In business schools, students are taught that successful businesses start with a good business plan. This 10-billion-dollar corporation started from a complete lack of any business planning, calculations, or financial analysis. It started from the passion, caring, and enthusiasm of its founder. Fifty years ago, he wanted to create a transportation company like no other. His brother was a truck driver who spent long, sleepless nights on cross-country trips. He came home exhausted, spent a few hours, and left for another long and tiring trip. Love for his profession? No one would ever suggest it of him or hundreds of his peers. They made living but their salary did not compensate for the lack of safety of driving after sleepless nights, days and sometimes weeks away from the families, and the road rage they frequently became subject to.
For Drew Evans, founder of North East, the goal was not to make money. Unable to drive any vehicles because of his vision impairment, he felt that truck drivers were no different from airplane pilots or sea captains. However, the respect for this profession was lacking. Drew made it his life goal to improve it. He had no business education, just natural entrepreneurial qualities and a passion to change the lives of the people in this difficult profession which was important to others. This passion fueled the family-oriented approach of his business. Since he had no initial capital and no education or prior experience to secure bank loans, he reached out to truck driver associations to raise the initial capital.
This was not common in 1960s but his persuasion and enthusiasm allowed Drew to raise the initial capital. It was not yet sufficient to provide salaries to his employees for the first three months he needed to secure initial business, so he recruited his two grown children, their spouses, two nephews, and three nieces. The business started as a family business, and the hard work and passion paid off very soon. Over 50 year later, the company was doing well with over 8,000 employees globally, a respected brand, and loyal employees and customers. Its Net Promoter Score was steadily over 70 (well above average for a company of this size and industry, and remarkable for any company of any industry) and the business was going well with a fleet of new state-of-the-art trucks and vans. The company was expanding to railroad and sea transportation, and wholesale storage globally.
The only problem that the company had was that its technology was outdated and was not able to comply with multiple security laws and regulations, including data security and overall network security. In addition, the systems were slow and the vehicle dispatch logic was not efficient for thousands of transportation vehicles and routes across US as well as globally. The company had a group of talented internal engineers, which had grown since inception from one person to 80 people in its headquarters near their main storage facility in Texas. This group deployed new versions of the dispatch software every three months, an outsourced company managed the back-office systems, and a computer genius in Silicon Valley took care of security issues and hacker attacks as soon as he became aware of them. This was obviously not sufficient for the needs of the rapidly growing company.
Drew Evans, in his late 70s, had not lost his ties with the company. Every now and then he showed up, walked the floors of the massive, largest-in-town building where North East offices were located, and spoke with employees. Rumors claimed he knew each of them by name. Of course, this was completely impossible but he did address everyone he met by name and was never wrong. Drew was the first one who addressed company leadership in their monthly leaders’ huddle and suggested that they add a third measure of success to their two values, which remained untouched from the day it was founded: family values, and loyalty to employees and customers. The third value was speed. Actually, Drew suggested sense of urgency but the company executives felt that it sounded too harsh for a company that had always valued quality and respect over urgency and impersonal approach. With that, they agreed that their outdated IT department was impeding North East’s ability to deliver and develop as fast as modern economy demanded, and the decision was made to hire a new, modern-thinking CIO to change things around.
Hiring a New CIO
The company’s leadership had no idea where to find a “world class CIO” (Drew Evans’ definition of this role, which all of them liked) so their first step was their internal recruiting department. Given the reputation of North East’s brand and generous compensation, internal recruitment’s function was to vet the best candidates out of a significant pool of applicants eager to work for the company. Things were different with a new CIO, given lack of their experience as head hunters for this caliber of talent. After careful consideration, a decision was made to go with an external agency. A carefully crafted and very detailed job description was send to TalentFirst, a reputable agency providing technical talent to top companies in multiple industries.
The internal recruiting department was surprised when TalentFirst requested that their representative spend a week at North East shadowing multiple functions not limited to IT. North East management did not mind but questioned the reasoning and the value of the time invested. When TalentFirst assured them that there was no additional charge related to it, they agreed.
Emma from TalentFirst spent a whole working week at North East. Everyone expected her to attend meetings within IT department and review project plans but instead she spent time at the coffee machine, chatted with employees in cafeteria, sat next to one of junior software developers for several hours, joined an application deployment call, made a few friends at the recruiting group, congratulated an employee on her 30-year anniversary with the company, and chatted with a new joiner in the parking lot when they were getting into their cars.
