This is a syndicated post originally written for Cohaesus, one of my clients.
The “startup mindset,” once a contrarian way to approach business, has become the norm among successful companies. What began as grit and determination among small companies is now something businesses of all size try to foster.
Thanks in large part to new and innovative companies like Facebook, Airbnb, WeWork, and more, the startup mindset is now entrenched in the modern business lexicon. Those who can adopt a startup mindset are more likely to reduce overhead, increase revenue, better the customer experience, and hire top talent. Those who don’t are commonly left in the dust.
And while the startup mindset is often thought of as an agile tech term, older and more established corporations are taking advantage of the lean mentality. To ensure you stay up to date with these trends, we’ve written an article that discusses the new ways companies are approaching their product and service propositions.
What is the Startup Mindset?
The startup mindset is a methodical approach to creating an organization that gets its products and services into the hands of its customers with increasing speed. The startup mindset, which is the embodiment of Eric Ries’ Lean Startup Method, helps business owners and managers pivot and adjust course to keep up with consumer interests and demand.
The startup mindset is based on a 3 step process known as the “build, measure, learn” feedback loop. This never-ending informational loop allows businesses to create, launch, learn, and iterate on new and old products. Specifically, the feedback loop can be thought of in the following way:
- Build – Create a minimum viable product (MVP) based on a set of assumptions
- Measure – Launch MVP and measure your hypothesis based on your assumptions
Learn – Accept or reject your initial hypothesis and iterate on the MVP
The process is called a loop because after you learn from your measurements, you go back to the drawing board and build a better and newer version of your product. You then release that new iteration and measure the results, learning from them and restarting the process yet again.
What is the Lean Mentality?
The startup mindset is also known as the lean mentality because when you think like a startup, you naturally think lean. This lean mentality is helpful because it allows a business to get their product or service to market with surprising speed.
The lean mentality embodies the spirit of the startup mindset because it forces you to work within a tight budget and think outside the box. Rather than solving business problems with money, practitioners of the lean mentality solve their problems by streamlining processes, removing unneeded product features, and maximizing operational effectiveness.
This allows companies to release the minimum viable products (MVP) we discussed above, learning from customer feedback and iterating on their MVPs. Over time, core features are refined and new features are added to the product until the customer is fully satisfied.
How are Corporations Adopting a Startup mindset?
More and more established companies are adopting a startup mindset for reasons we outline below. What was once used only by small startup companies is now adopted by large organizations. Specifically, established corporations are adopting a startup mindset in the following ways:
Creating Innovation Labs
Innovation labs are new and improved R&D departments pioneered by some of the world’s largest banks. Innovation labs are used by these banks as fintech incubators, startup accelerators, as well as for more classic R&D efforts.
Banks that have innovation labs will often invest a lot of time and money into their programs, giving their labs adequate backing, manpower, and office spaces that look more like a tech startup than a financial institution. In fact, many banks have more than one innovation lab, with each one focused on a different area of innovation.
For example, Deutsche Bank, as of March 2017, has opened 4 separate innovation labs, with its newest now focused on artificial intelligence, cloud technology, and cyber security. The new innovation lab is considered a “startup incubator” by Elly Hardwick, Head of Innovation at the bank. Specifically, Hardwick expects Deutsche Bank’s incubator to help with data synthesis and regulation compliance.
The list of banks that have innovation labs, of course, doesn’t stop at Deutsche Bank. The Financial Brand recently highlighted the top 7 innovation labs. These innovation labs help their banks deal with the changing financial environment as more and more services are brought online.
Adopting Innovation Accounting Practices
Innovation accounting is a new take on accounting and financial management based on the startup mentality. Innovation accounting is the act of defining, measuring, and communicating the actual progress of innovation. Innovation accounting measurements indicators of innovation that aren’t measured by normal accounting practices.
For example, even though traditional accounting practices can measure success or progress, it can easily stifle or derail a new or innovative project. This is because traditional financial management works best when it can use historical data from established products or services to measure innovation.
However, methods of accounting measurements, such as financial ratio analysis or cash flow analysis are unable to measure new and innovative products without a track record of success. This becomes a very real issue for established companies that are now using antiquated measurements of success for new innovation initiatives (such as the innovation labs mentioned above).
