Joining us for Episode #469 of the Lean Blog Interview Podcast are Matt May and Pablo Dominguez, the authors of the new book What a Unicorn Knows: How Leading Entrepreneurs Use Lean Principles to Drive Sustainable Growth. It's available now!
Matt has been before, in episodes 67 and 103… and he was my guest for episode 39 of My Favorite Mistake.
Pablo Dominguez is an Operating Partner at Insight Partners, a leading global venture capital and private equity firm investing in high-growth technology and software ScaleUp companies that drive transformative change in their industries.
Pablo has spent his entire career as a go-to-market and sales-focused operator, working in consulting, public companies, startups, and, most recently, ScaleUps. The application of lean principles has figured centrally in driving sustainable growth in each of these ventures.
Matthew E. May leads the Lean ScaleUp program at Insight Partners, with Pablo. His mastery of lean principles and methodologies comes from spending nearly a decade inside the Toyota organization, where he played an integral part in launching the University of Toyota, a corporate university dedicated to teaching, preserving, and expanding the Toyota Way. Previously the author of many great books, including The Elegant Solution and, most recently, Winning the Brain Game.
In this episode, we discuss their new book and how they are both influenced by Toyota and broader Lean thinking, including the Lean Startup methodology — and we discuss the questions and topics listed below:
Questions, Notes, and Highlights:
- Pablo, since this is your first time here, it would be great to hear your “Lean origin story”
- Helping people cope with the discovery of waste and opportunities to improve? Feeling bad about it before moving forward?
- Congratulations on the release of the book… in startup circles, what's meant by the term “Unicorn”?
- What's a ScaleUp compared to a startup?
- What is product-market fit? An example?
- Risk of trying to scale prematurely?
- One of the core themes in your model is “Constant experimentation”
- Investors – do they want to hear about “constant experimentation”? Do they want certainty?
- How to prevent Big Company Syndrome (a.k.a., Big Company Disease)?
- What is meant by “Lean ScaleUp”?
- How do you react when you hear this aversion to “process” in agile or startup circles, as if process means being inflexible?
- What's a “lean kaizen sprint”?
- Applying this to the sales process?
- Lessons Toyota about “building team spirit”?
- Building teamwork across silos?
The podcast is sponsored by Stiles Associates, now in its 30th year of business. They are the go-to Lean recruiting firm serving the manufacturing, private equity, and healthcare industries. Learn more.
This podcast is part of the #LeanCommunicators network.
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What A Unicorn Knows: Interview With Authors Matt May & Pablo Dominguez
I'm joined by Matt May and Pablo Dominguez. They are the authors of the new book, What a Unicorn Knows. This episode has a little bit of something for everybody. One of the themes is constant experimentation, whether you are Toyota, a startup, or something in between. I hope you will read this, whether you are doing continuous improvement in a larger organization, or if you are an entrepreneur or a devotee of the lean startup methodology. I hope you enjoy the episode.
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I'm joined by Matt May and Pablo Dominguez. They are the authors of a new book, What a Unicorn Knows: How Leading Entrepreneurs Use Lean Principles to Drive Sustainable Growth. Matt has been here before a couple of times on episodes 67 and 103. We have done a couple of video episodes, which I don't think ended up in the audio episode, and he was also my guest for episode 39 of My Favorite Mistake. Pablo is here for the first time. Before I tell you a little bit more about them, first off, welcome to the show, Matt and Pablo. How are you?
Thank you.
Thank you. It's good to see you again, Mark.
I was trying to search for Matt because I feel like it hasn't been that long since we have done an episode, but that may well be the case. We have done episodes about some of your previous books.
I think the last thing was My Favorite Mistake.
Let me first tell you a little bit more about Pablo Dominguez. He is an operating partner at Insight Partners, a leading global venture capital and private equity firm that invests in high-growth technology and software scale-up companies, as they call them. We will talk about that term in this episode. They are companies that are driving transformative change in their industries.
Pablo has spent his entire career as a go-to-market and sales-focused operator. He's worked in consulting, public companies, startups, and these companies they refer to as scale-ups, and that includes using the application of lean principles to help drive sustainable growth. We are going to talk about that a lot now.
Matt May leads the Lean ScaleUp program at Insight Partners working with Pablo. Matt has a long mastery of lean principles and methodology. He spent nearly a decade inside Toyota, where he played an integral part in launching the University of Toyota, which was their corporate university dedicated to teaching, preserving, and expanding the Toyota Way.
He is previously the author of many great books. A couple of those are The Elegant Solution and Winning the Brain Game. You have got the new book, What a Unicorn Knows. We are going to get to know Pablo and Matt and how you came to work together. Pablo, since it's your first time here, I like to hit guests with this lean origin story. I'd love to hear yours.
Thanks so much. My lean origin story starts with Matt May. We have been working together for many years. I was lucky enough to work with him at a public company where he helped us solve a lot of our issues within the sales organization. Given the success we had there over multiple years, we worked together at a startup I was at after that.
