On topic: lean startups

The movement that’s revolutionizing innovation

This is an image of Eric Ries at the London Lean Startup conference. Flickr|betsyweber
This is an image of Eric Ries at the London Lean Startup conference. Flickr|betsyweber

Executive’s On topic column is a series covering startup concepts; bringing the field’s buzzwords to a broader audience and getting into the nitty gritty for those already familiar with the terms. As increasing activity and success stories begin to surface in Lebanon’s startup ecosystem, Executive sees this as an opportune time to bring these ideas to the business-savvy mainstream and anyone interested in following the sector’s development.

The lean startup method of product development is based on cutting out extraneous elements when building a product and testing it fast to adapt quickly to consumer reactions. It was proposed by Eric Ries, a coder, Silicon Valley entrepreneur and avid blogger, who first ventured the idea in a 2008 blog post and expanded it in his 2011 book titled “The Lean Startup”. The idea has roots in lean manufacturing, particularly in Japanese auto manufacturing company Toyota’s production system whose philosophy and management practices rely on eliminating expenditures that do not add value to the customer. The lean startup concept has been adopted by entrepreneurs worldwide and has become a best practice in startup ecosystems.

The pivot

Ries noticed that successful startups had something in common: they were all able to pivot quickly. Pivoting is what entrepreneurs do when they realize that their product isn’t receiving the traction they anticipated, and so they change directions, using what they learned to adapt and improve. Ries observed that startups that were successful know how to pivot fast. The idea is to learn and to pivot as quickly as possible between versions of the product so as to maximize a startup’s possibility of success before it runs out of money, turning the question from “How much money do I have to burn?” to “How much time do I have left to pivot?” It’s about starting fast, failing fast, and ultimately succeeding without expending a lot of resources.

Feedback loop

From his experience working in Silicon Valley, Ries noticed that a lot of entrepreneurs launched highly developed products that required major time commitments and lots of money only to find out that no one was interested in their product – something that happened with one of his own companies, IMVU,a 3D avatar instant messaging company created in 2004 when everyone thought instant messaging (IM) was the next big thing. To try to prevent this from happening, he proposes the feedback loop, a cycle of building, measuring, and learning which is done as quickly and with as few resources as possible. This cycle enables entrepreneurs to see if their product gains traction and whether their hypothesis and strategies are grounded in reality, allowing them to modify their product if they fail to meet their objectives and to not waste years developing a product that adds no value for customers.

buildmeasurelearn

For Ries, the critical aspect of the feedback loop is validated learning This is the process of learning and discovery about customer behavior by iterating versions of the product as quickly as possible. Because entrepreneurship is about creating something new in conditions of high uncertainty, no one knows exactly what customers want. The whole process should be geared toward learning what catches on with customers and what doesn’t. The unit of progress shifts from building on schedule to the amount of validated learning derived from the various iterations because even a prototype of a product that the founders consider likely to fail may not fail for the same reasons they initially thought it would.

Minimum viable product

Shifting the focus to validated learning means that startups only need to develop a basic version of their product for the purpose of testing through various iterations. This minimum viable product should be built in a way that provides only what is necessary to learn whether their plan is correct or not, and cut out all extraneous elements. By establishing how customers are behaving, they can incrementally experiment with the product to see how they can improve their metrics to hit their ideal. If they are unable to reach their ideal, it’s time to pivot.

The minimum viable product begs the question of what really needs to be in the first version, if they only need to build to test a hypothesis and the only real goal is validated learning. In a 2011 talk, Ries refers to his days as chief technical officer of IMVU. After having worked on the first version of the product for six months and after having written about 25,000 lines of code himself, customers refused to download the application. The product was flawed because it was based on false assumptions about its customers. Though the company pivoted and eventually created a successful IM network, they still threw out those six months worth of code and Ries laments that he could have been on a beach for all of that time and it wouldn’t have made a difference to the company. Time and energy could have been saved and the learning process could have been sped up had they, for instance, created a simple landing page with a download link to see if anyone would click on it.

The lean revolution

The ideas embodied in “The Lean Startup” have turned into a movement of people who want to change the way entrepreneurship is done. Because entrepreneurship is everywhere – not just limited to startups – and by Ries’ definition includes anyone who is working under conditions of extreme uncertainty, many lean startup methods can be applied to large companies to transform them from old dinosaur companies with steady revenues from a tested source of value to operations that are constantly creating new sources of value for the customer. Effective leadership can create a platform for the team to innovate, which is a break from the twentieth century management practices of planning and forecasting designed for companies whose metrics don’t change much from year to year.

Livia Murray

Livia covers business, finance and economic policy for Executive.

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