A SEVEN-THOUSAND-PERSON LEAN STARTUP

 

In 1983, Intuit’s founder, the legendary entrepreneur Scott Cook, had the radical notion (with cofounder Tom Proulx) that personal accounting should happen by computer. Their success was far from inevitable; they faced numerous competitors, an uncertain future, and an initially tiny market. A decade later, the company went public and subsequently fended off well-publicized attacks from larger incumbents, including the software behemoth Microsoft. Partly with the help of famed venture capitalist John Doerr, Intuit became a fully diversified enterprise, a member of the Fortune 1000 that now provides dozens of market-leading products across its major divisions.

This is the kind of entrepreneurial success we’re used to hearing about: a ragtag team of underdogs who eventually achieve fame, acclaim, and significant riches.

Flash-forward to 2002. Cook was frustrated. He had just tabulated ten years of data on all of Intuit’s new product introductions and had concluded that the company was getting a measly return on its massive investments. Simply put, too many of its new products were failing. By traditional standards, Intuit is an extremely well-managed company, but as Scott dug into the root causes of those failures, he came to a difficult conclusion: the prevailing management paradigm he and his company had been practicing was inadequate to the problem of continuous innovation in the modern economy.

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By fall 2009, Cook had been working to change Intuit’s management culture for several years. He came across my early work on the Lean Startup and asked me to give a talk at Intuit. In Silicon Valley this is not the kind of invitation you turn down. I admit I was curious. I was still at the beginning of my Lean Startup journey and didn’t have much appreciation for the challenges faced by a Fortune 1000 company like his.

My conversations with Cook and Intuit chief executive officer (CEO) Brad Smith were my initiation into the thinking of modern general managers, who struggle with entrepreneurship every bit as much as do venture capitalists and founders in a garage. To combat these challenges, Scott and Brad are going back to Intuit’s roots. They are working to build entrepreneurship and risk taking into all their divisions.

For example, consider one of Intuit’s flagship products. Because TurboTax does most of its sales around tax season in the United States, it used to have an extremely conservative culture. Over the course of the year, the marketing and product teams would conceive one major initiative that would be rolled out just in time for tax season. Now they test over five hundred different changes in a two-and-a-half-month tax season. They’re running up to seventy different tests per week. The team can make a change live on its website on Thursday, run it over the weekend, read the results on Monday, and come to conclusions starting Tuesday; then they rebuild new tests on Thursday and launch the next set on Thursday night.

As Scott put it, “Boy, the amount of learning they get is just immense now. And what it does is develop entrepreneurs, because when you have only one test, you don’t have entrepreneurs, you have politicians, because you have to sell. Out of a hundred good ideas, you’ve got to sell your idea. So you build up a society of politicians and salespeople. When you have five hundred tests you’re running, then everybody’s ideas can run. And then you create entrepreneurs who run and learn and can retest and relearn as opposed to a society of politicians. So we’re trying to drive that throughout our organization, using examples which have nothing to do with high tech, like the website example. Every business today has a website. You don’t have to be high tech to use fast-cycle testing.”

This kind of change is hard. After all, the company has a significant number of existing customers who continue to demand exceptional service and investors who expect steady, growing returns.

Scott says,

It goes against the grain of what people have been taught in business and what leaders have been taught. The problem isn’t with the teams or the entrepreneurs. They love the chance to quickly get their baby out into the market. They love the chance to have the customer vote instead of the suits voting. The real issue is with the leaders and the middle managers. There are many business leaders who have been successful because of analysis. They think they’re analysts, and their job is to do great planning and analyzing and have a plan.

 

The amount of time a company can count on holding on to market leadership to exploit its earlier innovations is shrinking, and this creates an imperative for even the most entrenched companies to invest in innovation. In fact, I believe a company’s only sustainable path to long-term economic growth is to build an “innovation factory” that uses Lean Startup techniques to create disruptive innovations on a continuous basis. In other words, established companies need to figure out how to accomplish what Scott Cook did in 1983, but on an industrial scale and with an established cohort of managers steeped in traditional management culture.

Ever the maverick, Cook asked me to put these ideas to the test, and so I gave a talk that was simulcast to all seven thousand–plus Intuit employees during which I explained the theory of the Lean Startup, repeating my definition: an organization designed to create new products and services under conditions of extreme uncertainty.

What happened next is etched in my memory. CEO Brad Smith had been sitting next to me as I spoke. When I was done, he got up and said before all of Intuit’s employees, “Folks, listen up. You heard Eric’s definition of a startup. It has three parts, and we here at Intuit match all three parts of that definition.”

Scott and Brad are leaders who realize that something new is needed in management thinking. Intuit is proof that this kind of thinking can work in established companies. Brad explained to me how they hold themselves accountable for their new innovation efforts by measuring two things: the number of customers using products that didn’t exist three years ago and the percentage of revenue coming from offerings that did not exist three years ago.

Under the old model, it took an average of 5.5 years for a successful new product to start generating $50 million in revenue. Brad explained to me, “We’ve generated $50 million in offerings that did not exist twelve months ago in the last year. Now it’s not one particular offering. It’s a combination of a whole bunch of innovation happening, but that’s the kind of stuff that’s creating some energy for us, that we think we can truly short-circuit the ramp by killing things that don’t make sense fast and doubling down on the ones that do.” For a company as large as Intuit, these are modest results and early days. They have decades of legacy systems and legacy thinking to overcome. However, their leadership in adopting entrepreneurial management is starting to pay off.

Leadership requires creating conditions that enable employees to do the kinds of experimentation that entrepreneurship requires. For example, changes in TurboTax enabled the Intuit team to develop five hundred experiments per tax season. Before that, marketers with great ideas couldn’t have done those tests even if they’d wanted to, because they didn’t have a system in place through which to change the website rapidly. Intuit invested in systems that increased the speed at which tests could be built, deployed, and analyzed.

As Cook says, “Developing these experimentation systems is the responsibility of senior management; they have to be put in by the leadership. It’s moving leaders from playing Caesar with their thumbs up and down on every idea to—instead—putting in the culture and the systems so that teams can move and innovate at the speed of the experimentation system.”