We were working in sales, post-sales services, and HR solving issues there. I joined Insight Partners a few years ago and I couldn't imagine not leveraging Matt's skills. Matt's been helping us here at Insight tackle a lot of the growth challenges that our portfolio companies may have and apply lean to those. I am excited to share a lot of what we have been working on.
I want to ask. Going back to some of those early days, what was the context of the role you were in at the time, Pablo? What resonated with you about Lean in general?
I think this is why we wrote the book. I was running global business operations for a Fortune 250 company supporting around 8,000 salespeople and 12 business units. Most lean is bred in manufacturing or product development. What Matt and I have been able to do is flip that and apply it to the go-to-market lens. In that example, in the public company, we looked to streamline the quote-to-cash process.
As a lead comes into marketing, it gets converted into an opportunity in sales, it gets closed, then goes to implementation, and the customer starts getting value. That process over time as any company is you add more people and technology. There's technical debt. It becomes fraught with waste. Matt helped us identify how to remove a lot of that waste to decrease the time to value, which was transformational. I love that we have been able to apply it more to marketing, sales, and post-sales versus the traditional lens that most people are used to.
Matt, let me bounce it over to you. What Pablo said there sounds almost exactly like the old Taiichi Ohno line. It's something to the effect of, “All we are doing is trying to reduce the time between receiving the order and receiving cash.” Is that directionally correct? Tell me more about that idea of compressing that time.
It's not only directionally correct. It's correct. It's one of the stories that I don't think it's told in much of the traditional lean literature, but having worked in the sales and marketing arm of Toyota, it was a story I think we heard more often than our counterparts in parts distribution and the production side of the business.
I always called it the dirty little secret and that this was all about getting cash in the door. What's the easiest way to do that? What's the shortest route to doing that? What's the cheapest and most cost-effective way of doing that? It's because Toyota sprang from the dust and rubble, at least, in the car part of their business following World War II. It didn't have a lot of resources.
I have maintained that genetics all the way through. One of the first things I said to Pablo and his team many years ago was when I took them through the official University of Toyota lean simulation, which to this day we use with tech-forward companies. I said, “Here's the secret. It is not about quality, cost, or speed. It's about shortening that order to cash. We use the “cash.” It's a Salesforce nomenclature, but it is the driving force. Directionally, we are trying to take a whole company approach to that mentality here, because the context that the gap in the marketplace when it comes to lean is that go-to-market is the pointy end of the spear, and it hasn't been tackled.
The gap in the marketplace when it comes to lean is that go-to-market is the pointy end of the spear, and it hasn't been tackled. Click To TweetComing back to your story, Matt, how did you come to work formally? We have heard Pablo's side of past experiences and want to bring you in. What's your perspective on starting to work together and being part of Insight Partners?
I have followed Pablo. Every time he is gone someplace, he's looked around as a good leader does, and says, “Things are good, but I know they can be better.” One of the things I think that makes us work well together is the fact that we are both operationally minded. I'm a practitioner. He's a practitioner. We don't necessarily study the problem as a scholar would.
We look at it from the business perspective, the business lens, and how can we apply things that would work that are field tested that get everyone involved. It's not only consulting, the traditional conventional consulting assignment, arms-length, let me tap your brain, feedback to all your best ideas. Let's pull them out of the people doing the work. That's part and parcel of the lean approach anyway.
That's a familiar mindset like you were describing there. Pablo, let me turn it to you. I'd be curious to hear your recollections of that lean simulation Matt had a lot of experience even back at Toyota and bringing TPS outside of the factory walls. I'd be curious to hear your reactions. We are going to do a Toyota simulation. How did you experience that and see the connections to the work that you were doing?
I have had the benefit of now sitting in those simulations many times since I have been with Matt. The first time though, you are like, “What's going on here?” The guy has got tables set up with little cars and parts, and your first thought in a tech-forward company is, “We don't manufacture widgets. This will be a cool exercise.” The exercise is pretty eye-opening because regardless of what you create as an ultimate value, the intent is to show what something was like. It's a process ripe with complete inefficiencies to then an end state, which you go, “What an elegant solution. How could they not have thought of that before?”
Matt has a very good way of taking you on the journey from the first step to letting people come up with their solutions to then showing the output and getting the audience and the mindset of, “How do I apply what Toyota did in an actual manufacturer of a car to streamlining my process regardless of what business you are in?” You could be in tech. You could be in healthcare. It doesn't matter.
That leap is easy for some and for others, it's hard. Matt and I have an example of one person in one of our sessions who goes, “I don't know why we spent time doing this. We don't manufacture anything. We do software. This is stupid.” Some people don't make that switch as quickly but, honestly, being someone who's done all sorts of developmental activities, I love this one. Every single time we do it, I love seeing people's eyes go, “Wow.” It's exciting.
There's that excitement, and then sometimes people say, “Crap.” They feel bad about discovering the waste or the opportunity. I'd be curious to hear from either of you either experiencing that and/or coaching others through or almost having to counsel them now that they are seeing the waste.
I don't think we have had any nervous breakdowns, Pablo, but there have been some crap moments as Pablo said, “How could we not do this?” If I do my job right with the simulation, people get a connection to their work. It's not about a car. It's about, “I got a code that I'm developing. I got to ship that code to someone else who then develops that, packages it, and gets it out to the marketplace.” They begin to see all those relationships and they lean in right away.
