SMALL BATCHES IN ENTREPRENEURSHIP

 

When I teach entrepreneurs this method, I often begin with stories about manufacturing. Before long, I can see the questioning looks: what does this have to do with my startup? The theory that is the foundation of Toyota’s success can be used to dramatically improve the speed at which startups find validated learning.

Toyota discovered that small batches made their factories more efficient. In contrast, in the Lean Startup the goal is not to produce more stuff efficiently. It is to—as quickly as possible—learn how to build a sustainable business.

Think back to the example of envelope stuffing. What if it turns out that the customer doesn’t want the product we’re building? Although this is never good news for an entrepreneur, finding out sooner is much better than finding out later. Working in small batches ensures that a startup can minimize the expenditure of time, money, and effort that ultimately turns out to have been wasted.

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Small Batches at IMVU

 

At IMVU, we applied these lessons from manufacturing to the way we work. Normally, new versions of products like ours are released to customers on a monthly, quarterly, or yearly cycle.

Take a look at your cell phone. Odds are, it is not the very first version of its kind. Even innovative companies such as Apple produce a new version of their flagship phones about once a year. Bundled up in that product release are dozens of new features (at the release of iPhone 4, Apple boasted more than 1,500 changes).

Ironically, many high-tech products are manufactured in advanced facilities that follow the latest in lean thinking, including small batches and single-piece flow. However, the process that is used to design the product is stuck in the era of mass production. Think of all the changes that are made to a product such as the iPhone; all 1,500 of them are released to customers in one giant batch.

Behind the scenes, in the development and design of the product itself, large batches are still the rule. The work that goes into the development of a new product proceeds on a virtual assembly line. Product managers figure out what features are likely to please customers; product designers then figure out how those features should look and feel. These designs are passed to engineering, which builds something new or modifies an existing product and, once this is done, hands it off to somebody responsible for verifying that the new product works the way the product managers and designers intended. For a product such as the iPhone, these internal handoffs may happen on a monthly or quarterly basis.

Think back one more time to the envelope-stuffing exercise. What is the most efficient way to do this work?

At IMVU, we attempted to design, develop, and ship our new features one at a time, taking advantage of the power of small batches. Here’s what it looked like.

Instead of working in separate departments, engineers and designers would work together side by side on one feature at a time. Whenever that feature was ready to be tested with customers, they immediately would release a new version of the product, which would go live on our website for a relatively small number of people. The team would be able immediately to assess the impact of their work, evaluate its effect on customers, and decide what to do next. For tiny changes, the whole process might be repeated several times per day. In fact, in the aggregate, IMVU makes about fifty changes to its product (on average) every single day.

Just as with the Toyota Production System, the key to being able to operate this quickly is to check for defects immediately, thus preventing bigger problems later. For example, we had an extensive set of automated tests that assured that after every change our product still worked as designed. Let’s say an engineer accidentally removed an important feature, such as the checkout button on one of our e-commerce pages. Without this button, customers no longer could buy anything from IMVU. It’s as if our business instantly became a hobby. Analogously to the Toyota andon cord, IMVU used an elaborate set of defense mechanisms that prevented engineers from accidentally breaking something important.

We called this our product’s immune system because those automatic protections went beyond checking that the product behaved as expected. We also continuously monitored the health of our business itself so that mistakes were found and removed automatically.

Going back to our business-to-hobby example of the missing checkout button, let’s make the problem a little more interesting. Imagine that instead of removing the button altogether, an engineer makes a mistake and changes the button’s color so that it is now white on a white background. From the point of view of automated functional tests, the button is still there and everything is working normally; from the customer’s point of view, the button is gone, and so nobody can buy anything. This class of problems is hard to detect solely with automation but is still catastrophic from a business point of view. At IMVU, our immune system is programmed to detect these business consequences and automatically invoke our equivalent of the andon cord.

When our immune system detects a problem, a number of things happen immediately:

1. The defective change is removed immediately and automatically.

2. Everyone on the relevant team is notified of the problem.

3. The team is blocked from introducing any further changes, preventing the problem from being compounded by future mistakes …

4. … until the root cause of the problem is found and fixed. (This root cause analysis is discussed in greater detail in Chapter 11.)

 

At IMVU, we called this continuous deployment, and even in the fast-moving world of software development it is still considered controversial.3 As the Lean Startup movement has gained traction, it has come to be embraced by more and more startups, even those that operate mission-critical applications. Among the most cutting edge examples is Wealthfront, whose pivot was described in Chapter 8. The company practices true continuous deployment—including more than a dozen releases to customers every day—in an SEC-regulated environment.4

Continuous Deployment Beyond Software

 

When I tell this story to people who work in a slower-moving industry, they think I am describing something futuristic. But increasingly, more and more industries are seeing their design process accelerated by the same underlying forces that make this kind of rapid iteration possible in the software industry. There are three ways in which this is happening:

1. Hardware becoming software. Think about what has happened in consumer electronics. The latest phones and tablet computers are little more than a screen connected to the Internet. Almost all of their value is determined by their software. Even old-school products such as automobiles are seeing ever-larger parts of their value being generated by the software they carry inside, which controls everything from the entertainment system to tuning the engine to controlling the brakes. What can be built out of software can be modified much faster than a physical or mechanical device can.

2. Fast production changes. Because of the success of the lean manufacturing movement, many assembly lines are set up to allow each new product that comes off the line to be customized completely without sacrificing quality or cost-effectiveness. Historically, this has been used to offer the customer many choices of product, but in the future, this capability will allow the designers of products to get much faster feedback about new versions. When the design changes, there is no excess inventory of the old version to slow things down. Since machines are designed for rapid changeovers, as soon as the new design is ready, new versions can be produced quickly.

3. 3D printing and rapid prototyping tools. As just one example, most products and parts that are made out of plastic today are mass produced using a technique called injection molding. This process is extremely expensive and time-consuming to set up, but once it is up and running, it can reproduce hundreds of thousands of identical individual items at an extremely low cost. It is a classic large-batch production process. This has put entrepreneurs who want to develop a new physical product at a disadvantage, since in general only large companies can afford these large production runs for a new product. However, new technologies are allowing entrepreneurs to build small batches of products that are of the same quality as products made with injection molding, but at much lower cost and much, much faster.

The essential lesson is not that everyone should be shipping fifty times per day but that by reducing batch size, we can get through the Build-Measure-Learn feedback loop more quickly than our competitors can. The ability to learn faster from customers is the essential competitive advantage that startups must possess.