All these interactions were completely random and North East executives felt sorry for the time Emma wasted at their company. In the end of the week, Emma surprised them by saying that now she had a persona image of their new CIO. She said that they would be looking for someone who shared company values of caring about employees and customers, work-life balance, someone who was equally inspirational and supportive. She called this type of manager a “multiplier.”1 In addition to a supportive family-oriented mindset, Emma mentioned that this person needed to help North East get back in touch with its customer. Their customers had changed and they needed more speed, more efficiency, and a better dispatching service, which would provide lower costs to them and their businesses. New, more complex algorithms, a new system of online orders, and flexibility of route changes and sophisticated navigation would lead to more flexibility, lower costs, higher speed, and overall service quality. Emma’s hypothesis was that this would allow the company to add small businesses as a new group of repeatable customers and shorter distance transportation in addition to long-distance orders from large wholesale clients.
Surprised, Drew asked her how she could know the intricacies of his business, which had nothing to do with her profession. Emma explained that she was not an HR professional and not even a recruiter; she was a lean coach hired by TalentFirst to assess their needs. She said that none of these suggestions were her own; she heard them when she spent a few hours listening to the call center calls randomly and talking with employees who felt that the company was not listening well to market needs and not exploring new markets, thus losing business to more modern and technically savvy competitors. Finally, she said, they would not need to invest in this new business. They could just select one specific area and use one of their smaller trucks for local deliveries. This would require some technical work for online ordering and routing, which could be completed within several brief, possibly one- or two-week iterations. It would require minimal investment, primarily the time of their IT personnel and minimal training, but would allow North East executives to validate the assumption that there was a market need the company was not addressing and provide direction for future development. Emma mentioned that she now had a good idea what type of CIO TalentFirst had to look for: someone who had experience validating business hypotheses with customers, someone who embraced a concept of team-based iterative development called agile, practiced “lean startup” techniques of validating assumptions with real customers, and had a prior record of setting clear goals for employees aligned with customer needs.
Best Practice
When hiring leaders for your transformation, do not concentrate on people who have experience in the same industry, as it has been primarily done within the last 20-30 years. Instead, look at those who bring new culture, the culture of empowerment, the culture of starting with the customer, the culture of learning. This track record creates a modern executive rather than years of similar industry experience in a top-down culture.
In less than a month, such a person was found. Emma personally introduced Pat to the North East executive team. Executives could not believe their eyes. Pat was a tall, young, modern-looking woman in her mid-thirties with bright red highlights in her long hair and green eyes which seemed even bigger because of her huge glasses in an orange glossy frame. She wore skinny black jeans and a T-shirt. Executives wanted to know about her prior employment. It was a coffee business, said Pat. In less than one year, she turned it around, resulting in a new coffee chain in Seattle.
A new coffee chain in Seattle? How is that possible? Well, explained Pat, they found a new niche with online app orders for the most upscale organically grown coffee customized to perfection and served in offices of several large companies, starting from a large online retailer whose employees refused to drink any other coffee after they tried theirs. Quality and convenience, mentioned Pat, were the two criteria that these employees wanted, and her company addressed their needs to perfection, from regular orders to automatic reordering and sequencing their deliveries. “What do you know about the transportation industry?” asked the North East executives. “Nothing,” said Pat, “but in a month or so I will know more than many of you.” This sounded almost insulting.
They asked about her education. It turned out that Pat graduated from MIT, where she got her Ph.D. in Applied Math. Well, this did not sync with the way she looked, or so they thought. They asked what she did in her spare time. She played video games and went ballroom dancing. What else? She also wrote security patches and posted them to her GitHub account. Pat explained that she was passionate about data security and wanted to protect people and businesses from hackers’ breaches. “How long would you need to turn our business around?” they asked. “You will see results within several sprints,” said Pat, “but only after proper training and goal setting.” Then she explained that “sprint” was a term for these two- to four-week iterations she mentioned earlier. They comes from Scrum, one of the agile frameworks, which emphasizes teamwork, clear short-term objectives, alignment with business stakeholders, ongoing customer communication, and short feedback loops.
This all sounded foreign and vague so North East executives were reluctant to risk their reputation, time, and confuse their employees, but Drew turned their minds around. “I trust Pat,” he said. “Let’s try it out. Worst case scenario, we will lose one to three months developing some apps and trying new ways of diversifying our business. But since all of those are going to be marginal experiments, we won’t pose any danger to our core business or disrupt it in any way. Doesn’t sound like too much risk. And besides, I started this company risking all my possessions when I took a loan in the full amount of my home and everything else that I owned, because I believed in success. I see the same light in Pat, and I trust her judgment, so I suggest that we try.”
Tip
Executive by in is often the way to ensure support for a successful lean agile transformations.
