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Principles of Lean Manufacturing

& Lean StartupsAs They Apply to Real

EstateMonday, Sept 19, 2016CNU New England

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Michael MullinsAsset Manager, Mullins Management

Executive Director, Lean Startup ChallengeFounder, RE|Work Real Estate Coworking

2000 UMiami BBA Finance 2004 MIT SM Real Estate Development

2010 Startup Leadership Fellow & Program Lead2011 Lean Startup Challenge Co-Founder

2014 Chicago Booth MBA

Twitter: @Mullins01

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The Kentlands, Gaithersburg, Maryland

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The Kentlands, Gaithersburg, Maryland

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The Transect

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The Origins of LeanLean Manufacturing

Lean StartupsCustomer Development, The Lean Startup

Lean Applied to DevelopmentLean UrbanismTactical UrbanismLean Development

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Lean Manufacturing

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It’s not about money…

Lean Manufacturing

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It’s not about money…

Lean Manufacturing

It’s a system of practices to minimize waste

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I. Origins of ‘Lean’

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Frederick W. TaylorFord Motor CompanyToyota Production System

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Taylor believed that that through stopwatch studies and other techniques, management could determine the one best way to do any task.

Taylor’s work paved the way to the field of Scientific Management and the practice of Management Consulting.

His book is titled Principles of Scientific Management.

Frederick Winslow Taylor

1856-1915

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Taylor’s theories led to two important principles:

First, that worker productivity could be optimized through precision movement.

Second, that for the worker’s productivity to be optimized, the workplace itself must be optimized. This was a breakthrough concept in his time.

Frederick Winslow Taylor

1856-1915

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“A farmer doing his chores will walk up and down a rickety

ladder a dozen times. He will carry water for years instead of putting in a few lengths of pipe.

...It is waste motion— waste effort— that makes farm prices

high and profits low.”

- Henry Ford

Henry Ford1863-1947

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Ford’s insights into efficiency, waste reduction, and workplace

design led to a revolution in manufacturing. He is widely credited with inventing the

production line.Henry Ford1863-1947

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Model T Assembly Line

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Toyota Production System• Taiichi Ohno is credited

with creating a group of practices that form “lean manufacturing”

Taiichi Ohno

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Toyota Production System• Taiichi Ohno is credited

with creating a group of practices that form “lean manufacturing”

• He based his theory on what he identified as the Seven Wastes

Taiichi Ohno

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Ohno’s Seven Wastes1. Delay, waiting or time spent in a queue with

no value being added2. Producing more than you need3. Over processing or undertaking non-value

added activity4. Transportation move stuff too far5. Unnecessary movement of workers and

goods6. Inventory, more than needed7. Defects, unacceptable defect rate

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Major Components of Lean• Continuous Improvement (Kaizen)• Push vs Pull (Kanban)• Steady Flow (Tact Time)• Flexible Production• Visual Control Board• Stop the Line (Jidoka)

• Toyota Readily Shares this Knowledge with Suppliers and Competitors

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Customer DevelopmentThe Lean Startup

II. Lean Startups

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My Lean Story

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Product Wiki User Portfolio

Automated ShippingScanned Item

Works like Netflix – seal and ship

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90%?

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Counterexample?

?

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@LSChallenge

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@LSChallenge

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Customer Development

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“Most startups fail from a lack of customers, not

product sevelopment dailure.”

-- Steve Blank

Source: Steve Blank

39Customer Development in the High-Tech Enterprise September 2008

CompanyBuilding

Customer DevelopmentCustomerDiscovery

Concept/Bus. Plan

Product Dev.

Alpha/Beta Test

Launch/1st Ship

Product Development

CustomerValidation

Customer Creation

Product Development Process…

Customer Development Process…

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The Lean Startup

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“A startup is an organization

dedicated to creating something new under conditions of extreme

uncertainty.”

-- Eric Ries

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…new product which allows a team to collect the maximum amount of validated learning about customers with the least effort.

-Eric Ries

Minimum Viable Product (MVP)

?

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Major Components of ‘Lean Startup’:

CustDev

Customer Validated Learning Pivot

MVP

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“A methodology for breaking down a large, diffuse problem into a series of actionable steps that can be individually validated…”

My Definition of Lean:

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As defined herein, Lean can apply:

My Definition of Lean:

… And to the permitting / Land Use side of the equation

To the development side of the equation…

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Lean UrbanismTactical UrbanismSuccessional DevelopmentLean Development Methods

III. Lean As It Applies to Development

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Lean Urbanism• A proposed regulatory

regime that implements intensive, front-loaded neighborhood design followed by simplified & accelerated permitting.

• A Lean Urbanism district ready for simplified development is called a Pink Zone.

