Solar Foods Is Looking Through The Wide Lens and So Should You.

When working with new technologies, business risks are not always right in front of you. To see the big picture, you need to use the wide lens.

As I wrote in my blog in June,  Solar Foods is one of the most exciting startups to follow. Solar Foods is developing a new kind of food product that is not in the market today. By using gas fermentation, Solar Foods is aiming to bring to the market a new type of protein product. Since June, Solar Foods has made a couple of interesting strategic moves that I think are worth examining in a separate post.

Co-Adaptation and Co-Innovation Risks

One of the major pitfalls of new innovation can be the failure to see how value is created in a supply chain, and who are the critical stakeholders. The world is full of examples where existing structures prevent obvious improvements from taking over even though the benefits would be clear.  Why do they still have separate taps for hot and cold water in the UK? Why don’t all cars come with Run Flat tires?

The Run Flat tires, the PAX system, is an especially interesting case. The PAX solution offers better safety and flexibility for the drivers. To fight distribution and adaptation issues, the technology was shared by the inventors with multiple tire and car manufacturers. Market studies showed that the demand is there, but still, the beneficial technology is not in use today.

The reason lies in co-adaptation and co-innovation risks. Co-adaptation means that multiple stakeholders must adapt to new technology at the same time. Co-innovation risk is imminent when the new technology needs other innovations for the new technology to make its entry to the markets.

If there is even one entity in the supply chain that is not benefiting from the improvement, they will not be active in taking it into use, or, even worse, they might fight against the change. In other words, there are situations where a stakeholder is not incentivized to co-adopt or co-innovate. In this case of Run Flat tires, a co-adaptation risk occurred. It turned out that the car service companies did not have high enough incentive to invest in PAX machinery, and cars with these tires could not find a convenient service network.

Examples of co-innovation risks can be found in various areas. One famous case was Phillips’ high-definition tv. Phillips was ahead of its time by bringing an HDTV already in the ’80s, but the cameras and transmission standards did not match the tv’s level. HDTVs became the standard 20 years later when the need for co-innovation was fulfilled.

The two types of risks and the PAX system and Phillips examples are presented in Ron Adner’s excellent book, The Wide Lens.

aurinko

Solar Foods Looking Through the Wide Lens

In September 2019, Solar Foods announced not only new funding but also a strategic partnership with the food industry company Fazer. Fazer has a strong knowledge of food production, product development, and end-product marketing. This partnership tells of Solar Foods’ understanding that it must focus together with its core technology also to the solutions to commercialize it.  This interpretation was further highlighted when Solar Foods posted its first public job ad. The ad was not to get more resources to its core technology,  finance, production, or marketing. The opened position is for product development. The role consists of tasks like “Develop methods and specifications together with our customers for integrating Solein (Solar foods’ product) in a variety of food products – Leading the global novel food approval process for Solein,” and to ” formulate and develop foods and supplements.”

By taking these actions, Solar Foods mitigates the risk of ending up in a situation where it’s novel technology is validated and production scaled, but the markets are not able or willing to accept it. By working with its strategic partner and by hiring the Product Developer, the company innovates for its future stakeholders. By helping the supply chain downstream with the adaptation process, Solar Foods is lowering the threshold to enter into business with Solar Foods. The approach is not the most obvious one but makes all the sense. When dealing with a product that has no market in the contemporary environment, the company producing the novel product must take these actions to mitigate co-innovation and co-adaptation risks.

Solar Foods is certainly not alone in their situation. Similar cases can be found, for example, from the synthetic biology field. Synthetic biology companies are brewing up countless new products that will face the same challenges in the coming years that Solar Foods is preparing for already now.

After the impressive new moves, the case of Solar Foods is now even more exciting to follow than before. Together with the exciting new technology, the company will certainly work as a good case study for a wide range of companies that are about to bring new technology to the market.

3 Reasons Why a Startup Should Never Undertake an ERP Project

You probably can’t afford to risk your blooming startup business by engaging in a huge ERP project – but luckily, there are alternatives.

