The Lean StartUp

The Lean StartUp by Eric Ries

Introduction

The Lean Startup is another blockbuster book which is summarised on this blog. 

It was written by Eric Ries and as an entrepreneur himself, he claims to have developed a methodology/process in which entrepreneurs can use to quickly determine whether their startup idea is a hit or a failure. He continued to state that this process is one that anyone can learn. 

A lot of early mistakes that Eric Ries has done in a startup which he was co-founder, were the following: 'Instead of spending years perfecting our technology, we build a minimum viable product, an early product that is terrible, full of bugs and crash-your-computer-yes-really stability problems. Then we ship it to customers way before it's ready. And we charge money for it. After securing initial customers, we change the product constantly—much too fast by traditional standards—shipping new versions of our product dozens of times every single day.'

This is an important lesson provided by the author. The fact that he outlines his past mistakes, it is important for an aspiring entrepreneur to analyse these mistakes in order for him/her not to make the same mistakes and learn from them. 

Another critical tip: Get feedback from your customers and actually hear them to provide as much value as possible to them, since consumer demand should drive the product. 

The Lean StartUp method/process is outlined in five points in the book:

"1. Entrepreneurs are everywhere. You don’t have to work in a garage to be in a startup. The concept of entrepreneurship includes anyone who works within my de!nition of a startup: a human institution designed to create new products and services under conditions of extreme uncertainty. That means entrepreneurs are everywhere and the Lean Startup approach can work in any size company, even a very large enterprise, in any sector or industry. 

2. Entrepreneurship is management. A startup is an institution, not just a product, and so it requires a new kind of management specifically geared to its context of extreme uncertainty. In fact, as I will argue later, I believe “entrepreneur” should be considered, I believe “entrepreneur” should be considered a job title in all modern companies that depend on innovation for their future growth. 

3. Validated learning. Startups exist not just to make stuff, make money, or even serve customers. They exist to learn how to build a sustainable business. This learning can be validated scientifically by running frequent experiments that allow entrepreneurs to test each element of their vision.

4. Build-Measure-Learn. The fundamental activity of a startup is to turn ideas into products, measure how customers respond, and then learn whether to pivot or persevere. All successful startup processes should be geared to accelerate that feedback loop. 

5. Innovation accounting. To improve entrepreneurial outcomes and hold innovators accountable, we need to focus on the boring stuff: how to measure progress, how to set up milestones, and how to prioritize work. This requires a new kind of accounting designed for startups—and the people who hold them accountable."

Subsequently, the author pointed out why startups tend to fail, since the majority of them do. Accordingly, it is mainly because of a lack of a good plan. Therefore, one of the very first steps of a startup ought to be to create a solid business model which they can follow. Although as Jeff Bezos says, entrepreneurs should be flexible on the details, since it is advisable to pivot as consumer demands change. 

Additionally, another reason why startups fail is due to lack of market research. Consequently, entrepreneurs should be making both primary and secondary market research. Primary market research is when you ask one of your own customers for feedback on your own product and secondary market research is when you ask a person for feedback on the product of, most probably, a competitor, so that you can avoid their mistakes. 

Moreover, it is also emphasised that startups must do better in management to become successful, since it is the view of the author that chaotic, just-do-it startups that do not think things through cannot succeed.  

To validate, according to Henri Fayol, management functions through five basic functions: planning, organizing, coordinating, commanding, and controlling. 

In later Chapters, it will be identified how this book is organised. The main points of structure are 'Vision', 'Steer' and 'Accelerate'. 

1 - Start

Eric Ries starts off the first chapter of his book by emphasising, as he did in the introduction, that management is critical in a startup. The common misconception is that management hurts creativity but lack of management, according to the author, can hurt a startup a lot more. 

Correspondingly, it is indicated that the book was written in order to develop a new perspective for people to identify and measure productivity. For instance, even if you were in the office for 8 hours straight, that does not necessarily mean you were productive in the sense that you actually achieved something towards a larger vision or the goal that the startup is trying to achieve. 

