The entrepreneurial world is fast-paced. However, sometimes you can be going fast, yet going in the totally wrong direction. Sometimes, you need to do things in an entirely different way.
To that end, meet Eric Ries, entrepreneur and author of the New York Times bestseller The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses. For those of you in the StartupNation community not yet familiar with Ries, fasten your seatbelts to learn of a radically better way to build your business called the Lean Startup methodology.
Ries noticed that most startups fail and most new products are not successful. He realized that hard work and perseverance were not formulas for success. You may create a detailed product development plan, adhere to it to the nth degree, yet build something that no one wants. Therefore, he came up with a better, more reliable method for ensuring startup success.
The Lean Startup methodology, which has been featured in The New York Times, The Wall Street Journal, Harvard Business Review, Inc., Wired and Fast Company, helps you make better, faster business decisions. Through the principles of the Lean Startup, your business will be more innovative, reduce wasted effort and become more successful.
Ries currently serves on the advisory board of a number of technology
startups, and has consulted to new and established companies as well as
venture capital firms. In 2010, he was named entrepreneur-in-residence
at Harvard Business School and is currently an IDEO Fellow. Previously
he co-founded a number of startups, including IMVU, which now has more than 50 million users.
It was at IMVU where Ries implemented and refined the Lean Startup principles.
The following is a summary of StartupNation’s discussion with Ries:
What is a “Lean Startup”?
“Lean is actually an old idea, taken from the Japanese concept of lean manufacturing. What we’ve done is apply it to entrepreneurship,” states Ries. He goes on to explain, “In general management, it’s the job of the executive to manage what we know. With entrepreneurship, however, the job changes to manage what we don’t know. Scientific experimentation becomes critical to reducing risk and to building a sustainable business.”
With traditional management, Ries says, you focus on building a great product. When it’s built, you deliver it to customers. Your entire focus is on doing an efficient job in getting the product ready. However, what if you spend a long time developing the product efficiently and according to plan, only to find out that your audience doesn’t like it and doesn’t need it? That’s an incredible waste, and a direct path to failure. This approach to product development is obviously riddled with risk.
“It’s like a car driving off a cliff,” explains Ries. You can fine tune the engine and get great gas mileage, but if you wind up driving your car off a cliff, it’s all for naught.
With the Lean Startup methodology, you instead focus on continuous innovation through vigorous testing and a Build-Measure-Learn feedback loop. You implement a Test-Learn-Pivot cycle as quickly as you can. You aim for a “minimum viable product” as a method for evaluating your business ideas and for assessing your progress. Instead of spending a long time on development and only then allowing customers to use the product, the Lean Startup approach provides customers with the minimum viable product as early as possible in the development process. From there you iterate continuously based on ongoing customer feedback.
Why It’s Difficult for So Many Entrepreneurs to Implement a Lean Startup
Ries explained that the reason why more companies are not naturally drawn to the Lean Startup style of management is that an existing path has already been paved.
He used the analogy of a train conductor. The train conductor may be good at driving the train, but he’s not thinking about where the train is actually going. If you place a train conductor in a car, he’s going to be in trouble, as major driving decisions need to be made. A train conductor is simply not accustomed nor equipped to make those types of decisions -- instead they are focused on keeping the train on the tracks. A typical manager is like a train conductor, managing output based on a predetermined direction. There’s a lack of rapid decision-making based on any kind of market feedback. This makes it difficult for many companies to pivot based on what’s truly needed by customers.
Lean is Better Than Cheap
Lean is streamlined. Lean is efficient. However, lean is not "cheap."
"Lean Startup isn’t about being cheap [but is about] being less wasteful and still doing things that are big." This is a quote from The Lean Startup website.
According to Ries, "Lean does not mean cheap. Yes, you save money through the Lean Startup, but that’s because you learn as much as possible from customers during continuous development of the product.
"Cheap, as opposed to lean, is something like cheap furniture. It’s nice that you save some money for your startup. But cheap furniture isn’t what customers are seeking. It doesn’t solve a customer need. It doesn’t bring you any closer to a successful, sustainable business.
