Many large companies today have begun to adopt the principles of Lean Startup, a methodology first adopted among Silicon Valley tech startups in order to become more innovative and agile in implementing new products, services and business models. However large corporations are not just bigger versions of startups.
My guest today, Jim Euchner has studied how the Lean Startup concept can be applied to innovation within established businesses and has shared his findings in a new book called ‘Lean Startup In Large Organisations’. Jim was Vice President of Global Innovation at Goodyear Tire & Rubber Company, where he led the development of new businesses and incubated and launched five businesses on three continents. Prior to his work at Goodyear, Jim held positions as Vice President of Growth Strategy and Innovation at Pitney Bowes, Inc. and Vice President, Network Systems Advanced Technology at Bell Atlantic (now Verizon). Today he is Editor in Chief at the Research-Technology Management journal, Honorary Professor at Aston University in the UK, a member of the Scientific Advisory Council for the Nissan autonomous vehicle program and a co-founder of the MIT Innovation Laboratory, a consortium of companies interested in user and community innovation.
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James Taylor 0:00
I’m James Taylor and you’re listening to the super creativity podcast a show dedicated to inspiring creative minds like yours. Many large companies today have begun to adopt the principles of Lean startup methodology first adopted amongst Silicon Valley tech startups in order to become more innovative and agile in implementing new products, services and business models. However, large corporations are not just bigger versions of startups. My guest today Jim Eichner has studied how the Lean Startup concept can be applied to innovation within established businesses, and shared his findings and a new book called Lean Startup in large organizations. Jim was vice president of Global Innovation at Goodyear Tire and Rubber Company, where he led the development of new businesses and incubators and about five businesses on three continents. Prior to his work in Goodyear, Jim held positions as vice president of Growth Strategy and Innovation at Pitney Bowes Inc, and vice president network systems advanced technology and Bell Atlantic now Verizon. Today, he is editor in chief at the Research Technology Management Journal honorary professor at Aston University here in the UK, a member of the Scientific Advisory Council for the myson autonomous vehicle program and a co founder of the MIT innovation laboratory, a consortium of companies interested in user and community innovation. Welcome to the show, Jim,
Jim Euchner 1:19
thank you very much. I’m glad to be here.
Fear of Innovation
James Taylor 1:21
Now, in your book, we had Eric Ries on the show a couple of years ago, and your book dovetails perfectly into that as a great accompaniment to it. And in the book, you described how innovation and adoption of Lean Startup methodologies in large organizations is often held back by different types of fears. So can you explain that the form that that fear of innovation often takes in larger companies?
Jim Euchner 1:45
Sure. And I’d like to start just by saying, I think the Lean Startup principles really work, whatever kind of business you’re trying to create, and going from conditions of very high uncertainty as Eric described it to conditions of lower uncertainty, so you can actually invest. But inside large companies, the very principles that make you successful in innovating new businesses, create antibodies in the core business, and there were six that I identified in the book. And it’s, it’s actually a little bit ironic, because the practices that work are the very things that create the antibodies. So for example, a big premise of lean startup is that you learn using what Eric called Lean learning loops, or you might just call them business experiments, where you’ve identified an unknown, you develop an experiment to learn about it, whether it’s about the channel or the product, or the service, or costs or, or whatever, you run the experiment, you learn, and you either move forward, or you pivot in some direction. So that’s great. But inside large companies that can seem very chaotic, large companies generally have much more structured processes for developing new products and new services. And if the, if you’re operating in a world where you know, you go wherever the customer takes you, and there, you’re doing everything at once the business model, the product, etc, it can be a little bit disorienting and feel chaotic. So a solution to that, and I think there are multiple solutions. But a solution to that is to contain the chaos really, into phases. And the phases are the phases of the three big questions or hypotheses of the Lean Startup, the value hypothesis, the business hypothesis, and the growth hypothesis. And so that’s the, that’s if you do that the chaos happens inside a phase, you review the customer value proposition, then there’s a lot of chaos, as you develop a business model. You review it and decide to go to incubation, there’s more learning during incubation, and then you make a decision to scale. So you have both the flexibility and agility of sort of lean startup, but also an impedance match to use an engineering term with the core business.
