Steve Blank, serial entrepreneur, professor of entrepreneurship, and author of the seminal book that launched the Lean Startup movement, has long fought to change the mentality of software startups and other entrepreneurial businesses. He’s succeeded—Lean Startup is now not only a commonly accepted entrepreneurial strategy, it’s taught at more than 100 colleges and universities.
But now that the lean concept is becoming startup orthodoxy, Blank is on a mission to convince big businesses that they too need to think lean. But are enterprises really capable of adopting lean startup strategies—tossing aside the static business plan in favor of constantly testing, pivoting, and iterating the business to achieve maximum growth? And what do they stand to gain from such a radical re-imagination?
Lean = change
According to Blank, being lean is about “acting agilely and adroitly” and being willing—even eager—to “test and pivot” as needed. While enterprises would clearly benefit from that kind of thinking, Blank says, it’s often hard for them to adopt it. That kind of movement, he explains, “requires change—and change is difficult for bigger businesses.”
The problem is that enterprise employees aren’t usually trained to think lean. In fact, Blank says, the opposite kind of thinking is “baked into their DNA and the DNA of large companies.”
“Startups aren’t small versions of big businesses,” Blank explains, “and big companies are not larger versions of startups. Small businesses are ten times more agile than large ones, and at their core, big businesses are not about agility, but about repeatability and scale.” In most corporate cultures, he says, “failure = bad… there’s no room for pivoting and testing.”
Building an ambidextrous organization
So how do you break the mold? For big businesses to incorporate lean thinking, Blank says, they need to build an “ambidextrous organization” with separate groups for different purposes. Enterprises need both an “an execution group, which continues to operate under the current thinking, and a search-and-explore group” that’s looking to change the business model.
Of course, he adds, senior managers need to sit in between the groups to resolve the inevitable conflicts. Without a senior team arbitrating disputes, Blank says, “There will be pissing contests. Ultimately it’s about realigning the organization and steering it in the right direction.”
CEOs on the hot seat
“Lean [also] goes against the DNA of CEOs, who believe you need to build a solution now,” explains Blank. “There are incentives for execution in large companies,” but not so much for innovation.
Blank notes that if the CEO of a large corporation fails, the “odds are they deserve to be fired. It’s not like they invented something. And they’ve had the support of sales and marketing. So failure is usually an individual failure. [But] no one asks if the plan was wrong. Implanted in Lean is, you have to pivot before you execute.” Big businesses generally think you have to “live the plan” and CEOs may feel they’re taking a big risk by changing it.
Wall Street and the Board of Directors
Similarly, a lean approach can also challenge the requirements of keeping Wall Street happy. Blank says companies that think lean “can’t look at results quarter to quarter. If you’re considering your shareholders” too much, Blank explains, “your company will stagnate.”
Given those pressures, much of the ability for a big business to embrace Lean Startup thinking rests with the company’s Board of Directors, Blank says. “Acting lean requires imagination and a different Board mindset. If the board isn’t driving it and is focused on making Wall Street happy,” it’s likely nothing will change. Specifically, “The board can’t be buddies with the CEO,” Blank asserts. “They have to ask, ‘Do we have the right CEO?’ If the CEO is a financial guy, that’s likely the wrong management. If the CEO is from a big consulting firm, it’s harder to reinvent.”
Change = long life
If all this sounds too hard and you think your company can safely stick with the status quo, think again. “The rules of the 20th century are gone,” says Blank. Just because you “owned the market or were a dominant player in the market,” you can’t count on that status continuing.
Everything from the rise of China, to Internet-spawned pricing transparency, to the low barriers of entry for startups threaten every business, no matter its size or apparent dominance. “The corporate life cycle is a bell curve,” says Blank. Big corporations that don’t embrace Lean thinking are trading innovation for stagnation. If you execute without continually innovating (think test and pivot), Blank says, “you’ll have about a 10-15 year life cycle… Consider Microsoft. Fifteen years ago it was the most feared company; now no one is afraid of it… If you have innovation in your DNA, you can last 30 years or more.”
Lean is winning
“Once,” Blank says, “I thought I might be right. Now, I know this is right. The evidence is in. Lean Startup changes everything.”
Lean Startup has “changed the way entrepreneurs [work]. It’s changed science.” (The National Science Foundation adopted lean startup practices to find a better way to commercialize science.) Blank cites the reinvention of IBM under Louis Gerstner, Apple under Steve Jobs, and Disney after the arrival of Jeffrey Katzenberg, Michael Eisner, and Frank Wells as proof it can be done in the enterprise as well.
That doesn’t mean it’s easy, of course. Embracing the Lean Startup mentality “takes time and requires relentless focus and energy,” Blank says. The effort has to be real. It can’t be “innovation theater,” as he calls it, “where the focus is on looking good instead of doing something substantive. You have to change the DNA of your company.”