The reason that we do it to this day is because it does wipe the slate clean. There's no real talking head PowerPoint. I don't beat anyone over the head with all kinds of lean or Japanese concepts. At a very visceral level, they get the difference between achieving far better results, and 4X to 5X better results by thinking through high leverage points. They see that application to their own business and we are never without a target-rich environment. There are plenty of targets to hit and they see it right away. They are very excited to get going.
Mark, we start with the simulation before we go into the workshop. It also reduces the barriers for people because there are different people, organizational teams, and levels. It gets them into the mode of like, “I can't wait to go do this with our company. If that's what this company did, let's go apply the principles.” It's a good way to build some camaraderie and team building before getting into the meat of the solving.
Let's talk about the book and how your past experiences have led to the book, What a Unicorn Knows. First off, the word unicorn is within the startup circles or investment circles. I think Facebook is one that was considered a unicorn. What's meant by that term?
It was coined by Cowboy Ventures, and we used the term as it was defined by them, which was any company public or private valued over $1 billion. Typically now, people sometimes say, “What startups are being valued at $1 billion versus public?” At the time, back in '13 and '14, there were very few unicorns per se. I think why the term is used is it's this magical beast that is difficult to attain.
A few years ago, we saw the number of unicorns almost double year over year in terms of prior years, if not almost triple, just because valuations were growing at different rates than before. It doesn't take away from the fact that the reason why we have called it, What a Unicorn Knows is what do we see with some of the best unicorns that have been out there?
Also, for those companies that are successful, how have they been able to drive sustainable growth to maintain that status and continue to grow effectively versus those that have not? We wanted to share what those principles are and what people should be aspiring to if they want to build a sustainable business that has significant growth over time.
We are quite fortunate in the fact that if you think about how most books are written, not every book, including ones that I have written, Mark, the sample size is quite small. It's often biased. We have this unbelievable playground of over 500 software companies. To be able to say, “What separates the best from the rest,” even among those is something that very few people can do.
Scholars don't have that. Most people, at most maybe, a dozen or a couple of fistfuls of companies that they can point to and cherry-pick. When you have got a huge sample size like that and you can see patterns, you can take this whole company perspective and overlay it with a lean mindset. Also, I think there's something to walk away with there that doesn't exist in the marketplace right now.
Pablo, you mentioned Cowboy Ventures' definition. I have a follow-up question for you or Matt. What's your definition or is there a consensus modern definition or do you have one that of your own that you prefer?
It's either all public and private or just private. Sometimes when people say, “What are the top unicorns now?” Sometimes they meet the ones that have not gone public yet, but for the purposes of when we are making discussions or the book, we have stuck to the original definition just in case people are confused.
As with anything, the question is, how do you get from here to there? As you looked at those companies, where did that access come from? Were they companies that Insight Partners had invested in or others in your network?
It's a mix of both. To Matt's point, we have had the benefit at Insight of minting over 75-plus unicorns ourselves. Matt and I have had the benefit of working in the public markets also with other public unicorns. The experience of working both with those public companies, the broad portfolio at Insight, and also working with non-Insight startup companies that are valued at $1 billion-plus because it's an ecosystem that we also work with as well. I think those three data points have allowed us to triangulate what good looks like, and the pattern recognition that we have has helped us form some of the basis for our opinions and facts.
Before reaching that state of a unicorn, there's this progression to spell out. You talk about it in the book going from startup, which could mean barely off the ground, no customers yet, pre-revenue to the scale-up. It brings us back to the question, “What do you mean by a scale-up, and when does a startup get to the point where they might say, ‘Scale-up is now a better label?'”
There are some standard definitions. You could probably go on Wikipedia and they would give you a definition of something to the effect of 20% growth in the past few years, or that type of thing. A company in a startup phase is looking for product market fit. Those in the scale-up phase have found a product market fit. They are looking more for a go-to-market fit, which is where we come in.
A company in a startup phase is looking for product market fit. When you don't have product market fit, you're basically testing the waters to see what sticks. Click To TweetThey are growing rapidly. They are looking to scale to grow even more. What they are lacking is because it's such a high-velocity organization, they are looking for discipline sometimes because to reach certain inflection points, if you don't have the scaffolding in place, then all that you have built is at risk of potentially crumbling, which is where we come in. Also, the fact that the go-to-market fit, the priority number one is right in our wheelhouse. That's how we think about it. The final phase is being grown up.
Pablo, let me ask a follow-up question for you. There are probably a lot of entrepreneurs reading, but we might also have readers who are coming from more traditional lean enterprises, lean manufacturing companies, and roles. Let's say they have an idea. A lot of people say they have their dreams of the company they'd like to start. Can you talk us through this idea of finding product market fit or an example of what it means to find that?
At its core, a founder, whether you are a technical founder or GTM founder, you have got an idea to build something. When you first build that, you might have a sense of who you are selling it to. What the value proposition is and what you are going to charge for it, but early on, you don't. You are trying to test the waters of where is it going to land and whether is there going to be demand for it.
