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Tuesday, 5 August 2014

Do lean startups mean less IP?

Can principles of management impact on the creation of IP? The question has taken on potentially greater significance with the ever-increasing emphasis on innovation and entrepreneurship and the search for the best ways to manage such activities. Within this context, there are few managerial notions that have attracted more attention than Eric Ries’s notion of lean start-ups. As set out in his 2011 best-selling book, The Lean Startup: How Today's Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses, here, Ries argues that product development cycles can be significantly shortened by adopting “validated learning.” The idea is to put the customer’s needs as the focus of product development rather than adopting what has been described as a Field of Dreams approach—“build it and they will come”, here. Under this view, the emphasis is on constant iteration of trying to find out what customers really want. As described in The Economist (“Tech Start Ups: A Cambrian Moment”, January 18, 2014), here, this
“involves building something [in the world of Ries, a minimum viable product that is used to ascertain consumer interest],measuring how users react, learning from the results, then starting all over again until they reach what is known as “product-market fit.”
The claim is that the constant process of iteration enables the startup to remain lean by
“eliminat[ing] wasteful practices and increas[ing] value producing practices during the product development phase so that startups can have a better chance of success without requiring large amounts of outside funding, elaborate business plans, or the perfect product.” 
In the world of Ries, where almost anything “can be made”, the real question is not “can it be built?’, but rather “should it be built?” In support of this “lean” function, a form of “accounting for innovation” has been developed, which requires the entrepreneur to maintain detailed records of their iterative activities and to analyze how they impact on “meaningful metrics” that measure the innovation function. Not surprisingly, a cottage industry has grown up around this so-called “lean movement”, including over 1,000 “lean-startup” groups, an organization (Lean Startup Machine) that offers workshops, tools to chart a company’s “lean” performance, all of this augmented by related printed materials, YouTube presentations and the like.

Before considering how lean startup approach may impact on IP, it is important to consider forms of push-back that have been expressed, as suggested by the piece in The Economist. First, there is a psychological dimension. Entrepreneurship is often described as a journey in following one’s passion, even when no one else buys into your notion. But the lean startup approach has built into it the need to constantly admit that you may be wrong (so wrong that, in the lexicon of the field, one should “pivot”, meaning scrapping the current product idea and starting over). In the word of Joel Gascoigne, an adherent to the approach, “as an entrepreneur you’re meant to be bullish about your opinion. But leans means that you constantly remind yourself that you could be wrong.”

Another criticism can be bundled under the claim that lean startups are not really acts of entrepreneurship, but merely the disciplined activities of “empiricists who try to find a profitable niche.” As such, there is inherently in the lean approach a very low ceiling for innovative potential. As venture capitalist Scott Nolan observed,
“lean provides a useful toolkit, but it can bias you towards the incremental rather than the transformational. You cannot simply iterate your way into orbit.” 
Ries himself seems to acknowledge that the lean approach can lead to “analysis paralysis” if not properly applied (though this is an occupational hazard of any approach that is heavily driven by metrics and the responses to them). A more general criticism, which applies both the lean approach and the current world of startups more generally, was expressed by consultant Venkatesh Rao, who argues that what is happening is less about fostering the next world-beating startup and more about creating the managerial framework in which today’s knowledge workers can flourish. In his view, this process is analogous to what Rao claims happened to artisan steelworkers at the end of the 19th century, as their skills were commoditized, the goal being to create a reliable and productive working class with the requisite knowledge.

So what about IP? At a certain risk of generalization, this Kat wonders whether the lean approach, if it becomes the norm for a critical mass of knowledge workers, may dampen the conditions by which innovation and invention take place. The suggestion that startup activity should be aspiring to a form of assembly line for knowledge workers, engaged in constant empirical iterations in the search of “the product”, would seem to narrow the scope for the kinds of creations and inventions that are the staple of IP rights. Incrementalism has its place, but it should also have its limits, lest it have a pernicious dampening effect on the ability of knowledge workers to continue to create and invent.


Anonymous said...

Good choice of photo, Neil, for this particular time, the Krupp heavy gun shop just prior to the First World War. I guess Krupps was a lean organisation because they enabled the German High Command to lean on just about everyone else!

Anonymous said...

Alternatively, and in view of this recent paper from the Patent Office, perhaps one should write

"Patent thickets have their place, but they should also have their limits, lest they have a pernicious dampening effect of the ability of knowledge workers to continue to create and invent".

Of course it varies from industry to industry, but the software industry is one that seems very close to Ries's model -- new software can be assembled or modified comparatively rapidly and at comparatively low cost, so agility and closeness to the customer are typically much more important than the "big win", and active follow-on innovation (which patents actively harm) may be much more important to the industry's health than the prospect of patents promoting one-off innovation.

