METHODOLOGIES FOR

THE 21st CENTURY

METODOLOGÍAS PARA EL SIGLO XXI
Juan Manuel Corchado
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METHODOLOGIES FOR
THE 21st CENTURY
(Metodologías para el siglo XXI)

1. Introduction to the Lean Startup

The current market economy is an extremely competitive and highly uncertain environment; it
is of vital importance for companies within it to be able to maintain a certain ability to
innovate. Through doing so, they can stand out from their competitors and offer new products
that satisfy unmet needs or simply “awaken” potential customers’ curiosity, which allows these
companies not only to make an economic return but also simply to survive in this business
environment.

We have seen that there are useful tools such as the Playbook for Strategic Foresight and
Innovation methodology that facilitate the adoption and implementation of innovative skills on
a day-to-day basis in our company, encouraging the emergence, development and
implementation of new business ideas. However, the Playbook is not the only methodology; it
is one of many that have been designed in recent years to help managers in large corporations
and small startups alike to bring about an innovative approach in their business activities.

Other methodologies or tools that are often used to carry out innovation management are, for
example, the Lean Startup (which is described in detail in this module), Design Thinking and
Agile Software. But it is very important to bear in mind that all of them are based on the same
principles and that they have many points in common. What differentiates them is the point
within the innovation process on which they place their emphasis. For example, Design Thinking
methodology emphasizes the first steps of the innovation process—understanding our
customers’ issues—whereas Lean Startup is more focused on experimenting with the solutions
or products that we offer the market once we have identified an unresolved need. The Business
Model Canvas is also a method that helps us to find a business model that works and that
ultimately transforms our startup into a company, something that could be considered as the
last part of our innovative process.

The experienced innovation manager will know how to use all of these methodologies by
combining all of them over the innovation process, to make the most of the capabilities of the
organization and stand out from competitors by offering a differentiated and innovative product
or service.

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Although the innovation process is complicated and nonlinear, all methods tend to follow the
same or similar procedures, and they all have two key objectives in common:

1. Understanding our customers, their problems and their needs. Achieving this is
not only a question of conducting surveys and market research. We need to put
ourselves in our customer’s shoes by studying their everyday reality and truly
understanding what they think and need.

2. Decreasing the inherent risk in innovation by reducing as far as possible the costs
of products, services, and so forth that have failed. The best way to bring this about
is to accelerate the process of product development, so that costs are saved
through not having to devote excessive time to a product that may not find any
demand.

This last point is the basic aspect on which the Lean Startup and its Minimum Viable Product
(MVP) method are based. The Lean Startup, which takes the work of Steve Blank (contained in
his book The Four Steps to the Epiphany) as its basis, was developed by Eric Ries in 2008. It
sets out a methodology of continuous innovation based on being quick and not expecting to
release a completely finished product onto the market.

We might conclude here by saying that in recent years business management experts have told
us about the importance of incorporating innovative practices into business models. However,
this is not an easy task. As a result, numerous methodologies on the subject, such as Eric Ries’s
aforementioned Lean Startup, have arisen recently. Through tips, graphics and tools such as
the Business Model Canvas schema, they help us to approach the daily life of our business with
an innovative focus.

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2. The Lean Startup

The methodology that we will discuss in this module comes from Eric Ries’s book The Lean
Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful
Businesses (2011). Ries’s methodology has its origins in the principles of Lean Manufacturing
(which entails eliminating inefficient practices and focusing on steps that increase added value
in the development phase) and in the Customer Development method promoted by Steve Blank
at the company IMVU, Inc., at which Blank met Ries as an investor in the company.

The Lean Startup concept revolves mainly around what the principal objective of a startup
should be. According to this method, the objective is to find (within an environment of great
uncertainty) a viable, repeatable and scalable business model.

This goal is achieved through conducting a series of experiments that allow us to bring our
product to market and learn from the feedback we receive from the market (customers), basing
our whole strategy on validated learning, which allows us to shorten our product development
cycles as much as possible. This is carried out based on actionable metrics (indicators), which
allow us to know our customers’ responses and thus to make decisions about what actions should
be taken to improve our product or service.

The feedback that we receive from our customers therefore takes on greater importance than
the fact of delivering a fully finished product. As a result, it is essential to act quickly and not
wait until we have a final version of our product. It is better to deliver a first version that is
functional and begin to receive responses and comments from our customers so that we can
continue to define our idea by knowing whether or not we are getting things right with what
we are proposing. This is what is referred to as Minimum Viable Product (MVP) in Eric Ries’s
book: a product or service that is unfinished but functional and that offers us a way of learning
about the business, product and market through interaction with customers.

