From lean startups to open innovation success

Serial entrepreneur and Harvard Business School Entrepreneur-in-Residence Eric Ries delivered an insightful and entertaining talk on his Lean Startup methodology at the PARC Forum invited expert speaker series last week. (This is part of the Entrepreneurial Spirit series; you can see the other speakers and videos here.)

Don’t let the word “startup” fool you – according to Eric’s definition, a startup is any organization of any size dedicated to creating something new under conditions of uncertainty. Sound familiar? Of course it does, because anybody working in innovation – whether in a garage or Fortune 500 boardroom – is doing just that. The challenge is how to penetrate that “fog of uncertainty”, as Eric puts it, to discover a path to a successful, sustainable business.

I’m not going to restate all of his points in this post. You can watch his talk online here or below – I highly recommend it.

Instead, I want to share how we’ve been practicing similar concepts at PARC, and compare and contrast some specific Lean Startup methods with PARC’s practices in Open Innovation.

The science behind the art: what both entrepreneurs and inventors have in common

The goal of the Lean Startup methodology is to “stop wasting people’s time” by testing assumptions so you can prevent repeatedly building things that no one wants – in other words, as Eric mentions, don’t get to 200 employees in your company before your product has even seen a user! PARC’s version of this? “Invent things that people want” – in other words, don’t invent in a vacuum.

Both of these maxims represent statements that are easier said than done. But just as Eric argues that there’s a scientific methodology for entrepreneurship, we would argue that there is a scientific – and systematic – approach to innovation “discovery” as well.

For example, PARC uses several techniques to create conditions that stimulate discovery. One of the most powerful is the social science method of ethnography, which we often use to inspire new inventions by identifying non-obvious or unarticulated problems.

Because, as Eric pointed out in his talk, you can’t just ask people what they want… Most people can’t even predict accurately what they will want to eat for dinner tomorrow!

The key behind ethnography is the naturalistic, scientific study of human behavior in context to provide a detailed, nuanced, and complete picture of what people actually do in diverse contexts — as opposed to just what they say they do. At PARC, we couple ethnographic insights with technical experts looking at problems from multiple disciplines, and business analysts examining the questions of why and, so what? – leading to the collaborative discovery of new inventions grounded in user behavior, context, and business value. [In fact, you can catch another PARC Forum series set of videos on ethnography here.]

The role of MVP: a key difference between Lean Startups and Open Innovation

As we’ve written before, invention is not the same as innovation – innovation requires bringing the invention to the world. Eric talked about entrepreneurship as a dramatic story that takes place in three “acts”, with Act II as the boring phase between the “Eureka!” moment of Act I and the realized riches in Act III.

In Open Innovation, Act II is the hard work of forming partnerships to co-develop and transfer early stage technology to companies that can then develop and market the commercial product or service.

But there’s an important transition between Act I and Act II – it’s packaging the discoveries of Act I in a way that is contextually relevant to the partner (in Open Innovation “partner” proxies “users” in startup terms). Why does this matter? Because with early stage technologies, it is very difficult for companies on the buy side to assess value unless they can clearly see where the technology fits within their organization, how much work remains to be done in getting it to market, and what kind of financial return they will likely earn.

This act of engaging potential partners early to learn what goes into the package can be viewed in the same light as the Lean Startup methodology of MVP, which stands for Minimum Viable Product. Popularized by Eric Ries and Steve Blank, the MVP strategy allows products to be rapidly tested and improved in a highly efficient manner.

• In the Lean Startup methodology, the strategy of MVP mostly helps you avoid the risks of overinvesting: for example, building something very expensive before you find out, uh-oh, no one wants it.
• In Open Innovation, however, MVP is less about lowering risk and more about supporting the value of early stage technology. In other words, the risk isn’t just in overinvesting but in underinvesting as well – both in terms of technology maturity and market understanding.

At PARC, for example, we’ve learned that if you underinvest and don’t reach the MVP, then there’s a risk that commercial partners will not see the value in the technology… or decide that it will be easier to hire people to create the technology internally instead. Sometimes that is the right decision as the learning from doing it yourself can be useful. But it’s not necessarily efficient, and Open Innovation really is about creating a market that is efficient in trading risk and expertise to create value, and more importantly expand the size of the pie for everyone.

I asked Eric about his thoughts on the risks of underinvesting in MVP, and he rightly observed that for most startups, the primary risk from underinvesting is getting a false negative. And in my experience, most entrepreneurs overcome false negatives through persistence and determination.

But in Open Innovation, it’s not enough to be persistent. Suppliers of technology often have only one chance to convince buyers that forming a co-development partnership is the best course to develop a new product or service. So for Open Innovation to reach its full potential, I believe it is critical that all participants share a common understanding and framework for planning, evaluating, co-developing, and transferring technology.

We can all adapt Lean Startup concepts to our businesses. I’d love to learn how you have done so in the comments, and am especially interested in your thoughts on adapting these concepts to Open Innovation…