To rectify the issue, established corporates are adopting a method of innovation accounting to measure the success of their new efforts. For example, rather than trying to use sales as an indicator of success, these companies might now use an indicator like average user engagement for a new product feature.
While “average engagement” doesn’t necessarily result in increases to the bottom line, based on innovation, companies know that sustained engagement will result in success. If they were to measure a new product feature using traditional accounting ratios it might look like a failure. If they measured the new product feature on average levels of engagement, however, the outlook might seem much different.
Overall, innovation accounting can measure anything that’s accessible, controllable, and auditable. Any indicator that has these three components can be successfully measured using the methods of innovation accounting.
How Does the Startup Mindset Result in Success?
The startup mindset helps companies create the best products and services possible, based on real market data. Rather than trying to perfect a product prior to launching it, companies that adopt a startup mindset create a product that is, by definition, “minimally viable.” They will then release that product, collect consumer information, and update the product as needed.
Specifically, the startup mindset helps companies in 4 distinct ways:
- Decreases time to market – Time to Market (TTM) represents the time it takes from the inception of a product to the product’s release in the market. Companies that are faster to market have a better chance to grab market share and maximise the return of product launches. With a startup mindset, a minimum viable product (MVP) reduces the lead time between idea and product launch.
- Decrease operational costs – The startup mindset forces companies to become efficient in their resource management. If an MVP is only going to have one feature, for example, it’s easy to strip away much of its operational costs. Further, the startup mindset causes businesses to think lean and look for alternative inputs to their products or services, thus saving them money.
- Better customer experience – Thanks to the MVP, companies now have the ability to interact with their customers in near real-time. Rather than building a product with many features, businesses now create products with a small number of features and ask for customer feedback. Based on the feedback, the businesses will iterate and try to better serve their existing customers.
- Increase organizational effectiveness – The result of all this is an increase in a company’s organizational effectiveness. Processes are streamlined, overhead is reduced, and the time it takes to receive market data is shortened. All in all, it allows an organization to run a more efficient business that is more effective at meeting customer needs.
Things to Avoid When Adopting a Lean Mentality
Unfortunately, not all innovation labs and methods of innovation accounting result in a successful company. Further, not all practitioners of the startup mindset or the lean mentality increase organizational effectiveness. In fact, if a company’s startup mentality doesn’t reduce its time to market and ability to learn on the fly, it’s not even worth pursuing.
To help, there are 4 things to avoid when adopting a lean mentality:
- Don’t be cheap – Being fast and agile doesn’t mean that a company can be cheap. Rather, what the startup mentality means is to focus your resources on the most important areas of your product or service. It doesn’t pay to be cheap, but it can definitely pay to be smart about how a company spends its money.
- Don’t think a large consultancy can help – Don’t believe that the Scaled Agile Framework, and any of the other ‘structured’ methodologies will turn your lumbering bureaucratic delivery structure into Facebook. Julian Browne has a very enjoyable article about “agile at scale”
- Don’t forget to align processes – The whole point is to be lean and fast to market. However, a company will never succeed in its aim if it doesn’t align its processes. For example, you might implement agile practices in an innovation lab, but if your procurement practice is slow and antiquated, it won’t matter how fast the innovation lab can learn from its consumers. If it doesn’t have the resources on-hand it can’t iterate and release a new product.
- Don’t be afraid of failure – The beauty of the startup mentality is that companies can embrace failure. Now, failure is hardly a goal, but when you rely on a minimum viable product and innovation accounting to measure its success, failure is part of the game. The greater a company’s fear of failure the more paralyzed it will be when making decisions based on customer feedback.
The bottom line is that the startup mindset is beneficial for companies of all sizes. In fact, it’s becoming increasingly common for larger and more established corporates to adopt a lean mentality and startup mindset. The result is more innovation in smaller increments of time.
I will leave you with another quote from Julian Browne “stop planning things a year in advance. Stop estimating huge programs of work you don’t understand (when, as we’ve already covered, the agile team doesn’t yet even know how to approach it). If it’s not clear what the customer wants then don’t do it. Do something that does have a clear value or economic benefit instead.”