Additionally, the author discusses the fact that this book will explain the process of Build-Measure-Learn, which can be used by entrepreneurs to quickly test their assumptions about their startups in order to validate their ideas. This may lead to a pivot in the startup's strategy and the changing of the product. However, according to Ries, the startup will rarely change their vision, since the entrepreneurs will be determined to reach their destination and the purpose for why they started that startup in the first place. 

Remember, this is in line with the quote adduced in the previous post, which was about Jeff Bezos emphasising that entrepreneurs ought to be flexible on the details of their product or service. This is largely because of the fact that their assumptions in the beginning are wrong or after a substantial period of time, the consumer demands have changed and hence, the product/service should change with it. In fact, in recent years we have since a large amount of companies shifting their focus to become more environmental due to the consumer demand changing. For instance, car automakers such as Ford and Nissan have come out with electric cars after seeing that a lot of consumers have been lately demanding electric vehicles rather than petroleum vehicles. (The incredible rise of Tesla illustrates the shift of consumers towards electric vehicles)

2 - Define

The author provides an example of a person he met in one of his lectures and he provided all the prerequisites that an entrepreneur should have in his disposal. These are:

1. Proper team structure

2. Good personnel

3. A strong vision for the future

4. An appetite for risk taking

The book then continued to assert that the definition of entrepreneur is not just the person who starts a company completely off the ground. The definition of an entrepreneur also includes people who are part of a large company and are managing a team that is assigned to create new ventures or product/services innovations.  

Additionally, the definition of a startup provided by the book is the following:

"A startup is a human institution designed to create a new product or service under conditions of extreme uncertainty."

Therefore, this definition is recognised by the example of a large company called Intuit, which created a vastly successful product, SnapTax. SnapTax provides a simpler way of filing your tax returns and it was created within a large company. Consequently, Intuit or more particularly, the team within Intuit that was given the freedom to innovate, would certainly fit the definition of a startup due to the creation of a new product under conditions of extreme uncertainty, as it had never been done before. 

Moreover, a great point is made when the author rightly recognises that "a company's only sustainable path to long-term economic growth is to build an 'innovation factory' that uses Lean StartUp techniques to create disruptive innovations on a continuous basis." 

The author of this blog agrees with the statement that to build long-term economic growth a company must be innovating on a continuous basis, because as Warren Buffett once in an annual general meeting of Berkshire Hathaway stated, numerous companies fail in the long-term because they get complacent. Take Amazon, for instance, a company that started off as an e-commerce book-selling business and is now a conglomerate with hundreds of different products and subsidiaries including one in the self-driving car business.  

3 - Learn

Ries begins this Chapter by pointing out that startups use 'learning' as an excuse for not executing. Hence, in this book he outlines a different concept/perspective called validated learning, which will allow companies to actually be able to measure progress and whether there is a real need for their products by the customers. 

The author's successful startup, IMVU, would bring in random people for in-person interviews in order to get direct feedback on their product. This is an example of primary research, which was talked about in a previous Chapter. 

Consequently, after conducting numerous interviews, Ries's team was able to understand the needs of the customers and they therefore, pivoted towards a slightly different way of connecting people to instant messaging (IM). After all, however, the new product was still not favorable among the customers. As a result, the startup realised that the IM add-on that they were working on, was defective. 

The author, then, found himself throwing away countless hours of work and coding, which he worked on tirelessly for 6 months. He subsequently thought that there had to be a quicker way of realising that a product would be defective and not likable by customers. Therefore, the system of validated learning is one where startups are able to figure out quicker whether customers would find their product not interesting in order for them to move on and pivot. This, according to Ries, would prevent a needless waste of time. This is not to say, however, that learning what the customers want is a waste of time, it is merely that there is a more efficient approach to realising this. In fact, Ries points out that 'learning is the essential unit of progress for startups.' Appropriately, validated learning is all about 'empirical data collected by real customers.' 

Eventually, after a lot of primary research and feedback from customers, IMVU was starting to make real progress and as Ries makes clear, it was because they were working smarter, due to the comprehension of the needs of the customers. One striking example of validated learning and understanding the needs of consumers is the following passage from the book: "in one early experiment, we changed our entire website, home page, and product registration flow to replace 'avatar chat' with '3D instant messaging.' New customers were split automatically between these two versions of the site; half saw one, and half saw the other. We were able to measure the difference in behavior between the two groups. Not only were the people in the experimental group more likely to sign up for the product, they were more likely to become long-term paying customers."

