Category Archives: Books

A Method to the Madness

When you’re starting up a new company, a great deal of advice tends to come your way. People will tell you to contact some well-known local entrepreneurs and investors, to attend start-up events and gatherings, to join a co-working space and to get a coach.

Some people warn that you shouldn’t discuss your ideas too openly, lest someone should steal it. Others argue that you should gather as much feedback about your idea as possible, and hence pitch it to everyone you meet.

As to where you should start, some people (including government officials in charge of supporting local entrepreneurship) will press you to write up a detailed business plan, a financial plan and a marketing plan. Not only is it critical to have these documents properly written up, they say, but the process of thinking them through is at least as important.

You will hopefully also meet people who are genuinely interested in what you’re trying to do, and who will ask about the specifics and challenge your thinking in constructive ways. One question that will inevitably pop up is where do you start? And, once you’ve started, how do you know you’re going in the right direction?

I recently read The Lean Startup by Eric Ries, which attempts to define a general methodology for budding entrepreneurs. While I think the terms ‘methodology’ and ‘scientific’ are perhaps a bit overused in the book given the rather high-level nature of the prescribed framework, I think that Ries succeeds in detailing an approach and a thought process as a guide to decision making in the context of a smart-up. Since the term was coined in 2008, the Lean Startup movement has gathered an impressive following.

The Lean Startup finds its origins in lean manufacturing techniques and agile software development, which most software engineers are familiar with these days. The author lists many examples of how the approach was followed successfully – knowingly or otherwise – in diverse companies including his own, although one can always argue that he spins a compelling narrative around a theory that is yet to produce well documented success stories in large numbers.

One of the Lean Startup’s principles is that Entrepreneurs are everywhere, which means that you don’t need to look for two-person start-ups to find entrepreneurs. Ries speaks of intrapreneurs in large companies and government positions trying to innovate in highly unpredictable environments. This got me thinking that I have probably been something of an intrapreneur these last three years working as a junior executive at a large consulting firm. I might say a bit more on that in an upcoming post.

The Lean Startup states that the first thing a startup should work on is a Minimum Viable Product (MVP) – an initial iteration on its envisioned product. The MVP must be released and put before real customers as soon as possible so as to collect feedback related to the initial assumptions underlying the business proposition. The author mentions two main assumptions which must be validated (or invalidated) in the early stages of a start-up’s existence – the assumption that customers will be interested in the product, and the assumption that the company will be able to grow its user base to achieve the desired scale. This should protect the company from a common situation in which the team works on a polished first release for months or even years, only to find that the market is not interested in the product it offers and the start-up is doomed to fail.

After the MVP has been released, data is collected and decisions are taken as to how the product should evolve in the next iteration. The idea is to collect actionable metrics which can help determine whether the team’s innovation efforts are actually paying off and leading the start-up to systemic growth rather than the land of the living dead (where the start-up survives but is unable to achieve any significant growth). What he calls vanity metrics (e.g. total number of registered clients at any point in time) should not be taken into account for decision-making.

The resulting Validated Learning enables a start-up to decide whether it should persevere in a certain direction or pivot away no progress can be measured. The start-up will have kept the focus solely on learning to know its customers and finding its product, and not spent any of its limited time and resources working on features that do not contribute to this learning process (hence the term ‘lean’). Ries claims that information gathered in this way is much more valuable than any prior market research can hope to achieve.

The book was thought provoking and I definitely have a number of takeaways. Obviously the Lean Startup methodology is still in its infancy – it will surely be fine-tuned and further detailed in years to come. This year it seems that Eric Ries has been focusing on getting venture capitalists on board the Lean Startup bandwagon in addition to entrepreneurs.

One criticism I’ve heard levelled at the Lean Startup is that it’s better suited to web-based or at least software-based startups, whereas physical products and truly innovative technologies required much more up-front investment (maybe this just means longer MVP lead time?). What’s also been interesting to find out is that even though the theory is still not widely known on the old continent, some of its concepts are already considered clichés and some of the terms employed above are seen as hackneyed in Silicon Valley.

I guess makes Lean Startup attractive to entrepreneurs is that it purports to protect against one of the leading causes of start-up failure, which is lack of product-market fit, at least if applied correctly. Let’s face it, if you’re starting your own company the odds are stacked against you. As I mentioned in my previous post, you need to be ever so slightly unhinged to make such a career move. It will take up all of your time and your chances of succeeding are slim, so anything than can decrease the risk is welcome.

What is immediately striking with the Lean Startup is that it goes against the conventional wisdom of spending time upfront writing business plans and doing a lot of market research before starting product development. Rather, it encourages you to ‘get out of the building’ as quickly as possible with as basic a product as you can come up with that still represents your vision.

I’m interested to know whether any of you have experience with other approaches that could serve as credible alternatives to the Lean Startup, or whether you have real-world experience of running a lean start-up that you would like to share.

Anyway thanks for reading, I’ll try to keep the posts coming the next few weeks and tell you a bit more about what I’m working on at the moment…