GA 419 | Lean in Venture Capital with Bryan Bauw

So venture capital, we might go in and make 10 investments and expect two or three of those to become multi billion dollar companies, another couple of those to kind of be the half billion, maybe quarter billion dollar exits, depending on the size of the investment and the size of the fund.

Today, I'm excited to welcome Brian Ball to the show. Now, Brian has a very interesting background. He's got kind of a traditional lean background, industrial engineering training at University of Mich. And did a little healthcare work, but now he's actually working in the venture capital space. And so his organization that he works with basically goes in and helps other companies. They'll make an investment and then they'll help that company kind of improve. And so we sort of talked about the role that Continuous improvement and Lean plays within their approach and how they go about it. And yeah, we had a really interesting conversation about some of the things they're looking for from a company. And, and then what can, you know, make a deal go badly if it didn't work out? Like what are some of the. The warning signals? So a little slightly different topic than we normally explore, but it's always interesting to just see how Lean and continuous improvement truly know no boundaries. So really interesting stuff. So show notes can be found over@gembapodcast.com just look for episode 4, 19. Again gembapodcast. And look for episode 419. Okay, enough from me. Let's get to the show. Brian, welcome to the show. How are you?

I'm great. Thanks for having me here. I really love the message that you're spreading, so I'm glad to be a part of it.

Well, thank you, thank you. Where are you calling in from?

Calling in from northwest corner of Alabama. Muscle Shoals.

All right, all right. Very nice, very nice. All right, well, Brian, we like to get things going right out of the gate with our guests sharing a quote. So do you have one?

Yeah, my, my quote is from Winston Churchill. It's. Perfection is the enemy of progress. I've seen many a time where someone gets into kind of that debilitating mode where they keep going for perfection before they launch instead of just kind of get going and iterate as you go.

So, yeah, I like it, I like it, I like it. All right, well, hey, tell us a little bit about your background and how you got into your line of work and then definitely tell us what you're up to these days with your. Your line of work.

Yeah, so my kind of continuous improvement in manufacturing journey started about just under 20 years ago doing industrial Engineering at the University of Michigan. I was also a junior consultant there at the hospital system. So doing a lot of what was then tqm but similar kind of tool set transitioning to the more lean philosophy. But prior to that I grew up in the construction trade and my dad ran his own GC general contracting business and so I was very much around that kind of continuous improvement mindset. He was always looking for that next great thing to insert into the houses he was building, whether it was integrated sub flooring or even one of the first to adopt pneumatic nailers. Things like that seems trivial, but it makes a huge difference.

Oh yeah.

I guess I never knew that the difference in what continuous improvement was until someone gave me the formal language for it. But it's very much a part of my being, maybe one of my pillars, if you will.

So what do you. What are you up to these days?

These days? I joined a venture capital firm about a year ago. We do deep tech investing so we invest in only something with a hard deliverable. So that could be anything from brain implants to grid scale energy storage but there's some level of manufacturing to it. So I both do help due diligence and then also coach some of the companies in the background to kind of help them scale through the we've got something we made in the lab to someone's going to ask for millions of these kind of philosophy. So.

Got it, got it. So I mean for folks that aren't familiar like we hear the word venture capital and all that kind of stuff like, like at a one on one kind of dummy version like what is it really all about?

So venture capital is the, is the money that's looking for the companies that are going to make a big movement in the market. So they go in, we invest in companies that are a scaling very quickly. So if you take a Tesla in the early days, it's when you have a big idea and you need a lot of money or very early on you do give up equity as opposed to taking a venture debt or a loan from a bank. So we end up taking an equity stake, a minority equity stake. So it's not like the wider private equity model. So we give them 10, 20% of their, give them money for 10 or 20% of their company and then they go and try and move very fast with lots of support from us to grow very quickly and eventually in M and A or IPO or whatever acronym kind of ends they're journey.

So I mean so I guess the reason that somebody would go With a partner up with a venture capitalist is for some support and versus going to a bank, bank's just going to give them money, right? They're not going to give them any support, is that correct?

