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Smith Business Insight Podcast | Series 1 . Episode 5 Start-up Cycle


Smith Business Insight Podcast

Too many start-ups hit the ground running, and then sputter out before their time is up. Don’t let it happen to you. This episode focuses on finding ways to sustain your business as it grows.


We learn about lean innovation from professor Barry Cross (hint: it’s about focusing your efforts on the stuff that really matters). We also talk to professor Anthony Goerzen about the challenge of maintaining your competitive advantage when you are expanding internationally and get some advice on staying focused from 437 Swimwear founder Adrien Bettio. Your host is Meredith Dault. 


00:01 [music]

00:06: Meredith Dault: We’ve all heard the stats: more than half of entrepreneurial ventures fail. In fact, some say that number is actually closer to seventy-five or even ninety per cent. That’s nine out of ten start-ups that hit the ground running and then sputter out before their time is up. In some cases, they run out of cash, they fail to find an audience for what they’re selling, or they never secure the right team. 

Whatever the reason, we're here to help you guard against it happening to you. Ok, we don’t have ALL the answers, but suffice it to say that this episode of The Start-up Cycle is all about sustaining your business so that you can avoid becoming another statistic. From figuring out how to export your competitive advantage, to leaning into lean innovation, we’ve got the ideas to keep YOU in business, so stay tuned. 

What if I told you that there was a way to take some of the risk out of starting a new business? Sounds too good to be true, right? After all, entrepreneurial ventures involve risk and embracing it just comes with the territory. Well, it’s becoming increasingly clear that entrepreneurs who practice something called “lean innovation” may have an edge when it comes to keeping their burgeoning businesses going. 

The lean approach is one that keeps emerging businesses nimble. It favours experimentation and customer feedback over static business plans and it is not afraid of failure especially when that failure comes with an opportunity to get up again and make things better. 

Barry Cross knows a thing or two about lean innovation. in fact he’s written the book on it, a book called Lean Innovation: Understanding What’s Next in Today's Economy. He joined the faculty at Smith School of Business in 2006 after a nearly 20-year career in the automotive and manufacturing sectors, and now consults widely. 

Barry, thanks for joining me today. 

02:17: Barry Cross: My pleasure, Meredith. 

MD: How did you first get interested in lean innovation? 

02:22:  Well really back in the industry almost 30 years ago. The organizations I worked for in automotive and plastics were typical start-up organizations. Without sounding too cliché about it, we were running lean quite often and resources were in, in many times, fairly scarce. So, it was really just a matter of course and the necessity of business back at that time. 

MD: So then when did the concept of lean innovation emerge? 

2:48: BC: Well, as a definition, it was something that I had defined based on what we were doing, the combination of some of these elements of lean that I'd practiced over the years. And the fact that at the same time while writing lean, uh, our fundamental approach inside of business was to drive new levels of creativity with processes, product services, things like that inside of the business. So it's really, you know, the combination of a couple of seemingly disparate elements that we found a way to get to fit together very well, and it's, uh, an opportunity for organizations to really drive what's next inside of their business environments. 

MD: So, the opposite of lean innovation then is something like flabby innovation?

BC: (laughter) Well, well, no, I, I guess think about, um, those organizations with heavy R&D budgets, uh, you know, 50 or 100 million dollars a year. And as society we're absolutely reliant on organizations like this. But for most organizations, we also don't have the time of the patience for their type of innovation, you know, a where it's two, three years in the product pipeline and then it's approvals and then gradual releases into society in some form or another. Most organizations don't have that kind of ability for heavy lifting. Um, so we needed something a little quicker, a little more agile and nimble 

MD: I'm going to be sound cynical here: is lean innovation just a case of making do with less?

4:08: BC: Well lean often gets tagged with doing more with less or are some of those other discouraging comments and that's not really what it is. It's really the reallocation of resources around your organization, where we dial down consumption of resources in areas that aren't generating any value and reallocate them towards new opportunities, new ideas, uh, process enhancements and finding a way to create customer value.

MD: So then in the context of entrepreneurship, how does it make them more successful?

