The 9 biggest challenges for corporates to implement lean startup

Arne Van BalenIntrapreneurship

This post is written for innovation managers & corporate lean startup coaches. For basic descriptions of the terms MVP or intrapreneurship, look elsewhere. Here are the 9 biggest challenges for corporates to implement lean startup and 23 great best practices to tackle them:

Organizations designed to maximize efficiency

1. Product Dev/Engineers have no direct contact with clients.

Sales and customer service departments are specialized in solving client problems with off-the-shelf solutions in the most efficient way. Coming up with an experiment for an uncertain solution that might work doesn’t fit their job description and will have a negative effect on their performance review. Product development and engineers, on their turn, expect these departments to deliver them client insights to design more relevant products and services.

Best Practice: Buddy up an internal project manager with a sales rep and evaluate them as a team like agile organizations do.

Side note: Successful startup founders will always do the sales their selves until no new questions and remarks come up from clients. It sounds like a hassle, and it is, but 🚨  never out-source sales in the first stages of your new business. Important learnings will be ignored.

Quote: “Never delegate understanding” – Charles Eames

2. Need for investment and return in the same business unit.

Managers have their own KPI’s and growth objectives. If Manager X decides to invest in an innovation program (e.g. Innovation Accelerator) to create new disruptive revenue streams for his Business unit; the ideas will be created around those objectives. Now imagine one of the accelerator teams realizing that they should pivot away from the original scope to keep a viable idea relevant for the company as a whole. Few managers will allow the team to pivot in a way that another business unit takes all the revenues.

  • Best practice: Finance uncertain projects with a cross-departmental-fund (e.g. by CEO office) to maximize pivot possibilities (and potential value for the company). E.g. Thomson Reuters Catalyst Fund funds 30 projects every year and supports them with lean startup coaching and best practices.
  • Best practice: Run a Corporate Accelerator (cross-BU) in addition to BU-headed Accelerators. (E.g. ING)

3. Governance built to slow down (or kill) new initiatives.

Firstly, strict processes and guidelines make best practices repeatable, which is perfect for incremental business improvements and running an everyday business. Secondly, it keeps new disruptive initiatives from reaching those that have the power to implement the lather. Imagine having 7 management layers between an employee with a brilliant idea and the director that needs to allocate the budget to make it happen. Each manager will shape the idea to different KPI’s and personal preferences. All interesting and differentiating factors, that make the idea brilliant, will be gone by the time an implementation decision can be made.

comic about how to kill innovation

  • Best practice: At Board of Innovation, all employees have an experiment budget (€50/month) to be used without questions asked. Also, Adobe gives their innovation teams a $1000 prepaid credit card to enable and accelerate intrapreneurs.
  • Best practice: Create sidetracks for innovation projects (e.g. accelerators, boot-camps, pressure cookers, etc.) that allow intrapreneurs to pitch their results and call to action directly to key decision makers, often top-management.

Business decisions driven by gut feeling

4.Accepting a sunk cost feels like a total failure.

Killing projects is a brave thing to do for both managers and project teams. Why? Firstly, it transforms all investments in the project into costs. Secondly, all people involved will have to accept that they failed and let go of the project. Lastly, it’s a challenge to know when a team tried everything possible to make a project work.

  • Best practice: Lean startup uses evidence-based to proof if a project can or will not work. Many teams entering our corporate accelerator programs are working on never-ending-money-draining projects, often kept alive by internal politics. Using lean startup principles in a safe environment is a perfect way to either kill or define first implementable steps for the project.
  • Best practice: Lower governance for budget requests of innovation teams, increase the number of budget rounds and decrease the budget allocated. This will increase the time to market, lower the risk of losing a big investment and management has more chances to re-evaluate (e.g. kill a project if necessary).
  • Best practice: Try to look at the money saved by not continuing when killing a project. Feeling sorry for yourself that you invested in a killed project should be something of the past if you want to create new revenue streams.

Accounting in the lead

5. ROI (or payback period) seen as company-wide KPI for investments.

Everyone knows that uncertain projects need more time to reach their payback time. Most projects (90%) don’t even reach break-even. If they do, though, chances are that the ROI will be multiples of your ‘low hanging fruits’.

  • Best practice: Have a look at innovation accounting and see how to measure innovation practices on different levels.
  • Quote: “Time-to-market is the new ROI!” – Comparing projects based on projected on ROI doesn’t make sense once the time to market differs too much as ROI of long-term projects is far more uncertain. Check out this insightful article.

6. No budget if not allocated to clear deliverables.

This investment strategy has been great for heavy IT implementations, but it doesn’t work for projects without a clear outcome yet. The push for control and short term return (often driven by shareholders) makes it impossible for uncertain projects to change direction when needed. This increases the chance of failure and premature project murder.