It takes a couple of customers to try to understand, “Am I successful selling to enterprise customers or mid-market customers, SMBs, or Small-Medium Businesses,” because you can be selling to different types of customers. Is it better sold to a certain vertical? Who's my actual buyer that's going to buy this at scale? Until you have a repeatable sales process where there is a clear demand for the product and people understand exactly what you are selling, you have got an idea and you are testing it.
With the lean concepts of constant experimentation, which is in our second chapter, when you don't have product market fit, that's basically what you are doing. You are testing the waters to see what sticks. Companies sometimes get product market fairly on. You could get to $1 million in revenue and have a very strong product-market fit and take off. You could get to $10 million and not necessarily have a good product-market fit, but there's demand for your product elsewhere. However, you may not be able to scale past that. It depends but narrowing down your customer, your buyer, and building a repeatable motion is what gets into product market fit.
Is there still a risk of companies making the mistake of trying to scale too quickly before they found product market fit or investors and not making that possible of not funding someone to try to go big before they have nailed, the product market fit?
Us, as investors, Insight typically invests when there is product market fit. Our job, Matt and I, and everybody who's on the operating side because Insight Partners have the investors and then a team called Onsite, which is designed to help you scale once we make the investment. If you try to scale too quickly and you don't have product market fit, you will probably burn through a lot of your cash that you have on hand or debt that you have because you are not going to find that repeatable motion and you are going to stall, which is why it's very important to get product market fit right so you can start to build out your organization and products.
Can you give an example or walk through that progression of finding a go-to-market fit? What's the failure mode or the problem of somebody not yet having the go-to-market fit?
Let's pretend you have got a good product that you can sell broadly. I will simplify it. There are three main routes to market. You can have a product-led motion and there are tons of different product-led motions. Sometimes people think product-led means I'd buy online and I don't need to talk to a human being. However, there's a product-led motion, which has a lot of elements.
There's a sales-led motion, which is primarily direct, and there's a channel-led motion which is indirect. You are leveraging, for all intents and purposes, a value-added reseller or something like that. Those are your routes to market in terms of how you would distribute your solution. There are nuances to that, but that is also hard because people try to sometimes think, “I'm going to try and do all three of these.”
Your product may not be channel-friendly, and the channel may not value it to resell it for you or to help you and that's okay. Your product also may not have a PLG motion and that's okay or it may do great PLG, product-led growth, and now you want to take it directly through the enterprise, but it's not enterprise-ready.
You are selling to Pfizer, a Fortune 500 company versus a twenty-person company. It's a very different sales motion, and they have different requirements and security. You have got to make sure your product also meets those needs. Getting that GTM, Go-To-Market fit takes time, but it also is an evolution. You may introduce PLG very late, or you might introduce enterprise very late or channel as you start to mature as you start to go into different countries and markets that necessitate a different motion. It's a journey that never stops.
It lands us on the doorstep of strategy if you think about it. Also, not to be critical, but there are tools out there that are widely in use like the Business Model Canvas, where there's room on that canvas to talk about channels, to talk about customers, and relationships with customers. The problem with them is that they don't allow you to prioritize the best use of your resources because you can't do everything that you want to do.
Our very first principle is strategic speed, which is the drivability of the vehicle. We are calling it a scale-up if you think about it, but you have to make choices on where you are going to focus your resources, and most importantly, where you are not. Tools like that are great as frameworks to begin the thinking process, especially perhaps at the startup phase but when you are in scale-up when you have got investors, and you are trying to have a sustainable competitive advantage against daunting players in your space, disrupt them if you possibly can. You do need to think about strategy and that's our starting point.
I want to come back and talk more about that theme of constant experimentation. One follow-up question on what you were saying, Matt, or maybe Pablo can chime in on it too. You talk about being ready to scale and investors know you have the product market fit and you are scaling. Do investors want to hear about constant experimentation? Do they realize that's just how it is with companies at this stage or do they sometimes want more certainty than a tolerance for that constant experimentation?
I think it depends and that's why we exist. The investors are there to invest money and help you determine what the optimal exit is going to be from a growth perspective. The operating teams that we have are there to help translate, “In order to get there, we might need to take these steps. We might need to test the waters.” It's tough sometimes. If you keep failing in your experiments, you are going to get pressure on, “Why are we wasting time doing this?”
If you have a track record of failing and then turning those failures into successes, I think you will have more leeway with your investors and teams. Be thoughtful, depending on who you are and who you are working with. The tolerance for experimentation and failure may drastically vary. It's like being a parent. A kid takes a lot of risks, but ultimately, nothing happens and they are okay, you are fine with it. If they are constantly always getting hurt, you are probably going to keep a tighter leash on them.
I would add to that but there is a fine balance between being in constant beta mode and having a reliable motion for bringing a concept into commercialization. That is the focus of constant experimentation. It's not because it's fun to experiment in a lab that we call a business. It's because if you do not, and you begin to grow and scale and ride on your past success, it won't be long before you are struggling in the marketplace.