BC: Well, yeah, and great question. And these entrepreneurs in these new environments, new businesses are classic cases of resource scarcity. Um, and what that amounts to then is they're making decisions on a daily basis: where to spend their time, where to invest their resources when I've got limited resources to play with. So, if they're doing that in a manner that's targeted at, at a customer right now, they're creating value. If they're sitting in a meeting or they're, you know, going over some IT budget or something like that, then that may not be the best use of their time. So, it really gets down to a daily and often hourly allocation of those scarce resources in an entrepreneurial environment.

5:20: MD: If the lean approach is so effective, why aren't all entrepreneurs embracing it?

BC: Many of the successful ones are, albeit seemingly unknowingly in many cases in that, you know, these organizations are scarce for resources to start with, they don't have an abundance of whether it's HR talent bench strength, excess cash in the bank, any of those resources. So, they're operating in a lean fashion anyway. Uh, the organizations that you referred to earlier, many of them are failing. And a big part of that failure is, is an inability to identify the best market opportunity, the best customer for their particular innovation. And that's often one of the big reasons why these organizations fail. So, coupling the two concepts together, the organizations that are finding a way to succeed are the organizations that a) recognize the scarcity of resources so that they spend more of their time focusing on the creation of value for an appropriate target customer.

6:23 Now the neat thing about this is that it may not be the same customer they are targeting initially, but as they start to spend more time in the marketplace or with their, uh, existing customers, they start to see those customers in the market asking questions, refining the opportunity a little bit, so that their offering starts to evolve. Yet the whole time they're focusing on the creation of value. So more and more of these organizations who are finding a way to succeed are doing so because of the appreciation of scarce resources and therefore spending more of their time in areas that truly matter in the face of their customers. 

MD: Now, are there things that entrepreneurs should be careful about when they're thinking about the lean approach? 

BC: Yeah, there's some risks associated with lean. Absolutely. Um, number one is the idea that, uh, you know, the reputation that leans developed over time, and inappropriately I should add, for the idea of headcount reduction. And that's really not what it is. So, as I'm delivering a lean message, as I'm talking to the team about applying lean tools, it's really important that they understand that this is about resource allocation. It's not about doing more with less or headcount reduction, anything like that. It's about the idea of focusing our resources where we can create the most value for the organization. So as the entrepreneur, or as the leader in the organization starts to get comfortable with those concepts, they've got to have that talk with the people around the business and make sure they understand why it is we're focusing in this way and why it's so important that everybody in the organization recognizes the importance of scaling up and focusing their time and all of their resources on creating customer value in some way, and not in, you know, some of the other ancillary effects that a can start to bog us down.

8:07: Uh, the second part of that, I guess, is the idea that we're focusing on value means that we're focusing on a customer and it's important to appreciate that the customer is likely going to change over time. And the customer that got us here, um, may not be the, the organization or the customer that we're serving two, three years from now. So this is an ongoing change and as it's an ongoing evolution for us inside of the business, so that it's a different perspective for a lot of people as they're starting, you know, in their loyalty the, you know, the customers that got us here in the first place. And that can, uh, that that's good as far as, uh, businesses, initial stability and growth. But that customer in that market is definitely going to evolve and change over time as well. 

MD: How easily a business who's not practicing the lean approach pivot towards it?

9:00: BC: I won't say it's easy, but I will say it's necessary and there isn't a business in the world, including government health care, education, um, who would not benefit from the idea of applying some of the fundamentals of lean. And I don't want to sound like I'm preaching with the subject, but it really gets down to appreciating a couple of fundamental concepts. And here's a question that I ask leadership teams and CEOs and, you know, MBA students even, you know when you get up in the morning, what's the most important use of your time? And in some cases you get a nod and they know exactly what the answer to that question is. In other cases, they're not sure and they're very reactive. You know, their time is being consumed by, you know, a 45-minutes of email when they get in. And then they've got a couple of phone calls and then they've got meetings and by the time they hit five or six o'clock in the afternoon, the day's wrapped up and they don't really know what they've done of value throughout the day. And that's common. Well, we all have days like that. Absolutely. But the other, the follow-up question to that initial, um, query is the idea of what would you do with an extra hour every week? If I was to find a way to, to give you that hour. And that's where you start to get a bit of that, that whimsical kind of far off stare and, and wow. You know, and I would work out more, Id spend more time with the family, that sort of thing. 

