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The benefits and challenges of using Lean Startup practices in software companies Tamim Ahmadyar Shadi Isa

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The benefits and challenges of using Lean Startup practices in software companies

Tamim AhmadyarShadi Isa

Table of Contents

Literature Research Questions and Scope The Lean Startup origins Customer Development Lean startup Overview, Principles and Practices Lean Startup & Customer Development The Build-Measure-Learn feedback loop walkthrough Benefits of Lean Startup in software companies Challenges of Lean Startup in software companies Recommendations of Lean Startup in Software

Companies Example of GE Lean Startup

Literature Research Questions

1. What are the positive effects of applying Lean Startup

practices in software companies?

2. What are the negative effects of applying Lean Startup

practices in software companies?

3. What are the recommendations to successfully apply Lean

Startup practices in software companies?

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Literature Scope The scope of the literature is limited to the analysis of the Lean

Startup practices required to search and validate a business opportunity within a software company

Thus, the practices to scale and grow the identified and validated opportunity into a company were left out.

The literature does not focus on the application effects of the Lean Startup methodology on external startups, rather, only on internal startups or other innovative initiatives inside the software company.

Furthermore, the emphasis of the literature is put into the development of the business opportunity and avoids the implications it has on the software development activities.

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The Lean Startup origins

The author of the Lean Startup methodology, Eric Ries, explains that traditional management practices and ideas are not adequate to tackle the entrepreneurial challenges and the level of uncertainty in startups.

By exploring and studying new and existing approaches, Ries found that adapting Lean thinking to the context of entrepreneurship would allow to highlight value-creating activities versus waste.

After its initial development and some refinement, the Lean Startup represents “A new approach to creating continuous innovation that builds on many previous management and product development ideas,

including lean manufacturing, design thinking, customer development, and agile development"

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Customer Development Customer Development is a four-step process invented by Steve

Blank in his book “The Four Steps to the Epiphany: Successful Strategies for Products that Win”

The four steps are1. Customer Discovery

2. Customer Validation

3. Customer Creation

4. Company Building

Customer Development has two phases: the Search Phase and the Execution Phase

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Customer Development – Search Phase

In the Search Phase a startup searches for a business model that could work, as well as, products and services that might sell.

In this phase, startups must do Customer Discovery and Customer Validation.

The first step, Customer Discovery, focuses on understanding customer problems and needs.

The second step, Customer Validation, focuses on developing a sales model that can be replicated.

The sales model is validated by running experiments to test if customers value how the startup’s products and services are responding to the their problems and needs

If customers show no interest, then the startup can pivot to search for a better business model.

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Customer Development – Execution Phase

Once the business model is proven, the second phase starts In the Execution Phase, the startup executes the business model and

starts building a formal organization. Startups must start building user demand (Customer Creation) to begin

scaling the business. Next, startups must begin the transition from the temporary organization

designed to search a business model to a structure focused on executing a validated model (Company Building)

Blank believes that product-market-fit needs to happen before moving from Customer Validation to Customer Creation, or, similarly, from the Search Phase to the Execution Phase

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Customer Development – Searching for Fit

Product-market fit, a term coined by Marc Andreesen, describes “the moment when a startup finally finds a widespread set of customers that resonate with its product”.

Alex Osterwalder et al. define searching for Fit as the “process of designing value propositions around products and services that meet jobs, pains and gains that customers really care about”.

This process happens in three stages called1. Problem-Solution Fitidentify relevant insights that can be addressed with a suggested solution2. Product-Market Fitcustomers react positively to the value proposition and it gets traction in the market3. Business Model Fitthe value proposition can be embedded in a profitable and scalable business model

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Customer Development – Searching for Fit Content

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Lean startup Overview

The Lean Startup definition

The Lean Startup principles

The Lean Startup practices

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The Lean Startup definition

Lean Startup methodology: a set of practices for helping entrepreneurs increase their odds of building a successful startup”.

This can be achieved by

Firstly, teaching entrepreneurs how to drive a startup through the process of steering (Build-Measure-Learn feedback Loop).

Secondly, enabling entrepreneurs to scale and grow the business with maximum acceleration

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The Lean Startup 5 principles

Principle 1: Entrepreneurs are everywhere You don't have to work in a garage to be in a startup. The concept of entrepreneurship includes anyone who works

within a startup: a human institution designed to create new products and services under conditions of extreme uncertainty.

This means entrepreneurs are everywhere and the Lean Startup approach can work in any size company, even a very large enterprise, in any sector or industry.

Principle 2: Entrepreneurship is management A startup is an institution, not just a product, and so it requires a

new kind of management specifically geared to its context of extreme uncertainty.