Very much so. It's about the ecosystem. It's also a larger tip than a bank would be. So we take a lot of risk when we make our investments. So venture capital, we might go in and make 10 investments and expect two or three of those to become multibillion dollar companies, another couple of those to kind of the half billion, maybe quarter billion dollar exits depending on the size of the investment and the size of the fund. And then the rest, you know, they'll, they'll transition to wherever they end up.

Okay, so I'm curious then to hear, you know how Lean, how process improvement, how that's playing into your work with venture capital. So I, I assume you're going in and taking a company that might not know about Lean or Continuous improvement or anything like that and helping them, is that, is that fair?

Yeah. So Lean comes in kind of two places in my role. A some of the coaching we do early on really about talking about iteration and getting things done a little bit quicker, not over investing in that perfection kind of activities, looking for the opportunities to build in manufacturing structure early on instead of trying to go back and fix it later. So getting the right suppliers, the right software, transitioning through that kind of life cycle of scaling. So again, not getting ahead of yourselves. Go in, create a demo plant, think about the opportunities and process improvements that can come along with it. One of our early investments we made, I went in and we did a large value stream mapping activity because they were looking to try and 10x their business. So we went through, tried to identify all their bottlenecks, tried to identify where they had opportunities just to grow as the business development grew along with it. So it's very much in sync with a fast scaling process. So it's not all the real long iterative processes of some of the Lean stuff, but very much that mindset of how do I take advantage of what I have to scale as quickly as possible. And very much pairs with a lot of the Lean activities from the other side. Our venture firm. When I joined it, I was very excited because a lot of my background in Lean has been using Lean in the office setting. So one of my early jobs was doing continuous improvement whilst I was a change manager in the aerospace industry. So doing four field mapping, setting effective team meetings, all that kind of stuff. So I was excited to join Venture Capital I found out actually the partnership is already running a lot of that fantastically. So we iterate on our team meeting schedules, we iterate on our standard work really quickly. We are almost over communicative on all the changes and the processes we're working so that we can work together to kind of improve and cycle so it's effective across the whole business for us.

What about something like standard work? As you're going into this new company and partnering up with them, they're probably wondering who the heck are these guys? I don't know. I'm sure you hit some resistance from time to time, right? And so how does standard work and that sort of thing play into this type of an environment?

That's a really good question. So standard work, kind of similar to when you're launching a new project at a bigger company is you get the folks, the engineers who are very hands on, who have a lot of the technical knowledge. So if you're building something that the processes they've always used, they naturally do it. So those first one or two kind of MPVs are often done in an engineering environment where highly specialized people are capable of doing it. The trick then is to get that where their traveling knowledge is written down and where they can sequentially train somebody else who may not have laid up those composites or may not have built that electronics can rapidly go from we made one here or one there to how do we start sequentially doing this and delivering on customer orders and customer demands? Because at the end of the day, particularly in venture capital, but as with all lean, it's achieving the customer request and achieving that customer milestones whilst you're scaling the heck out of your business.

I want to go back to that company that was trying to 10x their, their revenue. Was that right? 10x their revenue?

Yeah, 10x 10x revenue, yeah.

So 10x their revenue and you went in, you did some value stream mapping and all the rest of it. So I mean, I'm not asking you to share any trade secrets or anything like that, but I'm curious, like was the constraint internal or was the market the constraint? You know, like what? Like in other words, if they could go 10x faster, would they be able to sell everything they made or, you know, is there demand for 10x?

It was kind of a hand in hand. So we're also developing, particularly with a lot of these, let me back up. Particularly a lot of these early stage companies, it's developing that customer base almost at the same time you're trying to develop that Capacity and it's, you have to do it hand in hand. So whilst we're developing the manufacturing philosophy, we're also going and putting the right piece of marketing and sales in place to actually build that out. The market is there is just making sure we have the right distribution channels, the right customer base to actually consume that capacity that we're developing. So we're stepping through. They're at 1x, they're at 2x, they're at 4x, they're at 5x, they're at 7x and then they're at 10x. Over the course of this year, as we're doing the same, we've identified customers to take that demand off of them. So there is some bottleneck there of getting the right customers in place. But it's also understanding what capital needs to be done. And then to your standard work question where we standardize the process so they're going to iterate on their hiring so that you can bring in people quicker and get them up to speed quicker so they can develop their product.

