Applying Lean Start-up to existing business units
For any entrepreneurs or intrapreneurs who have not read up on the subject, the LEAN revolution as it is often called, originate from the efforts of Taiichi Ohno the father of the Toyota Production System and W.E. Deming the father of Quality and evolving further through the efforts of Steve Blank in his books; The Four Steps to the Epiphany, The Startup Owners Manual.
The exciting aspect of this movement is it has forged new understanding of the principles behind selecting the best Product / Market mix choices. These choice has previously been the responsibility of the lead entrepreneur, but can now be taught and delegated to others.
The principles when distilled down to their raw components are geared to challenge and validate assumptions of what the customer really wants. The process involves selecting aspects of your product offering that are most contentious and testing them with real customers, in a manner that solicits buyer intention. These tests are amongst other things designed to confirm or disprove that the need and the asking price for the offering are realistic and attractive to the customer. Where possible the tests are conducted either face to face or with enough proximity to validate if there is genuine interest. Steve Blank (2012) in a video interview at the Commonwealth club entitled How to build a great company step by step, says “you haven’t validated your hypothesis until you’ve witnesses potential customer pupils dilating”
A new start up business can always obtain secondary data that it can use to analyse micro and macro economics of a new venue, endless hypothetical plans can analyse a proposed business model and surmise what could be. However, nothing can the proof gained by asking real clients to exchange real cash for your product or service, and building that product in the hope that customers will come has been shown to accomplish a less than 2% success for new ventures.
Firms with an established customer base have a significant advantage over start ups. Their customers have already purchased (and invested in) their products. As a consequence customers have a vested interest in helping the firm improve their product offering.
Whilst a start up will need to conjure innovative ways to solicit meaningful responses from free trial offers, landing pages and social media, firms with established customers have direct access to decision makers. These firms can also influence decision makers year on year budget provisions by up-selling new products and features incrementally over time, helping to fend off would be competitors, and adding more value to the customer / supplier relationship.
This provides us with a interesting example of the use of LEAN for account management
LEAN in account management
So I expect you’re asking, LEAN for account management, I thought that was for new product development?
If we are to take the stance of W.E. Deming who was an avid supporter of the notion that the customer should be the center of every decision, and that we should challenge the thinking behind any task we do that a customer would not consider important. Then perhaps the building of new products will be (and usually is) based on the emerging requirements and observations of existing customers.
But which ideas do we take on? Which will have the greatest impact on customer retention and new customer recruitment?
A LEAN Account Review – The LOW FAT alternative for a healthy organization
Oh yes, sorry, guilty as charged, pun definitely intentional.
Anyway, every organization knows account reviews are an essential part of sales management. But we often rely on the intuition and initiative of sales teams to pass on important information on the product or service managers that would subsequently be used when making development decisions. Of course the account review also provides many other benefits, but focusing on the customer for a moment, the information about what the customer thinks of our product and services, is the essential ingredient to selecting the most important product innovations. These choices are responsible for maintaining or improving the company’s position in the market.
Extracting and refining that knowledge should not be left to chance.
Account Segment Analysis (ASA) is a very simple tool used to examine customer account behavior over the year, and extract meaningful topics and assumptions to be examined with LEAN start-up principles.
Account Segment Analysis
The steps involved in this analysis are :
- Populate Project Services Review
- Identify opportunities and limitations
- Use LEAN review principles to identify solutions
- Compare product usage across each of the segments (Categories A,B,C below) and identify new markets or packaging
Project Services Review (PSR)
You can download Product Services Review template to analyses and track customer accounts by sales team.
The PSR has a number of unique purposes.
- Identify the initial project value or big ticket item sale value that was purchased when customer first converted to a new customer.