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The Lean Startup 5 principles

Principle 3: Validated learning Startups exist not just to make stuff, make money, or even serve

customers. They exist to learn how to build a sustainable business. This learning can be validated scientifically by running frequent experiments to test each element of the vision

Principle 4: Build-Measure-Learn The fundamental activity of a startup is to turn ideas into products,

measure how customers respond, and then learn whether to pivot or persevere.

Principle 5: Innovation accounting The boring stuff: How to measure progress, how to set up milestones,

and how to prioritize work. This requires a new kind of accounting designed for startups and the people who hold them accountable

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The Lean Startup practices

Steering practices designed to minimize the total time through the Build-Measure-Learn feedback loop

Acceleration practices, which allow Lean Startups (startups that use the Build-Measure-Learn feedback loop process) grow without sacrificing the startup's speed and agility.

The first set of practices must be in place before using the second set of practices

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Steering practices The steering practices allow entrepreneurs to learn to steer (whether

to pivot or persevere) in the most efficient manner. Entrepreneurs can hypothesize which is the right direction and test

and measure the progress of the assumptions they made while gaining valuable insights that help them make more informed decisions

This process is called Build-Measure-Learn feedback loop

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Steering practices

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Acceleration practices The acceleration practices enable startups to scale and grow fast,

adapting the organization structure and culture and developing a discipline of execution to transition without compromising the speed, agility and maintaining the innovation capacity of the startup

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Lean Startup & Customer Development

The Lean Startup's practices (steering and acceleration) map perfectly with the Customer Development process

The search phase, that includes Customer Discovery and Customer Validation steps, correspond to steering practices.

The execution phase, including Customer Creation and Company Building, corresponds to acceleration practices.

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Lean startup practices in focus The literature focuses on four Lean Startup steering practices in greater

detail in relation to its applicability impact on software companies. The selected practices are

1. Build-Measure-Learn feedback loop BML (explained next)

2. Get out of the Building GOOB3. Minimum Viable Product MVP4. Innovation accounting

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The Build-Measure-Learnfeedback loop process The Build-Measure-Learn feedback loop is the startup steering

wheel and the steering practices are the parts that shape it. Entrepreneurs can use the steering wheel to learn

1. how to drive towards the startup's destination (vision), 2. and when, or if it's time to make a sharp turn called pivot

(business strategy change) 3. or whether the startup should persevere along the path

The Build-Measure-Learn feedback loop is a continuous and iterative process based on scientific experimentation. Each iteration consists of three phases, as shown on the next slide

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The Build-Measure-Learnfeedback loop process

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The Build-Measure-Learnfeedback loop walkthrough Build phase - entrepreneurs build a product as an experiment to

test hypothesis they have about their customers behavior. This experiment is called Minimum Viable Product, and is designed to measure the impact on the customers

Measure phase - entrepreneurs measure the customer interaction with the MVP and obtain data in the form of qualitative and quantitative feedback. Entrepreneurs can determine whether the product development efforts lead to progress using a quantitative practice called innovation accounting.

Learn phase - entrepreneurs use the data obtained in the previous phase to validate or refute the hypothesis tested with the MVP, and use this learning (validated learning), to make a decision to continue with the current business strategy or change it (pivot) and to identify new hypotheses to be tested in the next iteration

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Benefits of Lean Startup in software companies

Lean Startup Benefits as following:

Lean startup approach help companies to have a more innovative corporate culture. Companies need to change in order to be able to answer to today's new challenges: changing business environment and increasing competition that create pressure for companies to be more innovative and create new services faster. At the same time, many companies need to be more efficient and reduce their costs.

Product Development Process Partner (B2B) Organization

Organizational Benefits Startup methodology Top management commitment helps with the adoption of

the Lean Save Time and Money by reducing the process cycles Organization Shifts towards more innovative culture. Makes customer relations better. Better understanding of customer accounting behavior

which is vital for every business

Product Development Process Benefits Faster product/market fit Product cycle consumes lesser time and Money

Benefits of Lean StartupOrganizational

BML

Mindset shift towards a more innovative cultureEmployee motivation towards innovationIncrease of team responsibility

Increase innovation competency

Break silos with cross-functional teams

Innovation accounting

Increase innovators accountability

Higher credibility of collected data

Common language between manager and innovator/entrepreneur

TechnicalMVP Prevent feature creep

BML

Increase customer understanding due to customer closenessEasier to collect direct feedback from customersDemonstration of customer value adding/destroying activitiesReduction of experimentation time to validate ideasHigher end-customer acceptanceEstablished customer base on mass market launchBeing closer to customer business provides strategically advantage as a contractor partner

GOOB

Discover misguided plansDiscern the right questions to askPotential to improve the product

MVP

Establish a baseline customer behaviorCapture customers creativity and feedback in real timeReal customers pool grow over time assuring product success

Innovation accounting

Expose concealed customer behaviourCohort of customers available for qualitative researchMetrics support the learning about customer behaviorIncrease accountability towards customer