A startup is a company operating in a highly unknown environment and is aiming for high growth. This is precisely the kind of environment when you should not take on a long and expensive project such as Enterprise Resource Planning, ERP, implementation. When many aspects of the business are unknown long-term planning is difficult. To be prepared for frequent changes, all commitments must be evaluated in terms of flexibility. Something useful today might become obsolete tomorrow.

ERP software is a tool for operations optimization for companies producing or just handling physical goods. ERP helps to deal with large data sets, improves production planning, sales order handling, inventory management, invoicing, and so forth. In general, ERP impacts all departments of an organization. ERP is an excellent example of something that is useful but is very rigid.

ERP Projects Are Costly and Difficult

Due to the vast scope and complexity of ERPs, the implementation projects are very long. Different sources talk about lengths of 12 to 18 months. To my experience, that sounds realistic. At least it will not be shorter. The vast scope impacts the costs as well. The significant project costs consist of external human resources (setting-up of the software, customizations, guidance for internal resources for implementation, and data transfer) and license fees. The latest ERP softwares run in the cloud so hardware costs should be limited.

The scope and complexity make the project not only costly but very difficult as well. The projects are difficult for all,  not only for startups. According to a study from 2015, 70 percent of ERP project fail. One of the biggest failures made headlines in 2018 when Lidl gave up on their ERP project after spending 500 million euros on it, ouch!

What is possibly the least tangible issue and most challenging to mitigate is the fact that the project takes a lot of human resources. The issue is highlighted even further because the resources are needed from all departments, not only, e.g., from production. First of all, it is challenging to estimate the required resources and us humans; we have the tendency to be overly positive.

Secondly, undertaking the intense development project means that there can be very little other overlapping projects. Usually, starting any development project means that the people running the daily operations will now have extra work along with the day-to-day stuff. Imagine doing this for 12 to 18 months. Imagine doing this in a startup where human resources are limited, and there is restricted cash to hire outside help. Imagine not having other development projects on-going for a year or two. The case is totally different for established companies because, well, they are established. They have the capital and human resources available for them. Also, it is natural to have fewer development projects in the later stages of a company’s life.

ilkka-kastehelmikone

The 3 Reasons Why a Startup Should Never Undertake an ERP- Project

So far, we have taken a look at what makes ERP projects difficult for any organization. In this section, I list three main reasons why ERP projects are even more difficult for startups and why the project should be postponed to later stages.

1. ERP Takes Focus Away from the Most Important

An established company has the market fit and an established production. It is natural for it to look for better operational efficiency, and ERP is a crucial tool for that. A startup does not have a market fit or if it has it in the domestic market or among early adopters. In any case, the company is still to cross the chasm. Also, its production process is still developing in big leaps in a fast phase. The purpose of a manufacturing startup is to learn, not to generate profit. To start an ERP project would lead to taking focus away from development and learning to production cost optimization. This is the number one reason why an ERP project must not be undertaken.

2. ERP Takes Resources Away from More Important Projects

Unlike a large corporation, a startup cannot commit enough resources to such a massive project as ERP. The limited resources are simply used better elsewhere. Depending on the startup, major development projects that are more beneficial to take on are for example production quantity scaling, supply chain development, expansion to new markets, product development, looking for new funding, and so on. What is interesting here is that the reasons to start an ERP project are mostly production-related, but the project takes resources heavily from all departments.

To reduce the costs of the project and to add flexibility, a startup might look at stripping down the functionalities and customizations of ERP at the launching phase. Especially limiting the number of customized parts has a significant impact on the costs and the timetable. Not customizing the ERP for the needs of the specific company will lead to a situation where the best benefits of ERP are not available. This might lead to increased difficulties at launch when some aspects that the old manual or semi-automatic systems work better than the new and shiny. In such a situation, getting the buy-in from all stakeholders is challenging.