2.1. Principles of the Lean Startup

Eric Ries’s book The Lean Startup sets out the five key principles of his methodology, based on
applying Lean Management to innovation and entrepreneurship. These principles help us to
understand when we must persevere with our business model, or when, on the other hand, to
turn to another path that will lead us towards a sustainable model (our product or service
having demand from potential customers).

Through these principles, Ries proposes that startups can design their products or services
without the need to devote large amounts of resources to the process:

1) Entrepreneurs are everywhere: according to Ries himself, “A startup is a human

institution designed to deliver a new product or service under conditions of extreme

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uncertainty.”1 What this means is that a startup doesn’t have to be a couple of

entrepreneurs working with a couple of old computers in a garage. The Lean Startup
methodology can be applied to all kinds of companies and organizations that may create
products or services in a setting of great uncertainty.
2) Entrepreneurship is management: a startup is an organization, not a product, and
therefore it must be managed as such.
3) Validated learning: the aim of a startup is not to offer a product, to make money or to
serve customers. Before any of those things, we must discover a sustainable business
model, and this should take place through scientific validation in the form of
experiments that will allow us to test every element of our business plan.
4) Innovation accounting: To take advantage of validated learning and interpret its
results, we need certain indicators that we can use to measure our progress and results,
to establish milestones and thereby to prioritize our subsequent actions.
5) Build-Measure-Learn: is the cycle of learning on which the fundamental activity of all
startups must be based. It begins by transforming ideas into products or services, then
offering them to our customers and seeing how they respond. We measure and reflect
on this response and thereby decide whether to persevere along the same line or to
pivot. If it is well received by our customers, our product or service must be improved
in some way (introducing new or improved features, for example), and the cycle begins
once more.

2.2. The Learning Cycle

Along with speed in our actions, the learning cycle described in Ries’s book is the most
important part of Lean Startup methodology. It serves to transform ideas into products and
improve them after studying the market response, with this cycle being continuously repeated
time and again.

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Source: http://theleanstartup.com/principles

Build: our minimum viable product (MVP) focused on the idea of the innovative project
that we want to deliver to the market for testing.

Measure: using the right indicators to help us understand the response of our customers
to our product.

Learn: based on the results generated in the previous step, we try to improve our
product or service by introducing changes that are necessary, or we simply pivot to
another business idea.

The Build-Measure-Learn cycle (the learning cycle) is different from the traditional product-
development cycle, and its virtue is that it is based on repeating very short development cycles
over and over again to adapt and continually improve our product.

One thing that the Lean Startup methodology shows us through the learning cycle is to know
when to give up. There are times when nobody buys our product or service, and small
modifications to our minimum viable product will not lead to a success in the market.
At this point, we need to know how to “fall out of love” with our initial project and
pivot towards a different business model that is better suited to the market. By
minimizing investment and making learning cycles as short as possible, our company
will not fail by running out of resources (it is always better for our MVP to fail rather
than the whole business).

From this we can draw the conclusion that no good comes from persevering with a product or
service that nobody wants—that is, one that has no customers. This is what causes 9 out of 10
startups to disappear. It is therefore very important to “pivot” and change our initial business
plan to one that attracts customers.

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“Startups that succeed are those that manage to iterate enough times
before running out of resources” - Eric Ries.

2.3. The Customer Development method

To know how to “pivot” to another business plan that works, we need to know which customers
to aim for (since our previous plan did not have them), and for this purpose we need to
implement processes for researching and developing customers. At this point we can call on
the help of the Customer Development method, which helps us with this very purpose of
discovering and getting to know our customers through asking us the following questions:

1. Is there any problem or need that is expressed by potential customers?

2. Would our concept solve or satisfy the problem or need identified?

3. Would our customers be willing to pay for our product/solution?

4. Do we understand our product sufficiently well? And do our potential

customers?

Once we have got to know our customer, we will have to adapt our model until we prove it
works (customer validation)—that is, that the client that we have identified is willing to pay for
our product/service. This is what the survival of our business model must be based upon. Once
we find customers who will pay us for offering them a product or service, we will have validated
a business model that really works, and our organization will no longer be a start-up—it will
have become a company (SME).

