How Established Companies Use Lean/Agile Start-Up Tactics to Succeed
By: John A. Leonard
Many established companies are forming “corporate innovation groups” and turning to start up companies, consultants and accelerators for innovation. Established companies can work together – but should consider options prior to entering into relationships.
1. What new business methods are startup companies using to drive innovation?
a. The Lean Startup. This is a combination of using the scientific method to validate a business model and agile development. See Eric Reis, The Lean Startup here: http://theleanstartup.com.
b. Business Model Generation. A process to rapidly invent new repeatable and scalable business models. Business models are used in lieu of business plans. The process involves testing of hypotheses in 9 critical areas for validation prior to scaling a business model. Most successful start up companies have adopted the Business Model Canvas to generate new business models and generally follow Customer Discovery processes described by Alexander Osterwalder and Steve Blank, respectively. See here: http://alexosterwalder.com/ and here http://steveblank.com/.
c. Agile Development. Businesses initially create a minimum viable product (MVP) and, based on first hand customer feedback tests slightly alter one or more of the 9 critical business model areas (an “Iteration”) or significantly alter one or more areas (a “Pivot”). All done as quickly/continuously as possible to create or improve a product or service that customers will purchase. In software, this means 4 or more releases per year. In manufacturing, this means the production of smaller batches. Releases or batches are then subject to continuous iterations or pivots based on first hand customer feedback tests.
2. How can existing companies work with emerging companies and benefit from the new business methods?
a. Help a start up you are interested in. Help it with its Business Model – especially in Customer Discovery Validation. This does not cost money and it will introduce your company to Lean Start Up methods that might be helpful to evaluate and adopt in your own company. Click here to read Legal Aspects of the Business Canvas.
b. Seek out and become a Key Partner or Key Resource. A Key Partner is a significant third party that a start up relies on to help produce or sells goods and services. (See business Model Generation, above). In other words, hold your company out as a provider of goods and services to innovative start ups.
c. Become a customer. This is the flip side of being a Key Partner. Be a customer – hopefully an important reference customer to a start up.
d. Invest in a start up. Typical avenues are convertible notes, common stock or preferred stock. When conducting due diligence, look at my notes on legal aspects of an agile start up business here.
e. Maintain a portfolio of emerging companies like a VC. This is the same as (d) above, but with more than one startup.
f. Form a strategic alliance. Think investment + customer sharing. Strategic Alliances can be a stepping stone to an acquisition and can be an invaluable way to add innovation to an existing company. Some companies may be rolled into the existing company or could continue to exist as a separate company.
g. Buy a Start Up once it has completed its Customer Discovery. Recognize the difficulty and cultural issues of working like a start up when compared to your execution based company. For many established companies, it is cheaper to buy that to build a business operation.
h. Adopt or adapt new business methods for your business externally. For example, for software development, use outsourced agile programming. See my Legal Aspects of Outsourced Software Development here.
i. Adopt or adapt new business methods for your business internally. This is probably the most difficult step for an established business to take. It may make more sense to ease into the change by using all of the other methods described above. Steve Blank writes about how large companies can adapt: www.steveblank.com.
3. Have a Plan and get help.
a. Most companies realize that there is value in using new business methods. And, finally, there are solid results of what companies should and should not do based on documented successes and failures. Start slow, learn what has worked and get engaged with companies and professionals who are experts.
This Article is published for general information, not to provide specific legal advice. The application of any matter discussed in this article to anyone's particular situation requires knowledge and analysis of the specific facts involved.
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