So on a, on a, on a situation with a company, you mentioned that some of them don't pan out. Right. And is there, are there any, I don't know, kind of sort of warning signals that you're seeing that you missed in due diligence or whatever and, and then you get into it and you're like, oh boy, this is going to be a tough one. Like the, I'm asking is most folks on this, listening to this right now aren't dealing with a VC or something like that? I mean they got their own deal going and they're trying to practice continuous improvement. So like what can we learn from your world? Even if we aren't working with a VC as far as like why didn't it work? Why didn't that company succeed?

I love that question. So both in normal as manufacturing lean as I was raised through, and here in the vc, one of the key things is to understand your customer and to really get in deep for what the customer expectations are. So what are you delivering? Does it really solve the problem? One of the things we see a lot of in venture capital is we have a really good technical product. Someone's invented something very interesting and it really feels like it's a potential to do something exciting, but hasn't been backed by a customer, like truly backed by a customer and actually solves that pain point for the customer. So it's almost we're inventing technology for the sake of inventing technology sometimes. So making sure Our key things is really to make sure that that market is there, the way it needs to be and that the customers are really pulling this along instead of it being pushed to a customer. So whether that's a small widget to go into the automotive industry, which is a really hard industry to get into with venture capital because it's got a lot of momentum going with it, or if it's a brand new groundbreaking technology in an unexplored niche, both of those really need to have that customer buy in. Once you kind of get past stage of the technical development.

What about like, what are you looking for? If you're looking at a potential partnership with an organization, what are you looking for from like a leadership perspective? Because they may not all be like genius lean thinkers or whatever right out of the gate or anything, but are there characteristics you're looking for?

That's a really good question also. So some of the things we're looking for, particularly in the earlier stage companies, is that forward thinking. Where do they need to iterate? So both the long term vision of what they're deploying out, how is their strategy and then how are they going to systematically scale that up, where do they need those interventions, where are going to get those cost improvements or those bottlenecks resolved and then also the ability to hire and develop a really good team around themselves. Particularly as you're starting to scale a business, you can't do everything by yourself. So the ability to go in and find really good people and motivate them and to get them to buy into that vision very much the same way it is developing a lean culture anywhere is really. Are you communicating the idea of we're going to do something great and I need you on board to go do that?

Yeah, yeah, I gotcha. Are there any like examples or case studies of companies that you're allowed to talk about? I don't know what sort of like trade secrets now I could tell me but couldn't release the episode or something like that, you know like where like. Or maybe just a general concept of like yeah, company XYZ and you know, they. I don't know. And like we came in and where were they and then. And where were they five years after that?

So the where we're at five years from that is pretty early for us. So we're only four year old venture capital firm. So we're pretty early, pretty nascent with a lot of our investments. Some of our investments were into bigger companies like Boom Aerospace who are already moving along this path on their own accord very early on. And then a lot of our investments are in the earlier stages, so giving them a smaller check size, kind of a 2 to 5 million dollars check, where we might be the first big institutional investor, as they have it, to kind of get them moving along this path. So they've come out of the engineering now they're looking at how do we build our demo plant, how do we build our production line? And some of those interesting cases come out of that early check. So they've gone in, they've proved out they can make it an engineering lab where somebody' literally carrying it from one line to the other to the next and from one station to the next. And really thinking about how do they systematically move from one product station to the next, both. Because a lot of our companies, their process is actually IP bound or is a trade secret because they're that early on with this, like, revolutionary technology. So it's understanding what is their technology, proprietary technology, and how do they scale that versus what can they just go out and buy in and drop that in and make that run a lot more efficient? I can think of one company that's doing a fantastic job with that in our portfolio where they've gone out and of their kind of pseudo eight stages of their development line, they have three or four stages that are highly proprietary, and then they have three or four stages that are pretty industry standard. And so they've been working through how do they time all that understanding and value stream mapping. Where do they need two machines, where do they need one machine? And then it's a little harder for the stuff that they've proprietary made up. So they've been focusing a lot of more investment time on the engineering side of how do we make sure that this system really works as well as we expect it to. So they're on their third iteration of one of their machines that does their activity. So it's fascinating to watch that kind of dichotomy of how do we balance that, that almost revolutionary technology with bringing in kind of industry standard mechanics that come along with it.

