Wednesday, November 23, 2011

Lean Startup & Holacracy: How Do They Fit Together?

I just finished a book: The Lean Startup. It's a model for building successful new products/startups extremely efficiently, developed by startup entrepreneur Eric Reis. No genius needed, just a method. I have to say I'm impressed: the theory and the case studies are very convincing.

Fairly quickly into the book, I started to draw mental connections with another lean model: Holacracy. No surprise here, both share a similar Agile inspiration. They both emphasize a "dynamic steering" management style based on direct feedback from reality, as opposed to grand strategies based on assumptions. 

How about putting Lean Startup and Holacracy side by side to see how they compare? That's the fun exercise this post is about.
  1. Let's start with a quick and dirty overview of each model, 
  2. Then I'll suggest a way Holacracy and Lean Startup fit together
  3. Then I'll give a table comparing characteristics of each model

Lean Startup: Learn What the Market Want

Fig 1. The Lean Startup "Build-Measure-Learn" Feedback Loop

The starting assumption of the Lean Startup is that nowadays, with products being more and more informational and immaterial, the key question is not "Can we make it?" but "Will people buy it?" For Reis, most startups fail because they build something that nobody wants.

So the goal of the Lean Startup is to learn as fast as possible, with the least resources possible, what product we need to build to sustain a thriving business. How to do that? By carefully testing our assumptions, as shows the Build-Measure-Learn feedback loop depicted above (Fig. 1).

The process goes as follow:
  1. You get ideas for a new product. Identify the most risky assumptions that you're making about the market.
  2. Build the "minimum viable product" that will allow you to test your assumptions, and release it.
  3. Measure how users interact with your product to learn how valid are your assumptions.
  4. Based on real data, come up with new ideas to improve or change the product, and run them through the same process. And so on...
The Lean Startup builds new products incrementally, each iteration fine-tuning the product according to real feedback from the market (or changing strategy — "pivot" — if necessary). Overall, The Lean Startup brings together Agile development and Customer development methods in one model.

Holacracy: An Organizational Practice to Surrender to Reality 

Holacracy is defined by its creator Brian Robertson as an "organizational operating system." It differs from a traditional organization in that it offers, among other things:
  • Another way to structure the organization (organigram), 
  • Another way to govern, i.e., to distribute the roles, authorities and accountabilities between teams and between individuals within teams.

Fig 2. Hierarchy to Holarchy. "Circles" are holarchically organized. Source: Wikipedia

Holacracy considers that in today's uncertain and rapidly changing world, organizations need to be more flexible, agile, in constant sync with reality. How does Holacracy achieve this? By processing tensions. The model regards members of the organization as "sensors" of reality; the tensions they experience are clues for organizational deficiencies. Holacracy's remedy is a system that guarantees that every tension has a place to go and be processed.

In processing those tensions, the organization makes small, frequent, iterative changes to adapt to reality in order to be more relevant, effective and efficient. All changes are made based on actual present tensions, not on assumed problems or needs.

I don't claim to be an Holacracy expert1, but the most obvious benefit of Holacracy for me is the adequately distributed governance that results from the highly effective governance meetings. Governance meetings are where authorities and accountabilities are distributed based on organizational needs. And Holacracy has strict rules to make sure that politics and egos don't get in the way.

Holacracy is much bigger than that. Here are some other important aspects that I'm not covering here, but that you can read more about:
  • The organizational unit is the "Circle," and circles are organized holarchically (Fig 2. above)
  • The "double-linking" between circles: replacing a middle manager with conflicts of interest by two roles.
  • Strict rules for each of the 3 types of meetings you can have (Strategy, Governance, and Operational meetings). They're designed for efficiency and effectiveness - and from experience, they work!

How They Fit Together

Due to their common heritage, Holacracy and Lean Startup naturally share a lot of principles (see Comparison Table below), but could they be used together beneficially in one organization? Based on theory, I don't see why not. Let's see how it could work.

The main reason is that the two models do not deal with the same level of management. Holacracy's breakthrough is as a governing framework that answers the question "How do we organize?", Lean Startup's main contribution is operational, it answers the question "What product should we make?"

Fig 3. Different Focus for Holacracy and Lean Startup

To be fair, the distinction is not so clear cut. Yet, each model is more or less specialized at each level.

Holacracy is specialized in Governance. The model makes suggestions at the operational level too, but their focus is different than the Lean Startup's.

Lean Startup is specialized in Operations: it's about rendering operations as lean as possible. Staying grounded in real data at the operational level, this is precisely where Lean Startup excels. Two things to notice here:
  • Lean Startup's focus on operations is slighly "above" Holacracy's one. It's oriented toward the product development strategy, a sort of "operational strategy", if you will. As far as I know, Holacracy doesn't specify anything particular at this level.
  • Lean Startup does include an important suggestion for Governance: teams should be organized cross-functionally, not in specialized departments3. This is a classic tenant of Agile development. Holacracy's philosophy embraces it, even though the system does not necessarily enforce it. In any case, there is functional concordance on this point between the two.

Fig 4. (Loose) Representation of Lean Startup integrated with Holacracy

The two models both focus on management processes, but they specialize in different levels of management4. What's more, their strengths and weaknesses seem rather complementary. Putting Holacracy and Lean Startup side by side, I see an exciting combo for a "Lean Learning Organization."

I'm playing with ideas here, but I'm curious what people with more experience with either or both models would add to this discussion?

Holacracy and Lean Startup - Comparison Table

Lean Startup HolacracyTM
Agile Development, Customer Development, etc. Agile Development, Sociocracy, Integral Theory, Learning Organization, GTD, Lencioni's Tactical Meetings, etc.
Develop product-market fit with the least amount of time and resources Provide organizational flexibility to change and uncover the organization's purpose
How to reach purpose?
Test assumptions with the "Build-Measure-Learn" feedback loop
Distribute roles and 'sense' reality by processing members tensions
What data?
Data from the market (product tracking)
Data from people within the organization (tensions) (governance) and from the market (operational)
Ego's power moves
Regulated by reliance on actionable, accessible and auditable data
Regulated by clear roles that distribute power, and by strict rules in decision-making processes
System level focus
Mostly operational, very little governance
Mostly governance, some operational
Designed for what context?
Fast changing environment and conditions of great uncertainty.
High complexity and increasing uncertainty
Functional emphasis
System effectiveness (at operational level)
System effectiveness (overall)
Dynamic steering, fast iterations
Dynamic steering, fast iterations

1) My experience with Holacracy mainly comes from volunteering for one year at Bay Area Integral, an organization that introduced Holacracy as its new organizational system when I was there. I have been interested in Holacracy since then, I have been reading HolacracyOne's material and have listened or watched several of their online publications. However I've never taken an actual training.
2) That's my understanding based on my experience as well as on HolacracyOne's documentation (p. 5) on Holacracy and a video available to registered users. UPDATE 12/25/11: the audio recording of the video just mentioned is available to everyone (thank you Alexia Bowers for letting me know).
3)For example, teams should include coders, designers, user-experience experts working together on the teams' projects, instead of having specialized departments of designers, coders, and user-experience experts serving different projects.
4) It's true that Lean Startup is adapted to product innovation, which doesn't reflect all contexts of operations. In more steady contexts where the market is known and stable, different operational processes would be more adapted. On the other hand, these steady contexts may be more and more rare today.