James Taylor 4:08
It’s to unpack some of that, and push before we start to unpack some of it seems that fear of chaos and some of the other fears, I know you mentioned, we’re this idea of fear of distraction of the team being distracted by the side thing that’s maybe not Nestle. They don’t kind of understand where it fits. And another one, which is what I actually quite hear quite a lot, speaking to organizations, and if I talk to him about this a lean startup or how it plays to the large organizations, is this fear of resource bleed. So tell us about that one, because that one maybe doesn’t get talked about quite as much unless you’re in the finance and accounting side of things.
Jim Euchner 4:45
Yeah, I think what happens is, you know, in your very successful world, eventually, you’re incubating a business, right, you’re in market at small scale, maybe it’s in you know, a particular market. You’re learning If you’re trying to understand two things, does this really work? To the customers buy it? Can I deliver it cost-effectively? You know, will it scale those types of things, and then you’re trying to determine how to grow it. What happens inside large companies, if if you’re not, if you’re not careful about it is that the core business will see the drain of resources as a threat to the business they have to do everything you do with innovation is funded from somewhere, and it’s funded from the people who are making the money in the core business, they have their needs, they have their objectives, they have their aspirations for how they want to grow the business. So there can be a fear that the new business will draw both talent and funding, and, in that way, disrupt the core, the best way to deal with that, in my opinion, is to create a sort of separate but connected model. So you have a model where the new business has its own entity if it’s got a different business model in particular, but it has defined relationships with the core business. And those are negotiated in a very careful way. The new business is funded separately at a CEO level. And yet its relationships with the core like how do you go to market? Does Salesforce go together? Or independently? If you’re buying a product from the core, what’s the price you’re paying for it? What are the terms of service? If you using the service network? How are you how’s the customer going to be charged, how’s that going to flow to the different parties, you know, all the contractual arrangements that let the new company leverage the assets of the core need to be negotiated, if they’re not, the new company will suffer by not, you know, through delays, I would say sort of suffocation, basically. And a common is that a large company will win in the marketplace with a new venture, only if it’s able to leverage the assets of some of the assets of the core business. If it can’t leverage those assets, then it’s competing with startups that are far more agile, and in many cases have much better funding through the venture, one as they prove their, their value proposition and their market. So you’ve got to be able to leverage assets. And that means you have to be able to coexist. So the separate but connected model is what I think works effectively. I so wish
James Taylor 7:38
I’d read this book, probably in 2013, this book, it exists 2013 2014, I remember living in the moving into the Bay Area. And when the first book someone put in my hand was Eric Ries Lean Startup, and then kind of reading like Steve Blanks work and other work that came from that. And then being asked him to come back to the UK to help an established university, a higher learning institution, watch his online version. And it’s like classic, you know, the big established thing, organization, and then you’re trying to start this new thing that’s kind of different. And so many of the fears that you mentioned in there was very much buy in from the senior from the CEO level very much by and actually from the lecturers and the teachers. But there was a messy middle, there was extremely difficult to navigate. And in the end, it just didn’t, it just didn’t really kind of work. It didn’t work out like we’d hoped. But I remember taking this whole kind of lean startup to that CEO at the time, you might have heard about him. And he has me coming with my strange Californian ideas and what’s going to work in, in London. But one of the things I was explained to him was this idea, you mentioned that there’s lean learning loops, this idea of the circle. So for anyone that doesn’t know that, I mean, you mentioned these three key principles, we have to understand leaner learning loops, minimum viable product, probably a lot of our listeners understand minimum viable product prototypes, those types of things. And then deciding pivot or persist, you go with it, or do you try something else? But this, this idea of the lean learning loops, can you take us through what that loop actually looks like? And that would probably help inform the rest of the conversation?