But this, these are two of the fundamental questions associated with allocating our own resources and applying a lean philosophy around the businesses: What would you do with more time if you had it? And then we go out and find that time, and the time is there. It's there in every organization. But you know, we fundamentally use and abuse a lot of those resources in that time, even our own schedules, to the point where we're not applying them on some of the most important uses of our time, like creating customer value or spending time with the team or talking to our suppliers - some of that important stuff. We get consumed with meetings and email, right? 

10:30: MD: So, if you and I were in an elevator going up to, I don't know, a pretty high floor 50-something give me the quick pitch. Why should my business adopt lean innovation? 

BC: Well, I'd start with those two questions. You know, what would you do with an extra hour every week if you had it? And, uh, then what's the most important use of your time? And once we get to the bottom of a couple of those questions, and I'd want specific answers, I help you understand that we could find that time in that hour inside of about 15 minutes worth of discussion. So, it's just cutting out all the superfluous time-suck stuff. It's the stuff that we feel is keeping us busy and that consumes our day, but it's not creating value around the organization and we're applying some pretty basic principles when we get to a things like process flow analysis and value chain studies and things like that. Some of it's a little bit tedious, but the light that goes on with the team when we start talking this stuff and helping them map through it, this is creating process innovation. This is fixing a process. It's creating service innovation and creating customer value, and your customers always see the difference when we start these types of dialogues. 

12:01: MD: This is fascinating stuff, Barry. Thank you for joining us today. 

BC: My pleasure, Meredith.

12:24: MD: While a lean approach can give a business an edge, the fact remains that unless you've secured its economic sustainability, you may be in trouble  especially if you have your eye on international expansion. I recently had the pleasure of chatting with Anthony Goerzen about this very topic. Anthony is a Professor and the Donald R. Sobey Professor of International Business at Smith School of Business. I started by asking him to help me understand what it takes to secure a competitive advantage. 

12:51: Anthony Goerzen: For a competitive advantage to be the basis of a firm's strategy, it needs to have several qualities: one is, it needs to have assets, resources, capabilities you could define those fairly broadly in terms of knowledge or experience, they may be physical assets, they may be financial, but in some way they one) create value, two) they're rare and three) they're hard to imitate. And it's that last piece, that hard to imitate, hard to substitute, hard to copy. It's that piece of it that is the most difficult for us to identify, to determine and um, to understand when you're thinking about your own organization's competitive advantage.

13:46: MD: Makes sense, right? But what happens when a company sets its sights on expanding internationally? How do you keep your competitive advantage in a brand new market? Here's more of my conversation with Anthony.

13:58: AG: The fundamental question in international expansion is “how do I move my competitive advantage from wherever it is to wherever I need it to be?” So that is essentially you could think of that as a knowledge management problem. I know something, I have some information, I've got a way of being, a way of working, a combination. I've got something that I know, and I need to move that from my home location, my headquarters let's say, to wherever I believe my foreign opportunities are. And that transfer process is something that is deceivingly complex. You would think that you just move it, you, you simply take your new organization, set up a company and off you go. However, it's not nearly that simple, unfortunately. It depends on the nature of your competitive advantage. Some types of competitive advantage, they are what we would call explicit. There's something that you can describe plainly and clearly and if, for example, if they are something that is guaranteed by intellectual property, you have a copyright or something, that makes it fairly straightforward as to what it is that you need to move and how to move that.

