What’s In Your Sandbox?

If you happen to hang out in some of the same circles that I do, you’ve undoubtedly noticed that the Lean Startup idea has received a lot of attention. It seems to be a favorite subject of bloggers and media professionals. Which is all a good thing really, as it creates the occasion for us to examine what is the “best” way to launch new brands, products, and companies. There are, in fact, two rather divergent models in play, both equally good and equally innovative, yet each suited to a different situation.

In the one camp, we have the Lean Startup model, which directs us to learn fast by failing fast via a Minimum Viable Product, or MVP. The idea is to get some version of the product into the real market place (presumably by users who understand they are getting “beta”) as quickly as possible to give it real-world boots-on-the-ground market testing and quickly find out what is not right about it so as to fix it in the next iteration. This “build-measure-learn” process is repeated over and over until the product eventually morphs into something more along the lines of a minimum desirable product. Here, the market is the guinea pig. This model saves significant upfront time and money when compared to the alternative of having professional testers pre-test products using pre-launch mockups and prototypes. And indeed, this approach to continuous innovation has worked very well for a good number of companies. It has been the path to market for many innovative firms such as Zappos, Groupon, and others. However it is also well-documented that this model — or perhaps more correctly, poor execution of this model — has equally backfired and been disastrous for other companies (none of whom, as a consequence, you would have heard of).¹

In a completely different camp, we have what I refer to as the “Right Startup” model. This model relies upon using carefully controlled product-performance testing and market-acceptance testing amongst a select “internal” group of alpha / beta users prior to selling into the real market. Typically these are not average users, but are users highly skilled and capable in their ability to put the product through its paces, and are understanding of the shortcomings they will find along the way (after all, it is their job to find these shortcomings before real customers do). In some organizations, this work is undertaken under the auspices of a Quality Assurance group or a Product Approval group. Often, there are also internal reviews and vetting conducted by high-ranking officers from Marketing, Design, Engineering, and Sales before the product can be approved for “release”. In this model, the company takes all possible precautions to ensure that the product is “right” before it ever sees the light of the real marketplace. The market is never used as the guinea pig. This is because the risk for serious damage to brands and the customer loyalty tied to those brands is simply too great. These companies feel they cannot afford to erode that after having spent years or even decades, and tens of millions of dollars, building it. The Right Startup model is the approach taken by many equally innovative companies — startups like Marketo and Autopilot, as well as established companies like Apple, Starbucks, and Tesla Motors.

Both of these approaches can be right — both are products of innovation school thinking whose focus is on value-creation (finding new customers), versus business-school thinking whose focus is on value-capture (keeping established customers).² The latter (value capture) is a recipe for stasis… milking the “current” for all its worth at the expense of not investing in the pursuit of the “next”. Such business-school thinking was in fact the mindset that led to the demise of most of the companies highlighted in Clayton Christensen’s The Innovator’s Dilemma. Similarly, both approaches — Lean Startup and Right Startup — are far better than the old-school startup approach, where technologists spent years and millions of dollars perfecting a technology or product without ever market-testing the concept. Or as I like to say… “solving a problem that did not exist.”

So how does one know when to pursue the Lean Startup model and when to pursue the Right Startup model? And when does one make the switch from one model to the other? Or does one use both? After all, the companies in both camps are most likely after the same things… presumably something along the lines of “maximize the overall market size, maximize our market penetration, and maximize our revenues and net profits, all while building our brand and the customer loyalty to it.”

The answer to these questions lies in understanding that this really comes down to a case of managing certainty versus uncertainty… risk versus reward. In both cases, product developers need the space to experiment — a “sandbox” to play in. The difference lies in where they choose to locate their sandbox — in the lower-risk inside world (higher upfront cost), or the higher-risk outside world (lower upfront cost). Clearly the Lean Startup model can be ideal for some situations, for example where there are no established brands to risk damaging, and where only software is involved so that one need not contend with the time and expense of modifying capital equipment. In other words, the risk to the company and to the user are both acceptably low, particularly since the company can iterate so quickly and affordably. On the contrary, where the product is such that its manufacture is capital intensive and making changes can be expensive and time-consuming, or there is considerable risk of harm to the user from using an unproven product, this model breaks down. The risks are simply too great. In a nutshell… low risk lends itself to Lean Startup; high risk requires Right Startup. Therefore it may make perfectly good sense for a startup who has no other brands and products to fall back on, and has very limited assets to cruise on, to throw it all out into the marketplace in order to generate as much revenue as it can while still small and learning. And it makes just as perfectly good sense for an established company with established brands to not be willing to risk its brand reputation and customer loyalty on early revenues which, if done wrong, could eventually undermine revenues across the whole brand. So ultimately it is a matter of risk tolerance both inside and outside the company.