Customer Development is a tool created by the researcher and entrepreneur Steve Blank. It is
explained in his book The Four Steps to The Epiphany. As we have seen, the basic principle of
this tool is not to fall into the error of orienting all our efforts towards creating the best possible
product (one that is so good that our customers will definitely like it), but to look more at what
our customers ask us for by studying the real market and, once this is done, to devote ourselves
to “making” our product based on the interests and needs of our customers.

To execute this method and thus get to know our target market, however, it is necessary to
allocate time and resources—both human (a team of people devoted to this method in the
business) and economic (marketing, market studies, surveys, and so forth). All this effort must
be undertaken with the goal of seeing/discovering our potential customers and learning from
them through the 4 phases of Customer Development:

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1. Customer Discovery: This involves finding out whether or not a prototype for a product
or service has a real market, discovering our potential customers and working out how
to satisfy them. One way of doing this is to put ourselves in the situation of our
customers by studying what their day-to-day experiences are like, what they think, how
they act in particular situations, and so forth. For this purpose, we use the previously
examined Minimum Viable Product (MVP), one of the foundations on which the Lean
Startup methodology is built, and thereby reduce as far as possible economic losses
from errors in our predictions.
2. Customer Validation: We then proceed to establishing a sales strategy that will be
validated by the market through so-called “early adopters” (people who are willing to
buy a novel but not completely finished product). If we manage to find a market
segment that is potentially interested in our product/service, we can continue
developing both our business model (Business Model Canvas) and our product (product
life cycle).
3. Customer Creation: Once we have enough evidence that our product can be viable
through the previous two steps, we must “motivate” customers to buy it. We need to
let them know about our solution and make them feel that they need to buy it.
Customer Creation basically entails creating a sales plan, creating demand through the
marketing department, establishing a price, studying the sales and distribution
channels, and so forth. This step causes the change that makes our customers go from
merely being early adopters to representing a broader market sector.
4. Company Building: With everything now in place, we need to focus on making our
company’s departments (sales, development and marketing) work properly and
collaboratively to exploit the commercial success of our product. From this moment,
we can start thinking about scaling our business.

Source: http://blogthinkbig.com/customer-development/

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2.4. Business Model Canvas

It could be said that whereas a company puts into practice its business model to obtain the
profit that will enable it to continue to operate, a startup is still in search of that business
model. Alex Osterwalder’s Business Model Canvas method provides us with graphical help
through its nine blocks to precisely develop a business model based on innovation. Once we
understand how to use it, we not only can but also should apply it, alongside Eric Ries’s
methodology, as an innovative alternative to describe our business idea and reach our business
model “that works.”

A business model is no more than the planning that makes a company able to generate profits—
that is, the set of processes and activities that must be performed to generate revenue and
profits. It is basically a diagram of your business that describes how the company will make
money.

The Business Model Canvas is a business model specifically designed for innovative companies.
Its simplicity has allowed it to become a valuable tool for strategic business management in
recent years, applied in conjunction with other methods of innovation management such as the
Lean Startup. It is used in businesses of all types (especially startups).

According to its creator Alexander Osterwalder, it is a business model based on innovation: it

“is about finding new ways of creating, delivering and capturing value.”2 These models tend to
be grounded in four main areas: customers, supply, infrastructure and economic viability. But
to simplify a business model and make it consistent, viable and profitable, Osterwalder
proposed to divide these areas into 9 basic modules for the development of a methodology for
business strategy—the Business Canvas Model:

1. Customer Segments
2. Value Proposition
3. Customer Relationships
4. Channels
5. Revenue Streams
6. Key Activities
7. Key Resources
8. Key Partners
9. Cost Structure

One of these modules, value proposition, appears in the centre of the graph and represents
what we (or our organization) can offer to customers. It is what identifies us in the market

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relative to our competitors, and it is the reason why our potential customers are willing to
pay us.

Our customer segments are represented on the right of the table, showing the relationships
that we have with them, the channels we use to communicate with them, and so forth. It is
important to know our customers well, since they are the basis of the business. The relationship
established between product and customer is essential for the future viability of our
organization.

At the left of the table are the key activities and resources—that is, the procedures and tools
that we need to be able to provide a service or offer a product, as represented in our business
model. Also on the left of the table are key partners, which are alliances with other entities
(allies or partners) that can secure our business model and complement our capabilities through
what is nowadays called “cocreation.”

Finally, we have our business’s cost structure and revenue streams, which represent the
economic resources necessary to carry out our business in a sustainable and efficient way, as
well as the way in which the company generates revenue.

Business Model Canvas: Nine Business Model Building Blocks, Osterwalder, Pigneur & al. 2010 (Source: Wikipedia).