Notably, the author identifies that the key questions a founder should ask before starting a business are: "Can this product be built?"

"Should this product be built?"

"Can we build a sustainable business around this set of products and services?"

To answer these questions, validated learning, which includes experimenting/testing, is necessary.

4 - Experiment

As already stated, a startup should seek validated learning, which mainly comes from experiments. A proper experiment is aligned with the scientific notion that 'if you cannot fail, you cannot learn'. In order to experiment properly, the author emphasises that the most reliable data about consumer demand can be found by analysing real customer behavior, not asking hypothetical questions. 

Subsequently, it is advised by the author that for someone to achieve long-term positive change, experimenting early is key. He uses the example of a woman working at Hewlett-Packard(HP), who as an entrepreneur within a large company, experimented to find why more people don't take advantage of the company guidelines to take up company time volunteering. She was classified as an entrepreneur because she had a lot of untested assumptions that could only be answered by experimenting to find out the cause of the problem. 

In this scenario, the first step to tackle the experiment, according to Ries, would be to 'break down the grand vision into its component parts.' For instance, the woman working for HP, Caroline, could create a minimum viable product that is aligned with her vision, something which would show the employees at HP that volunteering can really benefit the community. Therefore, applying this information with knowledge and principles given in previous Chapters on feedback, if the people who have tried the minimum viable product from Caroline do not volunteer again, she should ask them for feedback. It would be time to pivot and change her strategy in order to make the product better for people to sign up for volunteering. That change of strategy could be about anything from making volunteering more enjoyable or more meaningful.

Additionally, it is also advisable that an experiment should ask the following 4 questions:

1. Do consumers recognize that they have the problem you are trying to solve?

2. If there was a solution, would they buy it?

3. Would they buy it from us?

4.Can we build a solution for that problem?

In fact, Cook, the vice president of products for Kodak Gallery's, rightly identified that "Success is not delivering a feature; success is learning how to solve the customer's problem.

Even government agencies can be considered startups. Such an example is the Consumer Financial Protection Bureau (CFPB) which was established by the Obama Administration to protect consumers from fraudulent loans. This is considered a startup by Ries because it found innovative solutions to problems when faced with extreme uncertainty. 

Part Two Steer

In Part Two, the book will examine the concept that was briefly touched upon in Part One, which is Build-Measure-Learn. This concept is a feedback loop, where building leads to a product, measuring leads to data and learning from that data leads to ideas. Afterwards, those ideas can lead to more building and hence, more products which have the effects of a loop. 

As Ries makes clear, all three of this feedback loop, a) Build, b) Measure, c) Learn are equivalent and that not one of these is of more significance than the other. In fact, the view of the author is that the feedback loop must be operated as efficiently as possible and hence, reducing the amount of time it takes to conduct the loop. 

Essentially, in Part Two the concept of Build-Measure-Learn will be examined thoroughly and in order to conduct the first turn of the Build-Measure-Learn loop, a minimum viable product (MVP = prototype) needs to be created. This will make the startup build the MVP, which will gather data and then the startup can learn further to generate more ideas.  

Finally, the main point of the Build-Measure-Learn approach is to figure out whether the startup needs to pivot. If the data and the learning that has resulted from the Build-Measure-Learn approach indicates that the initial assumptions of the startup were incorrect, then it is necessary for the entrepreneurs to change their strategy. In fact, the sooner the loop is completed, the sooner the startup will have the data to consider whether to pivot and hence, less time and money will be wasted. 

5 - Leap

The author describes the assumptions that a startup has in the early stages as leaps of faith. Simply because they have not been tested yet and the founders are merely assuming that customers will find their unique product/service valuable. 

Subsequently, it is emphasised that it is not just about being in the right place at the right time. Henry Ford, the legendary founder of the automaker Ford, had substantial competition which was also at the right place, at the right time. Likewise, Facebook had competitors with a headstart in the social networks business and yet those competitors also failed despite being at the right place and the right time like Facebook. The difference is the fact that the successful companies figured out the way to conduct validated learning in order to determine which components of their assumptions were working and which were not. They would, then, pivot and change their strategies.