There is a fine balance between being in constant beta mode and having a reliable motion for bringing a concept into commercialization. That is the focus of constant experimentation. Click To TweetCompetitors are eating your lunch, if not you, for lunch and it's a competitive imperative to do that, but it does need to be business-related. I think a lot of people make a mistake in thinking about experimentation as what we learned in seventh-grade science, where you are trying to prove or disprove some universal truth. Here, we are talking about business experimentation where the factors of success and what determines failure and success are around business dynamics, the business indicators.
It's revenue. It's cost. It's all the drivers of a business and that I think sometimes gets lost in all of the make-nice continuous improvement stuff. Also, never forget the genetics of continuous improvement. It came about in wartime and we are in a war right now. Every company that we work with is feeling under the gun.
You talk about this constant experimentation and I could see that being the culture in a startup. Toyota, at different stages there, including some of that history you are alluding to was a startup. When they first entered the car business, it was a startup on top of the old weaving loom business. As you said, after the war, maybe they were restarting in different ways.
As a company grows, one thing you write is a phrase I have heard from Toyota people. It's the big company syndrome or I have heard it called the big company disease of avoiding that or not wanting that to set in. What have you learned, Matt, either from the Toyota experience or experience working with other organizations? How do you help guide the leaders of an organization to not lose that startupy or scaleupy constant experimentation as they become a grownup company?
It's not losing sight of the fact that innovation needs to be a strategic priority or a company priority at the very top. If a leader loses that focus and says, “Don't break our product. It's working so well. Let's ride this wave as long as we can.” It is a death nail because what happens is experimentation and the engine being experimentation of innovation now gets put to the side. As the company grows, costs balloon. There are more people now. The product is the same. How am I going to justify my existence? I got to come up with a program and I got to sell it to the leaders. That costs money and those programs proliferate. All of a sudden, the product is now a little bit obsolete. It's a little bit old. It's looking long in the tooth.
We have lost the chops on how to experiment, how to innovate, and all of a sudden, the costs have to be cut back and there's a freeze on all the programs. All of a sudden, you are at a standstill. It begins at the leader level. One of the portfolio companies that we work with has made their business about constant experimentation at scale. We have an interview there with the CEO of a company and that is their business. They are helping other tech companies experiment.
What are your thoughts here, Pablo? Any guidance that you would give the companies that are further on their way or have already become a unicorn? How do they not lose that experimental mindset?
I apologize because I do think I will say something that might upset some people. I think it all comes down to leadership at some point. I don't think any principles or Matt coming in to do a workshop or a book will make certain human beings want to innovate or do things differently. It's one about making sure people are aware of the principles.
However, if you don't have the right leader in place or leaders to lead initiatives that think that way and truly believe in wanting to be innovative and challenge the status quo, I think you will fall into big company syndrome, which is why that term exists. I have been part of two public companies, and again, as companies get larger and larger, the organizations are larger. If you think about a startup to scale up, it's a small group. They move fast. Decisions are made quickly.
Everything is about innovation because you don't have time, otherwise, you get eaten up. However, as you get larger, we are all human beings. We fall into habits of processes and stuff but there are sparks of innovation in every single company, regardless of the size. The key is finding those people, enabling them, and moving leaders around that can help drive that energy, but I do think leadership above all else will enable the success of innovation.
Leadership above all else will enable the success of innovation. Click To TweetNot to be too flippant about it, but to your spark analogy, a lot of organizations are designed in a way as if they are intentionally trying to put out those sparks.
It's true, and that's why you have also got to have leaders that are politically savvy enough. There can't be bulls in a China shop coming in trying to be like, “I'm going to innovate,” because that's not how organizations also work. There needs to be some finesse there to get the organization, and again, back to Matt's point around constant experimentation. If you try to drive innovation in the entire company, that's never going to happen. Experiment first with a small team or a smaller product and demonstrate that you can drive innovation to have it proliferate.
There's a great excerpt in the book here. I'm going to paraphrase part of it. You were talking about or even pointing back to Toyota, the current-day Toyota, not the startupy Toyota, but they run over one million experiments annually. A vast majority don't need more than their immediate supervisors' permission or involvement to run a test. It seems like back to characteristics of certain leaders, it seems like if a founder or a leader on some level is a control freak, they are not going to be comfortable with the idea of unauthorized experiments taking place. To your point, Pablo, I don't know if you can convince someone to change their mind if they are so locked in on that idea that I need to approve everything.
I don't think you can. I will be extreme in my views here, even though the world is not black and white. It's always gray. That leader won't work. Do you have to replace that leader? Maybe or maybe not. It depends on what you are trying to accomplish, but maybe you don't try your innovative ideas there and you try them somewhere else.
Over time, people will see, “Why are people on Sally's team driving innovation? They seem to be able to do experiments and challenge the status quo. I'm over here on Johnny's team and he's controlling everything. Maybe I want to go to Sally's team.” Over time, innovation wins but you can't force it head-on all the time.
That's a very good point. If you come directly at innovation and you do something to the tune of the old song, “Come on people, get together. Everybody loves one another.” “Come on, everybody. Get creative and innovative.” It doesn't work. There is a reason we put constant experimentation as subordinate to strategy because if your strategy is set correctly and you are setting priorities and goals against that strategy that is of a stretched nature that demands resourcefulness and different thinking, you can't innovate.