3 key principles lean startup
Jim Euchner 9:14
Sure. So lean learning loops are you start with a hypothesis about your business, you design some sort of prototype, to learn about that particular issue? You do the experiment, and then you look at the results. So let me just give a simple example, at Goodyear. At one point were interested in the potential of a green or eco-friendly tire. And we had some concepts where we could dramatically improve or increase the amount of recycled material in a tire. And we thought that there was a market interest in this at least from surveys and so forth. But the question was, if we build it, will they buy it? And will we be able to be profitable So what we did before we had developed the tire, we mocked one up, we just use the laser to cut a new logo in the side, we develop marketing materials, and then we tried to sell it in, in service centers, tire centers, in California, it was there was positioned as a product, if someone was interested, then we would understand their interest, understand their willingness to pay and give them a coupon toward a future tire letting them know, they were part of a research project. If they were not, we tried to understand what was their resistance. That was an experiment. And what we learned from it was that people were interested, but we were not willing to pay anymore. And we’re not willing to make any compromises in performance metrics that made it an uneconomic concept, at least at that point in time. And so that helped us pivot to another project, we actually discontinued that. And one other big experiment indicated to us that we could not make that go. So we didn’t, at that point in time, that’s a simple experiment, it was, you know, took some time, but a lot less time than developing a business would have taken.
James Taylor 11:13
But you can actually understand from your explanation there, why engineers love this type of methodology so much, because it’s that natural, kind of, it’s like a scientist, you’re experimenting, you’re going with that hypothesis. And not sure if it’s gonna be maybe have a bit of a hunch member feel. But let’s see, let’s see what it says and just follow the data where the data leads. So I can understand that from from that you mentioned these three different types of hypotheses as well. Value hypothesis. Sometimes we call this, like customer value proposition, the business model hypothesis, how to capture the value. And then finally, the growth hypothesis. In the book, I thought you laid out a really nice way of, of this value hypothesis, this customer value proposition in the form of a statement. And I never said I wasn’t sure if this was actually your this was your way of doing this, or this or someone else. But I actually was on a call earlier today with some clients. And you were thinking about this product. And I said, Well, that’s that’s, I’ve just read this great book, let’s talk about it in this in the nature of this this value hypothesis, to understand what is the proposition what is it that we’re trying to do? Who is it serving? Can you maybe share? Is it your Is this your
Jim Euchner 12:25
more Geoffrey Moore, I think, is the first person who articulated the value proposition in that way.
James Taylor 12:32
Like, same as Moore’s law, that’s the same No, no, it’s
Jim Euchner 12:35
Geoffrey Moore, he’s he wrote a book, he wrote a whole bunch of books, but about about innovation. And I actually don’t remember which of the books that was, that was from, but it was one of his earlier, earlier books. And it’s, and I found it very useful. People I find are very vague, oftentimes about who their customer is very vague about what exactly the customer wants, about how they’ll deliver on all aspects of the what the customer wants, and why it’s better than what’s out there. So he has something. And essentially, it’s just for a particular customer set, who has a specific problem that you really need to understand precisely, we offer and then you provide what your solution will do. This delivers the following benefits to the customer, and does it better than what the what competitors are, you need to do a lot of research to do that. Well, but, but I think it’s very helpful. I mean, I think the whole book, I have to step back and say, is really built on. On top of a lot of other researchers work. So Steve Blank and and Eric Ries really did the foundational work on lean startup, I’m trying to say, Well, what does it do to adapt? What do you do to adapt that to a large organization, and then along the way, other people have really done great work to understand how you look broadly at at what the ecosystem around your product is and how you develop a new business model and so forth. So it’s Jeffrey Moore is one of the thought leaders,
James Taylor 14:13
I think something I think this is innovation stage gates, this is one of yours. Is that correct? Yeah. So we had a guest on the show. It was a couple of weeks ago, and people will link to the show notes here. It’s Daniel Lamar, who was the CEO of Cirque du Soleil, now the executive vice president, and he spoke about this idea when putting these shows together, which is like $30 million to put an average show together. He would have these checkpoints when they were developing the shows and as I was reading your book, where you describe this concept of innovation stage gates, it reminded me a lot of kind of what he what they were trying to do when they do these, these checkpoints in the process of creating a show. So can you explain innovation stage gates?