Correspondingly, entrepreneurs should also identify their startup's value and growth. To clarify, Eric Ries points out that a startup can create value for consumers or it could destroy value. This is because the definition of startups, as we saw in previous Chapters, also includes not-for-profit charities and government agencies and these could most potentially create value. An example of value-destroying is the company Lehman Brothers, which conducted fraudulent activities. 

Gary Vaynerchuk believes that the more value a company creates for its customers, the more that company will be successful. 

In terms of growth, Ries recognises that a startup ought to know the reasons why they are growing and it should not be because they have been continuously raising funds by investors but their revenue, over time, does not match that growth. This makes their growth artificial.

Similarly, in the book Intelligent Investor (which will also be summarised in this blog), the author emphasises that companies such as Tyco are bound for failure. This is an example of artificial growth, as Tyco was giving the perception of growing rapidly because of the acquisition of businesses, but in fact, it could not sustain its own business because their revenue and customers were not increasing.     

A very interesting piece of advice given by Ries is the Japanese term 'genchi gembutsu', which is used by the management team of Toyota. This in English translates to 'go and see for yourself.' 

This is true about business and whatever you come across in life, since you can never truly know or understand unless you 'go and see for yourself'. 

This notion, then, seems to follow the next principle given in the book, 'get out of the building.' Appropriately, unless you 'get out of the building' and actually ask the customers about the product, it is difficult to truly understand their needs. 

However, it is critically important that a startup and entrepreneurs avoid 'analysis paralysis'. Even though it is the point of this book to get entrepreneurs to get feedback from their customers with a Lean methodology and hence, analyse the needs of their customers, there is a line to this. Entrepreneurs should not go to the other extreme of too much analysis and consequently, hurt their execution. 

6 - Test

The value of testing is illustrated and proven by the tests of Groupon to figure out if a service would be to the liking of the consumers. Groupon is now one of the fastest-growing companies of all time and the e-commerce site is the fastest startup to obtain a billion-dollar valuation. Nevertheless, all it started with was a small pizza coupon, handmade PDFs and a simple blog from WordPress. Yet they succeeded because through initial tests, they identified that consumers want coupons. 

Again, a minimum viable product (MVP) is an initial test that can be conducted by the company and its target is to test the assumptions that the startup has. Notably, MVPs or a first product, according to Ries, are not meant to be perfect. The reason is because of the fact that a product that is not perfect yet is more likely to attract early adopters which is a concept from the law of diffusion of innovation that was discussed in the summary of the book 'Think and Grow Rich'. This is an essential step because for a product to obtain mass market success, it must attain 12-15% of the market which is comprised by early adopters and then the system will 'tip' to attract mass market success. Therefore, early adopters are necessary and they tend to buy prototypes to show them off and that attracts them more than a perfect product because if it was perfect, they would not be first to the product. And the need to be first, is what makes them early adopters. 

A minimum viable product (MVP) can also be in the form of a video. The company DropBox released a video showcasing their technology and that was the main factor for their massive success. If the customers had not understood the product through the demonstration in the form of video, they would not have purchased the technology. 

The quality of a MVP is not to be determined, until the startup knows who the customers are. Therefore, even a 'low-quality' MVP can lead to an amount of data that could lead to creating a 'high-quality' product. A startup should release that 'low-quality' MVP and let the market decide whether that is good enough. Imagine Craig Newmark not releasing Craiglist because it was too simplistic in a technological sense. Also, remember about Groupon above, where they started with merely a simple blog and only 1 pizza coupon. 

Speed bumps to a MVP could be patent protection, according to Ries. This is because a patent has a limited time frame to protect the individual, and issuing a product to the public can start this time frame and therefore, have lesser time of protection. However, other risks such as not releasing a MVP because competitors can steal your idea are inaccurate. Even though this could be true, large companies, according to Ries, are already swamped with various ideas and therefore, do not have time to steal yours. 

Lastly, the author emphasises that the entrepreneurs should be determined not to lose hope if their MVP is unsuccessful. In fact, they should pivot and change their strategies, be flexible on the product they are trying to create and remember that the MVP is just the first step of the journey of learning.

