnose problems with one of their internal testing tools that did not affect customers directly. It may be tempting to start with something large and important because that is where most of the time is being wasted but it is also where the pressure will be greatest. When the stakes are high, the Five WHYs can devolve into the Five Blames quickly. It is better to give the team a chance to learn how to do the process first and then expand into higher-stakes areas later.

Conclusion

A startup has to use lean techniques such as the Five WHYs and small batches. And – successfully growing into an established company is not the end of the story. Even established companies must struggle to find new sources of growth through disruptive innovation. As a result, it no longer makes sense to think of startups as going through discrete phases like the proverbial metamorphosis of a caterpillar to a butterfly.

 

Innovate

Successful innovation teams must be structured correctly in order to succeed. Internal or external, in Eric Ries´ experience startup teams require three structural attributes:

1. Scarce but secure resources

Startups are different to large companies and their divisions leader fighting for their budgets. Too much budget is as harmful as too little – as countless dot.com failures can attest – and startups are extremely sensitive to midcourse budgetary changes. It is extremely rare for a stand-alone startup company to lose for example 10 % of its cash on hand suddenly. In a large number of cases, this would be a fatal blow, as independent startups are run with little margin for error. Thus, startups are both easier and more demanding to run than traditional divisions: they require much less capital overall, but that capital must be absolutely secure from tampering

2. Independent authority to develop their business

Startup teams need complete autonomy on develop and market new products within their limited mandate. They have to be able to conceive and execute experiments without having to gain an excessive number of approvals. Ries´ recommendation is that startup teams should be completely cross-functional.

3. A personal stake in the outcome

In stand-alone new ventures, this usually is achieved through stock options or other forms of equity ownership. Where a bonus system must be used instead, the best incentives are tied to the long-term performance of the new innovation.

A personal stake has not to be financial. You have to make it clear who the innovator is and make sure the innovator receives credit for having brought the new product to life – if it is successful. As one entrepreneur who ran her own division told Ries, “Financial incentives aside, I always felt that because my name was on the door, I had more to lose and more to prove than someone else. That sense of ownership is not insignificant”.

Tomorrow I´ll end the chapter Innovate with “Cultivating the management portfolio in an established company” and “Entrepreneur is a job title”

——–

Principles of a lean startup:
Part1: Principles

Part2: Learn and Experiment

Part3: Steer and Lead

Part4: Minimum viable product (MVP)

Part5: Measure

Part6: Pivot or Persevere

Part7: Batch and Grow

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