Tuesday, June 18, 2013

Lean, Not Models, Is Your Hedge For Product Initiatives

Yesterday, I arrived early for an event which was hosted by a startup here in NYC. While waiting for things to get rolling, I noticed the startup was hiring. I glanced at the openings and one job description had this listed as a responsibility:

Create revenue and cost models for product initiatives. 

This made me think about what could be better than using models. After some thought it occurred to me: creating models can be a waste and one of the best ways to combat waste is with the Lean mindset.

Models Can Lead To Waste

I understand why some management styles would use cost vs revenue models - it's about mitigating risk. The problem with using these models to mitigate risk has nothing to do with business, but everything to do with statistics. This is because all models are wrong but some are useful

Now, think about that: your organization's method of mitigating risk is based upon models... which are fundamentally wrong. On top of that, your organization evaluates  pursuing product initiatives based upon these wrong models. With all this in mind, you're putting yourself at tremendous risk of either:
  1. Prematurely killing successful initiatives before they even have a chance.
  2. Allocating resources to an ultimately doomed product because your organization had false confidence that it was doing the right thing.
Yes, some models can useful; however, it's not something to bet the farm on. We need something more concrete to mitigate the risks of new product initiatives. 

Note: It's important here to take note that this is in the context of new products, especially ones meant to be disruptive.  If your organization is looking for only a bunt and not a homerun, well, then you can create a 'model' for a product initiative (I would argue it's not really a model in this case; however, that is a different topic). This is because you're really just looking at an existing market and recording what other products are doing, guessing how much money they make at it and then trying to figure out how you can do it cheeper.

Lean Is Your Hedge

The archenemy of organizational waste is the concept of Lean. This is because you're not sitting up in an office, making models which are wrong. Instead with Lean, you're observing, hypothesizing and experimenting in a very minimal - but very real - way.

What makes the Lean philosophy better than pitting cost models vs revenue models (which, remember, are wrong) is because with Lean, you're automatically putting costs at a minium while simultaneously putting just enough value to test a hypothesis. There's simply no safer & faster way to test products.

Lead With Results Or Hope For The Best

When it comes to product (or anything in business really) I don't want to hope for the best, I want to move in a direction with confidence and purpose. Hedging your initiatives with Lean does this. Think of the alternative: drawing up models, tweaking the model to 'prove' an initiative will work, then plunging your organization into the red....all the while glancing up at the model...wondering when the part of the model that's supposed to take you into the black will kick in.