7 - Measure

In order to measure whether a startup is making progress or to identify if it is time for a pivot, Eric Ries has come up with a concept called 'innovation accounting'. 

Innovation accounting is the idea that turns the leap-of-faith assumptions outlined in Chapter 5 into concrete data and a 'quantitative financial model.' 

How it works:

According to Ries, innovation accounting works in three steps:

1. Use a minimum viable product to obtain actual data on the current state of the company. 

2. The startup must then turn the baseline into the ideal. Meaning to make the necessary changes in order to create the ideal product. 

3. After step number two, it is time to either pivot or persevere. If the data suggests that the ideal is making good progress for the company, then the company should persevere. 

Ries at his startup, IMVU, had an interesting idea on how to measure. He agreed with his partners that they would spend just five dollars a day on the then-new Google AdsWords, and this would buy them a hundred clicks every day. Therefore, they could measure whether they were making progress on their product with a new set of customers every single day. After that, they could make some changes to it, which is step no.2 above, which would then result in step no.3 and determine whether they should stay with that product or pivot. 

The author, subsequently, emphasises that learning is more important than the optimization of the product. He provides an example of a company that thought that their problem was with the engineers in that they did not deliver an adequate product, whereas the problem actually was the fact that they did not know who their customers were. Therefore, learning your customers is initially more important than having the perfect product. 

Lastly, why innovation accounting is so critical is evident from the following passage:

"Only 5 percent of entrepreneurship is the big idea, the business model, the whiteboard strategizing, and the splitting up of the spoils.The other 95 percent is the gritty work that is measured by innovation accounting: product prioritization decisions, deciding which customers to target or listen to, and having the courage to subject a grand vision to constant testing and feedback."

8 - Pivot (or Persevere)

This Chapter, according to Eric Ries, determines the one decision that is the most challenging, the one with the potential to be the least time-efficient and the one that contributes to the most waste created by a startup. That decision is when to pivot and when to persevere. Everything asserted thus far, leads to this decision. 

The definition of a pivot, provided by Ries, is the following:

"A structured course correction designed to test a new fundamental hypothesis about the product, strategy, and engine of growth."

As Ries subsequently makes clear, innovation accounting (discussed in Chapter 7) leads to faster pivots. This would then result in the startup being more productive, since persevering when a pivot should be made does not lead to progress. (Remember that customer feedback should always determine pivots or perseverance and hence, this is innovation accounting from the measuring of customer data). 

Additionally, the author recognises that entrepreneurs need courage to perform a pivot. This is mainly because the entrepreneur feels that this would be admitting that he/she has made a mistake and it is human nature that people do not like to admit their mistakes. Moreover, another reason is the fact that without proper measuring and innovation accounting, their conclusions are not accurate or objective and hence, they do not realise that they should pivot. It is significant to identify these problems and find the courage to make the pivot because as Ries points out, failing to make the pivot could turn out to be fatal for a startup. 

The symptoms as to when to pivot are the reduction of effectiveness of the experiments of the products and 'the general feeling that product development should be more productive.'

At some point, the need to pivot might be inevitable, as an innovative startup must start to sell to mainstream customers and not only early adopters, which are more demanding and it will be required that the product solves real problems. This is what Ries calls, 'customer segment pivot'. 

Lastly, it is notable to state that pivots are at the heart of the Lean StartUp methodology and they come in various different forms. The significance of pivots comes from the fact that even if a startup has made incorrect assumptions, they can rectify it by acknowledging it and then pivot to find another way to achieve success. 

9 - Batch (Part Three - Acceleration)

The author advises startups to create their products in small batches instead of large batches. The main reason for this is the fact that problems with the quality in smaller batches can be identified much quicker. This is the foundation of Toyota's high quality and low costs success. In fact, Toyota figured out that this approach also made the carmaker more efficient. 

As Ries continued to state, if a startup operates by creating large batches of product, then if customers do not seem to like the product, all that capital invested into the product and the time and effort put into developing the product is wasted. On the other hand, producing smaller batches ensures that this waste is reduced. 

