A Conceptual Framework of Lean Startup

Enabled Internal Corporate Venture

Henry Edison(B)

Free University of Bozen-Bolzano, Piazza Domenicani 3,39100 Bolzano, Italy

[email protected]

Abstract. It has been perceived that innovation has been dominated

by startups and new small companies whereas large companies strug-
gle with balancing the challenges of operational excellence and product
innovativeness. Internal corporate venturing has been promoted as one
way to foster radical innovation in corporation. Lean startup suggests
that internal corporate venturing can be managed through engineering
science, which can be taught. However, the importance of the learning
gained by small innovative and entrepreneurial teams has yet to be fully
conveyed to the whole organisations. To investigate this complex phe-
nomenon, a conceptual framework combining internal corporate venture
and Lean startup has been developed based on the literature review. The
framework will serve as a theoretical lens to collect and analyse empiri-
cal evidence through a multiple case study approach. It enables a better
understanding of the potential benefits and challenges of practising Lean
startup in large companies.

Keywords: Software product innovation · Internal corporate

venturing · Lean startup

1 Introduction
Product innovativeness is a vital tool to seek growth and survival, which is
suggested in literature (e.g. [1,2]), together with operational excellence and cus-
tomer intimacy [3]. In reality, many companies are too risk-averse to engage
in any innovation initiatives [4]. It has been perceived that innovation is dom-
inated by startups and new small companies whereas large companies struggle
with balancing the challenges of operational excellence and product innovative-
ness [5]. Moreover, in large companies with well-aligned processes and strategies,
any endeavour to change the status-quo will emerge resistance. Even when the
environment and the infrastructure are already in place, the implementation of
an innovative idea must compete with other product development activities [6].
This is also the case in software industry. Little attention is given to product
innovativeness. For example, the well-known Capability Maturity Model (CMM
- which is later replaced by CMMI) is mostly concerned with operational excel-
lence [7].

c Springer International Publishing Switzerland 2015
P. Abrahamsson et al. (Eds.): PROFES 2015, LNCS 9459, pp. 607–613, 2015.
DOI: 10.1007/978-3-319-26844-6 46
608 H. Edison

To address these issues, internal corporate venturing (ICV) has been pro-
moted as one way to foster radical innovation in corporation [8–11]. Although
the new venture is still operating within the corporation, the way of working
is different with respect to the traditional research and development (R&D)
system. ICV is responsible from end to end, from developing new products to
finding business ideas and introducing them to the markets [9]. Therefore, ICV
is seen as a learning process to create new competence different from the main
business [12]. Competence makes difference among companies in yielding the
outputs.
Eric Ries introduced Lean startup as a new way of innovation [13]. He con-
tends that startups and corporate ventures can be managed through engineering
science, which can be taught. However, the important learning gained by small
innovative and entrepreneurial teams has yet to be fully conveyed to large organ-
isations. The objective of this study is to unveil the potential benefits and chal-
lenges of practising Lean startup inside large companies. Therefore, this study
aims at investigating the following research question: “How to develop innovative
software products through internal corporate venture in large companies? ”
As the initial contribution, a conceptual framework combining internal cor-
porate venture and Lean startup has been developed to guide the study process.
Therefore, the framework needs to be evaluated empirically. The remainder of
this paper is structured as follows. Section 2 discusses the related work of this
study and Sect. 3 proposes the conceptual framework. Section 4 presents the app-
roach to apply the framework. The summary of this study is covered in Sect. 5.

2 Related Work
2.1 Internal Corporate Venturing
ICV involves an entrepreneurial effort which attempts to integrate small ini-
tiatives into established companies to generate innovation through a separate
and dedicated internal entity [14,15]. The characteristics of ICV are semi-
autonomous groups within the corporate entity, aimed at exploring new or
exploiting existing competence, led by venture manager and using resources that
are solely under the control of the companies [16].
Different models have been developed to explain the actual process of ICV in
corporation. The study by Burgelman [12] examines the ICV processes in a large
diversified company. He finds that there are two processes of ICV: core process
(definition and impetus) and overlaying process (strategic context and structural
context). He argues that the idea for new business comes by combining the
available technology and the market needs. The idea should not be inline with the
current corporate strategy. To turn the idea into real project, a product champion
is required. If management approves the idea, the new venture concentrates
on strategic forcing where the focus is on commercialising the new product or
process. Once the strategic forcing is successful, the venture looks for a strategy
building. In this stage, the venture needs more support from the corporation to
grow. To establish its sustainability, the new venture must be integrated into the
 A Conceptual Framework of Lean-ICV 609

