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CHAPTER 1
Lean thinking in manufacturing and tech startups
I was introduced to lean business theories while attending MIT. One of my supply chain management instructors, Charles Fine, mentioned Lean Manufacturing (also known as Lean Production) in a discussion of different approaches to producing textiles, electronics, and other factory-made goods.
Lean Manufacturing is an established concept in heavy industry, emerging from the study of successful Japanese companies in the 1970s and 1980s. At the time, there was widespread angst in North America and Europe over unexpected gains by Japanese auto and electronics manufacturers. Business leaders in the West wanted to understand why Japanese industry was doing so well.
It turned out the Japanese companies' success wasn't only because of superior product quality, the cozy relationships among Japanese industrial conglomerates, or favorable exchange rates for Japanese exports. At certain Japanese companies, there was a mindset that emphasized eliminating waste on the factory floor, in corporate offices, and even at suppliers' facilities.
Eliminating waste is the core concept behind Lean Manufacturing. It had arisen in Japan owing to a corporate culture that prized harmony and consensus over wasteful internal conflict and rivalry as well as the country's limited access to natural resources. Imagine working for a Japanese car manufacturer in the 1960s, and having to deal with impediments like this:
• No oil or natural gas meant high prices for electricity and imported fuel.
• Most metals, minerals, and other raw materials had to be imported.
• Wealthy Western countries placed high tariffs on certain classes of imported goods to protect their own domestic industries.
Lean Manufacturing did not address these specific issues. However, it did help some Japanese companies become more efficient, competitive, and innovative. This, in turn, helped them compete in global markets.
The poster child for Lean Manufacturing is the Toyota Production System. The auto manufacturer's website gives the following definition:
A production system which is steeped in the philosophy of "the complete elimination of all waste" imbuing all aspects of production in pursuit of the most efficient methods.
The Toyota Production System extends the idea of eliminating waste into key principles that guide operations. There is jidoka ("automation with a human touch") and genchi genbutsu, a method of identifying and overcoming obstacles that requires observing problems first-hand, whether on the factory floor or on the road. Toyota also pioneered just-in-time manufacturing (JIT), which emphasizes making only what is needed in the amount required. Toyota's kanban process serves as a production control system for managing JIT and making full use of its workforce. In sum, Lean Manufacturing allows Toyota, Nissan, Suzuki, and other producers to operate more efficiently by limiting inventory, increasing collaboration, streamlining assembly line operations, and reducing costs.
Standard criteria for success and failure in media
Lean Manufacturing is certainly interesting. However, while studying it, I did not immediately see how it could be applied to making media. With the possible exceptions of print publishers and DVD manufacturers, few media companies need to consider a supply-chain management framework from Japan. I considered a lesson from heavy industry to be about as relevant to my world as flying a rocket to the moon.
My attitude reflected a certain degree of arrogance and complacency. When it came to success or failure in the media industry, I thought I knew it all, thanks to decades of experience. Not only had I created media and launched new media ventures, but I had also witnessed first-hand the disruption wrought by a host of new technologies. As a battle-scarred veteran, I had seen success and failure up close, and understood how the system worked ... or so I thought.
For instance, if I had to evaluate the chances of a new album, a just-launched website, or a TV pilot succeeding, I took into account a standard list of factors that I had personally encountered or observed. In my mind, failure could almost always be attributed to:
• Botched execution
• Dysfunctional teams
• A lack of management buy-in
• Poor marketing
• Competitive factors
Conversely, successes usually resulted from having a strong creative team coupled with a solid vision, not to mention good timing. External forces such as new technologies, shifting audience preferences, and economic conditions could also play a role in making or breaking a new media project.
Consider Wired, a magazine founded in the mid-1990s. It not only had a strong editorial and design team, but the content also was guided by a fabulous vision to make a once geeky subject area (science and technology) sexy and cool. The articles and interviews were thought-provoking and well-written. The photographs, visualizations, and graphic design was gorgeous. Even the advertisements were eye-catching and different.
Wired launched at an ideal time — the World Wide Web, mobile phones, and powerful 3D games had recently exploded into the mainstream consciousness. Society was ready for a magazine like Wired. It quickly became a top-selling title.
The success of The Simpsons could also be viewed through the lens of team, vision, and timing. The show not only had a group of visionary creators, eccentric animators, and crack writers, but also entered a broadcasting landscape that had long ago relegated cartoons to a kid-dominated Saturday morning audience. In order to differentiate its programming in a field dominated by established broadcast networks, the newly launched Fox Broadcasting Company was willing to make some big bets on unconventional prime-time programming. Executives gave The Simpsons a chance. It became a breakout hit, not just among kids, but among adults, too.