Drew was not the ultimate decision maker, nor would he ever impose his decision, but his voice was trusted and respected, and so the decision was made to give Pat a chance. The only condition was that Pat could not lay off any of North East’s current employees. If they did not have skills needed to develop the mobile apps Pat was talking about, she would find a way to train them. People were the core of the North East business, and this should never change.
First Month
To say that the North East staff was surprised to meet Pat is to say nothing. North East was a company of family and traditions, and Pat did not look like any of them. Many employees were wives of truck drivers who were motivated by making positive input into the business. Hundreds of employees stayed with the company throughout their whole careers. They were shocked to meet Pat and did not take her seriously. This seemed to not even slightly bother Pat, who, despite her tight timeline, looked relaxed and curious. She spent a lot of time with marketing department launching some surveys for truck and van drivers, clients, recipients of their cargo, and technicians who serviced company’s truck fleet.
In the company headquarters they installed a three-button stand. When employees were leaving company cafeteria, they were supposed to press a green button if they felt their work day was productive, yellow if they felt they could accomplish more, and red if they felt it was a waste of time and effort. When the red button was prevalent, Pat herself spoke informally with employees around the office to find out what impeded their productivity or what else made their day unproductive. Then, similar stations were installed at the mechanics’ station and at the parking garage.
Pat continued listening to calls in the call center, spent time discussing pricing strategy, reviewed algorithms driving their navigation and routing software and was astonished how inflexible it was, and spent hours analyzing application monitoring to review whether it conformed to service level agreements (SLAs) defined with their clients. She also worked with the marketing department to launch something that they called the NPS survey and promised to share results with employees along with executive management. Employees observed Pat’s behavior with caution, waiting for her to take steps to restructure IT department and affect their lives and well-being.
Samantha, a Senior Programmer responsible for North East dispatch software who had been with the company for over 20 years and progressed from a mailroom clerk to a senior-level IT professional (North East paid for her on-the-job associate degree in computer science), feared for her job security. She felt threatened by Pat and was already envisioning the boredom of an early retirement. On the second week of Pat’s appointment, in the elevator she heard two programmers from another group talking to each other whether they were “on the list” and “when was their turn.” She dreaded coming up to her floor because she knew what it meant but she had no choice. She was extremely surprised when she found out that her colleagues were talking about something called “lean startup training.” She wondered how relevant it was. North East was not a startup, but she was relieved that she could keep her job and decided to stay open minded and hopefully learn new techniques and programming languages.
Surprisingly, the training had nothing to do with programming languages or IT in general. Software developers and testers were mixed with user experience designers, business representatives, and call center employees to learn about making business hypotheses, rapidly building software prototypes and customized services to validate these ideas with customers, and using the results of these experiments to either “pivot” and try something else when the ideas didn’t work or “persevere” and build new products on the hypothesis that were proven with real customers. By the end of the first month, they split into 15 teams of 7-9 employees, each having developers, testers, a user experience designer, and business stakeholders representing one of the areas of North East business: routing, assigning, dispatching, targeting, servicing, repair and maintenance, customer service, and other relevant areas. Each team was tasked with identifying hypotheses about changes in the area of their accountability, staging experiments, and pivoting or persevering to define the solution(s) that address customer needs, the ones that would benefit employees, and preserve company values.
90 Days
Validation canvas template: Theme < … > Team < … >.
At the end of a week, they met to present their analysis, answer questions, listen to feedback, and all of this informed their next week’s experiment. Some experiments were fairly complex and the team felt that they could not be validated in a week. In this case, they had access to lean startup coaches who advised on different ways of breaking a hypothesis into simpler ones that could be validated within one week. One coach was assigned to two to three teams, and the coaching approach was to “build on what was happening,” learning and adjusting every day.
The whole approach was extremely flexible. The only mantra they had was to “fall in love with the problem, not the solution.” What it meant in real life was that the employees were expected to involve customers in every idea they had, whether they were working on solutions for internal customers, truck drivers, mechanics, back office employees, or the paying clients who used their services. They were supposed to understand their challenges and co-create solutions together.
Tip
Fall in love with the problem, not the solution!
Samantha’s team worked on external client base-related solutions. They were one of three teams targeting expansion of North East business in other areas. They were responsible specifically for researching adjacent businesses: small businesses, individual vendors, specific areas of service or industry, or products. During week one, they decided to start with a hypothesis that small business owners would like to use their services locally for deliveries. Their hypothesis was that small business owners lack availability of local deliveries at an affordable price. To validate this hypothesis, they decided to target several types of small businesses: flower shops, cafes, pharmacies. After initial testing with a cardboard model (they learned this was called a low-fidelity prototype), they built a simple mobile app for these clients to schedule deliveries and adopt a pay-per-service model with pricing scaled based on the number of guaranteed deliveries the client would order from them in one month. They also decided to target suburban and rural areas since they were not convinced that the company should compete with on-foot and bicycle-based delivery done in big cities.
