Principles of Lean Manufacturing and Lean Startups applied to real estate development:
Waste in development, zoning, and permitting
Fixed costs and switching costs -- and why they present a problem for both cities and developers
Default bias in the permitting process -- populist permitting vs. the pink zone
Tools for developers: incrementalism, successional development, and build-measure-learn
3. Michael Mullins
Asset Manager, Mullins Management
Executive Director, Lean Startup Challenge
Founder, RE|Work Real Estate Coworking
2000 UMiami BBA Finance
2004 MIT SM Real Estate Development
2010 Startup Leadership Fellow & Program Lead
2011 Lean Startup Challenge Co-Founder
2014 Chicago Booth MBA
Twitter: @Mullins01
@mullins01
9. The Origins of Lean
Lean Manufacturing
Lean Startups
Customer Development, The Lean Startup
Lean Applied to Development
Lean Urbanism
Tactical Urbanism
Lean Development
@mullins01
14. I. Origins of âLeanâ
@Mullins01
@mullins01
Frederick W. Taylor
Ford Motor Company
Toyota Production System
15. @mullins01
Taylor believed that that through
stopwatch studies and other
techniques, management could
determine the one best way to do
any task.
Taylorâs work paved the way to the
field of Scientific Management and
the practice of Management
Consulting.
His book is titled Principles of
Scientific Management.
Frederick Winslow Taylor
1856-1915
16. @mullins01
Taylorâs theories led to two
important principles:
First, that worker productivity could
be optimized through precision
movement.
Second, that for the workerâs
productivity to be optimized, the
workplace itself must be
optimized. This was a
breakthrough concept in his time.
Frederick Winslow Taylor
1856-1915
18. âA farmer doing his chores will walk up
and down a rickety ladder a dozen
times. He will carry water for years
instead of putting in a few lengths of
pipe.
...It is waste motionâ waste effortâ
that makes farm prices high and profits
low.â
- Henry Ford
@mullins01
Henry Ford
1863-1947
19. Fordâs insights into efficiency, waste
reduction, and workplace design led to
a revolution in manufacturing. He is
widely credited with inventing the
production line.
@mullins01
Henry Ford
1863-1947
21. Toyota Production System
⢠Taiichi Ohno is credited with
creating a group of practices
that form âlean
manufacturingâ
@mullins01
Taiichi Ohno
22. Toyota Production System
⢠Taiichi Ohno is credited with
creating a group of practices
that form âlean
manufacturingâ
⢠He based his theory on what
he identified as the Seven
Wastes
@mullins01
Taiichi Ohno
23. Ohnoâs Seven Wastes
1. Delay, waiting or time spent in a queue with
no value being added
2. Producing more than you need
3. Over processing or undertaking non-value
added activity
4. Transportation move stuff too far
5. Unnecessary movement of workers and
goods
6. Inventory, more than needed
7. Defects, unacceptable defect rate
@mullins01
25. Major Components of Lean
⢠Continuous Improvement (Kaizen)
⢠Push vs Pull (Kanban)
⢠Steady Flow (Tact Time)
⢠Flexible Production
⢠Visual Control Board
⢠Stop the Line (Jidoka)
⢠Toyota Readily Shares this Knowledge
with Suppliers and Competitors
@mullins01
38. âMost startups fail from a
lack of customers, not
product sevelopment
dailure.â
-- Steve Blank
Source: Steve Blank@mullins01
39. Customer Development in
the High-Tech Enterprise
September 2008
39
Company
Building
Customer Development
Customer
Discovery
Concept/
Bus. Plan
Product Dev. Alpha/Beta
Test
Launch/
1st Ship
Product Development
Customer
Validation
Customer
Creation
Product Development ProcessâŚ
Customer Development
ProcessâŚ
41. @mullins01
âA startup is an
organization dedicated to
creating something new
under conditions of
extreme uncertainty.â
-- Eric Ries
42. âŚnew product which allows a
team to collect the maximum
amount of validated learning about
customers with the least effort.
-Eric Ries
@mullins01
Minimum Viable Product (MVP)
?
46. âA methodology for breaking down
a large, diffuse problem into a
series of actionable steps that can
be individually validatedâŚâ
My Definition of Lean:
@mullins01
47. As defined herein, Lean can apply:
My Definition of Lean:
@mullins01
⌠And to the
permitting /
Land Use side
of the
equation
To the
development
side of the
equationâŚ
49. Lean Urbanism
⢠A proposed regulatory
regime that implements
intensive, front-loaded
neighborhood design
followed by simplified &
accelerated permitting.
⢠A Lean Urbanism district
ready for simplified
development is called a Pink
Zone.
@mullins01
Andres Duany,
Planner & Urbanist
50. Lean Urbanism
⢠The name Pink Zone means lighter red tape.
⢠Aims to restore common sense, fairness, and
democracy into the development process.