corporate strategy. Organisational champion plays an important role to convince

top management that the venture opens new field of business and then request to
extend the strategy to protect the initiative. Since any ICV efforts may emerge
from the bottom, only the ones that show the potential for fast growth have
more opportunities to survive. This is how selecting mechanism is applied to
control the ICV.
The study by Garud and Van de Ven [17] develops a model based on trial-and-
error learning to overcome the uncertainty and ambiguity of the ICV process.
In this model, before embarking on next activities, an entrepreneur evaluates
the outcomes of prior activities. When the outcome is positive, the entrepreneur
proceeds to the next activities, otherwise a change to plan is needed. A champion
from corporation is needed when a series of negative outcomes occur or major
environmental changes happen. In this period, the plan is reviewed to seek for
alternative activities. In addition, the champion serves as a mentor to guide the
changes in the plan.
A recent corporate venturing model was introduced by Breuer [5]. She argues
that there are five activities in specifying business model for a new venture:
exploration, elaboration, evaluation, experimentation and evolution. However,
the framework assumes that the entrepreneurs have identified the values that
will be delivered to the customers.
In summary, the current ICV process models focus more on the resource-
based view of the firm. Burgelman’s model [12] acknowledges that the idea of
new business is the combination of technology and market needs. However, the
model does not give any clue how this can achieve the product/market fit. Both
models from Garud and Van de Ven [17] and Breuer [5] are taking into account
the learning process to create knowledge. They are able to describe the dynamics
of creating new business but fail to explain the interaction between the new
venture and the parent company.

2.2 Lean Startup

Inspired by lean manufacturing principles from Toyota, Eric Ries introduced a

new way of innovation [13]. Lean startup focuses on the efforts that create value
to customers and eliminate waste during the development phase. However, since
the customers are often unknown, what customers could perceive as value are also
unknown. Therefore, entrepreneurs should “get out of the building” to involve
the customers since day one [18]. Instead of emphasising on business plan, Lean
startup advocates to build the product iteratively and deliver to the market for
earlier feedback. Gilb et al. [19] refer Lean startup as a more “extreme” agile
approach than XP or Scrum to manage system building processes.
Lean startup is based on a hypothesis-driven approach [20] which aims at
achieving product/market fit (see Fig. 1). To perceive customer value, an entre-
preneur should start a feedback loop that turns an idea into a product then learn
whether to pivot or persevere. This can be done by developing a minimum viable
product (MVP) using an agile method as a tool to collect customer feedback on
610 H. Edison

Pivot

Envision Build Measure Learn

Persevere Scaling

Fig. 1. Lean startup process model [20]

the product. The feedback becomes the input to improve the product and vali-
date the hypotheses. As the result, the startup might pursue a new direction of
the business or continue and scale it. Pivot is common to any startup, since it
will help the startup from bankruptcy if time between pivots is minimised.

3 The Conceptual Framework

Originally, Lean startup approach is designed to manage startups to speed up the
product/market fit [13]. The approach helps entrepreneurs to find out whether
a product should be built. Eric Ries argued that large companies can also ben-
efit from practising Lean startup [13]. However, startup is not the small version
of corporation and corporation is not the large version of startup. Since large
companies rely on management structure, they tend to be bureaucratic. Any
attempt to change the stability will be considered as a violation to certain terri-
torial rights [21]. Therefore, ICV is seemed as the ideal environment to nurture
the innovation and entrepreneurship in large companies. Even though entrepre-
neurs also can be found in large companies, they do not have the same degree of
freedom as in startups. Lean startup approach does not consider the interaction
between the startup process and the current process in the companies. There-
fore, we argue that Lean startup approach needs to be adjusted to the corporate
culture.
Inspired by Burgelman’s ICV process model [12] and the Lean startup app-
roach [20], a new model of innovation in large companies is proposed in this
paper, called Lean-ICV (see Fig. 2). The new model acknowledges the dynamics
of both the process in the innovation team level to achieve the product/market
fit and in the corporation level to keep the innovation initiative still within the
corporation strategy. In this model, there are three main processes: definition,
impetus, portfolio. Adopting the Lean startup model, the innovation initiative
starts with envision, where the entrepreneur sets the vision and translates the
vision into hypotheses. To do this, the team needs two important things: the
authorisation from corporate management and coaches from new venture divi-
sion (NVD) management on how to turn the vision into successful business.
The initiative needs a product champion to get further resources. Once it
gets approval from top management, the build-measure-learn loop takes place
 A Conceptual Framework of Lean-ICV 611