When we do our process optimization work and even strategy work, we are not shooting for a 10% improvement or a 5% improvement, or even a 15% improvement. We start north of 20% or 25% as the bogie because we know from experience that anything lower than that, you are going to fall back into the gravitational pool of the way that we have always done it and we will stay longer. We are going to work a little bit harder, but we are not going to change much. That's what we call in the book innovation anemia. It's a weak sauce.
Pablo, I was going to ask you to talk a little bit about what you mean by not only a scale-up but a lean scale-up. How that's influenced by what you talk about in the book as being a lean process if you will.
We are working with all kinds of scale-ups. Again, depending on where you join in the show, startups are very early stage. A company scale-up is the teenager phase and then grownups are you are graduating public company status. When we talk about lean scale-up, it's companies that are leveraging lean principles to grow in a sustainable way.
Do they have a sound strategy and do they know where to play, and where not to play? Are they constantly evaluating their processes to streamline them, and remove waste? To touch on the point before around having the right leaders, we won't engage with our portfolio companies unless it's the right leadership team that is bought in because, to Matt's point, we have had experiences prior to Insight where, “It sounds like a great idea. Let's try this out,” but there isn't a buy-in and the project just falters.
We want to be very focused on, “Is the CEO bought in? Do they think that this is going to have clear outcomes? Have they set goals that they want to achieve that we think are achievable, but unrealistic also to push people? Are we going to have support right after we do the engagement? Are they going to see it through and continue to drive it?”
The most successful companies take the work that we have done so when Matt does his workshop and make it part of the culture. It's not a one-and-done. It's, “I want to build a PMO, a project management office now to help me do this internally. Matt's done a good job of training the trainer at some of the portfolio companies.” That's what we mean by a lean scale-up business. Companies that are embodying the basics of lean and leverage it to grow more effectively.
I would call it a luxury, Mark, in the lean work because oftentimes pro process improvement isn't at the pointy end of the spear, which is revenue impact. A lot of it is cost-focused. What I love about the work that Pablo and I get to do is we are working with the sales and marketing motion where every time we do this, we calculate what's at risk revenue-wise. Also, productivity-wise, but more importantly, what's at risk if we continue doing things the way that we are doing?
Nothing gets management or the board's attention more than if you start talking about revenue and that is a luxury. That helps propel any capability transfer. You are not trying to push water uphill, so to speak. It's like, “There's $17 million that's getting pushed in revenue. What the heck? You are telling me if you tweak this one little step a bit, you don't have to throw the baby out with the bath water and that I can capture that back and even do a little bit better. I'm all in.”
Nothing gets management or the board's attention more than if you start talking about revenue, and that is a luxury. Click To TweetAlso, “I'm not going to have to spend any more in terms of headcount. I don't need any fancy systems investment. This is doing things a little bit differently. I'm in.” That is the part that I think a lot of lean literature and lean initiatives lack is the fact that they are not revenue-facing and we come directly at that sales process. A lot of companies, Toyota included, don't let you talk about or touch the sales process.
I wanted to ask another question about the lean process or even this word process. The little bit I have been around agile circles or some startup conferences, I have heard people poo-poo process. This aversion to the word and when I have had a chance to talk to people, there's almost this assumption that process means inflexible and that process is bad. I'd be curious, Pablo, in different settings. Do you run across this where people think the sales process sounds bad or is it only a matter of the detail and making sure the process isn't too rigid?
I think it's in the detail and it's definitely in making sure it's not rigid. It's because if you think about it if I'm a sales rep, I want the process to be simple. I'm trying to sell something. I don't want to have twenty forms to sign and get this person's approval and go to use this tool. To get paid, I got to go do X, Y, and Z. For us, having processes is important, but making that process as simple as possible, not only for the rep, for the person making the sale but also for the customer.
A lot of the work we have done is also the customer doesn't want to be sending contracts back and forth ten times. “Why am I sending it?” “It's got to go to this department and this department.” They don't care. They want it simple. The beauty is the simplification of the process, however cumbersome it may be, because they are all cumbersome. This ultimately, to Matt's point, results in a reduction in time to value, which is better for the customer because they get to use your solution and it's better for the business because they are recognizing revenue that much quicker.
Those are familiar themes of reducing waste and making it easier for people to do their job, whether they are on an assembly line or in an operating room, or selling software. To make it easy for the customer to do business with you. Those also are pretty core lean principles.
Especially, in this environment. Everybody's read the news where there are reductions in force. If I have two less people working on a process, I hope to God that the process has gotten simplified because I don't have enough people to do the cumbersome process before. It's not that you should be doing this when there's a time in crisis, and Matt's been great to talk about lean, and the companies that have done well are those that are constantly thinking about how to do this, whether it's a boom or harsh economic condition. It's because when we are in a bull market, we are always experimenting and thinking about how to get better are the ones that can scale more effectively.