⢠Intended to foster Incremental and Infill
Development
⢠Tools of Lean Urbanism include:
â Thresholds for the implementation of onerous
regulation
â Workarounds for code problems
⢠Passing accountability upward
⢠Buildings must meet codes applicable in their time/era
@mullins01
51. Why Conventional Development
Doesnât Work
I. Dinosaurs vs. Mammals
II. Fixed Costs
III. Switching Costs
IV. Excess Intermediation
V. Populist Permitting
@mullins01
54. Why Conventional Development
Doesnât Work (for mammals)
I. Dinosaurs vs. Mammals
â There are a lot more mammals than dinosaurs
â Mammals are necessary for incremental &
successional development to happen
â Left alone, will create âOrganic Development.â
â Organic Development has a Jacobsian
character master planned projects
consistently fail to capture
@mullins01
55. Why Conventional Development
Doesnât Work (for mammals)
⢠II. Fixed Costs â 24 Unit Project
@mullins01
Legal $50,000 $2,100
Engineering $35,000 $1,500
Environmental $25,000 $1,050
Permitting $25,000 $1,050
Public Relations $25,000 $1,050
Linkage $100,000 $4,150
Inclusionary Zoning $100,000 $4,150
Total $360,000 $15,000
56. Why Conventional Development
Doesnât Work (for mammals)
⢠III. Switching Costs
â False Positives are an unfortunate reality
â Rational Expectations reduce Expected
Returns for Site Selection (s)
xi * E(ri)
@mullins01
i=1
E(rs) =
n
57. Why Conventional Development
Doesnât Work (for mammals)
⢠III. Switching Costs
Site #1 $25,000 25% -100%
Site #2 $25,000 25% -100%
Site #3 $25,000 25% -100%
Site #4 $25,000 25% 0%
Sum $100,000 100%
Outcome ($75,000)
E(r) = -75%
@mullins01
Cost Weight Return
58. Why Conventional Development
Doesnât Work (for mammals)
⢠III. Switching Costs*
â E(r) in this example is -75% or ($75,000)
â Therefore realized site selection cost is
$100,000, not $25,000
â Developers are already âunderwaterâ before
they begin.
@mullins01
*Can include both Implicit and Explicit
Costs
59. Why Conventional Development
Doesnât Work (for mammals)
⢠Adverse Consequences of Both Fixed
Costs and Switching Costs
⢠Incentivizes rational Developers to stick to one type
of product.
⢠Strong disincentive to consider projects in other
municipalities than those where developer has local
knowledge or an âinâ
⢠These Costs must be spread across realized
development units, increasing marginal costs. This
always reduces supply
⢠Higher âWorking Capitalâ Requirements sharply
reduce # of developers who can play.
@mullins01
60. Tactical Urbanism
⢠a collection of low-cost,
temporary changes to the
built environment,
intended to improve local
neighborhoods and city
gathering places
@mullins01
Mike Lydon, co-author of
âTactical Urbanismâ
63. Successional Development
⢠Tactical Urbanism is not an end to itslf.
It can lead to successional development
strategies through Iteration
⢠Successional Development is the
concept of temporary development that
is intended to be replaced
@mullins01
68. ⢠IV. Excess Intermediation
Necessary:
Architect
Civil Engineers
Contractor
Why Conventional Development
Doesnât Work (for mammals)
@mullins01
Extraneous:
Permitting Consultant Attorney (for Permits)
Public Relations Lobbyists (of any type
Environmental ScientistLSP
Fire Protection Engineer Code Consultant
Geotechnical Engineer
69. ⢠V. Populist Permitting
â Most Municipalities design around internal capacity of the
permitting agency, not the number of projects (market supply)
â In highly regulated areas, this system is not designed to produce
anything.
⢠In the 1960âs urban renewal was used to grant the federal govt power
over city development.
⢠On the contrary, in NE it is intended to afford opponents every opptây to
object (not so in Boston, where it is designed to give the Mayor ultimate
control)
⢠Elsewhere, Counties have greater powers. Reality is that landowner
has few development rights
⢠Landowners only constitutionally entitled to a minimum use (Truro)
⢠Cities have rights to take property per Kelo vs City of New London
â Courtroom vs Planning Board Hearing
Why Conventional Development
Doesnât Work (for mammals)
@mullins01
74. Whatâs Next for Me?
Initiatives on the Development Ecosystem;
Development from the Perspective of Human Rights;
Work on Economics of Land Use Policy & Advocacy
@mullins01
76. Contact
Michael Mullins
w: mullins01.com
e: mullins01@gmail.com
t: @mullins01
f: facebook.com/mullins01
l: linkedin.com/in/mullins01
@mention me or email me for a copy of
these slides.
@mullins01
80. A waste-reducing alternative to âWaterfall
Developmentâ method of project
management.
Waterfall: âTakes twice as long and costs
twice as muchâ
@mullins01
Agile Development
81. The Agile Manifesto (2001)
⢠Welcome changing requirements, even in late
development
⢠Working software is delivered frequently (weeks
rather than months)
⢠Close cooperation between business people and
developers
⢠Sustainable development, able to maintain a constant
pace
⢠Simplicityâthe art of maximizing the amount of work
not doneâis essential
⢠Regularly, the team reflects on how to become more
effective, and adjusts accordingly
@mullins01
82. Major Components of Lean
Manufacturing
⢠Continuous Improvement (Kaizen)
⢠Push vs Pull (Kanban)
⢠Steady Flow / Tact Time
⢠Flexible Production
⢠Visual Control Board
Related: Six Sigma, TQM (to manage
defects)
@mullins01