Jim Euchner 14:55
Sure. The idea that of lean startup for Just to go back to the basic principle is that all at once you’re looking at the customer value proposition, the business model and, and sort of how you might grow and you’re experimenting in market. And that is, I think can be a very valuable way for startups to learn there in market from a very early stage with something that meets the minimal needs for some minimal subset of customers, but meets them completely. In in the innovation stage gate, you basically unravel those three things. The first is the customer value proposition. The second is the business model and validation of the business model. And the third is incubation and the model for growth of the business. So that’s the first gate is really where do we want to play your best off if you’re playing in a, an opportunity space, not looking at a particular idea? Then you come up with a value proposition? And the two things you deliver? Are the three are the brief, who what customer we serve? And what do we know about them? The value proposition framed in the Jeffrey Moore style, and then something that I think too few people do, which is an estimate of customer value created, forget how you’re going to capture value? How much value do you create for customers? And there are good ways of estimating that. Once you have that, you can start saying, Well, what are my business model alternatives? And how can I assess the risks of those business models and develop them? I have what I think is a somewhat different view than say Alex Osterwalder who you may have have talked with in the past, I think that there are a limited number of business model archetypes that work, they you know, there are to work together the all the pieces have to work together in a coherent way to create a profitable model. And over time in industry, maybe 40, maybe 50, there’s been a real explosion of them in the digital age, but a relatively small number. So what you need to do is find out which one fits your needs, and then adapt to that model. And then you have to do that in the context of a core business that might be threatened by it. That’s the the issue. So you’re, you’re simultaneously trying to understand how to build a new business model, and how to make it coexist in a way that will work for both parties. And then during the incubation, you’re just understanding how to make it grow.
James Taylor 17:27
So during that word you meant like this kind of threats, this idea of threats. And as I was reading the book, I kept going, in my mind going back to a speech at a keynote I did a few years ago in Abu Dhabi. And it was for the internal auditors Association. And it’s very, you know, these are very risk focus, folks. And I think I did a date event the day before, it’s for a big bank. And we I was sharing a number of ideas, I think it was actually sharing about Adobe kickboxers, which is an IT can innovation tool. And he said, James, that’s great. But you don’t realize in our industry, we have compliance, and we have all these different things to go through. And I often thought about okay, well, what are those? How do you get that involved? You know, how do you kind of deal with I just think about that. And then in the book, you talked about a very nice little game, you can kind of play this idea of that was watchdog game, which I think alleviate some of these problems. Unless you get into a conversation with those folks on compliance about how to this man this thing you’re thinking about implementing and doing and testing how to kind of reduce the threat level for them how to make them feel a little bit calmer. So can you share what the side of the watchdog games? I really love it?
The Watchdog Game
Jim Euchner 18:37
Yeah, yeah. So so it’s built on just game theory. And the idea is that everybody makes decisions based on what they expect other people will do. And, and, and oftentimes, game theory, just lead you to a place where nobody does anything. Because the expectations are, that that’s the best solution for for some of the players in the game. So if you’re responsible for it, or you’re responsible for liability, you may look at what someone’s doing and say, if they do that, it’s going to make my world terrible, it may come back to there may be a liability problem, they’re not going to blame the innovation team. They’re going to blame the liability department for not flagging it. It may be a completely different environment that I don’t have the skills or the resources to maintain, I’m going to be held accountable for not maintaining it. The innovation team isn’t so the tendency for those people is to just say, let me slow walk this. And I think the innovation team needs to first understand that’s legitimate. These people have a day job they have accountabilities, they have expectations placed on them and so forth. So first thing to do is understand what their concerns are. And then try to really understand them from their perspective and then try to say what is it that we want to do on an experimental basis? What is it that we want to do? How can we do that in a way that will maybe not be risk free, but will minimize the risk? And how can we share the consequences of that risk if it happens? So you try to, there are a few things that I’ve used as practices. One is just going through that process and then acknowledging the risk. And you sign off that I understand that this is a risk. And at Goodyear, they had something called the yellow slip means the liability, people thought it was an issue, it was considered at an executive level, the mitigating factors could be considered. And then you could at least proceed with an experiment, if you if you got the approvals. The other thing is what I call a graduated engagement. That’s