"By focusing on cheap instead of lean, it’s the equivalent of focusing on the exhaust rather than the car itself. It’s ineffective, it doesn’t bring you closer to building a successful company, and it’s the wrong thing to focus on.
"Think of a lean athlete. They have a high metabolism, which enables them to take in many calories and put them to effective use. It’s your job as an entrepreneur to build high metabolism for your business."
Well-Known Example of a Lean Startup
Ries points to Zappos as a good example of a company that represents the lean way of building a business. “If you were to start an online shoe retailer, you’d start with manufacturing partnerships, warehouses, an ecommerce platform, hire a CFO, etc. This is the standard way of doing things. Yet it’s extremely expensive and you won’t know if it works until you’ve invested a ton of money into the venture.”
With Zappos, founder Nick Swinmurn took a very different approach. He started with a minimum viable product by walking into a small, local real-world shoe retailer, asked the owner if he could take photos of each shoe, and post them online. In return, for any orders received, he would walk into the store and purchase the shoes from them. What Swinmurn did, in fact, was produce the very minimum business infrastructure to test and prove an idea. Only then did he start to invest further money into the business. Everything about Zappos was designed to test, learn and pivot as quickly as possible. And then to rinse and repeat.
It’s this type of continuous learning engine that provides Zappos with a quick understanding of what customers want and are willing to pay for. It reduces the risk of the unknown, which any startup faces and needs to master if it hopes to be successful.
Online, Offline, Wherever
When asked if the Lean Startup principles could be applied to a non-technology or offline business, Ries responds, “Yes, absolutely, it applies to any business that involves uncertainty, whether online or offline.
“If a franchise, however, then no, it really doesn’t apply, as a franchise already has a playbook. The aim with a franchise is to follow the playbook, as it’s already been proven. The Lean Startup principles are instead geared to companies that do not yet have a proven playbook and need to tackle great uncertainties.”
Ries points to KoJa Kitchen, a gourmet food truck offering Korean and Japanese fast casual cuisine in California, as a representative example of an analog business that has applied Lean Startup principles in every facet of their business to great success. When they swiped Ries’ credit card with a Square device, they immediately recognized Ries as the author of The Lean Startup, treated him to his lunch, and gushed to him how they have applied the Lean Startup principles to their business.
The founders of the KoJa Kitchen used to be bankers. They had no prior experience running a food business. Instead of investing in a storefront and opening a restaurant, which would have been expensive and would have lead to expensive learnings about the business, they opted for a less costly and more flexible solution—a food truck.
They started with a minimum viable product by first attending tailgates and learning what people liked and what they didn’t. For example, they realized that people needed something that was easy to hold, and so they correspondingly developed a special rice bun. According to Ries, “They display their daily menu on a flat panel display, so that they can change it often based on customer feedback. Not only that, they have two flat panel displays on the truck, and will even present different menu options on the different displays to test which performs better. It’s this continual and obsessive cycle of direct learning from customers that has fueled their business growth. If a food truck can apply Lean Startup principles, then pretty much any business can do it!”
From Idea to International Movement
Lean Startup has gone from a blog and book, to a worldwide business movement. There are meeting groups, conferences and a wiki. The success of the book, Ries says, is credited to the success of the movement, not the other way around. It’s because there were people who were reading Ries’ writings on Learn Startup principles and asked for permission to host corresponding meetups – in itself a minimum viable product for an event. Ries was dubious, but hundreds of people were showing up to even the initial events, proving that the methodology truly resonated with an ever-growing number of individuals.
Ries states, “The movement is about these people. They are the ones who made it happen. It was due to the thousands of people who took it upon themselves to spread the word.” A promising aspect about the popularity of the movement is that it needn’t end with startups. Any organization, whether government department or large company, can apply the principles and achieve greater innovation and success.
You can purchase The Lean Startup book here.
You can read Ries’ blog Startup Lessons Learned about Lean Startup principles and ideas here.
Attend the Lean Startup Conference to be held December 3-4, 2012 in San Francisco. Joining Eric Ries as speakers is a list of business rock stars, including Andreessen Horowitz co-founder (and prior co-founder of Netscape, Opsware and Ning) Marc Andreessen, as well as GE CMO Beth Comstock.