Eight steps to the epiphany

Illustrations by Esther Gons for The Corporate Startup

Innovation as a key driver

China and other Asian economies are poised to make the move from being production based economies towards having innovation as a key driver. This shift in strategy also represents a fundamental shift in how businesses will develop products and connect with their consumers. At the heart of innovation, is a deep understanding of customer needs. This understanding informs how products are then created and marketed. Innovation is not just about having great ideas. It is about combining those great ideas with sustainably profitable business models.

The goal of finding sustainable business models requires innovators to test their ideas before they launch them at scale. This search-oriented approach is different from an execution-oriented approach based on business planning. All innovators need the humbleness to recognize that very few product ideas ever succeed in their original form. Most successful startups had to pivot and iterate their way to success. Indeed, the research shows that the number one reason for products failing in the market is premature scaling (i.e. launching a product before testing it with customers).

The innovator’s rhythm

When we encourage innovators to test their ideas, we are not asking them to simply throw things against the wall and see what sticks. Innovation is a systematic process that has a rhythm to it. This rhythm is best represented by the ‘create-test-learn loop’. What this means is that before we start testing ideas with customers, we have to make explicit what our business model assumptions are.

Every business plan has within it several assumptions about customer needs, purchasing behaviour and potential channels to scale the product. We have to identify and prioritise these assumptions before we begin testing. Once prioritization is done, we can now systematically test each assumption and compare it to real life evidence.

This innovation rhythm can be used to navigate through the riddle of innovation and solve the equation presented at the beginning of this article. We can run experiments to test whether customers have the needs we assume they have.

We can also test if we are building the right solution for them. Finally, we can run experiments to test all other aspects of our business model including pricing, costs, channels, and key partners. The ultimate goal is to create products people want and figure out a way to deliver that value profitably.

Eight steps to the epiphany

The lean innovation process for testing product ideas will now be described in a little more detail. In practice, there are eight key steps that are involved in each experimentation cycle. Innovators need to master each key step in order to succeed:

1. Capture ideas: Map out your Plan A. Describe your initial thinking about the business model you will use to take the product to scale. Rather than writing a business plan, use a visual tool such as the business model canvas.
2. Identify assumptions: Review your Plan A for any untested assumptions. In every plan, there are knowns and unknowns. Your goal is to identify the unknowns within your initial business model.
3. Prioritize assumptions: Identify those assumptions that are most critical for success. These can also be described risky assumptions. These are the assumptions that if it turned out we were wrong, we would have to seriously rethink the project. Our goal is to identify our riskiest assumptions and make plans to test those first.
4. Brainstorm tests: After we know which assumptions to test, we can start thinking about how we are going to do it. What is the smallest thing we can do tommorow to start turn that assumption into knowledge? There are several methods that are available to innovators within the design thinking and lean innovation toolbox. These range from customer interviews, contextual observation, minimum viable products and A/B testing.
5. Falsifiable hypotheses: Before we run our chosen experiment, we have to benchmark our minimum fail criteria. We have to decide as a team upfront what we expect to happen during our test, and the minimum criteria for deciding that our assumption is not supported by the data. Our chosen minimum criteria should be made explicit and displayed for everyone in the team to see.
6. Get out of the building: We are now ready to run our experiment in context. We have to get out of the building to test our assumptions with real customers. There are no facts in our office. In order to understand our customers, we have to test our ideas in their context
7. Capture learning: Once our researchis complete, it is time to review our results. Does the data support our assumptions? We can use our minimum fail criteria to perform this review. We should also explore our data for any new unexpected learnings that emerged while we were out of the building.
8. Make decisions: On the basis of our outcomes, we can decide what to do next. If our assumptions are supported by the evidence, we may decide to continue developing our idea and move on to testing the next set of assumptions. If our assumptions are not supported by the evidence, we have the choice to change or adapt our business model (i.e. pivot), or stop the project altogether.

Conclusion

These eight steps are to be repeated until we are feel confident that we have found the right business model for our product. Finding the right business model is something all innovation teams must do before they launch their products at scale. The power of lean innovation is that it saves us from making large leaps of faith that may lead to monumental failure. If companies in China and other Asian economies want to successfully make the move from being production based economies towards having innovation as a key driver, they need to master these lean innovation process.