Lean Transformation Group

Start Up By Diving Deep

In 2002, an interesting idea was born. A small group of technical people got together and the conversation went something like this:

“Let’s form a company that provides stand-alone distributed electricity that operates at a lower cost than your local electric utility company. We can use an off-the-shelf automotive engine running on natural gas. Since the engine will be running continuously, we need to make a few engine modifications to make the engine run the equivalent of one million miles before a major maintenance schedule. Oh, to make the unit more attractive, we can capture the heat generated by the engine/generator unit and plumb that into the customer’s heating system to provide additional cost benefit! Let’s see if we can find some investors.”

The group had significant experience in generating electricity for automobiles and felt that the knowledge would also be useful for generating electricity for home and commercial use. Electric companies needed some competition and a distributed, stand-alone approach to filling this gap in the marketplace could provide that.

Thus a new startup was formed! The company was off and running. They had local private investors to fund the idea. And yet regrettably, over time (in this case about 12 years), like so many other startups, despite a strong team and much hard work they simply could not secure enough business to sustain the business. Let’s look a little more closely at the reasons why the company didn’t make it.

The Problem of Achieving Sustainability

The company faced a number of significant challenges. Some were technical – can an automotive engine run on natural gas and last the equivalent of one million miles? Other challenges were market-related; which customers have a problem that cannot be solved by their existing local utility company?

The company started by tackling the technical challenges. This engineering effort unfortunately took too long initially because of their test program and the number of units subjected to these tests. Eventually, the engineering group learned how to answer the question of durability by testing a large number of units. After roughly four years of effort making large numbers of units with significant rework, the technical problems were adequately addressed. Once the units were proven to be reliable and durable, the sales organization worked at finding customers who could use this product. This turned out to be incredibly difficult, resulting in significant time delays and unexpected costs.

After much effort at attempting to sell to customers who already had electric utility service, the focus turned to people with special power needs. For example, a niche market was identified in agriculture where cattle waste would be used as the fuel source, which allowed these units to work in areas where it was difficult to use utility power, either natural gas or electricity. But this required the company to develop specialty units ranging from 20 kW to 365 kW to cover the niche market, engineering modifications that resulted in more time delays and cost. The amount of time it took to bring useful products to the marketplace, and the amount of money required resulted in a fundamentally unsustainable business. Why did this happen?

Solutions Thinking vs. Problem Solving

The main problem with this startup, like so many, was that they had made assumptions about the market, their customers, and their technical challenges without thinking about the problems they needed to understand before spending significant amounts of money. They got caught up in solutions thinking versus spending their time and energy on problem solving.

They were solution-oriented from the start, and then worked hard at modifying the product to serve the real market needs as they became apparent. For example, they strove hard to find a technical solution assuming natural gas as the fuel source, only to learn later that the real market for such a technology would be served best with a different fuel source. This caused much rework at significant expense and time.

A solutions orientation means that you think and execute from the perspective of finding the solution rather than understanding the problem to be solved. It’s the proverbial hammer looking for a nail to hit. Throwing solutions at problems produces significant rework (loopbacks), manufacturing problems, and quality issues. These issues, in turn, produce longer lead-times to market launch and increase resources needed to fix the problems. This problem versus solution-orientation issue goes far beyond startups. For example, within well-established companies, a new product development group that is oriented to solutions thinking rather than problem solving will experience:

  • Unexpected failures in testing,
  • Missed launch dates,
  • Manufacturability or yield problems in the factory, or
  • Lackluster market performance of new products.

So how DO you embrace problem thinking? The important thing is answering some fairly core questions about your business before spending time and money developing solutions. It’s a totally different way of working, which is why it’s so rare. Here are a few of our recommendations.

  1. First, spend time and energy just understanding the problem, not worrying about solutions. What are the true customer interests? What are the limits of the current solution? Etc.
  2. Define the gap between where you are and where you want to be. Rarely do we start from ground zero. If we can clearly define what the gap is, it gives strong direction to the problem-solving effort.
  3. Break the problem down, and identify the biggest knowledge gaps. Ask yourself, what are the things we don’t know that are keeping us from closing the gap?
  4. Pursue root cause on the knowledge gaps. Innovate quick ways to generate the learning needed to understand why the gaps exist.
  5. As you understand root cause, generate potential solutions. By considering multiple solutions, you will generate a deeper understanding of the problem you are trying to solve.
  6. Investigate potential solutions in order to characterize the extent to which they address the gaps. Rather than selecting what appears at first to be the best idea, seek to understand the performance limits of the idea relative to the gap you’re trying to close. Start with low fidelity (e.g., back of envelop estimations) before moving to higher fidelity models.
  7. Converge on the solutions that address the gap defined in step 2, and are grounded in understanding the realities of the market, customer experience, and the physical world.

If the distributed electricity startup we told you about had applied this thinking, they might have started out by identifying the challenges they faced in finding their customer. That conversation may have produced an insight that they really needed to find their niche markets for a distributed power solution. Then they might have worked to understand what the opportunities and requirements were for those niches. This approach may have led to a novel technical solution that addressed a true customer need in a much shorter timeframe, and perhaps they would be a healthy company today.

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