When it came to small-scale projects I had worked on, the same factors applied. In the mid-2000s, I launched a special branded blog on Computerworld.com called IT Blogwatch. The vision: Create an entertaining daily summary of the best technology blog posts so readers would not have to hunt them down on their own. The creative team consisted of myself as editor and a witty British blogger named Richi Jennings who could prepare a new edition every morning before tech workers on the East Coast rolled out of bed. The timing was ideal. Blogs were just starting to take off. People realized the value of expert voices from across the Web opining on various technology topics. IT Blogwatch became the centerpiece of Computerworld blogs, and racked up more than 40 million page views in its first ten years. The site was an example of vision, team, audience dynamics, and timing coming together to make great media.
Eric Ries and the Lean Startup
I had assumed that "lean" in the business world boiled down to streamlining manufacturing operations. I was wrong. Not long after the supply chain management class ended, my view of lean concepts, not to mention my pre-existing evaluation criteria for media projects, was shaken up.
In the autumn, I saw a flyer on campus for a special lecture by Eric Ries, a young entrepreneur who wanted to talk about using lean methods for high-tech ventures. The lecture was sparsely attended, but was utterly fascinating. Ries, who later released a book titled The Lean Startup, had some powerful ideas about product development based on his experience as a software developer and entrepreneur.
In the mid-2000s, Ries cofounded a company called IMVU that intended to capitalize on the instant messaging craze and computer-generated worlds. As chief technical officer, Ries was responsible for overseeing development of a product that let people create three-dimensional characters ("avatars") who could hang out in a computer-generated environment. Critical to IMVU's strategy was building an add-on application that connected the virtual world to instant messaging applications such as AOL Instant Messenger and Yahoo Messenger. The idea was to let users invite their friends to join IMVU.
Ries and his partners perceived a market need, and they designed IMVU as a social platform for the gaming generation. They saw the IM add-on as a clever way to build viral growth. New users could easily invite dozens of friends from their buddy lists. It didn't matter if a user was on AOL or Yahoo Messenger — IMVU could work with them all. The team assumed users would love this feature.
The first version of IMVU ended up taking six months to develop. There were lots of features, from the IM add-on to customization tools for users' avatars. Yet when the product finally launched, it was an utter flop. Practically no one downloaded the software. Only after interviewing test users did the team grasp that most of their initial assumptions about IMVU's target audience were wrong. Testers liked the avatar concept, but they hated the IM connections. Users did not necessarily want to invite their friends — they wanted to use IMVU to make new friends!
Realizing they had misjudged the needs of their prospective customers, Ries and his team went back to the drawing board. Developers ended up throwing away thousands of lines of code to completely rework the product. IMVU eventually settled on a paid virtual world model without IM connections. Growth eventually kicked in, and the company was able to scale up to a real business with millions of dollars in monthly revenue.
Looking back at the experience, Ries acknowledged that IMVU's initial top-down product development process was deeply flawed. The team made a huge leap of faith about the market. They ended up wasting months creating a product that customers did not want. It was a huge mistake that almost killed the company.
IMVU was not alone. "Most of the software projects that are undertaken are never used by anyone," Ries said during his campus lecture. It wasn't just naive startup teams with little market experience wasting time making things that no one wanted. Big corporations made this type of mistake, too, he said.
Ries went on to describe how IMVU recovered after its initial failure. The company started to test its assumptions on a small group of prospective customers before engaging in a monumental development effort. Further, once they started building the software, they continued to test assumptions. This entailed creating hypotheses about the business, potential features, and other aspects of IMVU. They then tested their hypotheses, measured the results, and quickly incorporated changes based on what they learned. The cycle would begin anew with a new set of hypotheses, which would generate more insights that could be brought back to the next product iteration.
Ries called this approach validated learning, and urged everyone attending his talk to consider it and other aspects of his Lean Startup framework for our own startups. His 2011 book, The Lean Startup, articulates the framework in detail. It establishes a connection with some of the same Lean Manufacturing concepts that I had learned about in my supply chain management class, such as eliminating waste and focusing on speed.
While heavy industry and software development appear to have little in common, Ries believes some of the lean methods used by companies such as Toyota can be applied to technology startups. For instance, he values the focus on small batches and continuous improvement, as well as the internal feedback cycles used in the kanban production control system to regulate parts procurement and other production processes.