Andres Duany, Planner & Urbanist

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Lean Urbanism• The name Pink Zone means lighter red tape.• Aims to restore common sense, fairness, and

democracy into the development process.• Intended to foster Incremental and Infill

Development

• Tools of Lean Urbanism include:– Thresholds for the implementation of onerous regulation– Workarounds for code problems

• Passing accountability upward • Buildings must meet codes applicable in their time/era

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Why Conventional Development Doesn’t Work

I. Dinosaurs vs. MammalsII. Fixed CostsIII. Switching CostsIV. Excess IntermediationV. Populist Permitting

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• Mammals• Mammals

• Dinosaurs vs Mammals

Dinosaurs Mammals

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• Dinosaurs vs Mammals

(Professional Consultants)

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Why Conventional Development Doesn’t Work (for mammals)

I. Dinosaurs vs. Mammals– There are a lot more mammals than

dinosaurs– Mammals are necessary for incremental &

successional development to happen– Left alone, will create ‘Organic

Development.’ – Organic Development has a Jacobsian

character master planned projects consistently fail to capture

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Why Conventional Development Doesn’t Work (for mammals)

• II. Fixed Costs – 24 Unit Project

Legal $50,000$2,100

Engineering $35,000$1,500

Environmental $25,000$1,050Permitting $25,000

$1,050Public Relations $25,000$1,050Linkage $100,000

$4,150Inclusionary Zoning $100,000$4,150

Total $360,000 $15,000

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Why Conventional Development Doesn’t Work (for mammals)

• III. Switching Costs– False Positives are an unfortunate reality– Rational Expectations reduce Expected

Returns for Site Selection (s)

xi * E(ri)i=1

E(rs) =

n

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Why Conventional Development Doesn’t Work (for mammals)

• III. Switching Costs

Site #1 $25,000 25% -100%Site #2 $25,000 25% -100%Site #3 $25,000 25% -100%Site #4 $25,000 25% 0%Sum $100,000 100%

Outcome ($75,000)E(r) = -75%

Cost Weight Return

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Why Conventional Development Doesn’t Work (for mammals)

• III. Switching Costs*– E(r) in this example is -75% or ($75,000)– Therefore realized site selection cost is

$100,000, not $25,000– Developers are already ‘underwater’

before they begin.

*Can include both Implicit and Explicit Costs

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Why Conventional Development Doesn’t Work (for mammals)

• Adverse Consequences of Both Fixed Costs and Switching Costs

• Incentivizes rational Developers to stick to one type of product.

• Strong disincentive to consider projects in other municipalities than those where developer has local knowledge or an ‘in’

• These Costs must be spread across realized development units, increasing marginal costs. This always reduces supply

• Higher ‘Working Capital’ Requirements sharply reduce # of developers who can play.

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Tactical Urbanism• a collection of low-cost,

temporary changes to the built environment, intended to improve local neighborhoods and city gathering places

Mike Lydon, co-author of “Tactical Urbanism”

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Tactical Urbanism• Tactical Urbanism is the Minimum

Viable product of Planning and Development

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Successional Development• Tactical Urbanism is not an end to

itslf. It can lead to successional development strategies through Iteration

• Successional Development is the concept of temporary development that is intended to be replaced

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Container Park, Downtown Las Vegas

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Container Park, Downtown Las Vegas

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Mashpee Commons, Mashpee, Massachusetts

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Mashpee Commons, Mashpee, Massachusetts

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• IV. Excess Intermediation

Necessary:Architect Civil EngineersContractor

Why Conventional Development Doesn’t Work (for mammals)

Extraneous:Permitting Consultant Attorney (for Permits)Public Relations Lobbyists (of any type) Environmental ScientistLSPFire Protection EngineerCode ConsultantGeotechnical Engineer

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• V. Populist Permitting

– Most Municipalities design around internal capacity of the permitting agency, not the number of projects (market supply)

– In highly regulated areas, this system is not designed to produce anything.

• In the 1960’s urban renewal was used to grant the federal govt power over city development.

• On the contrary, in NE it is intended to afford opponents every oppt’y to object (not so in Boston, where it is designed to give the Mayor ultimate control)

• Elsewhere, Counties have greater powers. Reality is that landowner has few development rights

• Landowners only constitutionally entitled to a minimum use (Truro)• Cities have rights to take property per Kelo vs City of New London

– Courtroom vs Planning Board Hearing

Why Conventional Development Doesn’t Work (for mammals)

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What’s Next for Me?

Initiatives on the Development Ecosystem;

Development from the Perspective of Human Rights;

Work on Economics of Land Use Policy & Advocacy

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Recommended Reading

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Contact

Michael Mullinsw: mullins01.come: mullins01@gmail.comt: @mullins01f: facebook.com/mullins01l: linkedin.com/in/mullins01

@mention me or email me for a copy of these slides.

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End of Presentation

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Index

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Waterfall Development…

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A waste-reducing alternative to ‘Waterfall Development’ method of project management.

Waterfall: “Takes twice as long and costs twice as much”

Agile Development

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The Agile Manifesto (2001)• Welcome changing requirements, even in late

development• Working software is delivered frequently (weeks

rather than months)• Close cooperation between business people and

developers• Sustainable development, able to maintain a

constant pace• Simplicity—the art of maximizing the amount of

work not done—is essential• Regularly, the team reflects on how to become

more effective, and adjusts accordingly

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Major Components of Lean Manufacturing

• Continuous Improvement (Kaizen)• Push vs Pull (Kanban)• Steady Flow / Tact Time• Flexible Production• Visual Control Board

Related: Six Sigma, TQM (to manage defects)

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Eric Ries Steve Blank

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Eric Ries’ most important contribution is the Minimum Viable Product.

?

Minimum Viable Product (MVP)