I don't know if Pablo will agree, but I think one of the more innovative things that we have ever done together is to bring some sales teams together in cross-functional teams and include, for example, the chief legal counsel in the Kaizen sessions. It's because oftentimes, and I have nothing against attorneys, but the sales process can be gatekeepers.
Those constant revisions to a sales contract can slow things down. Salespeople hate paperwork. I got to work a few months in an automotive retail dealership when I was at Toyota, and the paperwork is drowning. However, that lawyer turned out to be the champion internally to like, “This is such a great new process. This saves me time and work.” That's one of the more creative or innovative stories.
I agree. That's why we include as broad of a cross-functional team because sometimes you are surprised as to who understands why we did something a certain way and goes, “Maybe you are right. We shouldn't be doing it that way.” We love having a very broad participation rate when we do these sessions.
When it comes to lean process, one phrase you used in the book, was a new phrase to me. I have heard the 3 words and I feel like I know 2 of the 3 words pretty well, but a lean kaizen sprint. The words lean and kaizen, and I think I have a decent understanding. The word sprint, I have heard. I have never participated in a “sprint” when it comes to software development. Let's turn it back to the question of what is a lean kaizen sprint.
Maybe you are more familiar, Mark with a word like Jishuken or something like that. It's a little bit of marketing on our part, to be honest with you but one of the things that we have done is to make sure that these sessions don't run beyond a six-hour window. We are not in weeks-long sessions. There are a lot of kaizen events that even though they are called sprints could be more like a design sprint or a product sprint, which are typically two weeks.
If you read the Google material, they got it down to five days, but our sprint is almost like a 100-meter dash, to be honest with you. Within six hours, we will have multiple teams working simultaneously on sometimes the same targets, sometimes different targets, but we will emerge from that six hours with a full-blown experimental test of a solution.
After having mapped out the process, decided on a problem, calculated the impact, five wide it, come up with a countermeasure or solution, new process, tweak step, and what have you. Thought through what would have to be in place for it to be successful. “Here's our hypothesis. Here's our experiment. Here's how quickly it's going to be done and who's going to own it?” They are off and running.
That is not a traditional way of thinking about kaizen in general. For lack of a better word, that feels like a sprint. The actual working time is under five hours and the rest is a readout. We have translated that into the remote version as well. During COVID I ran Kaizen sessions and sprints in three-hour blocks because nobody wants to sit for six hours, but still, you cover a lot of ground in a big hurry, but in a disciplined and standardized way.
I don't use kaizen to mean kaizen event. When I mean kaizen events, I say kaizen events because there are small kaizen improvements. However, when you are talking about the sprint, this is not the classic five-day kaizen event.
Almost all of our work or 89.99% of our work in the last couple of years is with software development companies. They are B2B. Whether you are talking about the sales process or the post-sales process, there is a sales cycle and we are trying to come up with a fix for that. We are trying to shrink time to revenue, shrink time to value, and shrink onboarding time, and implementation time. I think in one case, we took 66% out of the implementation time, but that takes a while to work through the system in terms of the experiment itself.
However, the thinking part, get it done within a day because you are dealing with salespeople. Taking people out of the sales role is always a struggle and is always not the easiest thing to do. You got to make it tight. You got to make it exciting. You got to make it different and involve them in the fix. That's why we call it that.
I am going to admit. Instead of going to Wikipedia, I went to the Lean Enterprise Institute, Lean Lexicon. Jishuken is a word that I have heard, but don't normally use. That means a hands-on learning workshop. Would you agree with the Lean Lexicon definition of that, at least, in a couple of words?
Yes. It's like an OODA loop like what a fighter pilot would do mixed with a continuous improvement process. The way it played out, at least in my experience at Toyota, is there is something of a critical nature that needs to be addressed. You pull together a special group of masters and you work around the clock until it gets fixed. Sometimes that's 24, or 36 hours without sleep, believe it or not. That's the effect that I'm trying to bring to our work without having to ask anyone to work over six hours.
Pablo, I'm not asking you to defend sales but to chime in on the perspective. What are your thoughts on applying rapid experimentation to the sales process?
It's tough originally because of Matt's right. You tell a sales leader and a CEO, “I need X number of salespeople out of the field for a day and a half.” They are like, “It's a day and a half of not selling.” When you say, “We plan to take out 20%, 25%, 30%, and that results in $10 million more in revenue, it's worth it.” To Matt's point, you are breaking it up into easy chunks. When people have come out of it, they go, “This was great.”
I'm part of the process. I am the solution. I'm not just sitting in a workshop being told, “We are going to fix this for you. I'm asking you to come and solve a problem in your job. Having now done this so many times, people love it. They love being part of it. When the MVP then turns into a success, they love it because it impacts their job.
Before I wrap up, we have been joined again by Matt May and Pablo Dominguez. The book is What a Unicorn Knows: How Leading Entrepreneurs Use Lean Principles to Drive Sustainable Growth. I think it's just fascinating to see these dots get connected between Toyota, startups, and companies at different stages in between.
The final question I wanted to ask and hear a little bit from each of you about is esprit de corps and building team spirit. Lessons that come from Toyota or even other good examples of having that team spirit. How would you describe it? Matt, let me ask you first, and then Pablo. What do you draw on from Toyota that's transferable in terms of esprit de corps?