3. There is a high risk that ERP-project is a complete waste of money.

Remember the stats from earlier? Staggering 70 percent of all ERP projects fail!  Even if the startup manages to finish the long project, there is a highlighted risk of it being out of date. Due to the highly unknown environment and the long project span, likely the scope of the project is not a fit anymore. Maybe some functionalities are missing that are now considered necessary. Perhaps you spent the resources on something unnecessary. Maybe the chosen ERP software was designed for small and medium-sized companies, but now you are already becoming a large corporation?

Also, for a young company, one future scenario is being acquired by an established company. Even if the new owners would not want to completely integrate the startup to its systems (including the ERP), they at least have a process and it-infrastructure in place that can be extremely helpful. In any case, if the project is on-going in the moment of acquisition, it could be so that it must be started all over to match to updated needs and environment.

What Are the Options?

After a certain point, the amount of data becomes so big it cannot be handled with excels alone. There are a couple of options that have some of the functionalities of ERP but are significantly easier and faster to implement. One option is MRP, Materials Requirements Planning, which is a tool for production and inventory management. Small coding and optimization of spreadsheets will do a lot as well.  RPA, Robotic Process Automation, solutions are an excellent way to cut off repeatable work. One might argue that an ERP is a complex RPA- tool itself.  For example, the RPA tool Microsoft Flow could be valuable for a startup company before moving to Microsoft Dynamics- ERP later on. The presented options require more manual labor than an ERP, but that is a clearly lesser evil than undertaking an ERP implementation project at the early stages of a company.

When Is the Correct Time for ERP?

There is no question that to compete in industrial-scale against global competition, an ERP is needed eventually. The time is right for the implementation is only after you can tick the following boxes:

  • Processes are defined.
  • Production is standardized.
  • Market fit has been found.
  • Quality-system is in place.

Conclusion

In general, ERP makes standardized production run more efficiently. In a startup, there is very little standardized work because everything is new, and the company is still learning what should be standardized in the first place.

I see that production scale-up and cost optimization cannot be done at the same time. There is no question that the production scale-up would not be more critical than cost optimization. A working ERP would indeed be beneficial, and ERP is needed in high-volumes and to be able to reach healthy profit margins. But for the presented three reasons, the cons outweigh the pros for startups by a clear margin.

The author has been involved in two ERP projects as a project manager in startup companies. He has also helped startups to evaluate the feasibility of proposed ERP projects.

Your First Factory Is a School, Not a Production Facility

When a new technology is introduced to an industrial scale for the first time, the project is exposed to a wide range of risks. Along with the external unknowns, there are internal unknowns. If the market fit a for product utilizing this new technology is found, can the product be produced on consistent quality, high enough quantities, and in a cost-efficient manner? To answer this question, a commercial-scale factory must be built.

When preparing for scaling in an unknown environment, the company must understand the purpose of the commercial-scale factory. It is not to generate profit, nor is it to have positive gross-margin. The goal is to prove that the technology also works in scale and if production could be profitable. In other words, the commercial-scale factory is designed for learning, not operational efficiency.

When running the production, learning of the internal processes are collected, but at the same time, the output product is sold in the market. The products are sold to find answers to the leap of faith assumptions related to the market. Here we have the confusing factor: Even though products are sold in the public market, the factory is not a full-scale factory designed for optional production efficiency. This means that selling with negative gross-margin is acceptable.

A commercial-scale factory is an additional step between the laboratory-scale and the full-scale level, but strong arguments support having it. First of all, building a full-scale factory is very expensive. When the knowledge level of the technology at hand is limited the risk of making commitments to the wrong kind of layout, and the wrong type of equipment is high. Also, it is unknown what kind of product variant produced with the new technology will find traction in the market, if any. What is positive about taking first a smaller step is that a commercial-scale factory will be operational faster than a full-scale one would be. In conclusion, having a commercial-scale facility will allow the company to move in the learning curve as quickly as possible, but commit to significant investments as late as possible. 

