5/19/2014 | Erik Sherman

"Lean business model" is an appealing buzzword. It's a concept filled with promise that ideally would guarantee prudence, frugality, and a greater chance of success. The more you save on unnecessary spending, the more capital you have. Although commonly associated with start-ups these days, lean operations and strategy hold potential big benefits for the middle market.

If implemented correctly, lean business models can benefit your midmarket firm

But this isn't just some fad to hook onto. Treat it like a flavor of the month, and you'll be like the middle market business I remember from years ago. The CEO of that company decided that everyone would suddenly take up the concept of "total quality management" without the benefit of training the staff or even really grasping what that concept meant. He had hoped that it would magically cut costs, but the results were ugly. The CEO eventually gave up on the business and sold it off, and the entire initiative turned out to be a sad waste of significant potential.

Don't go down a similar road. A lean business model, as with any newly implemented business practice, can cause as many problems as it can solve if you don't adhere to the theory behind it. The concept involves creating constantly improving sets of activities that lead to the services and products that customers, both internal and external, value. There are five principles involved, as Professor Peter Hines of the Lean Enterprise Research Centre at Cardiff University explains:

  1. Value. A specific product or service meets the needs of the customer. Focusing on customer value helps provide a framework for what the company and employees do.
  2. Value stream. All the actions that contribute to a finished product or service, from solving problems to engineering, design, manufacturing, and process development, make up the value stream. You keep refining and improving the value stream until you reach perfection.
  3. Flow. Once you get the value stream set up and it begins to operate in a harmonious manner, you get an operational movement called flow. It's like the business equivalent of a musician hitting a groove.
  4. Pull. Instead of making the decision for customers concerning what they want, you wait until they tell you. It's a pull process, rather than push. You can learn what they want in a number of ways, including formal requests, informal discussions, or even market research techniques.
  5. Perfection. When you keep improving the value stream, get flow, and respond to customer needs, you reach a state in which everything you do is valued by the customers. In other words, it doesn't get much better than this.

That all sounds good, but the thinking behind early lean methodology in the 1990s has evolved. A classic lean business model can create problems, including the following:

  • Too much focus on physical flows and not enough on quality, risk, or corporate responsibility
  • Too much input from customers can lead to missing out on strategic positioning for the company and anticipating where the market will eventually go
  • Lean business models don't give much attention to proper training, communications, and HR policies, along with other factors that are people-centric
  • Too heavy of a focus on alleviating wasteful practices while ignoring other important factors
  • Too much internal focus and not enough on relationships with partners

Stumble down these alleys and you could turn the lean effort into a parody of what it's supposed to be. You'll become a CEO that is demanding an adherence to a new concept without any idea of what it really means. Keep your focus on specific purposes, people, and processes.

If you do decide to try a lean business methodology, you should consider how to best enable a lean culture. Will employees embrace the values and assumptions necessary for a lean philosophy? A checklist can help you determine whether you have actually taken on lean business practices or if you're just fooling yourself.

How quickly (or how gradually) should a midmarket firm incorporate a new business model? Let us know what you think by commenting below.

Erik Sherman is an NCMM contributor and author whose work has appeared in such publications as The Wall Street Journal, The New York Times Magazine, Newsweek, the Financial Times, Chief Executive, Inc., and Fortune. He also blogs for CBS MoneyWatch. Sherman has extensive experience in corporate communications consulting and is the author or co-author of 10 books. Follow him on Twitter and circle him on Google+.