That being said, just because a company has access to a presumably low-risk market situation and can take the Lean Startup approach does not automatically mean that this approach will be successful for them. The model itself is not a guarantor of success. Why is this? The reason is because, more often than not, it can be incredibly difficult to know where the threshold for “viable” lies. This isn’t a problem with the Lean Startup model itself, it is a problem with people’s ability to execute it (after all, entrepreneurs are human). Consequently, there is the risk — sometimes large — of jumping into a market with a product believed to be an MVP but which in fact is not an MVP. This is a particularly tempting pitfall for inexperienced entrepreneurs. It happens because inventors are prone to use their own “lens” of what is viable and not the market’s “lens”. They must fight this temptation and work to gain clarity early on around what the market is going to consider “viable”. This is where many startups have failed with the MVP approach, jumping in prematurely with a non-viable product and then running out of time, money, and opportunities to recover from the damage. So figuring out where this threshold lies — before jumping in — is of utmost importance. At the same time, having an MVP — while a necessary condition for success — is not by itself a sufficient condition for success. There are myriad other business matters that must be executed well if success is to be achieved, not the least of which is a viable sales channel.

The next logical question should therefore be… “How do we know if our product is an MVP?” The answer to this question will vary wildly by market, but in general, to be viable the product must solve a real (and preferably urgent) problem in a way that brings new value and good experience each time, and it must do so easily and consistently. This doesn’t mean it’s a desirable product, it simply means it is viable. If it cannot do these things, then it is not viable, minimum or otherwise. So while the product may not yet be able to do everything its creators and users want it to do, if it can do most of those things and it can do them properly, then it may be viable. Not doing them properly however, is worse than not doing them at all. Neither is “viable”. The “minimum” in MVP means that for what it does do, it has no perceptible flaws. Again, knowing where this threshold lies is paramount. The dilemma here is that, whereas the Right Startup companies invest a lot of time, money, and effort into understanding this so that they can get it right the first time, not just for a minimum viable product, but typically for an awesome product, most startups do not have that sort of time and money to leverage. Thus, even the most well-funded startups still have to learn in ways that are leaner and faster than their established counterparts.

Understanding these facts about the Lean Startup model and thinking about the various growth stages, the next question has to be… “How do we get from Point A to Point B… from Lean Startup to Right Startup? Or is that even a goal we should strive for?” To answer this, let’s assume that you’ve decided to start up a business or brand using the Lean Startup model and you understand what your product must do in order to be considered “viable” and it in fact meets that requirement. This means you have an MVP and a good starting point. Success from there will require that you constantly manage your and your customers’ risk exposure as you leverage your successive learnings to grow your company. This will most likely equate to gradually shifting your sandbox more and more inside and less and less outside with each successive growth stage (in many cases, the sandbox will also tend to grow larger as well, as more extensive product testing is typically called for as the company grows and the product evolves). At each step along the way, you will need to rein in the level of risk exposure you create, bit by bit moving the risk exposure from the outside to the inside until eventually you are using something much closer to the Right Startup model. In between, you may find yourself using some hybrid of both methods. This sort of carefully controlled experimentation path aligned to your growth trajectory will mitigate risks and limit damage and in so doing maximize your chances for long-term success. So, yes, it probably is a goal to strive for. Stasis and complacency, however, will never be goals to strive for.

And this brings us to our last question… “Does there ever come a time when a company must definitely shift from the Lean Startup model to the Right Startup model?” The answer is “most of the time, yes.” There comes a time in the life of any great enterprise where, once it has grown to a certain size and reached a certain stage of maturity, it needs to begin protecting the precious turf it has fought so hard to gain and become who it is. This is often a critical inflection point in the life of the enterprise. This is precisely what Facebook recently did when it changed its mantra from “Move Fast and Break Things” to “Move Fast with Stable Infra”.³ And this is precisely what many other highly innovative but established firms did a long time ago — companies like P&G, General Mills, and MasterCard, for example.

So there we have it… two very divergent models of innovation-school thinking, both aimed at creating new value, but in the manner most appropriate to the situation. What’s in your sandbox? I would love to hear your feedback in the discussion space below.

¹ See for example the blog post by John Finneran, The Fat Startup: Learn the lessons of my failed Lean Startup at wordsting.com.

² How Being a Good Manager Can Make You a Bad Innovator, Jeff Dyer and Hal Gregersen, Forbes Tech, August 20, 2014.

³ Facebook Changes Its ‘Move Fast and Break Things’ Motto, Samantha Murphy Kelly, Mashable, April 30, 2014.

Anthony Mills is a leading authority on innovation strategy and has worked with both startups and their VCs as well as the Fortune 100. He is the Founder and CEO of Legacy Innovation Group. You can learn more at www.legacyinnova.com.

CEO — Legacy Innovation Group / Executive Director — Global Innovation Institute. Speaker. Writer. Scholar. Strategist. Adventurer. Global hitchhiker.

CEO — Legacy Innovation Group / Executive Director — Global Innovation Institute. Speaker. Writer. Scholar. Strategist. Adventurer. Global hitchhiker.