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The barriers to pivoting in large companies

Pivoting and iterating is an essential part of Lean Startup. You are probably already very well acquainted with what a pivot means and what it brings.

A pivot is a change in strategy, often necessary to realise the full potential of a vision and par for the course. It's designed to test a new fundamental hypothesis about the product, business model and engine of growth.

You pivot when you see some element of your product is getting way more traction than what you thought was your core use-case.

For a startup, a pivot is like a roommate, always there, sometimes fun and a good friend, and other times you don't want to see him or listen to what he says. For large companies, it's often the latter.

In their master's thesis, Johan Karlsson and Johan Nordström surveyed companies and found that there are three main factors that hinder large companies to pivot or iterate.

First reason is because project teams get funding for their work based on a plan which has been agreed upon with the project funders, sponsors. Their job is to work towards that goal which has been set, and failing to reach that goal could be seen as a failure, dead end. If they cannot stay on track with the plan for which they have received funds, there is a big chance that the project will not get any more funding and will be shut down. This is simply because the sponsor of the project doesn't benefit (as much) from anything outside the initial plan.

But this goal driven way of working is not possible, because at the beginning of a project it's not possible to see all possible actions you can take. New possibilities might come up that are better for the project than the previous ones, and sometimes you should take that path although initially it doesn't seem right.

Second reason why large companies have a problem with pivoting is because communication in big companies is slower than in startups. This is because there is simply more people involved in a project in a company, then there are people in a startup.

Several factors attribute to slower communication. There are more communication channels you have to go through and this has a negative effect on the speed in a team. Also, team members are often in different locations, geographically dispersed, which also takes away from the speed at which a project should be carried out in.

There is also a long response time between team members, which is not good when you need input from someone else to continue your work. The long response time could be due to the fact that team members often work on several projects at the same time, so team members don't have a normal flow at which tasks should be executed in. Another reason for long response time is because of the culture in a company. Sometimes team members wait longer than reasonable to respond, or they choose not to respond.

This slower communication inside a team leads not only to longer product development processes, but also makes rapid iterations impossible. And rapid iteration is important in fast-changing industries where the environment can change before the actions that were based on the environment have been taken.

The third reason Karlsson and Nordström found from results of their research is that project funders in large companies are less willing to allow pivoting and iterating in projects than VCs for startups. This is because project funders fund a project if they want the product, not because they believe the team will come up with something more valuable.

In companies, when employees want to get funding for a project, they put together a proposal with an expected outcome and required funding. A project with a higher ROI is more probable to get funding, so employees often exaggerate forecasts to improve their chances of getting funded. They also have to compete for funding with other projects in the company, so giving the funders what they want is a safe bet.

If teams used a Lean Startup approach and didn't forecast the financial outcome, they would probably not get the funds because in the Lean Startup approach there is more testing and more iterating and much more uncertainty.

Even though in many aspects large companies are better equipped than startups, they still face serious hurdles and don't really create a good and fast environment for new ideas.

This leads us back to a webinar we held, where Cris Beswick talked about re-defining strategy, leadership and culture and what we need to do to drive innovation.

In our Playing Lean Expert webinar series we have hosted some of the best practitioners in the world such as Katie Anderson, Cris Beswick and Esther Emmely Gons!

After a short break, we are ready to continue, and we'll be announcing dates and expert speakers soon.

If you want to be notified of future webinars and get access to webinar recordings, subscribe to our newsletter




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