to validate the hypotheses. When all the hypotheses are valid, then it is the
time to integrate the new business into the company portfolio. In this process,
the entrepreneurial team must convince corporate management to change the
strategy to accommodate the new business. On the other hand, the NVD man-
agement plays an important role to map the new business in the current strategy.
Therefore, organisational championship is needed to continuously communicate
with corporate management about the development of the new business area. To
control the innovation initiative in the company, top management use selecting
mechanism. Only the initiatives that have greater potential impact are getting
continuous support.

4 Applying Lean-ICV
Lean-ICV (as shown in Fig. 2) serves as the theoretical lens for the investigation
of the research question through a multiple case study. It is a sensitising and
sense-making device that guides the data collection and analysis processes. As a
result, the framework will be instantiated, modified or extended to better explain
the empirical observations.
A multiple case study is undertaken by following the guidelines in [22]. Three
selection criteria are employed to select case companies: (1) companies develop
software in-house, (2) companies have at least one dedicated team who is respon-
sible from ideation to commercialisation of a new software; and (3) the area of
the new software product falls beyond the current main product line. The unit
of analysis in this study is a team of software product development.
The primary data for this study is collected through semi-structured inter-
views, where a mix of open-ended and specific question is employed to elicit
information. Each interview lasts between 45–60 min and is recorded for further
analyses. Interviewees are selected only if they have involved in any software

Impetus Portfolio

Product Organisational
champion champion

Authorising Monitoring Rationalising Selecting

Corporate management

Envision Build Measure Learn Persevere Scaling

Entrepreneur team

Pivot

Coaching Delineating
New venture division
management

Fig. 2. The Lean-ICV process model

612 H. Edison

product innovation project, ideally in the development roles e.g. developers,

product owners, etc. To complement our primary data, any related documents
to the project are collected.
To manage the in-depth data analysis, NVivo is used since it allows a better
manipulation of codes and identification of common patterns. All interviews are
transcribed verbatim and coded using Corbin and Strauss [23] technique. The
main ideas and concepts are identified using open and axial coding. The concep-
tual framework is used as the seed for categorisation to further data analysis.
The first case study had been done in one of the large software companies in
Europe. In 2012, the top management decided to create an internal startup team
to develop a new product for end users. It was an experiment to generate radical
innovation since it was a new product line and was targeted at new market
segment. It took three months to turn the idea into the app and release it to
the internal market. Eight employees with different roles in the company were
interviewed. The questions were focused on discovering the presence of the key
activities as shown in Fig. 2 in the real process and to identify the emerging ones.
As the preliminary results, two key findings were identified. First is the absence
of coaching and delineating activities from NVD management. The second is the
absence of organisational champion. A year after its introduction, the startup
project was terminated and the product was released as an open source software.
The next step of this study is to extend and refine the conceptual framework
and to conduct the in-depth data analysis. The protocol for case study will be
improved for the next case study. A cross-case comparison will be performed to
see the commonalities and differences among the cases.

5 Summary

The contribution of this research-in-progress paper is a conceptual framework

combining ICV and Lean startup, called Lean-ICV. The following premises stipu-
late the need of such framework. First, the existing ICV process does not give any
clue to achieve product/market fit. Second, Lean startup approach has received
a lot attention from entrepreneurs but mainly as the approach to build and
grow independent startups. This study tries to fill the gaps by investigating the
same phenomenon in large companies. Lean-ICV serves as the theoretical lens
to guide a multiple case study that targets at revealing the potential benefits
and challenges of practicing Lean startup in large companies.

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