July 7, 2015 12 Comments
The lean startup movement was developed to address an issue that bedeviled many entrepreneurs: how to introduce something new without blowing all your capital and time on the wrong offering. The premise is that someone has a vision for a new thing, and needs to iteratively test that vision (“fail fast”) to find product-market fit. It’s been a success as an innovation theory, and has penetrated the corporate world as well.
In a recent post, Mike Boysen takes issue with the fail fast approach. He argues that better understanding of customers’ jobs-to-be-done (i.e. what someone is trying to get done, regardless of solutions are used) at the front-end is superior to guessing continuously about whether something will be adopted by the market. To quote:
How many hypotheses does it take until you get it right? Is there any guarantee that you started in the right Universe? Can you quantify the value of your idea?
How many times does it take to win the lottery?
Mike advocates for organizations to invest more time at the front end understanding their customers’ jobs-to-be-done rather than iteratively guessing. I agree with him in principle. However, in my work with enterprises, I know that such an approach is a long way off as a standard course of action. There’s the Ideal vs. the Reality:
The top process – Ideal – shows the right point to understand your target market’s jobs-to-be-done. It’s similar to what Strategyn’s Tony Ulwick outlines for outcome-driven innovation. In the Ideal flow, proper analysis has uncovered opportunities for underserved jobs-to-be-done. You then ideate ways to address the underserved outcomes. Finally, a develop-test-learn approach is valuable for identifying an optimal way to deliver the product or service.
However, here’s the Reality: most companies aren’t doing that. They don’t invest time in ongoing research to understand the jobs-to-be-done. Instead, ideas are generated in multiple ways. The bottom flow marked Reality highlights a process with more structure than most organizations actually have. Whether an organization follows all processes or not, the key is this: ideas are being generated continuously from a number of courses divorced from deep knowledge of jobs-to-be-done.
In my experience working with large organizations, I’ve noticed that ideas tend to go through what I call “inside-out” analysis. Ideas are evaluated first on criteria that reflect the company’s own internal concerns. What’s important to us inside these four walls? Examples of such criteria:
- Fits current plans?
- Feasible with current assets?
- Addresses key company goal?
- Financials pencil out?
- Leverages core competencies?
For operational, low level ideas inside-out analysis can work. Most of the decision parameters are knowable and the impact of a poor decision can be reversed. But as the scope of the idea increases, it’s insufficient to rely on inside-out analysis.
False positives, false negatives
Starting with the organization’s own needs first leads to two types of errors:
- False positive: the idea matches the internal needs of the organization, with flying colors. That creates a too-quick mindset of ‘yes’ without understanding the customer perspective. This opens the door for bad ideas to be greenlighted.
- False negative: the idea falls short on the internal criteria, or even more likely, on someone’s personal agenda. It never gets a fair hearing in terms of whether the market would value it. The idea is rejected prematurely.
In both cases, the lack of perspective about the idea’s intended beneficiaries leads to innovation errors. False positives are part of a generally rosy view about innovation. It’s good to try things out, it’s how we find our way forward. But it isn’t necessarily an objective of companies to spend money in such a pursuit. Mitigating the risk of investing limited resources in the wrong ideas is important.
In the realm of corporate innovation, false negatives are the bigger sin. They are the missed opportunities. The cases where someone actually had a bead on the future, but was snuffed out by entrenched executives, sclerotic processes or heavy-handed evaluations. Kodak, a legendary company sunk by the digital revolution, actually invented the digital camera in the 1970s. As the inventor, Steven Sasson, related to the New York Times:
“My prototype was big as a toaster, but the technical people loved it,” Mr. Sasson said. “But it was filmless photography, so management’s reaction was, ‘that’s cute — but don’t tell anyone about it.’ ”
It’s debatable whether the world was ready for digital photography at the time, as there was not yet much in the way of supporting infrastructure. But Kodak’s inside-out analysis focused on its effect on their core film business. And thus a promising idea was killed.
