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, be open—people are sometimes so afraid they’re going to get squashed they hoard information. Be flexible. Be empathetic—people resist innovation because they have good reasons, and if you can understand their reasons and have good relationships, you can find ways to move forward.

[17:53] What steps can large companies take to get started with Lean Startup?

Apply the whole system, not just a single piece. Sometimes people pull out the minimum viable product and use that but don’t do any experiments—that’s just prototype, not a minimum viable product. Adhere to the underlying principles—learn and learn fast.

Often, product managers are creating new products, not entire business models. In this case, use Lean Startup principles like the Lean learning loop and minimum viable prototype, and try to shift your conversation toward learning from customers. People are often worried to use Lean Startup, because they think their product will never meet safety requirements, but they’re worrying about this before they even have a fully formed value proposition. Engineers are good at solving those problems, and customers are good at raising them. Defer decisions like these to appropriate times in the process, and keep customer discovery first. If people aren’t getting out of their office and testing their prototypes with customers, they’re missing the whole point.

Use experiments with customers during design to learn from them. Do things quickly—don’t build the most elaborate prototype. Keep track of your experiments, and confront the data. If customers really don’t want something, you have to admit that to yourself.

[22:49] Tell us more about how innovation stage-gate works?

The first stage of innovation is scoping or customer discovery. Large companies can apply Lean Startup easily for this stage.

The second stage of the innovation gate is creating a business model when you’re developing a product that is different from the core company or you’re starting a new business. This is an even more challenging innovation process and has its own antibodies.

The third stage is incubation, which is in market. The objective is to learn and understand your assumptions about the business, its potential for profitability, and how you’re going to scale.

If you’re developing a product for your current customers, sold through your current channels, with your current business model, then Lean Startup practices are used upfront. However, if you’re trying to create an entirely new business, you need all aspects of the innovation stage-gate.

[26:30] How can we manage a portfolio of experiments and products?

You need dedicated resources. Look at your opportunity spaces and initiatives as a portfolio, and have an innovation steering group that looks at decisions about which platforms to pursue. Have periodic portfolio reviews. If you see an opportunity space in an area, place bets and see which ones pay out. As a large company, stay tied into the startup community. You may find someone who has a solution that will work with your vision.

Action Guide: Put the information Jim shared into action now. Click here to download the Action Guide.
Useful links:

• Order Jim’s book, Lean Startup in Large Organizations, on Amazon (released on February 23, 2022)
  
• Visit Jim’s Lean Startup website
  
• Check out more resources from Jim’s website
  
• Read the Research-Technology Management Journal
  

Innovation Quote

“It’s not what we don’t know that gets us into trouble. It’s what we do know that just ain’t so.” – Will Rogers

Thanks!

Thank you for taking the journey to product mastery and learning with me from the successes and failures of product innovators, managers, and developers. If you enjoyed the discussion, help out a fellow product manager by sharing it using the social media buttons you see below.