the idea that you worry about these issues, but you don’t obsess about them until you get into incubation. When you’re in the earlier stages. You’re an experimental, it’s small scale, it’s with the market, it may not even in the market, you’re not, the consequences are very contained. And you can contain them further if you if you think about how you conduct the experiments. But when you get into incubation, when you’re learning about the business, in the real world, you commit, we will address these issues. And by then it’s worth taking the time to address them, whether they’re security issues or liability issues or IT issues, we will take the time during that eight or nine months that incubation takes to understand the concerns and to figure out do we need to redesign the product in some way? Do we need a different kind of insurance for liability? Do we need to do some testing that hadn’t been done yet? All those kinds of things can be done during that time period in parallel with the in market learning,
James Taylor 21:50
I think I’m going to try that when the next workshops I do if I’m doing something with a bank, when I’ve got all this compliance folks, I might try and put that at the start mentioned, you know, talk about this idea at the start. So people feel there’s a bit more of a say, I know safe spaces as a different connotation and university. But just there’s more of a sense of psychological safety. Because what I tend to find is, especially on the compliance, you do focus on compliance or, or risk. Once they do get a sense of like, oh, actually, this is a this space, I can play it because there’s going to be these other checkpoints. They’re actually there’s, there’s a whole bunch of things that can come from that and ideas and different perspectives, which I think is very valuable. In the book towards the end the book you mentioned, and I remember the gentleman you interviewed from Amazon, from the marketplace, I’d really started with Mike Ross Ross one year. And I didn’t, I didn’t know this. But in Amazon, they had this concept of some small AI innovation and big AI innovation. And I know a lot of the companies I deal with often, there’s always a danger when you go and share these kind of big, big innovation things. It goes well. So what does that mean, for me? What does it what does it mean for me? So can you get explained the differences? I think it’s a nice way of just contrasting different types of innovation?
Jim Euchner 23:04
Yes, I think it is, too. And the I think small AI innovation is anything you do to make the current business better. And I sometimes referred to it as type one innovation, you still make it some resistance to it. But the resistance is a lot less, because if you’re successful, it makes the core business better. And it’s and that can include process improvement, it can include a lot of small ideas from employees, it can include new product innovation can making products faster, better and cheaper. All of those kinds of things fit in that category. And but then the second type of innovation is innovation that creates a new business or a new business model. And that’s much more difficult because it challenges the identity of the core business. And And oftentimes, and Amazon does this masterfully well, it leverages assets of the core business to move into a new business that may be dramatically different. So you know, the the etail software infrastructure was used to help launch the the cloud services business, which is now a huge unprofitable business. The the existing business, Amazon book and CD business and customer base was used to launch marketplaces where they actually shared the storefronts and fulfillment by Amazon and so forth with partners, very controversial inside and it had to actually be separated from the core business at its inception. But it leveraged such assets in such a strong way that it created a huge growth business. So yeah, I think that there’s both types of innovation matter. One of the things I think is, in my experience almost unique to Amazon, is how all the executives are expected to both execute and innovate. And, and they’re, it’s part of their objectives there. It’s part of how they’re compensated. So it’s a very interesting company that I
James Taylor 25:13
think gets the thing that kind of holds all that together. is really this idea of customer centricity being so customer focused, the innovation always comes from that perspective is always focused on the customer. Yeah, absolutely.
Jim Euchner 25:25
And I think that the way Bezos I think, governed a lot of those decisions was the customer will always want more variety, lower costs and faster time to market. So faster delivery. So whatever we can do to do that we’ll do and if that means opening up our storefronts to other vendors, then we’ll do that. If that means opening up our logistics center, that means that if that means providing price comparison between an Amazon offer and a competitor will do that. Those are big decisions that very few companies I think, are able to make, but that he’s able to make it because he had such a strong focus on what’s best for the company in making the decision. I mean, for the customer.
James Taylor 26:11
And there’s this linkage between creativity and innovation, although necessary, but not always sufficient in terms of making, the way I think about as creativity is about bringing new ideas to the mind. Innovation is just about bringing new ideas to the world. That’s just your university professors, you’ll have a much better version, script version of that. But in your own work, how do you keep your own thinking fresh? What influences Do you try to surround yourself with, so you’re having different influences different ways of looking at the world?