Facilitating the counter-intuitive mindset that “our factory that looks like a full-scale factory is not one” to all stakeholders is of utmost importance for a successful scale-up project. For example, if new investors or management members of the company do not understand the purpose of the factory, learnings will not be collected efficiently. Also, achieving high operational efficiency in a factory designed for other purposes will be very difficult.

ilkka-kastehelmikone

If you are interested in reading more about the topic, find my blog about Lean Production Scale-Up here.

 

The 3 Most Exciting Startups You Haven’t Heard of

Every day we are bombarded by ever greater promises of a startup revolutionizing this and disrupting that. You are not alone to wonder how on earth you can navigate through the hype and where the value really is. In the world world of Uber, SpaceX, and Libra, for example, we might forget about the startups that are not working on something sexy or their project is not related directly to our daily lives.

I try to do my part and present to you three very interesting startups.  These teams are all working on projects that have the potential to truly change the world away from direct contact with end consumers.

aurinko

LTSE, The Long-Term Stock Exchange

Long-Term Stock Exchange was founded by Eric Ries, the author of Lean Startup. LTSE is a stock exchange just like Nasdaq for example but unlike the traditional stock exchanges, LTSE encourages long-term investments over the short-term.  How stocks are traded today leads to financial incentives that encourage companies to forget about what will happen in a couple of years as the bonuses and stock prices are tight to the results of the next quarter.

One of the things that I was not able to figure out before learning about Lean Startup and LTSE is that how can it be possible that time after time, in every industry,  even the wealthiest companies are being disrupted by tiny startups. I believe the answer is misaligned incentives in the large established companies and the reason for the misalignment is the short-term thinking stemming from traditional stock trading. If LTSE can fix this problem the impact on the markets will be staggering and it could even spark worldwide economic growth.

LTSE homepage.

TED talk on LTSE.

Avalon Energia

Once seen as the super dangerous monster, nuclear power is again a concrete option for sustainable energy globally.

The mission of Avalon Energia is to raise public support for international nuclear waste repositories in Finland, amend Finnish nuclear energy legislation, identify the repository municipalities and establish relationships with international partners in the nuclear energy sector. After political and public opinion obstacles in Finland are removed, Avalon Energia could take charge of the 1-trillion-euro business of disposing of international High-Level Waste in a network of deep geological repositories in Finland with existing safe methods and technologies (see Olkiluoto Repository). Lastly, Finland and its international partners could reprocess the spent nuclear fuel (which has 97% of its energy content left) to power the entire planet without emissions for the next century.

Finland is already the global leader in the nuclear waste sector and arguably the only country in the world where international nuclear waste repositories are possible due to politics, public opinion, and stable geology. Finland can solve the global High-Level Waste disposal problem. In doing so, the world gets an opportunity to build more carbon-free nuclear power, win over climate change.

Quite a promise, right? The work Avalon has ahead is gigantic and far away from traditional businesses. The problem and the solution Avalon offers are both very unique. Robert Nemlander and his team have exciting times and ahead and they deserve all the attention and support they can get.

Avalon Energy

Introduction video.

Solar Foods

What if I tell you there is a way to make food out of thin air? Well, that’s what Solar Foods is doing! Their fermentation process uses only CO2, electricity, and water to produce high-protein food product. What makes the process even more exciting is that it does not require any arable land and it is not dependent on weather, irrigation or soil. All these factors make Solar Foods an excellent choice for areas in the world struggling for example of droughts. Moreover, the applications of the process are not limited only to this planet. Solar Foods is already working together with ESA to discover options of using Solar Foods’ solution in space flights.

Solar Foods is not alone in this space, but their approach of decentralized production and aiming specifically for human food outputs makes it one of the three most interesting startups out there today.

Solar Foods homepage.

Solar Food explained in 8 minutes.

 

cropped-ilkka_logo2.jpg

Automation Is the Last Thing a Startup Needs.