15:23: However, if your competitive advantage has something to do with knowledge or learning or experience connections. Um, then suddenly that transfer of your competitive advantage becomes really tricky because how do you transfer experience or how do you impart knowledge? This is something that takes a great deal of careful thought. How you go about doing that? It won't move itself. In fact, we know that knowledge is inherently sticky. Knowledge doesn't like to move. It's bit of a, um, what do you call it? Sort of a conundrum that in this age of internet and email and texting and free telephone calls, you would think that knowledge would move rapidly, instantaneously and seamlessly. But we find that that is absolutely not the case. Um, that knowledge actually resists movement. And so, the internationalization of your strategy requires very careful thought as to “what is our competitive advantage, where do we want to move it?”

16:35: And in the context that we're moving it into, does our competitive advantage that we've identified here, does it still have legs there? Is there anything about that foreign context that actually changes, right? So, for example, if I know something about my market here, and I move to the States or Mexico or China, wherever, does my knowledge actually have legs there? Do my contacts or experience or knowledge or learning or my way of doing business, does that actually work there and so therein is the, one of the real challenges of internationalizing, uh, your, uh, your strategy. 

17:25: MD: the question then is what can business do if their existing competitive advantage doesn't translate? There's no question that if you cannot identify “what is our competitive advantage, how will we move it and does it have legs where we're going.” If you cannot identify that, specifically, then absolutely you should not go. 

MD: But we do see companies that expand - and sometimes it feels like for the sake of it- and then they have to step back.

17:52: AG: Yup. And, and where it's, it's a common thing to underestimate the difficulty of transferring one's competitive advantage. And we see many examples. There are some very large, some very, um, resource-rich firms that have tried to move their competitive advantage from one place to another and they crash and burn: Target in Canada. There's an example, or Walmart, their foreign expansion has come up with all sorts of, uh, problems for them. And it's, you know, we see it's very common to see this where organizations believe that, you know, if they're, if they've made some good choices in a certain context in the American market or in the Canadian one, then surely we'll be successful elsewhere. Why? Because we're a successful company. It doesn't work like that. However, it's, it's something that requires, um, a better understanding for the nuances of where it is that you're going. And does that context change the nature of your competitive advantage? You may experience local competitors who are far more capable than what you anticipated, uh, before making that, uh, that, that move. So there's a number of important things about, about context, about transferability that need to be answered prior to any effort to go abroad.

19:23: MD: So Anthony, finally, what's the most critical thing an entrepreneur can do to ensure a company's economic sustainability in the long term?

19:31: AG: Yeah. The key thing that any entrepreneur needs to be able to do is to articulate clearly what is their competitive advantage. There are a number of questions that need to be asked. How does it create value? Is it rare given the competition? And to what extent is it hard to imitate, uh, or difficult to substitute? With the answers to those key questions you need to then turn your attention to: specifically in my organization, where do those resources and capabilities reside? And with that information, then the manager is in a position to manage their competitive advantage sustainably.

20:33: MD: I’m going to leave you with some food-for-thought from Adrien Bettio, one of the founders of 437 Swimwear. She and her business partner, Hyla Nayeri founded their online business while completing their degrees in Commerce at Smith School of Business. They’re now selling anywhere from 25,000 to 30,000 bikinis a year, most of them to women in the under-30 set and now they’re eyeing expanding into Europe and Australia. Here’s Adrien on staying focused as your business grows. 

21:01: Adrien Bettio: I think finding things that constantly inspire you is really key to staying, you know, driven and ambitious and hungry. Because if you don't surround yourself with, with, you know, people that inspire you. If you don't go out of your way to listen to podcasts that inspire you, read books that inspire you, read articles that inspire you. Like all of these things are so, so critical to staying motivated and excited and hungry, because if you just stay complacent, I think that's when bad things happen. You know, every kind of major bad thing that's happened to us is because we've gotten a little bit too comfortable and haven't challenged ourselves. Whenever you're kind of keen to learn and grow and you do the due diligence to actually stay

inspired, that's when you can really like see that growth in your company. 

[theme music] 

21:49: MD: And that’s the show. On the next episode, well investigate the fine art of perseverance including the relationship between resilience and achieving entrepreneurial success. I hope you’ll tune in. I’m Meredith Dault at the Smith School of Business at Queens University in Kingston, Ontario. Thanks for listening.