But Ries made one critical change: Whereas Lean Manufacturing feedback cycles are internal, Lean Startup brings the feedback cycle out to the marketplace. Ries insists that startups need to validate product hypotheses from the customers' points of view, not just from the people building the product.
Practically speaking, this means placing pre-release versions of the product — or representations of the product, such as a demonstration video — in front of test customers, and doing so in a way that allows the team to empirically measure the results. Insights gleaned from validated learning can then be brought to the next iteration. This build-measure-learn cycle is central to the Lean Startup framework.
What sorts of hypotheses might a startup test? They can involve grand assumptions about the marketplace ("people are interested in buying self-driving cars") or smaller hypotheses about features ("customers need a manual brake pedal to override the car's computer"), design ("customers in North America prefer blue cars"), or marketing ("customers are more likely to sign themselves up to the waiting list if a 2% rebate is offered.")
Let's say the team wants to test the rebate hypothesis. It can create two versions of a website landing page and show it to 200 prospective customers. Half of the customers can be shown the first version, which includes a button that says, "Join waiting list." The other half sees a second version, which features the same button, along with a sentence that promises a 2% rebate to anyone who puts themselves on the waiting list and ends up buying a vehicle.
By comparing the results from the A/B test, the team will better understand the appeal of the rebate. If the results are similar, there is no reason to continue the rebate as prospective customers will sign up at the same rate, regardless of the rebate. If, however, the rebate option has a signup rate that is three times greater, then the team has validated the hypothesis: It makes sense to incorporate the rebate offer into the marketing plan.
The MVP
A vital element of the Lean Startup framework is the minimum viable product (MVP). This is an early version of the product to show a small set of users. It is not necessary to have a perfect product, nor should the team show the MVP to mainstream customers. Rather, the idea is to quickly create a product that has basic functionality for early adopters to try out.
An early adopter is a special breed of startup customer. In The Lean Startup, Ries writes that early adopters love to see rough versions of a product because they need the product the most and get a thrill from being the first to try it out. They can live with a partial solution, and, according to Ries, will use their imaginations to fill in the rest. They may even be suspicious of the product if it is too polished.
The MVP is not a proof of concept or technical prototype. With an MVP, the team is not trying to determine whether the technology or design actually works. Rather, the MVP is a tool to validate assumptions about customers. Ries writes that an MVP is the fastest way to get a build-measure-learn cycle going. An example cited in The Lean Startup is Groupon, the popular "daily deals" website and app. The MVP consisted of a blog and simple PDF coupons. It wasn't much, but it was enough to validate demand for this type of service, which evolved into a digital coupon site.
If the assumptions cannot be validated, Ries says the idea itself may need to be modified, stripped down, or radically changed as part of a pivot. The pivot is celebrated in Silicon Valley, and is indeed the story of several successful products including Lyft (which started out as a Web-based carpool service for college students) and Android (which was originally pitched as an operating system for digital cameras).
Product/market fit vs. product/solution fit
Regardless of whether the team pivots or perseveres, the overriding goal is to achieve product/market fit. Marc Andreessen, a co-creator of the Netscape web browser and a well-known Silicon Valley investor, gives the following definition:
"Product/market fit means being in a good market with a product that can satisfy that market."
It sounds so basic. Make something that customers want. Yet countless technology companies — including Ries' company, IMVU — have made the fundamental mistake of building products that customers did not want. These companies may achieve product/solution fit, in which a team creates a great product that solves a problem — but it's not a problem that customers care about!
Taken to an extreme, a few companies will spend years trying to find customers for such products, but eventually will be forced to abandon the effort. Research conducted by CB Insights found that the number one reason startups fail is because there is no market need.
This issue has also tripped up large, established companies. In the early 2010s, high-definition 3D television sets were supposed to be the next big thing in consumer electronics. Asian manufacturers spent billions developing a technology that could display 3D programs in owners' living rooms. They assumed audiences wanted a more immersive television experience than two-dimensional HD sets could provide. Crucially, companies including Panasonic, Samsung, Sony, and Philips intended to sell 3D sets with higher profit margins, as the market for standard HD televisions was being flooded by low-end Chinese and Taiwanese competitors.
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Excerpted from "Lean Media"
by .
Copyright © 2017 Ian Lamont.
Excerpted by permission of i30 Media Corporation.
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