Scaling up production of a new company that involves untested parts is a challenging and risky task. Unlike in the digital world, when working with physical processes production requires more upfront investments. When a company has to commit to significant investments in the early stages with limited experience and knowledge, there is an increased risk of those investments going wrong. How a company can mitigate this risk was discussed in my earlier blog post that you can find here. In the previous text, I suggested what you should do. In this one, I suggest what you should not do: Automation.

Early automation of a production process has many downsides. When production is carried out by human operators instead of machines, they can use all their senses to learn and improve the process. While running the process, the operators do not only learn about the process and get ideas for improvements; they also do quality control. Learning from where the failures are originating from first hand gives the company better position comparing to fully automated production line where the raw materials go in one end and the ready and faulty products out from the other. First-hand knowledge from the production line is essential for process development. In the early stages when the understanding of the production process is low, long hours of human labor are needed to learn what could be automated in the first place. Automating too early in the learning curve will hinder the learning for the presented reasons. Additionally, machines and other types of automation hardware are costly, acquiring them involves long lead-times, machines are not readily adaptable, and they have a high risk of becoming obsolete when build-measure-learn loops are completed.

Instead of automation a cheap and fast way to improve the output of production and to reduce the workload of human operators are Karakuri- methods. Karakuri is Japanese and literal translation of the word to English is “mechanism.” Small makeshift automation solutions in a production line are examples of Karakuri. Let’s say an operator needs to move a heavy machine to her workstation frequently, but it must be returned after using because it would be blocking the operator from executing the next process step. The machine moves on wheels a small distance back and forth, but the high frequency of moving makes it exhausting for the operator. Instead of building larger workstation (expensive!) or automating the movement of the machine by a motor (very expensive!) wire can be attached to the machine on one end and a bucket full of sand to the other. Also, a rail is placed on the floor for the wheels to move on. Now, the operator can pull the machine to her and lock it in place while in use. After using the weight of the heavy sand, the bucket will pull the machine pack automatically (and cheaply!). A more straightforward example of Karakuri- solutions are shelves that are tilted to a small angle making the products on the shelf to fall to the edge closer to the operator. In general, shelf-made Karakuri solutions are cheaper, easy to maintain and easy to improve compared to purchased automation solutions.

One of the only places where automation can be recommended early on is data collection. Data collection and analyzing tools such as data loggers and analyzing software are relatively cheap, but they are also a lot more reliable than human operators. Data is in the core of the learning process, unlike improving the speed or quality of the production where automation could be considered as well.

ilkka-kastehelmikone

Do Not Outsource! But If You Do, Remember These 3 Things

Ok, maybe the title is a bit provocative – this applies first and foremost to startup companies. This text is part two of Introduction to Lean Production Scale-Up Model. You can find the first part here.

What happens throughout the production scaling of a startup is a lot of learning in two equally essential sectors: From the market and customers’ needs (the market build-measure-learn loop), but also about the production process (the production build-measure-learn loop).

double loop

In the early stages of production scale-up, all work must focus on optimizing the learning process that can be best achieved when the production is done in-house. When using a subcontractor in the early stages of development, the company will also find it difficult to continue to the later stages of scale-up because the subcontracting partners hold the tacit knowledge and thus the negotiation power in the developing partnership.

It is tempting to outsource production or parts of it to speed up the development and reduce the need for capital investment. Subcontracting can indeed offer very tangible and attractive benefits: Facilities and supply chains are ready, and the need for upfront investments is limited to name a few, but these benefits are not related to the primary goal that is the efficient learning. If a subcontractor does the production at an early stage, the learning will happen at the subcontractor, not internally at the company.

Using a subcontractor also fights against some of the Lean principles. A subcontractor adds additional layers of management and material handling that do not add value to the customer. Additional material handling is especially the case if the subcontractor is used to do only some parts of the production. In such an arrangement, materials are loaded and unloaded between a different location that does not serve as a value-adding function.