They used multiple venues to market their service and get small business excited by it, but the primary marketing means was talking to them. Coached by their assigned lean startup coach, they did not ask the question of “would you buy our services;” instead, they suggested to purchase a service with minimum number of monthly deliveries and pay a fully refundable fee of $100 per business. They made it clear that their threshold was at least 10 businesses within a 50-mile radius; otherwise, they would refund the sign-up fee. In one week over three experiments, they had only three businesses signed up, and the hypothesis was invalidated. They were initially demotivated to see the results, but their coach told them that a failure is a validated learning, and they did not fail, they learned something, and they should proceed to think of the next steps based on the informal conversations they had with potential clients as they were marketing their business and listen to their responses.
Tip
Failing is learning.
The team compared their notes and took a closer look at the results. They noticed that all three local businesses that signed up were flower shops. Most of them had their own delivery vans. During holidays and on Fridays, though, their vans were not sufficient or lacked equipment to deliver fragile flower arrangements. They were willing to pay a premium for the flexibility of delivery if the quality of their fragile goods was guaranteed by the provider. The team decided to pivot and suggest delivery service specifically to flower shops with insured delivery and special containers to ensure that their fragile goods would be delivered without any impact, in addition to climate control that their special delivery trucks already had. They raised the price and change validation criteria to 25%. In the end of the week, they were surprised to see that 33% of local flower shops enthusiastically signed up, and a few were still thinking. In the end of week, they presented their findings and received encouragement and feedback from their peers from other teams, lean startup coaches, executives, and other business stakeholders; everyone was invited to this event, which was called a “demo.” At the demo, the advice their team received was to narrow down their findings.
And of course, they did not stop there. They decided to persevere and find out whether this was specific to the suburban area near Columbus, OH that they researched or if they could use their fleet in other states. They researched suburban areas near Austin, TX and Freehold, NJ. Along the way, they made changes to their newly minted but barebones mobile app based on the feedback from prospective customers, and adjusted their pricing model to make it more flexible. They found out that SLA limits were wider for flower shops that got their orders well in advance, if insurance covered all their losses. Subsequently, they increased response times as well as the insurance limit. The team was hoping for a similar result, but they needed another week for this research and their lean startup coach supported the approach. In one more week, the results exceeded their expectations.
Validation canvas: Theme “Expanding Customer Base” Team #1
At the end of their second week, the team presented their results at the weekly review session and then to the executive council, after they incorporated the feedback from their peers and the business stakeholders. As a result, the recommendation made in the validation canvas above was taken into account, and North East started its daughter business, which involved ground transportation of flowers and then expanded it to other fragile goods for small businesses. Within one year, it earned a reputation as a reliable and flexible partner for hundreds of small and medium businesses. At that time, they merged this business with their primary transportation brand and announced that North East started air transportation of fragile and high value merchandise. They added security measures, hired security personnel, and within the first year achieved half a billion dollars in profit, all of this as a result of research that took less than a month.
The results of the other 14 teams varied. One of the teams that researched data suggested creating a web app to connect their large clients with warehouses. For those clients who expressed interest in participating, their IT team created an interactive matching app that allowed them to find cheap and reliable warehousing solutions within seconds. The app was a big hit in the market and was later sold to an Internet giant for $700 million, benefitting North East and their clients, who got platinum privileges and free lifetime services. Another team rebuilt their dispatch system, making it 10 times more efficient while increasing flexibility and response time 3-5 times. The employee satisfaction team came out with skills matrices and training packages for employees, as well as a clear career path for long-term employees and state-of-the-art onboarding progress for new hires at no additional cost for the company. Everyone was astonished by the impact of the lean startup thinking.
Even more surprising, during these 90 days, employees embraced the values of customer interaction, team-based collaboration, quick validation of ideas based on metrics and objective data, and continuous feedback loop. In three years, Pat left the company because, as she said, “there was no more challenge there.” The employees and executives were living and breathing new values. “This would never be possible,” she said, “if not for their open mind, collaborative thinking, culture of respect, and customer-driven work ethics.”
Tip
Reflect on this mini-story, can you identify the five techniques to succeed, as discussed in section 2. What was the mission of the tranformation? Who were the personas? Which MVPs were implemented? Describe the experiments that were conducted. How did Pat acheive her goals? Review the Lean validation canvas template provided - how can you use it in your organization?