  • Best practice: The progressive marketing department of Cartamundi, a European board game manufacturer, gives 10% of their marketing budget to Pull The Trigger, a growth hacking agency started by a former Board of Innovation employee, to challenge their way of working towards the same goals. This 10% can be seen as a rule of thumb for experiment budgets and time investment. It will decrease costs on the long term.
  • Best practice: Corporate startups that we support have budget cycles of 3 months to realign budget with deliverables (eg. ForestPlastics by Sappi or ELLA by SD Worx).
  • Best practice: Bart Remmerie, a former HR manager of Elia Group, allocated part of his own budget allowance to an initiative called the ‘After Hours Guerrilla Club’. The goal of the concept was to enable and motivate intrapreneurs to test new ideas and launch them from the bottom of the company, rather than the other way around. It’s a great way to enforce an innovation culture in the company.

Corporate misconception of innovation

7. “We have a reputation to protect”.

Don’t get me wrong here. It takes decennia to build a good company reputation and it should be protected! What I want to tackle is how risk managers and corporate communication departments flag any type of experiment with clients involved. The main issue is the difference in both mindset and context understanding of lean startup type experiments. Both risk manager and intrapreneur will have to meet in the middle.

  • Best practice: Framing the context of experiments and immature services is key. Often companies prelaunch products in beta communities (a group of clients that want to test new products, search for bugs and give feedback). Beta (or even Alpha) launch should be all over the place.
  • Best practice: BNP Paribas Fortis launched a new bank (Hello Bank) targeting only early adopters of regular banking services to pilot new products & services. If you choose to go this way, make sure to stick to the purpose of such a venture over time. Once you start using traditional KPI’s and growth requirements for your pilot venture, it will lose the essence of its existence.
  • Best practice: Intrapreneurs can use the principle of ‘maximal liability’ when asking for permission to execute a client experiment. It is the maximal amount of monetary risk linked to an experiment. Risk managers aware of this concept can also suggest ways to decrease maximal liability, rather than saying “NO” to any experiment with a risk higher than X. Below 2 scenarios, shared to us by Eric Ries at the ING Breaking Barrier event in Amsterdam, to illustrate the difference:
  • Scenario 1: Regular question to risk manager:
    “Can we propose a fake service to clients to see if they want the service? If they do, we will make it.”
    Likely answer: “Hell no!”
  • Scenario 2: Question with maximal liability principle:
    “Can we propose a fake service to 10 clients with a life-time-value of €100? If we lose all clients, we have a cost of €1000. That’s a fraction of the development cost we would have if we develop the solution and clients don’t want it.”
    Likely answer: “Why do you bother to call me for a risk of €1000?” 

8. Keeping ‘genius’ ideas internally to protect a first mover advantage.

What we hear in every second innovation session: “We will educate the market, like Apple did in 2007 when they launched the first smartphone”. Well, nice to be challenged as an innovation facilitator, but let’s face the facts: in the early 90’s, IBM launched the Simon Personal Communicator. Next to calling, the device was able to send and receive faxes and emails. IBM didn’t succeed, but it sounds like a smartphone to me. 😄  Most successful products launched by big companies are a smart copy of what others are doing. This copying is at least inspired by what others are doing.

  • Best Practice: Don’t see smart copying as ‘stealing’; see it as being inspired by others. The more you copy what works; the better your offering will be. If you like this idea, feel free to download our analogy cards for FREE and start copying business concepts like an artist.
  • Best Practice: Leverage your current assets and be open about your new developments. If another company appears to be better or faster to launch the same offering, you better know before you go all-in.
  • Best Practice: Don’t believe that being a market leader means that you should try to educate the market. The market will educate itself when you add enough value.

9. “Coming up with innovative solutions is always on top of the job”

and “Innovation is only for new projects” are quotes that we hear when we have an innovation workshop with non-innovation professionals. Well, dear companies, if you really want to be innovative, you better start experimenting in existing projects. Start small and create a culture of trying new ways that question the status quo.

  • Best practice: ING recently launched “PACE every day”, their program to support all employees with everyday initiatives to use PACE principles. (PACE is ING’s uniform language to support innovation and creative thinking. It’s a mix of lean startup, design thinking, and agile development principles)
  • Best practice: VRT, a national public-service broadcaster in Belgium, organises bi-weekly meetups to tackle new topics in broadly aimed open masterclasses. Next to that, they created ‘challenge’ cards for anyone to come up with ideas on user-centered challenges that were uncovered by the innovation team.

To conclude, implementing lean startup in a corporate is a challenging and exciting initiative to unroll. Multinationals are designed to maximize efficiency and managers limit risk and follow their gut. On top of that, the Lean Startup book is one of those books that look nice on your shelf without reading it. This results in many people using innovation buzzwords without practicing what they preach. So only one way to go: define the challenges that apply to your organization and start testing new ways to unroll lean startup thinking.

Get more info about our Innovation Accelerator for Corporates , share knowledge and start a great discussion!

  • Which challenges apply to your organization?
  • Do you have best practices to share?
  • Something you will try after reading this post?