Toyota struggled with this. I will be quite candid. They were casting about looking for other models and one of them happened to come from an unlikely source. It came from the Jet Propulsion Laboratory in Pasadena, California. It's part of NASA. There was a gentleman who was a project team leader for the Mars Pathfinder, who had written a book called High Velocity Leadership.
He is a regular guest coming in to talk to the University of Toyota sessions. I learned a lot and had this grease-and-glue model of leadership, and it has always stuck with me. Most of the principles we talked about in the book before esprit de corps are about the grease part of it. How do you remove the stuff that is getting in the way of value to a customer?
Whether it's friction, waste, inertia, or drag, all of the things that any physical body, organization, or otherwise meets in trying to move ahead, but there needs to be something that holds them all together. We are also fortunate enough, Pablo and I, to be associated with the gentleman who introduced me to Pablo, who has a military background.
It's because if you think about esprit de corps, almost all the work done research-wise focuses on military or paramilitary organizations. That team spirit that my brother is in the trench next to my spirit, and he comes from a military background. They have a saying, “Mission first. People always.” The interesting thing to me about spending time with him, and he has a nice interview in our book towards the end of the book was that the way that you develop people is the opposite of mission-first people always.
You develop the people first so that they can accomplish the mission. It's a nice duality that I didn't realize. If you look at all of the leadership research that has been done, it will show you that those are results-focused. When we think about the military, that's what we think about. “Give me the results. It's the mission and get it accomplished.
However, when they juxtapose that with leaders that also have the softer side, the empathic side, the grease part of keeping people together, the relationship side, they are viewed as a leader, 70% more effective than those that are just results-oriented. I got to learn a lot from this gentleman. All I will say here is that when it comes to esprit de corps, we think about the individual first and their values. Are they connected to the values of the company? Is there a people culture fit?
We have talked about product market fit. We have talked about go-to-market fit, and the bookend to all of this is people culture fit. It's because without that, at the end of the day, what are you? It's because a company isn't anything more than a collection of human beings. We had to have that element in there. It's what keeps things together and that's about all I can say. I am not a leadership guru, by any means. I don't think Pablo would say that he is a guru, but he is a leader. I think he understands that mission-first, people always, and you develop it in the opposite direction.
We have talked about product market fit. We have talked about go-to-market fit. The bookend to all of this is people culture fit. Click To TweetPablo, let me turn it to you maybe for the last word on building team spirit, either within sales or even more broadly. Sometimes, things get dysfunctional within a company. They are finger-pointing across different functions, especially let's say the tech side of a company and the customer-facing side of a company. That doesn't happen at KaiNexus, by the way. I'm thinking if I'm wearing their shirt, I wanted to be clear. Again, previous organizations I have been around, but let me bring it back to the question, Pablo. Your thoughts on esprit de corps either within sales or more broadly.
I will echo everything Matt said. I will give you an analogy. I don't row but if you look at university rowing teams, you could argue that if you applied lean principles, you have got the fastest boat, the lightest boat. You have done the mechanics. Your oars are perfect, but think about what happens. All that is useless if you don't have the people that are rowing on the boat with the person telling them how to row. It's rowing in unison and working together.
All it takes is one person's or not to be rowing, and it doesn't matter the efficiency of the boat or the quality of the water. It's tough. Organizations are living and breathing things because they are made up of humans with egos. To Matt's point, there will always be friction. There will be drag. There will be inertia. I think the job of a leader is to minimize that and bring people together. It is the glue via esprit de corps. Without that, honestly, nothing I think would work. Also, back to our point about having the right leaders in place, that honestly makes the entire difference. Without the right leaders or the leader, you are not going to be able to drive change, whether it's this change or something else. It's extremely critical.
Organizations are living and breathing things because they are made up of humans with egos. There will always be friction. There will be drag. The job of a leader is to minimize that and bring people together. Click To TweetI'm going to embarrass Pablo right now and tell him and you that if you had to ask me what Pablo's superpower is, it's building a team. There's a healthy percentage of people on our team that have followed him through the same number of iterations of his career that I have. Probably a third of the company are folks that I have worked with and folks in our portfolio companies. He knows where he speaks when it comes to this, far better than I ever will.
Thank you, Matt and Pablo, for being here. Matt May, Pablo Dominguez, the book again is, is What a Unicorn Knows: How Leading Entrepreneurs Use Lean Principles to Drive Sustainable Growth. Matt and I, in 2009, had a little conversation about Twitter. That's still on YouTube. It's the early days of Twitter but let's not do another episode about Twitter these days. Thank you for being here, and thank you, everyone, for reading. I enjoyed it, Pablo. Thanks, Matt.
Thank you.
Important Links
- What a Unicorn Knows: How Leading Entrepreneurs Use Lean Principles to Drive Sustainable Growth
- Episode 67 – Past episode
- Episode 103 – Past episode
- Episode 39 – Past episode on My Favorite Mistake
- Insight Partners
- The Elegant Solution
- Winning the Brain Game
- High Velocity Leadership
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