25 Feb 2013  Research & Ideas

Lean Strategy Not Just for Start-Ups

Established companies often experience innovation stagnation. The fix, says Intuit founder Scott Cook, is for these companies to adopt a lean start-up model.

 

Lean start-up strategies aren't just for start-ups anymore. That was the key message that Intuit cofounder Scott Cook (HBS MBA '76) shared in a small seminar with Harvard Business School faculty recently.

Since its launch in 1983, the financial software company has seen a great deal of success, garnering revenues of $4.15 billion in 2012 with products like Quicken, TurboTax, and QuickBooks. But there lies the potential rub.

"Success is a powerful thing," said Cook, who now serves as chairman of Intuit's Executive Committee. "It tends to make companies stupid, and they become less and less innovative."

"Success is a powerful thing… It tends to make companies stupid" Scott Cook, Intuit

Avoiding innovation stagnation is the reason that Cook believes established companies need a lean start-up model—maybe even more than start-ups do. An idea pioneered by HBS Entrepreneur-in-Residence Eric Ries, lean start-up thinking entails launching as quickly as possible with a "minimum viable product," a bare-bones creation that includes just enough features to allow for useful feedback from early adopters. The company then releases a quick succession of product upgrades, forming hypotheses and conducting experiments with each new version along the way.

Intuit adopted such a strategy when developing Fasal, a mobile platform that delivers agricultural market price information to farmers in India. With each successive rapid upgrade deployment, the adoption rate grew. That meant that as more features were added or tweaked, there were more farmers to provide useful feedback from the field.

"The more farmers you have, the better data you have," Cook said.

Experimentation can be hard for product teams in large companies, which often don't have the let's-try-some-things-and-see-what-sticks culture of a start-up. Product teams may be disheartened when their preconceived notions turn from promising hypotheses into failed experiments. Cook stressed, though, that failure can yield the greatest lessons in product development. "For me it was seeing my brilliant ideas—which I just knew were right—not work."

To that end, Cook said leaders should take care not to squelch a team member's new idea too soon, even if it sounds unreasonable. He recalled scoffing at a proposal, only to learn that the team putting it forward already had started testing the idea with an experiment. Cook felt bad about his initial response not because the idea ended up succeeding—it didn't—but because he believes strongly in cultivating and maintaining a culture of experimentation.

Of the experiments Intuit has launched in India, some ten have failed, two have succeeded, one is still in its nascent stages, and one is "pivoting," Cook said. In lean-start-up lingo, pivoting means taking a major change of course based on user feedback—the idea being that it's easier to change the direction of a company or product in its early stages than in its later stages.

Network effects

Managers often think about innovation in terms of exploring new markets. But Cook said it's often wiser for firms to innovate within their well-established existing businesses. This is especially true in industries where there are first-mover advantage network effects—wherein the value of a service is dependent on the number of people using it. Case in point: Amazon.com's attempt to enter the online auction business failed because eBay already had such a strong, ever-growing base of sellers, which begat an ever-growing base of buyers.

Intuit, for example, does steady business with TurboTax, the tax preparation software that has been a part of the company's product line since its 1993 acquisition of ChipSoft. Thus it makes sense for the company to innovate within the realm of tax prep. That doesn't mean the ideas can't be revolutionary. In 2011 Intuit introduced SnapTax, a smartphone app that lets users file their 1040EZ form in 10 minutes.

Cook also stressed the need of having a strong, overriding company vision when establishing an innovative, experimental culture. Intuit's vision: "Change lives so profoundly, people can't imagine going back to the old way."

About the author

Carmen Nobel is senior editor of Harvard Business School Working Knowledge.

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Comments

    • Arie Goldshlager
    • Director of Customer Experience Management, KPMG

    See the The Nordstrom Innovation Lab as one example of a lean startup operating inside a large company: http://nordstrominnovationlab.com/ http://www.youtube.com/watch?v=szr0ezLyQHY&feature=player_embedded

     
     
     
    • Ed Rodriguez

    For people interested in this topic, I've recently contributed my points of view on how technology is eroding the perceived importance of strategy at http://bit.ly/YoQOk7.

     
     
     
    • Aaron Eden
    • Product Manager, Intuit

    He is absolutely right. In addition to what Scott said I would also add that it works AMAZINGLY well in functional teams as well, not just for new products / services.

    If you'd like to learn more let me know and I'll be happy to talk to you about it.

    http://about.me/aaroneden to connect with me.

     
     
     
    • Kapil Sopory
    • Company Secretary, SMEC(India) Private Limited

    Innovation has to be a regular feature for all organisations. New ideas need to be considered and not brushed aside thoughtlessly.Yes, lean start-up strategy is meant for even much after the initial set up.This would make the base more solid. Such strategies help develop team spirit leading to better results in the long run.

     
     
     
    • Jason Moccia
    • CEO, OneSpring LLC

    I like the term "Innovation Stagnation." Most organizations don't have the will, drive, and executive support system in place to explore ideas in new and more effective ways. One technique we use is software visualization. This allows us to test drive concepts early in the lifecycle, prior to heavy investment. I wrote an article on the concept of exploring ideas and use various industries to drive home the point.
    Check it out at: http://theleaninnovation.com/innovation/idea-to-innovation/

    Also, here's a short video on the concept: https://www.youtube.com/watch?v=Vk6dx16Kje8

     
     
     
    • DbaiG
    • Team Lead, Bolee

    Actually a new business may need to produce first before selling it at a big discount to make a space for itself in the marketplace. This is because if you don't have anything to sell, it is difficult to receive sale orders from customers as they will be unwilling to extend contracts to a company which has had no sales before and no inventory either. However, large businesses already have a space in market and they can afford to produce only when they have received a sales contract. So it makes sense for large businesses to be as lean as possible.

    DbaiG Bolee.com

     
     
     
    • Dr.Nada al Mutawa
    • head of research devision ,Gulf center ,Kuwait university, Kuwait University

    The business world has changed today its more complex and Private equity firms are concerns about many issues such as global warming (unskilled ) migration of workers and business ethics . Challenges and opportunities are facing organizations of all sizes Therefore Strategic management is important as it allows firms to become more proactive than reactive in shaping its future . A major aim of the process is to understand and be committed .