“Build a better mousetrap, and the world will beat a path to your door” is a phrase that has inspired generations of innovators and entrepreneurs. Unfortunately, they often find that a better mousetrap is not enough. You also need to find a customer who wants to buy a mousetrap at a price at which you can profit.
That, essentially, is the idea behind the lean startup, a concept originally developed by Steve Blank and then popularized by Eric Ries in his bestselling book. Blank’s key insight is that you can’t run a new business the same way you would manage an existing enterprise.
Today, concepts that Blank pioneered, such as customer development, minimum viable product and the pivot have become de rigueur for Silicon Valley entrepreneurs, but are still largely unknown in the greater business world. Yet, it’s becoming clear that lean startup methods can be effective for anyone that is trying to bring a new product or service to market.
Helping Customers With Their “Agita”
Experian is about the farthest thing you can think of from a startup. It is, in fact, the product of a merger between two early credit agency pioneers, TRW Information Services and Commercial Credit Nottingham (CCN), and traces its lineage back decades. Today, the firm is a full fledged data giant with over $4 billion in annual revenues.
Yet within its DataLabs unit, you’ll find something that looks a lot more than a lean startup than an established business. Part skunkworks, part research lab and part accelerator, Experian DataLabs regularly meets with its customers to uncover unresolved problems in the marketplace that can be transformed into profitable opportunities.
“We regularly sit down with our clients and try and figure out what’s causing them agita,” Eric Haller, Global Head at Experian DataLabs, “because we know that solving problems is what opens up enormous business opportunities for us.” Once they find a problem that looks promising they build a minimum viable product, usually within 90 days.
In speaking to Haller, it struck me how much more effective the lean startup process can be for an established firm. It’s much easier to do customer development when you already have loyal customers and it’s much easier to scale from a viable solution to a full fledged business when you have the resources of a $4 billion enterprise behind you.
Also, startups usually only get to make one bet, but Experian DataLabs has a dozen or more disruptive projects going on at any given time, which gives them the freedom to tackle even the toughest problems. “We may fail in nine out of 10 efforts, but if one of them hits, it can be really big for the company,” Haller says.
Propelling Science Forward
Every year, the federal government invests about 4% of its total budget on research. That’s down quite a bit from the heady days of the 1960’s, but it still amounts to $146 billion this year and about a quarter of the total — $33.5 billion in 2016 — is devoted to basic research, which is focused on exploration rather than developing a specific application.
Many of these basic discoveries end up having great commercial potential, but need financing to get past the concept stage. That’s why Congress set up the Small Business Innovation Research (SBIR) program to allocate grants to early stage innovation ideas. Wildly successful firms such as Qualcomm, Symantec and iRobot started out with SBIR grants.
Still, even a pathbreaking technology is not enough to create a successful business. Many great innovations fail simply because they weren’t able to identify customers and develop a sustainable business model. To fill this gap, Steve Blank helped to create Innovation Corps, a program that teaches Lean Startup techniques to SBIR recipients.
The initial pilot program was an enormous success — 19 of the 21 participants were able to secure further funding — and has since been expanded. A similar program at CSIRO, Australia’s scientific agency, also achieved impressive results and led to the creation of a new innovation fund, despite diminished science budgets down under.
Disruption For Social Good
We don’t normally think of social programs having a business model, but just like a profit seeking enterprises, they need to identify customers and how best to serve them in order to be viable. The Business Innovation Factory in Providence, RI is a nonprofit organization that helps social enterprises do just that.
One particularly interesting project is its work with Children’s Health in Dallas. Although it is considered one of the top Children’s hospitals in the country, Children’s Health CEO, Chris Durovich, noticed that the health indicators in the community as a whole were getting worse, especially with regard to chronic conditions such as diabetes and asthma.
Working together, they found that rather than simply treating patients when they got sick, they also had to address the social determinants of health. When families undergo stress in their everyday life, such as with employment, housing or within the home, people get sicker and adherence to treatment suffers.
By iterating through several potential solutions, Children’s Health and Business Innovation Factory learned how to integrate the healthcare system with other programs that can address problems and improve overall well being. In one pilot program, it was found that linking asthma patients to community-based social programs reduced emergency room visits by almost 50%.
Next year, Children’s Health expects to launch an innovative HMO that will enroll 15,000 children and their families. The plan will be funded through the assumption of Medicaid liabilities for the children and will use a portion of those funds to finance navigators to support well being among the HMO members.
Innovation Is Never A Single Event
All too often, we think of innovation as a “Eureka!” moment that leads directly to an impact on the world. Yet as I explain in my book, Mapping Innovation, that’s just not the case. Innovation is never a single event, but has many fits and starts. In my research, I found that it often takes decades to go from an initial insight to an actual impact on the world.
Consider the case of Apple’s Macintosh, which Steve Jobs launched in 1984. The technology was actually developed at Xerox PARC in the early 1970’s. The researchers there, in turn, got their ideas from Douglas Engelbart’s Mother of all Demos in 1968. So it took 16 years to go from concept to marketable product.
But even that underestimates the difficulty. It’s also important to remember that there was no measurable productivity impact until the late 1990’s — 30 years after the original idea. That’s how long it took for business to adopt applications to a large enough degree for it to really matter. The truth is that if you build a better mousetrap, you’re likely to be ignored.
That’s what makes the ideas behind the lean startup so important. Whether you are a startup, an established company or a social enterprise, you need to identify a customer and develop a viable business model. Just because you’ve created a great solution, doesn’t mean you have found the right problem.
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Greg Satell is a popular speaker and consultant. His first book, Mapping Innovation: A Playbook for Navigating a Disruptive Age, is coming out in 2017. Follow his blog at Digital Tonto or on Twitter @Digital Tonto.