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Digital Transformation and IT Ambidexterity

The benefits and challenges of using Lean Startup practices in software companiesTamim AhmadyarShadi Isa

Table of ContentsLiterature Research Questions and ScopeThe Lean Startup originsCustomer DevelopmentLean startup Overview, Principles and PracticesLean Startup & Customer DevelopmentThe Build-Measure-Learn feedback loop walkthrough Benefits of Lean Startup in software companiesChallenges of Lean Startup in software companiesRecommendations of Lean Startup in Software CompaniesExample of GE Lean Startup

Literature Research QuestionsWhat are the positive effects of applying Lean Startup practices in software companies?

What are the negative effects of applying Lean Startup practices in software companies?

What are the recommendations to successfully apply Lean Startup practices in software companies?

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Literature ScopeThe 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 originsThe 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 DevelopmentCustomer Development is a four-step process invented by Steve Blank in his book The Four Steps to the Epiphany: Successful Strategies for Products that WinThe four steps areCustomer DiscoveryCustomer ValidationCustomer CreationCompany Building

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

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Customer Development Search PhaseIn 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 startups 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 PhaseOnce the business model is proven, the second phase startsIn 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 FitProduct-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 FitContent

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Lean startup OverviewThe Lean Startup definition

The Lean Startup principles

The Lean Startup practices

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The Lean Startup definitionLean 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 principlesPrinciple 1: Entrepreneurs are everywhereYou 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 managementA 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 principlesPrinciple 3: Validated learningStartups 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 visionPrinciple 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 accountingThe 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 practicesSteering practices designed to minimize the total time through the Build-Measure-Learn feedback loopAcceleration 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 practicesThe 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 decisionsThis process is called Build-Measure-Learn feedback loop

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Steering practices

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Acceleration practicesThe 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 DevelopmentThe Lean Startup's practices (steering and acceleration) map perfectly with the Customer Development processThe 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 focusThe literature focuses on four Lean Startup steering practices in greater detail in relation to its applicability impact on software companies. The selected practices are

Build-Measure-Learn feedback loop BML (explained next)Get out of the Building GOOBMinimum Viable Product MVPInnovation accounting

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The Build-Measure-Learnfeedback loop processThe 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

how to drive towards the startup's destination (vision), and when, or if it's time to make a sharp turn called pivot (business strategy change) 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 l