- Identify expected income by customer from each of the primary income streams and quantify the major revenue opportunities in the accounting period the customer is most likely to place the order
- Consolidate and qualify opinion across sales, consulting and service teams as to the level of interest a customer has for each opportunity and the amount quoted or discussed as if that was quotes or discussed as the ball park price
- Categorize the customer (e.g. As A, B or C in Figure 1) that indicates the probable year on year expenditure that customer could be encouraged to make provisions for, that would fund innovation, training and consulting (excluding maintenance). This amount will also be related to the size of the customer account with the larger accounts often making greater budget provision for innovation, training and professional services. For example a category A may be willing to reinvest 20% of original purchase price in further improvements, whereas a category C may only make 5% available on an ongoing basis.
By examining past years sales, this pattern will be easier to recognise and from that point, account management can work along side product development to grow the rations by category. The pattern gives management a base line for services revenue target by account, and a basis for developers to justify the value of their contributions to account development.
Other benefits of the PSR
In addition to bring together a consensus on the value of new business available from each account, it provides sales teams with knowledge and comparisons to incentivise customers to keep up with accepted trends and make the best use of the relationship with your firm.
Adding further columns to compare spending by customer for training, data analytics, web, marketing or any other metrics helps customer understand the benchmarks behind recommendations.
Development Accounts with LEAN principles
Account business opportunities with low probability or where the opportunity keeps moving is an indication the customer may not of heard a compelling enough reason to proceed, and by examining these opportunities with LEAN principles often draws out new unforeseen opportunities and benefits.
In figure 1 there is a low possibility that for the customer ABFuller they will be ordering $4000 for upgrades. This opportunity has been postponed three times now and the interest is low. Using LEAN principles, the account manager orchestrates intervention by product teams to determine if the problem is with the quote or proposal. The product team arranges for the first step of the LEAN process, being to survey the customer’s intentions by crafting a series of questions. The team constructs this survey with a view to sending it to another select group of customers to compare results.
The team discovers that other customers have the same problem and are looking at ways to resolve it, but had not considered your firm could hold the answer. The other customers did however contribute new information that when you share with the first customer makes them realise other concerns, that you are now able to address for that first customer and also as an upgrade or additional service to other customers in your community. The LEAN process that follows is similar to that used for new product development. It finds the core issues, constructs tests, proposes and tests solutions, and pivots or persists as needed until the product is fit for purpose.
- You now have new ideas in development, that your able to refine with a motivated customer using LEAN principles
- You retain the first customer as the primary beneficiary and funder for development
- You have new news for the company newsletter and social media channels
- You can reward the first customer in newsletters and social as the “forward thinker” who came up with the idea.
- Your customer earns respect of its customers as a forward thinker
- Other prospective customers see your successes on social media convincing them to switch to your company as their main provider
- Your customers become stickier, improving your company’s value and EBIT
Plus: Everyone feels good about themselves and your company has another new income stream.
Compare product usage across each of the segments
Now each of the accounts has been grouped by a category, examine each customer and identify customers who by way of their size, culture or turnover are in the wrong group. For example which large customers are only providing your with a small percentage of business when compared to other customers of similar size. This could be as a result of many factors for example; competitors are penetrating the account and distracting customers attention, product no longer fit for purpose and waiting for a new budget to switch suppliers.
This is your opportunity to reengage the Product development team and provide superior service. Orchestrate intervention by product teams, conduct face to face tests of product suitability and develop your slower moving accounts.
Reality checkpoint: Perhaps your thinking, we have been using this form of account management for years, why are we now calling it a LEAN process?
Answer: The Account management discipline may or may not of been part of your routine in the past, but the institutionalization of the practice of real time intervention by product teams during account management review, and the senior management permission/endorsement of this practice as a means of improving both the product / market fit and customer relations, is not a common practice with corporations.
It is important for senior management to understand the important role account management can and should play in steering product innovation in a direction that retains product relevance in the market and ensures it continues to be fit for purpose.
In closing, I am sure W.E. Deming will be pleased to hear you have put the customers interest ahead of internal agenda’s, given the customer what they wanted, and made a little money along the way, job well done!
- Sean Ellis 2013, The startup Pyramid, viewed 30th Oct 2013, http://www.startup-marketing.com/the-startup-pyramid/
- Steve Blank 2012, How to build a great company step by step (14/8/2012),https://www.youtube.com/watch?v=1RTcXwJuCaU