Jim Euchner 26:41
So one thing is I’m just fortunate that I, I added this journal, research, technology management, so I read a lot of papers. And then for each issue, I interview a thought leader. So in many ways, I took advantage of that when I was working at Pitney Bowes are good year to say, I’m trying to do something, I’m having trouble with it. Maybe I can just call the person who developed it, interview them and press and learn. And so I learned a lot in that way. The other thing is just finding ways of colliding with other people who are trying to do the same thing. Sharing what works, what doesn’t work. Fudd trying to figure out what the differences are. And being out in the world, I think, you know, that, unfortunately, COVID has kept people very close to home. I think the thing that unlocks your brain, or unlocks mine anyway, more than anything else, is traveling to different places and seeing how people are doing things that is very different from what I might do. It’s one of the nice things about consulting, too, is you’re working with different companies with different cultures and different assumptions and different industries. And, you know, so you learn from that. I I think all of those things come in, into the mix.
James Taylor 27:59
I think Andy Jassy, the new CEO of Amazon said the other day, he was talking about how with COVID happening in the lock downs, actually, productivity has been very good. I think many companies would be surprised me Amazon, especially an incredible growth in terms of value in our business and be productive. But he said innovation has suffered. And he just said the way he expressed that he said we’re not getting together in person. And as a result, we’re not riffing in the same way that was this word riffing, which I thought was a nice way of expressing it. But hopefully, as the world starts to open up, we’ll be riffing a little bit more, do us. We’ve been talking about technology here, but use technology in any ways that that either kind of free up your time to do more creative work, more deep thinking or perhaps to augment the work that you do. Are there any tools or technologies that you find particularly useful in that way?
Jim Euchner 28:47
Yeah, I wish I had mastered the whole time management, time management thing. But one thing I will say that I have found useful, I mean, first of all, everybody’s gotten better with Zoom. And it’s caused us to reconnect and to do things we might not have otherwise done. But one of the things I found useful is mind mapping. And and the reason for that is, when there are a lot of a lot of different perspectives in the room. And you’re and you’re doing brainstorming, or you’re discussing an issue, there can be a tendency for some voices to be stronger than other voices. And if you have a shared display, in a format that everybody can see, and it captures a little bit of the structure of the discussion, I think that that can help help reach better solutions to problems, help everybody in the room feel more heard, and can help people build on each other’s ideas without, you know, without dominating them. So I’ve used mind mapping. And I find that I find that useful.
James Taylor 29:53
And it’s really particularly mind mapping tool that you’ve used, especially in contexts like working with a team perhaps virtually as if any that you’ve found particularly useful.
Jim Euchner 30:00
If I use something called MindManager, I’m experimenting with a tool that’s a little different called the brain, which is more has more network representation. The biggest challenge for me is for big projects, the map gets very big, and it’s hard to manage. So I’m trying to find something that helps with that.
James Taylor 30:20
I think we had, we had Daniel Pink, the writer on the show, recently, and he was talking about, he uses mind mapping as well, specifically for when He’s researching he’s doing is very research driven in his writing. And just as a way to kind of connect all the research and the links and all the things he said other ways as good brain would explode. So it’s a mind mapping, great tool. And so the book is going to be out now. But I’d hope people hear this. And the book is called Lean Startup In Large Organizations. We’ll put a link to books people get a copy of the book if they want to learn more about you and your your other work, your consulting, your teaching, the other things that you do, where’s the best place to go and do that?
Jim Euchner 30:57
I think baby just start with Lean Startup dot biz, which is the site I have for the book, and it has links to my blog and and some of the other stuff I do. So it’s probably the best place to start.
James Taylor 31:10
Fantastic. Jim, I’ll put all those links here. Jim, thank you so much for coming on the show talking about this idea of Lean Startup, how it applies to big businesses, and for just kind of sharing some so many great concepts on the Super creativity podcast.
Jim Euchner 31:23
Thank you very much. I enjoyed it.
James Taylor 31:26
You can subscribe to the super creativity podcast on Spotify, Apple podcasts, or wherever you get your podcast while you’re there. Leave us leave us a review. I would really, really appreciate it. I’m James Taylor, and you’ve been listening to the super creativity podcast.