“Major companies need to develop skills so as to explore other models that can enable them to find the customer of tomorrow”

Intrapreneurship, Lean Startups, the Internet of Things… these are increasingly common words in the world of work. To shed some light on these terms and to understand why they are used with ever increasing frequency, last week we went to the head office in Madrid to talk with Nestor Guerra, one of the leading lights in the world of startups. Nestor is CEO and co-founder of IEC, a startup that develops solutions for smart cities, a professor of Business Design & Lean Startup at the Industrial Organisation School (EOI) for Postgraduates, MBAs and in-Company and Professor of Innovation and Lean Startups at the h2i Institute.

– After assimilating the startups concept, another term appears, lean startups, of which you are a keen exponent. Could you tell us more about this term?

A lean startup is still a formal process for trying to resolve or validate business models. It’s based mainly on knowledge validated by experimentation and integration with the customer. Basically, it’s a framework of methodologies that in turn include different methodologies to enable a startup to be as adaptable as possible when it finds a product that fits in the market.

This type of loanword actually arises mainly from the startups context and basically the word “lean” was put there by the author of the definition itself, an American called Eric Ries, a serial entrepreneur. He has a book out, called “The Lean Startup”, in which he explains how startups use customer development, streamlined development and the design of business models to enable this methodological framework to be developed. A Lean Startup is basically the sum of these three methodologies.

In a nutshell, what he proposes is to try and validate your product in the market as soon as possible by experimentation. I have an idea about a product, I turn it into a business model and I describe it with a tool called the business model canvas. This tool helps me to identify the riskiest hypotheses in the product and I take the hypotheses to run experiments. We call these experiments MVP (minimum viable products) and what I discover and learn from there on, I adjust or change in the model or in the product. So what Lean Startups try to do is to eliminate a product that no one wants from being wasted. That’s why the word “Lean” is used. Products are developed that customers really want and desire.

– There is an ever increasing number of newly-arrived entrepreneurs, with little in the way of initial resources and a lot of enthusiasm, who have managed to turn the apparently unbeatable business models of huge businesses upside down. What issues should a major company address nowadays to not end up becoming an anachronism?

There are three indicators that show that what you are talking about is going to get worse. The first one is that technology is ever more democratic, cheaper and more of a commodity. That means that technology reaches a lot of people very quickly. And there are a lot of technologies that are creating contexts we’ve never ever seen before. That’s where not only new products but also new business models are coming from. Technologies such as blockchain, the Internet of Things, artificial intelligence, augmented reality, etc., they can create things we haven’t seen till now.

The second “problem” for big companies is that we are facing the best educated generation in the history of humanity. Any entrepreneur anywhere in the world is one click away from knowing about development, technology and strategy at the same level as the management team of any multinational. Training today is not a value that sets you apart.

And the third thing is that societies in different parts of the world support entrepreneurs as the basis for creating more wealth in their countries. These very same entrepreneurs are the ones who are going to kill many of the traditional businesses in these societies.

What major companies have to do is to start to think like startups. A large company executes a well-known business model, a startup is seeking a new business model. So what starts to appear is a phenomenon called “intrapreneurship”. What that means is that employees start to get skills to develop new products and services themselves. And large corporations start to approach startups in search of new ideas and solutions.

We’re in a very interesting context in which companies approach startups and develop skills like the startups to enable the employees themselves to develop skills. That creates an ideal context where they can start to innovate and seek new opportunities.

So the big problem for companies is this cultural change. One where you adapt not only to technological transformation, but also to systems transformation in which technology forces you to adapt more quickly and effectively. The point is not to be scared because a startup is going to take business away from you but to approach them to find solutions.

– Why do big ideas hardly ever come from big companies?

Because big companies focus all their resources on the current business model. Operational excellence, which was all the rage in the eighties and nineties, oriented managers towards being as effective and optimal as possible in their processes. What I mean is, creating well-known business models to ensure there was no surplus or waste in value creation. That means that companies reduce themselves to the minimum necessary to create the maximum value for customers. Therefore anything that falls outside this business model will not find resources and operational excellence eliminates it because, a priori, it does not create value in the short term.

So, the worst place to create a business is in the place where a business is up and running. We need companies that, besides running the current business model, pay us enough to survive and pay today’s salaries, are also able to develop skills to explore other models that can find the customer of tomorrow.

– Is there a bubble of entrepreneurs and startups in Spain now?

The entrepreneurial bubble is evident. The fact is that we started from way behind. Spain was one of the countries in Europe with the least entrepreneurial activity. And it’s true that there’s been an exponential growth over the least ten years. A possible outcome of the financial and property crises and the efforts by politicians to create a business structure is a chaotic, low-quality business entrepreneurship. It’s not right to talk about an entrepreneurial bubble because countries feed right from that business innovation but it is true that there are a lot of artificially inflated startups. People without entrepreneurial training, and that can create a bubble.

It’s good for businesses to be created, but it’s also good for high-quality ones to be set up, and there haven’t been many like that in Spain. So you could say there is a bubble. The good thing about bubbles is that they finally balance out and that seems to be happening. But beware! Commitment to entrepreneurship and high-quality ecosystems that enable real businesses to be created is essential.

– Is the retail food business, which is traditional by definition, one of the segments where technology and digitalisation are most widely used? Why?

Definitely. All the sectors are changing and the retail sector is no exception in this regard. It’s a fact that B2C businesses, where the consumer changes constantly, makes consumption habits change constantly. As regards technology, blockchain will definitely change logistics and distribution and even interaction between customers and credit. Artificial intelligence will also make substantial changes. A good example is what Amazon Go is doing in its stores, where it eliminates queuing at tills so you can pay later. Pattern recognition systems, sensor systems, 3D printing, augmented reality…, the retail sector is exposed to a lot of technology and it’s not one to change slowly. Not just in the online customer, but also in the offline model, where technology can do a lot to improve experiences.

Retailers have direct customer exposure and need to be competitive and so they are undergoing profound changes.

– A multinational like DIA, with over 35 years of activity and present in five countries. What can it learn from the startup experience?

Streamlining, adaptation and willingness to seek new business models with current technologies. It can learn how startups create these models, collaborating or bringing this culture into its own organisation. In the next few years, there’s going to be systematic and significant growth that’s going to have a big effect on a business like DIA. It’s a fantastic opportunity and I think that this company, which is deeply committed to innovation and intrapreneurship, can approach startups a lot and develop from them.