How I want to build my business
…the Lean Startup way
Here are my take-aways from The Lean Startup by Eric Ries, focusing on:
- business models; and
- processes of product development.
You can order the book online, and pre-order Eric’s next book The Startup Way. Hopefully I’ve done the book justice Eric!
Lean thinking
The bottom line to Eric’s concept of lean thinking, is to help you build a capital efficient, sustainable business. As he describes, this is done by “…radically altering the way supply chains and production systems are run” and it enables you to build quality value-creating activities / products from the inside out, and stop wasting resources! In turn, it helps you to make sure you are not building something nobody wants.
When Eric notes “…it’s the boring stuff that matters the most”, he’s talking about the 95% of gritty work companies complete in order to build a sustainable businesses—i.e. the processes you follow in order to prioritise product decisions, identify which customers to target and listen to, and to have the courage to “subject a grand vision to constant testing and feedback.”
To understand how the organisation should be built for lean transformation, see my second Lean Startup blog How I want to build my team.
Flip traditional business models upside down
“In the Lean Startup model, every product, every feature, every marketing campaign — everything a startup does — is understood to be an experiment designed to achieve validated learning.”
Startups are built on a foundation of uncertainty.
Traditionally, businesses have been focused on developing successful plans and executing properly — and heads have been on the stake sometimes because of it! However disruptive startups based on uncertainty need to do things differently in order to be successful. As a result, you need to focus on learning as quickly as possible. Eric suggests implementing a framework to help you do so.
Now as a side note, Eric does clarify:
“Those who look to adopt the Lean Startup as a defined set of steps or tactics will not succeed.” “Ultimately, the Lean Startup is a framework, not a blueprint of steps to follow. It is designed to be adapted to the conditions of each specific company.”
So remember, customise and implement as required to suit your business specifically!
Build-measure-learn feedback loop
The framework he’s referring to is the build-measure-learn feedback loop, where companies first identify their leap of faith assumptions for the business (those which the success of the business is reliant on), and then develop hypotheses to test these. Experiments are designed and run, measured using innovation accounting, and the startup is then able to collate the data and make decisions as to whether to persevere or pivot.
I have done my best to capture the essence in the below infographic, but first, there are a couple of things you need to know:
- The idea is to get through the full cycle quickly, and then do it again, and again, and again. Each repetition produces new ideas and hypotheses to be tested.
- Just-in-time scalability is about “…conducting product experiments without making massive up-front investments in planning and design.” That is, what validated learning can you capture as soon as possible, with minimal impact on your resources?
- A product is referencing “…any source of value for the people who become customers.” This means anything at all customers experience from interactions with your company.
- Market research helps you identify your key assumptions, and a solid strategy helps you to identify the best way of answering these assumptions — but together these are not enough. In the early stages, you do not know who your early customers are, nor do you know what your product should be.
This framework is followed repeatedly as new learnings and new assumptions emerge, and it is designed to enable you to more quickly determine who you customers are, what they want / what value is to them (by watching their behaviour, not by asking them), and then using a scientific approach to making decisions as the company grows. The idea is to move through this cycle faster than the competition, and Eric notes “…speed and quality are allies in the pursuit of the customer’s long-term benefit.”
It’s “a new way of looking at the development of innovative new products that emphasizes fast iteration and customer insight, a huge vision, and great ambition, all at the same time.”
Innovation accounting
This is the method of measuring the experiments conducted, and it allows you to ensure you have a quantitative approach to creating learning milestones. i.e. to:
- Identify where you are right now (baseline data on growth model);
- Identify micro changes / product optimisations to move the baseline toward the ideal; and
- Identify whether you are more productive than before.
The idea is to move away from vanity metrics which do not provide you with the learning milestones you need to make business decisions, and instead focus on actionable, accessible and auditable action metrics such as those provided by using a cohort analysis, focusing on customer behaviour.
Any negative results you receive will then provide you with the motivation, context and space required to seek qualitative feedback so you may be able to improve the offering.
When it comes to innovation accounting, startups won’t have a maintained quantitative financial model to evaluate rigorously to begin with and will therefore be operating on intuition. As a result, it’s imperative startup entrepreneurs translate these instincts into data as soon as possible, by following Steve Blank’s famous advice — “get out of the building and start learning.”
Implementing a lean transformation
Eric recognises two powerful challenges for entrepreneurs implementing lean thinking:
- Building an organisation where these assumptions can be tested systematically; and
- Performing these rigorous tests without losing sight of the company’s overall vision.
I have developed a blog specifically focussing on these: How I want to build my team; which talks about the culture, structure and discipline required in order to build an adaptive organisation.
The first two critical questions for any company going through a lean transformation however, are: what activities create value; and which activities are simply wasteful? Included in the infographic above are ways you can focus on reducing waste in all areas of the build-measure-learn feedback loop.
A game changer for me however, was how to look at team set-ups. Eric provides fascinating examples of successful companies who use multidisciplinary teams to work on smaller batch experiments and he suggests a team of no more than five, following a basic batch framework. I’ve put this into the following infographic, as well as including some valuable commentary from Nadya Direkova on Google’s design sprint methods.
When developing MVPs, there are a number of ways to ensure you are operating effectively, and reducing waste. They key is to ensure you’re:
- Not making moves without the relevant information to suggest you should do so, and
- Not focusing so much on strategy you limit getting out and interacting with customers.
Eek — something broke
Sometimes problems occur. As a result, it’s important to implement adaptive processes for continuous development. What does this mean? It means fixing problems as they occur, investigating the root cause, and implementing prevention tactics to ensure the problem does not occur again in the future. The process works as follows:
I’m seeing positive results — am I going to succeed?
This does not mean you’re building a sustainable business.
“My goal in advocating a scientific approach to the creation of startups is to channel human creativity into its most productive form, and there is no bigger destroyer of creative potential than the misguided decision to persevere.”
The majority or products do not have zero traction, and you can often end up caught with Clayton Christensten’s Innovator’s Dilemma, or end up in the land of the living dead. That is, you achieve moderate success (enough to stay alive), and continue to provide sustaining innovation by making incremental improvements without developing breakthrough products and disruptive innovation. You can achieve higher profits / margins each year, and still the business can suddenly collapse.
When this happens, you are no longer moving the drivers of your business model, or living up to the expectations of your investors and founders, and you’re unable to illustrate genuine progress to your stakeholders.
As a result, it’s imperative you develop a formal growth model, and identify new sustainable sources of growth along the journey by “systematically figuring out the right things to build”. As Eric explains, companies need to “manage a portfolio of activities, simultaneously tuning their engine of growth and developing new sources of growth for when that engine inevitably runs its course.” It’s important the growth priorities are measured alongside your innovation accounting.
It’s all about using validated learning in order to build a sustainable business before you run out of resources. That is, to increase your runway, look at it from the point of view of the number of pivots you have left!
In summary
What does this all mean?
It means to build a sustainable, capital efficient business, focus on your vision or true north, repeat the build-measure-learn feedback loop, be willing to pivot your strategy, and always be optimising your product.
This way, when your product is “ready to be distributed widely, it will already have established customers. It will have solved real problems and offer detailed specifications for what needs to be built.”
Get through the cycle quicker than your competition by reducing waste of resources, and most importantly remember: “…if we’re building something that nobody wants, it doesn’t much matter if we’re doing it on time and on budget.”
This book questioned a number of ways I’d previously looked at process priorities and implementation techniques. I’m eager to put these into practice and share my experiences going forwards!