An additional difficulty of using subcontractors in the early stage is the lack of incentives for the subcontractor to do continuous development of the production process and the suboptimal operational infrastructure of the subcontractor. Example of misaligned interests and operational infrastructure between the company and the subcontractor could be a situation where the company learns the clients want to pick up products evening time, but the subcontractor has nobody working after office hours. When you are the only client the subcontractor has requested this change in working hours you know completing this change will cost you a lot. In general, the subcontractor has minimal incentives to modify its operations to match the needs of one small client the best possible way.

One clear benefit a subcontractor can have is access to better prices and hard-to-acquire parts and machines. If this is the case, a subcontractor could be used to produce subassemblies involving these parts and machines. Yes, this would be a step for more complex and expensive, most likely also slower, production, but if this way is seen as the fastest way to learn, then it is the correct way.

If in-house production is not an option.

There are certain environments where in-house production is not a feasible option. Examples of these are regulated industries where you might have very long and expensive processes to get a certified production facility working from scratch.

Have your own people at the subcontractor.

If using a subcontractor is a must, the best possible option would be having the company’s own employees to run the production at the subcontractor’s facility. The need of hiring own employees can be restricted to the core functions of the production and to the parts that are related to the innovation, but the broader the scope of collected knowledge from the day-to-day work, the better. Warehouse management, packing, maintenance, and logistics are examples of the areas that could be left for the subcontractor to handle.

Use multiple subcontractors.

Hiring more than one subcontracting company is a method to position the hiring company better in long term negotiations. When the subcontractor is not the only one with the needed skills and machinery in place, the hiring company has a good position when difficulties eventually arise. In case of a poor performance of subcontractor or if the subcontractor wants to charge you more of their work, having an alternative or two gives the hiring company good negotiation power. Having a second subcontractor means some increase in cost related to managing the co-operating, but the costs should not double.

Form a partnership with the subcontractor.

As explained earlier, one of the risks in working with subcontractors is the level of commitment for long-term co-operation. Financial investments for the joint project of production development by both parties can lower the risk. The subcontractor could invest in the hiring company and thus creating a clear incentive for developing the production together in the long-term. Other option could be establishing a common production company owned collectively by the innovation owner and the subcontractor. In the new company, the day-to-day management would be handled by the production professionals from the subcontractor, and the innovation owner would concentrate on research and development, marketing and other aspects of the business. The co-ownership would give both parties security as the success of the owners of the newly created company are intertwined.

Introducing Lean Production Scale-Up

Lean Production Scale-Up is a four-step model designed for companies operating in untested markets with untested technology. The purpose of the model is the reduce the high capital risk that is associated especially with companies using new technology and innovations. The model enables the company to make its technology investments as soon as possible time-wise, but as late as possible in the learning curve.

I developed the model based on my experiences in production development in various startup companies both in the medical and food industries.

While the Lean Startup movement serves many types of startups, there is one aspect that has not been included in the broader public discussion. Lean Startup concentrates on finding the market fit for the untested product or service as efficiently as possible but assumes that the same level of uncertainty does not exist in the internal operations of the company. Companies like Spotify, Dropbox, and Facebook, had critical and untested assumptions regarding their business models when they started, but they did not need to doubt if the product was doable technically once market fit was confirmed.

The situation is critically different for companies that are involved in a business where the product or the production process is involving an innovation. Industries like 3D printing and food grown in bioreactors are operating in untested markets, but they are also working with unproven technology.

Build- Measure- Learn Double Loop.

Lean Startup focuses on optimizing learning by using the Build-Measure-Learn loop. For companies also having internal unknowns, a second loop is needed that is for the production process.

An Information Technology or service company must look into improving their working process for improvement as well, but in most cases, a software company is using existing coding languages, software, and hardware. When working with building new physical products with new machines and machine setups, new raw materials and so on the need for internal learning and improving the working process in the company is multiplied. Together, the two Build-Measure-Learn Loops form the Build-Measure-Learn Double Loop.

double loop

Figure 1: Build-Measure-Learn Double Loop

Lean Production Scale-Up Model

By using this model, a company with new innovation can navigate its way from an idea to full-scale production. Alternatively, in the case that innovation or the business model using it does not add value to customers or is not technically feasible, the company can identify this as soon as possible.

