Open A Lemonade Stand

This post comes from my good friend Johannes Mutzke, former innovation leader at Michelin, and Founder of BlueInc Strategies, a boutique business consultancy focused on growth through innovation & scaling. Johannes invites you to connect here.

***

As large organizations embark on the journey of breakthrough-innovation, they often quickly find themselves at the limits of their internal capabilities. After all, the current strategy & skillset that enables them to be successful with their traditional customers becomes stretched when they try to address new needs or break into new markets. When this happens, there’s naturally the question of “build or buy” – should they build the new offer from scratch, or leap-frog the curve and buy (or partner with) an existing player in the market that is already differentiated and has the required capabilities?

Based on our experiences leading and accompanying innovation-initiatives in large organizations, the right answer to the question “build or buy?” is, “launch a lemonade stand.” Go into proof of concept mode (i.e. 6-12 months of starting the business with real customers), which creates a learning-by-doing environment. A lemonade stand enables powerful frontline insight generation that ultimately makes you a much smarter buyer, partner, or grow-it-yourselfer.

The learning comes through experience and practice, not in theory.

Here's a short example to bring it to life: a large mobility player in China was considering getting into the ride-sharing business and had launched a small innovation team to explore the idea. After coming up with an initial differentiated prototype, based on earning points & rewards, the team launched an initial 6-8 month proof of concept. As the team “ran the lemonade stand,” they encountered a crowded market with large competitors, but also discovered an attractive unoccupied niche in “corporate car-pooling,” facilitating the connection between people going to the same location for work (considering high-concentration commercial- & industrial- centers in cities like Shanghai, Beijing, etc. with workers who have similar schedules, a basic level of rapport, constrained parking, employers interested in sustainability and providing benefits, etc). As the team pivoted toward meeting the needs of these new corporate customers, it also became very clear what solutions and capabilities it would take to win, and who else was playing in this market. They found a small existing player with an established infrastructure, merged their ideas & customer connections, and took an equity stake to accelerate go to market.

Here are the biggest reasons to “Launch A Lemonade Stand” when facing the build or buy decision:

1. Understanding of customers & needs – by doing it yourself you’ll understand firsthand not only the pain points of potential users, but get an accurate picture of the ideal customer: who they are, how they behave, and where to find them. Also, based on this foundational understanding, you’ll be able to extrapolate these insights into an understanding of the overall market, industry, and trends.

2. Understanding of solutions & players – doing and selling it yourself very quickly opens your eyes to what solutions and features are needed to win with customers. To be more precise, you’ll understand what the customer is willing to pay for (or not), what they compare it to, who else (or what else) is in the competitive field, and what macro-economic assumptions must be true to succeed.

3. Understanding your own capabilities & limitations – while the previous points are more externally oriented, nothing more quickly brings you face to face with your internal strengths and weaknesses than trying to deliver an offer to customers yourself. It’s easy to assume or be idealistic about internal buy-in and execution capabilities, until you have to deliver something to customers on an ongoing basis that actually works.

To summarize, consider a 6-12 month proof-of-concept as an invaluable “warm-up lap for the race,” creating tremendous learning and grounding in the reality of the market and your own capabilities. At the same time it lowers the risk of naively taking the next step (build, buy … or stop) which, whatever it might be, is certain to be much more visible, costly, and require a greater level of organizational commitment to make it happen.

Related: Don’t Build the Product

Join over 11,147 creators & leaders who read Paint & Pipette each week