As is the case with the Design Thinking methodology that we will see later, it is important to
be able to depend on the collaboration of a multidisciplinary team to put the Business Model
Canvas into action, in which different types of skills as well as ways of creative thinking are put
to collective work.

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In conclusion, the Business Model Canvas is a very useful tool to use along with Lean Startup
methodology because it uses strategic innovation, not only in the creation of innovative services
or products, but also in the creation of a business model as a key factor for remaining in the
market.

3. Other methodologies: Design Thinking

The term “Design Thinking” was popularized by Tim Brown, CEO and President of Ideo.

According to Brown, Design Thinking is a methodology that “uses the designer’s sensibility and
methods to match people’s needs with what is technologically feasible and what a viable
business strategy can convert into customer value and market opportunity.”3. In other words,
it can be said that the task of designers is to solve problems creatively based on observation,
and the Design Thinking method aims to replicate exactly that, arriving at products or
innovative services by using a creative approach.

Stages of Design Thinking methodology:

1. Understand: We must begin by understanding people’s needs and

motivations. We need to gain basic knowledge about the future users of our
product or service in order to understand what need to satisfy or what
problem to solve. We speak to them, listen to them and begin to think of the
best way to help them.
2. Note: Future users must be noted and we must develop empathy with them,
listening to and observing them. In addition to studying users, it is a good idea
to examine other elements related to them, such as environmental factors,
background on solutions that have been sought in the past, experts, and so
on.
3. Define: We should be clear about who the potential user that needs to be
kept in mind is, so we can articulate ideas around a problem.
4. Ideate: Next we must begin to experiment with new ideas and solutions—as
many as possible—so that we can learn from mistakes and try new things. This
is what is commonly called “Brainstorming,” in which each and every one of
our ideas is discussed without initially discarding any of them.
5. Prototype: Here we build prototypes of the most innovative ideas.
6. Test: To conclude, it is very important to receive feedback from potential
customers, studying their reactions and listening to their opinions after they
have interacted with our first prototypes. Through doing so, we can return to

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our first product idea and modify it based on the feedback, better adapting
it to the needs of the market.

Design Thinking is based on the belief that everyone can create a solution that involves a change
of existing things, no matter how complicated the problem we are trying to solve.

In conclusion, Design Thinking is among the innovation methodologies that are most important
and most widely used by entities that produce successful products and solutions as a result of
innovation initiatives and processes. This is because knowledge about the users is used during
the development of the product and everything is conducted through the formation of
multidisciplinary teams.

4. Conclusions on Lean Startup methodology

Once we have mastered the tools described previously and know how to use them alongside
Lean Startup methodology, we will be able to minimize the chance of our company failing,
because we will not become bogged down in procedures arising out of poor management
decisions. In summary, it can be said that:

1. Customer Development is the tool that allows us to define the part of our business
model related to the definition of our target customer—that is, the segment of the
market that our product or service is aimed at (though it can also be used to identify
suppliers, partners, investors, and so forth). To this end, information necessary for the
entrepreneur is collected; this information allows hypotheses about our model to be
validated or rejected, meaning that when necessary we can pivot toward other
approaches and turn the initial business model into one that is better adapted to the
real market.

2. Osterwalder’s Business Model Canvas can be used within Lean Startup methodology as
a template through which we can start to work on our business model. Through its nine
blocks, we can modify it until we get validation through feedback from the market
(customers, suppliers, partners, and so on), so that our startup becomes a company.

3. Finally, we should keep in mind that Lean Startup methodology does not mean that
investment will be reduced or that we can spend as little as possible to discover our
business model. In fact, the biggest advantage offered by this methodology is that it
allows us to act as quickly as possible and not waste our time (and money) on ideas or
business models for which there is no market. This way of doing things is what has
recently been called “Agile Development,” which allows the aforementioned

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minimizing of delivery deadlines and necessary resources, through rejecting long

product-development processes.

In summary, it can be concluded that the Business Model Canvas, Customer Development, Agile
Development, Design Thinking, and so forth, are just some examples of methods for innovation
management that can be used within a Lean Management (Lean Startup) approach. They are
just a few of the many examples that an innovative entrepreneur can call on to structure his
or her business model.

To understand how Lean Startup methodology works and how to integrate methods such as
Customer Development and the Business Model Canvas, we recommend the book The Startup
Owner's Manual: The Step-By-Step Guide for Building a Great Company (Steve Blank, 2012).

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