The Lean Production Scale-Up model consists of four steps. The model is divided into these exact four questions to maximize the efficiency of the scale-up process. Each step asks the question that the company must answer by using the Build-Measure-Learn Double Loop. The questions are answered one-by-one in the specific order.

The primary goal of the early production when working with innovation is not to generate profit for the company, and it is not to have a positive gross margin, but to reach the learning goals of each step and taking those steps as fast as possible. If you do something else than what is necessary at that step at hand, you increase your expenditure, risks, and what is worst you slow down learning and business assumption validation.

  • Step 1: Is there a demand? The question is quite similar to step 2, but asking first is there any demand at all, key assumptions can be invalidated without the need of financial commitments to production space and machinery that must be in place in step 2.
  • Step 2: Is the demand sustainable and scalable? After confirming that there is some interest comes the time to validate that the demand is not limited to too small customer segments and that the customers will turn into returning customers and advocates. Some investments are now needed, but only the ones that are necessary to collect the learnings are taken. All development ideas related to improving production efficiency are postponed.
  • Step 3: Is positive gross margin achievable? Once demand and market fit are clear, its time to confirm not only that the product can be produced on an industrial scale, but also that it can be done with a positive gross margin. At this stage when still operating with suboptimal machinery (the quick & dirty solution you have put in place so far) actually having positive gross margin is difficult, but you can collect evidence that positive gross margin can be reached. For example, changing too small warehouse to a larger one and investing in an automated packing line will improve your operational costs significantly.
  • Step 4: Continuous development. The company acquires the full-scale profit-generating production line. Learning is still essential for the young company, but the learning curve starts to slow down, and development starts to resemble established company: The development in the production process is now numerous small steps, while in the previous steps it was mostly fewer, but substantial steps. At this stage, the Lean Production Scale-Up has run its course and hands the control over to Lean Management that is specialized in continuous development.

By following the four-step model, a company with new physical innovation can navigate its way from an idea to full-scale production. Alternatively, in the case that innovation or the business model using it does not add value to customers or is not technically feasible, the company can identify this as soon as possible.

A major part of the financial risk involved in the production scale-up is associated with the relatively large upfront investments. Setting up a workshop, let alone a laboratory requires a set of tools and machines. Acquiring suitable working space and required tools is intensive investment wise. Making these investments as soon as possible time-wise, but as late as possible in the learning curve is the goal of Lean Production Scale-Up.

Avoid outsourcing

What happens throughout the Lean Production Scale-Up model is a lot of learning in two equally important sectors: From the market and customers’ needs (the market build-measure-learn loop), but also about the production process (the production build-measure-learn loop). It is tempting to outsource production or parts of it to speed up the development and reduce the need for capital investment. Subcontracting can indeed offer very tangible and tempting benefits: Facilities and supply chains are ready, no need for upfront investments or hiring production operators to name a few but looking for these benefits are not the purpose of the early stage production. If production is done by a subcontractor at an early stage, the learning will happen at the subcontractor, not internally at the company. All work must focus on optimizing the learning process that can be best achieved when the production is done in-house. When using a subcontractor in the early stages of development, the company will also find it difficult to continue to the later stages of scale-up because the subcontracting partners hold the tacit knowledge and thus the negotiation power in the developing partnership.

—-

Here you got a glance at what my Lean Production Scale-Up- book project is about! The idea is still fresh is only now starting to take shape. So far I have some 30 pages about the topic going more in detail how the four steps would look like in practice and what are the dos and don’ts for the starting company that is operating in the untested market with untested technology.

Edit: Second part of introducing the model can be found here: Do Not Outsource! But If You Do, Remember These 3 Things

Would you like to read more on the topic? Any feedback on this blog post? Please get in touch by email or twitter!

Your friend, Ilkka Taponen