Start with outside-in analysis
Thus organizations find themselves with a gap in the innovation process. In the ideal world, rigor is brought to understanding the jobs-to-be-done opportunities at the front-end. In reality, much of innovation is generated without analysis of customers’ jobs beforehand. People will always continue to propose and to try out ideas on their own. Unfortunately, the easiest, most available basis of understanding the idea’s potential starts with an inside-out analysis. The gap falls between those few companies that invest in understanding customers’ jobs-to-be-done, and the majority who go right to inside-out analysis.
What’s needed is a way to bring the customers’ perspective into the process much earlier. Get that outside-in look quickly.
Three jobs-to-be-done tests
In my work with large organizations, I have been advising a switch in the process of evaluating ideas. The initial assessment of an idea should be outside-in focused. Specifically, there are three tests that any idea beyond the internal incremental level should pass:
Each of the tests examines a critical part of the decision chain for customers.
Targets real job of enough people
The first test is actually two tests:
- Do people actually have the job-to-be-done that the idea intends to address?
- Are there enough of these people?
This is the simplest, most basic test. Most ideas should pass this, but not all. As written here previously, the Color app was developed to allow anyone – strangers, friends – within a short range to share pictures taken at a location. While a novel application of the Social Local Mobile (SoLoMo) trends, Color actually didn’t address a job-to-be-done of enough people.
A lot better than current solution
Assuming a real job-to-be-done, consideration must next be given to the incumbent solution used by the target customers. On what points does the proposed idea better satisfy the job-to-be-done than what is being done today? This should be a clear analysis. The improvement doesn’t have to be purely functional. It may better satisfy emotional needs. The key is that there is a clear understanding of how the proposed idea is better.
And not just a little better. It needs to be materially better to overcome people’s natural conservatism. Nobel Laureate Daniel Kahneman discusses two factors that drive this conservatism in his book, Thinking, Fast and Slow:
- Endowment effect: We overvalue something we have currently over something we could get. Think of that old saying, “a bird in the hand is worth two in the bush”.
- Uncertainty effect: Our bias shifts toward loss aversion when we consider how certain the touted benefits of something new are. The chance that something doesn’t live up to its potential looms larger in our psyche, and our aversion to loss causes to overweight the probability that something won’t live up to its potential.
In innovation, the rule-of-thumb that something needs to be ten times better than what it would replace reflects our inherent conservatism. I’ve argued that the problem with bitcoin is that it fails to substantially improve our current solutions to payments: government-issued currency.
Value exceeds cost to beneficiary
The final test is the most challenging. It requires you to walk in the shoes of your intended beneficiaries (e.g. customers). It’s an analysis of marginal benefits and costs:
Value of improvement over current solution > Incremental costs of adopting your new idea
Not the costs of the company to provide the idea, but those that are borne by the customer. These costs include monetary, learning processes, connections to other solutions, loss of existing data, etc. It’s a holistic look at tangible and intangible costs. Which admittedly, is the hardest analysis to do.
An example where the incremental costs didn’t cover the improvements is of a tire that Michelin introduced in the 1990s. The tire had a sensor and could run for 125 miles after being punctured. A sensor in the car would let the driver know about the issue. But for drivers, a daunting issue emerged: how do you get those tires fixed/replaced? They required special equipment that garages didn’t have and weren’t going to purchase. The costs of these superior tires did not outweigh the costs of not being able to get them fixed/replaced.
Recognize your points of uncertainty
While I present the three jobs-to-be-done tests as a sequential flow of yes/no decisions, in reality they are better utilized as measures of uncertainty. Think of them as gauges:
Treat innovation as a learning activity. Develop an understanding for what’s needed to get to ‘yes’ for each of the tests. This approach is consistent with the lean startup philosophy. It provides guidance to the development of a promising idea.
Mike Boysen makes the fundamental point about understanding customers’ jobs-to-be-done to drive innovation. Use these three tests for those times when you cannot invest the time/resources at the front end to understand the opportunities.
I’m @bhc3 on Twitter.