The Lean Product Lifecycle
Developed by Raymond Vernon, the Product Lifecycle (PLC) is one of a few long standing management frameworks. In Vernon’s work, the PLC views products going through four stages; introduction, growth, maturity and decline. The framework has been applied to international trade markets, manufacturing, product development and marketing. In a classic, Harvard Business Review (HBR) article published in 1965, Theodore Levitt described how marketers could apply the framework to their marketing activities. He argued that knowing a product’s lifecycle stage can help marketers to engage in the right activities.
Despite its success, there have been several challenges to the original PLC. Youngme Moon (HBR, 2005) points to a major criticism which is that the PLC describes product lifecycles as if they are linear. This causes management to have ‘tunnel vision’ that leads them to neglect products that have the potential to be revised and revived. The second issue with the PLC is how it deals with the first stage in its lifecycle (i.e. introduction/market development). Levitt himself admits that the market development stage is “…fraught with unknowns, uncertainties and frequently unknowable risks” (HBR, 1965). However, he offered no clear solutions with regards to how companies can manage this risk, especially during product development. The best solution he could offer was for companies to be second-movers in new markets.
The fact that this market development stage is viewed as a single stage can also be problematic. The problem arises from traditional assumptions about how innovation or product development should be conducted. When developing new products, businesses have traditionally focused on extensive and detailed planning followed by execution, launch and marketing. This practice falls victim to one major product development myth as described by Thomke and Reinertsen (HBR, 2012). This is the myth that “…our development plan is great and we just need to stick to it”. This myth fails to deal with the potential variations and untested assumptions that underlie new product development. As Steve Blank argues, no business plan ever survives first contact with customers. The challenge is further exacerbated by the fact that the business world now moves and changes at a much faster pace.
Enter Lean Startup
In an HBR article, Steve Blank (2013) highlighted Why the Lean Startup Changes Everything. Since Levitt’s seminal paper, the odds of success for new product launches have not gotten any better. As companies, have held onto the fallacy of the perfect business plan, they have applied the PLC as originally conceived. This process has a single introduction or market development phase based on executing the business plan. However, Steve Blank’s distinction between searching and executing provides us with a great opportunity to revise the PLC using lean startup principles.
According to Blank, startups are not smaller versions of large companies. Large companies mostly execute on known business models, whereas startups search for sustainable and profitable business models. The notion of searching, as distinct from extensive planning and execution, expands on the introduction/market development stage of the PLC. Eric Ries, author of The Lean Startup, argues that during the search phase innovators should test two main hypotheses; 1) the value hypothesis which focuses on discovering what customers really care about and making sure the product meets their needs; and 2) the growth hypothesis which focuses on how the product will grow in the market once it is launched.
The Lean Product Lifecycle
Lean startup methods change everything because they provide an opportunity for established companies to develop and apply revised product lifecycle frameworks. Over the last five years, this is the work a team on which I played a very small role has done at Pearson, the FTSE100 global education company. We developed a Lean Product Lifecycle that utilises the distinction between searching and executing to add three more stages to the early part of the original PLC. Our Lean PLC has six phases:
- Idea — Capturing ideas and aligning them to strategy
- Explore — Investigating the problem and opportunity
- Validate — Achieving product market fit with a sustainable business model
- Grow — Accelerating your business and maximising market penetration
- Sustain — Sustaining market dominance and maximising profits
- Retire — Recycling residual value and freeing capital for innovation
The first three phases focus on searching for profitable business models and the right three stages mostly focus on executing. As you can see in the graphic below, the early stages of the Lean PLC are about testing the value and growth hypotheses of new product ideas. The goal is to get to Product-Market Fit, which is illustrated by the dotted line, at which point products with validated business models can be taken to scale.
In developing the Lean PLC we used the following principles:
- Product Development Best Practice: Ensuring that products teams are doing the right things at the right stage. We encourage teams to engage with customers/learners early in order to understand their needs deeply before they start building their products. We also encourage teams to ensure that they have found a profitable/sustainable business model before they move into the Grow stage.
- Investment Governance Best Practice: Ensuring that we employ metered funding for products using Lean PLC criteria at each stage. In the early stages of the Lean PLC teams get minimal investments, similar to seed funding, this allows them to test their hypotheses about customer needs and the market potential for their proposed solution. As they succeed in the earlier stages of the Lean PLC, we double down investment in the later stages. This process allows us to ensure that we are incrementally investing in those products that have the highest chances of success.
- Searching While Executing: Most established companies, have a large portfolio of profitable products. The Lean PLC has been designed to inform both the management of innovation and the management of established products. On the left-side of the PLC, searching is done using lean startup methods and investments are made incrementally at the stage-gates. On the right-side, conventional accounting practices are employed, with an additional process through which each product goes through a quarterly or bi-annual review. It is at this review that a product can be reclassified to later or earlier stages of the Lean PLC.
The combination of product development and investment governance best practices directly address Levitt’s concerns about the risks in the market development phase and how to manage them. By applying Lean Startup principles, we have been able to instantiate modern innovation best practices within Pearson. This practices allows product teams and marketers to actively test their assumptions about customer needs and potential market success before they take their products to scale. For more details on the Lean PLC, you can buy and read our book.
The Lean PLC was developed by a team working at Pearson the FTSE100 global education company led by Sonja Kresojevic.