Now, do people seek V. I'm not. I've never dealt with a venture capitalist. I'm like, unconsciously incompetent in some way. They don't even know what. I don't know. But I'm curious, like, do people like seek you out or do you seek them out? Or is it a combination of both?

It's a. It's a combination of both, I would say. So we're always looking to talk to really interesting companies. So we will reach out to companies we see are kind of earlier than us and start that relationship before they will want a round from us. Particularly if they're coming through kind of a known network of people that are helping push them along through their kind of friends and family pre seed rounds which are kind of quarter million and a million dollar check sizes. And then a lot of that actually comes in as referrals from people that have invested in those early rounds and say we've got a really interesting company, we think you should invest in them as their next round. And because we only lead in the rounds, we do a lot of diligence around that and digging into are they going to be capable, are they understanding of their scaling needs as they kind of grow through that commercialization path that comes along with it.

Got it, got it. Very cool, very cool. Well maybe Brian, to wrap things, how about like some advice just for the general lean thinker out there. Just based on you've got a unique experience, you know, seeing a lot of different types of companies and, and you obviously have a background your. So like if there's just some practical tips or some wisdom or some advice you can throw out there for folks listening, what would it be?

There was four kind of keys to the lean and just the business philosophy that were given to me very early on by a mentor and each one of them is very powerful on their own is start early, start easy, communicate constantly and get as many people as possible involved. So starting early, really start putting that momentum behind it. Do something, just don't stand there kind of philosophy. Start easy. And very much the lean systems that were taught to me is even if you have to go out and set up a line with a cardboard box to understand the flow of the product around that do all those simple things, start with an MPV of your product and then iterate very quickly on that. Communicate constantly is just a good leadership principle for me. I find that particularly when you're doing something like lean or continuous improvement, there's a lot of change going on and people like to understand that change. So working through that and then get as many people as possible involved. Yeah, you don't want too many opinions but actually having everybody hands on and understanding their expertise. People bring different life experiences, not just necessarily work experiences to things and you never really know where a really good idea is going to come from. So getting those people involved and getting them understanding what you're trying to do on board early I find extremely advantageous both in manufacturing and in D.C. for that matter?

Yeah. No. Very cool. Your start early, man. Made me think of my. One of my favorite stories of my grandpa when he was alive. Him and my grandma were out for like a little Sunday drive, you know, and my grandpa was a big chewing tobacco guy and he'd open up his door and spit out the door. I just remember all this stuff about my grandpa, but I never forget. I was in the backseat and my grandpa wasn't the best driver, you know, especially as he got older, but he pulled out in the middle of this intersection one time and somehow or another he like stopped and then like kind of panicked and like, you know how you sometimes you just freeze. You just don't even know what to do. And I'll never forget my grandma looked at him, she goes, well, do something, you know, So I feel like your story. Don't just stand there, do something, man. Let's try and experiment, see what we learn, right?

Absolutely. Absolutely. That's a lean philosophy that I beheld for pretty much the whole time I've been here in continuous improvement. Keep iterating. Every day is a day. The opportunity to move forward. So continually drive that continuous improvement.

Yep. 100%. 100%. All right. Well, hey Brian, if folks wanted to connect with you individually or connect with your company, what's the best way?

Yeah, you can find me on LinkedIn at Brian Bao both on LinkedIn and Twitter. Ryan Bau. That's B R Y A N B A U W for the LinkedIn and for Twitter or my my work email is just BrianRimeoversLab.com Prime MoversLab.com all right.

And we will link to that in the show notes. This is episode 419. So Brian, man, this has been fun and keep up the great work and yeah, appreciate, appreciate you coming on.

Thanks Ron. I really love being here.

All right, take care. Thanks for listening. Whether you've been on the continuous improvement journey for many years or perhaps you're just getting started, Gemba Academy is here to support you. And while we're best known for our more than 1500 Lean and Six Sigma teaching and virtual tour videos, we also have a team of experienced Lean and Six Sigma practitioners available for one on one coaching as well as a variety of Lean and Six Sigma certification options. To learn more and to schedule a demo, head on over to gembaacademy. Com.