Gone are the days when a business could simply come up with an idea or create a product and through clever marketing alone turn a profit. These days a new, streamlined approach is needed, especially in the technology sector where competition is fierce – the name of this approach is “Lean Thinking”. Henry Ford’s operations in the 1920s are the epitome of Lean Thinking, but current examples in the technology sector include Google and IBM.
I work with start ups at all stages of their development, from the time they begin their operations to raising finance and then selling their businesses. “Lean Thinking” is a methodology which I find start ups and entrepreneurs in all sectors are very interested in using, as it enables them to create effective and profitable businesses. This approach is a way of “being” or a complete overarching operational system for a business, not simply a phase or a programme, and its core objective is to create value for customers whilst minimising waste (be this in the form of time, money or materials). Essentially this boils down to a business identifying what its customers require and then designing its operations accordingly in the most efficient manner.
A client I have recently worked with who uses this approach is UK bed maker Warren Evans. Warren Evans only produce their beds and furniture once an order has been received, thereby reducing the time and costs involved in manufacturing products and storing them whilst they wait for a customer to make an order. I have also recently acted for The East India Company group in respect of an investment by international retailers Lulu Group. Lulu Group, who operate 110 retail stores in 31 countries worldwide, own their suppliers and warehouse space which allows them to streamline and have control over the full spectrum of their operations. I fully expect The East India Company to follow in the footsteps of its new investor and begin to use Lean Thinking principles as it expands its global reach.
The five key principles of Lean Thinking are:
- Identify your customers and what creates value for them – instead of marketing to all those persons who might be customers, Lean Thinking requires you to identify actual customers and what will create value for them. This will enable you to “do away” with any activities which do not lead to the creation of such value.
- Identify the value stream – this requires you to identify all work and activities undertaken by the business to create the end product or service for the customer. Only when you can see all the processes involved will you be able to move on to eliminate any waste related to such processes.
- Eliminate waste to create “flow” – The elimination of wasted activities will not only result in cost savings, but also the ability to save time and get the product or service to the customer more quickly, which could be the essential factor in getting new customers and repeat business.
- Respond to customer demands – Understanding a business’ customers and responding to their demands is key. Your aim is to be in a position to respond to a customer’s exact needs when, and only when, those needs arise.
- Pursue perfection using continued evaluation - Continual review of customer requirements and reappraisal of your activities and processes is necessary to enable those activities and processes to be refined, and to adapt to changes in market practice and customer demands.
Examples of the ways in which start ups and entrepreneurs operating in the technology sector can eliminate waste and streamline their operations include:
- The use of consultants instead of employing staff
- The use of cloud based IT/software services
- Running operations from temporary or shared office space
- Outsourcing services as far as possible, including book keeping and other finance related services, and Human Resources requirements
- Taking advice on the best way to remunerate employees or consultants, which may include using share options as a way to defer remuneration
Lean Thinking is an ideal way of conducting business for start ups and entrepreneurs, as there is a real focus on servicing customers and reducing wasted cost and time. This is particularly true when you consider businesses operating in the technology sector, where the key to success in a very competitive market will be your ability to provide products which clients actually need and want, and also how efficient you are at keeping your costs down.
Business management fads come and go, but I predict that Lean Thinking is an approach which is here to stay. Start ups and entrepreneurs starting new businesses would do well to consider using this approach from the outset, as it may enable them to launch their businesses with minimal funding and will prevent the need to reinvent processes later down the line when the business takes off.