These arguments are not new. They were actively canvassed, for example, at the time of the proposed European Software Patent Directive ten years ago, and one of the reasons why that Directive died. It also matches the outlook of Venture Capitalists, who (at least in software) place patents way way down the list of most important signifiers for them to back or not to back a particular company and its management.

One way to think about what Ries is saying is that the advent of rapid prototyping, 3D printing, virtual designing etc is making more and more 'conventional' industries more and more like software, so that for them too products can similarly now be assembled or modified more rapidly and at comparatively lower cost, so, for them too, agility and closeness to the customer become often more important that the concept of the big project protected by the big patent defence.

Patents are always a Faustian bargain for the vibrancy of an industry, supporting some present innovation, but at an expense to future competition and innovation.

If more industries are indeed moving closer to Ries's model, then that more industries where the net effect of patents and patenting may be shifting away from the helpful and closer to the toxic.

Anonymous said...

The link for that study on patent thickets for the Patent Office, which I think I just forgot to post...

(Should have previewed. Remember, the Preview button is your friend.)

MaxDrei said...

Americans will tell you that patents are essential, before Investors will invest.

European VC Investors will tell you that patents, while a sine qua non in chem/bio, in software are nothing more than a "comfort blanket" to reassure nervous Investors.

Some US Bloggers are imagining a conspiracy to split patent law. One law for chem/bio and a different legal regime for software. So that's what resulted in the geographical hard/soft split of the Central Division of the UPC!

the iPuffin said...

This incrementalism is far from new.

A lot of FMCG R+D has moved that way. The days of the "mad scientist" has gone - most innovations are in fact increments.

What is interesting is that the products that have been real game changers are those where an unknown need has been tapped. These are bigger gambles, however, both in terms of the discovery/development and the marketing of the same.

In such cases FMCG prefer the licence in model and/or allowing the small player to create the market before ploughing in and buying/replicating. Even at a seemingly large cost, the purchase price is in reality modest.

Let's also not forget the "incremental" model of marketing that current technology allows online. You can tweak and see the reaction, learn the lesson and then move on. In such a situation positioning, culture and voice become more important and the brand owner simply needs to continually communicate and monitor reaction. Quick changes and visibility of immediate results are the cornerstone of online marketing...

Anonymous said...

Let's not forget there are many forms of innovation. The Schumpeterian evolutionary theoretical framework helps to understand its complexity and relationship to economics (see

Present day incremental innovation is just the result of the risk-averse short-termist strategies that companies and investors have at the moment. Massive innovation leaps will return when the economic climate changes.

Anonymous said...

Anonymous @ 11:55, you have a point - but do not make it strong enough.

Innovation theory clearly differentiates between the incremental and the disruptive.

The entrenched favor the incremental - hence, the disdain overall for patent systems from the established Large Corporations, who would much rather have more ineffective, expensive and weaker patent systems and compete more on those factors that fall into their wheelhouse of size and established channels (first mover is far over-rated, as any innovation expert can tell you - the market size of that group is just too small).

Disruptive innovation is the type of innovation that is championed by the likes of Schumpeter. It is this type of innovation, when backed by strong patent protection that enables the small (even individual) entities to reset the playing field. This is precisely why the US with its (pre-AIA) stronger patent system led the world in innovation - even outstripping the industrious German culture AND the dirt cheap cost factor nations of India and China.

Massive - as in disruptive - will NOT return if the continued path of agency capture by the Large Corporate powers continues. Such is simply not in their vested interests. You lean far too much on a dis-associated and generalized "economic conditions" aspect - ignoring the basis of innovation theory's wave aspect.

Augment your thinking with some Christensen and Kondratieff.

MaxDrei said...

Anon at 13:04 writes:

"This is precisely why the US with its (pre-AIA) stronger patent system led the world in Innovation"

which for him is so self-evident that no discussion is needed, of what is cause and what is effect.

Mor my part, I say that speaking English causes heart disease. The statistics prove it.

Looking at the ranking of the world's Top Ten Science Universities, as it varies with time, it seems not to depend on the strength of the patent system where they are respectively located Why is that then?

Anonymous said...

Do lean startups mean less IP?

Yes. To adopt and employ lean startup philosophy na practices is to step up to a rhythm that forgoes the old and broken notions of protection in favor of adaptive resilience. Thank God! This is one of the greatest resulting attributes of this mental model shift.

To all the IP attorneys out there.... goodbye and good luck!

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