Lean Startup Customer Benefits

Product Development Process Benefits

BML

Customer validation added to the processData-driven decisions improve process accuracy and speedValidation directs resources to increase product value and impact

Fear dissipation about product quality and acceptance and brand damage

Waste mitigation saves time and moneyShorter feedback cycleFaster product/market fit

MVP

Faster, cheaper and more accurate experimentsSeed to continuous improvement

Innovation accounting

Metrics improvements demonstrate validated learningData-driven product development prioritizationEasier to determine pivot timingFaster pivots

Challenges Facing Lean Startup

Resisting to change mindsets Lack of Understanding of ‘Lean Startup’ by the top

Management Team Adding new team members who have little knowledge of

Lean Startup Emphasizing on any of the Ambidexterity processes more

than the other Imbalance research of the market (B2C getting feedback

from Beta User customers only) Conflict of interests between Employees and Partners

(Customers) Customer validation process

Overall ChallengesOrganizational

BMLResistance to change towards an innovative cultureTop management overprotection towards the companyTop management innovation scope limitation to corporate strategyTop management lack of support towards the innovation teamLack of experimentation skills and Lean Startup practices knowledgeRaises complaints from external teams for not following company proceduresLean Startup understanding rigidness

GOOBRisk of engineers disclosing classified informationBrand/relation risk if customer interaction company rules not followedFinancial support needed

MVPPatent protection might be compromisedFear about competitors about stealing the ideaPR Branding damage risksNegative impact on teams moraleTemptation to overbuild and over promiseCommitment to iteration reluctance

Innovation accounting Duplication of efforts for end-user acceptance and top management funding

TechnicalBML

Experimentation scope reduced with lack of user interfacesReduced experiments reliability due to low end-user volumeExperimentation infrastructure implementation on top of a maturepro jectDifficult identification of value-adding measurable metrics

MVP Technical debt

Overall ChallengesCustomer

BML

Customers can be doorkeepersAcceptance-tested software by customers before production releaseFear of overpromising to end-customersDeveloped features come as requirements from customersEnd-users as customers’ customers complicates feedback collectionLegal agreements for usage data and user feedback collectionLead customer pro-activity required to develop the experimentation pro-cess

GOOB Interaction only happens with sales, not with development teamMVP In B2B, indirect access to end-users complicates collecting

feedbackProduct Development Process

BML

Unclear hypotheses and results expectations might hinder the learningabilityCompany bureaucracy slows down the development speed

GOOBTemptation to start testing too earlyAnalysis paralysis

I.accounting Duplication of metrics increase complexity, costs and time consumption

Lean Startup Recommendations

Strong Management to force all dimensions and project chain

To Coach, support and guide Innovation culture mindsets Protecting the Brand reputation

RecommendationsPractice Recommendation Dimension

BML

Stronger leadership and communication of the Lean Startup methodology value and impact to customers and employees early on Organizational

Demonstration of the Lean Startup benefits in all company functions, not just product development Organizational

Innovation culture mindset to change on a company and customer level to enable Lean Startup application in a consulting setting Organizational

Consulting companies should aim to be close to the decision-makers Customer

Coach role to support, guide and develop the process OrganizationalInvest in design capabilities inside the company Organizational

Protect the customer or software company brand reputation early on Organizational

InnovationAccountingFrontend and backend systems should have metrics Technical

Combine quantitative and qualitative validation Product Development Process

Example:How GE applied Lean Startup?General Electric is an American multinational conglomerate corporation incorporated in New York, and headquartered in Boston, Massachusetts. The feedback was hard for the engineers to hear, but it

made a huge impact on them. Having the team hear customer feedback firsthand was a big change, especially for the engineers. 

Instead of the traditional approach in which salespeople give design requirements and then leave, customers would be involved throughout.

Created version after version in order to coop with customer feedback. In Version 6 the feedback was almost positive.

They intend to launch new products every year.

References

Arlbjørn, J. S & Freytag P.V. 2013. Evidence of lean: a review of international peer-reviewed journal articles. European Business Review Vol. 25 No. 2.

Antoncic, B. & Hisrich R. D. 2003. Clarifying the intrapreneurship concept. Journal of Small Business and Enterprise Development, 10, (1), 7 – 24.

Blank, S. 2013. Spotlight on entrepreneurship: Why the Lean startup changes everything. Harvard Business Review. May.

General Electrics: https://hbr.org/2014/04/how-ge-applies-lean-startup-practices Ries, E. 2011. The Lean startup: How Today's Entrepreneurs Use Continuous Innovation to

Create Radically Successful Businesses. New York: Crown Business. Steve Blank. In his book “The Four Steps to the Epiphany” Alexander Osterwalder “Business Model Generation: A Handbook for Visionaries, Game

Changers, and Challengers”

Questions?

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