Additionally, one way to accelerate the process of design, is 3D printing. Even though it is expensive to purchase, a 3D printer can then product hundreds of thousands of products at low cost. Therefore, 3D printing is reported to be the sensation of the future, since it will allow entrepreneurs to produce small batches with low cost but a lot quicker. (Consider the fact that 3D printing now in 2020, can produce almost anything from alternative meats derived from plants to buildings). 

Correspondingly, the author emphasises that the procedure of producing smaller batches has the effect of going through the Build-Measure-Learn feedback loop, discussed in previous Chapters, a lot faster which gives the competitive advantage of learning quicker about the customers. 

Notably, it is important to state that if hospital pharmacies would deliver in smaller batches rather than large, they would, in fact, minimize the total workload of the pharmacy and make sure that the right medication is delivered to the right place at the right time. The same is true about hospital lab blood collections, that if they would deliver in smaller batches, the test quality of the blood would be much higher and the total system cost lower. 

The author concluded where he started; with Toyota. It is best to use his own words: "Toyota has demonstrated an ability to unleash the creativity of its employees, achieve consistent growth, and produce innovative new products relentlessly over the course of nearly a century". This is primarily the result of solving and tackling problems quickly, which the reader ought to remember that it works better when producing smaller batches and consequently results in the long-term success that every startup should strive to achieve. 

10 - Grow

Eric Ries refers to the process that startups use to obtain sustainable growth as 'the engine of growth'. Sustainable growth, he asserts, is designated by the rule that recognises that "New customers come from the actions of past customers". Therefore, past customers can propel sustainable growth by 4 central ways:

1. Word of mouth. This can only occur when customers are satisfied. 

2. The use of the product by existing customers influences other customers to also use it.  

3. Funded advertising and marketing. This capital should only be invested from revenue from customers and hence, the more customers, the more funded advertising can occur which can propel sustainable growth. 

4. By the existing customers using the product consistently and repeatedly. 

These have the effect of going through the Build-Measure-Learn feedback loop (discussed in previous Chapters) much faster which is the essence of Lean StartUp and thus, the company can grow faster. 

There are also 3 types of engines of growth:

1. The Sticky Engine of Growth. This occurs when the company manages to retain the existing customers. To clarify, when the rate of new customers exceeds the rate of not retaining the existing customers. 

2. The Viral Engine of Growth. This occurs when the company goes viral by one way or another and therefore, the new customers coming in increases rapidly which drives growth. For instance, Ries uses the example of the company 'Hotmail'. After going viral, the company within weeks saw millions of customers signing up for their services. 

3. The Paid Engine of Growth. This depends on the increase of revenue from each customer or reducing the customer acquisition cost. Both would increase the margins of the company which would drive growth. To validate, if it was cheaper for a company to acquire a customer (e.g. 0$ from word of mouth instead of 5$ from paid advertising) this would mean more capital remains with the company which can be reinvested in i.e a better product and hence, bringing more customers and more growth. 

Lastly, a company's engine of growth will likely run out of gas at some point in their lifespan and therefore, the author points out that it is necessary for the company to find new ways to drive sustainable growth. This is in line with previous statements on this blog that a company getting complacent is a massive mistake. Therefore, as consumer demands change, the company must adapt with it which brings us to the next chapter. 

11 - Adapt

The author emphasises the fact that it is necessary to build an adaptive organisation. For this reason, at his startup, IMVU, they developed and established a training programme where the people they were hiring could be productive from day one. However, Ries claims that even though the Lean methodology and especially, the Build-Measure-Learn concept is reliant on speed, speed alone in a startup could be fatal. To illustrate, if the production of a company never stops, they then do not have time to consider and analyse whether the consumers have changed their demands or whether the products they produced have actually been converted into sold products. 

Subsequently, the book rightly emphasises the notion of the 'Five Whys' as to why mistakes occur in a startup. 

These include:

"1. Why did the machine stop? (There was an overload and the fuse blew.)

2. Why was there an overload? (The bearing was not sufficiently lubricated.)

3. Why was it not lubricated sufficiently? (The lubrication pump was not pumping sufficiently.)

4. Why was it not pumping sufficiently? (The shaft of the pump was worn and rattling.)

5. Why was the shaft worn out? (There was no strainer attached and metal scrap got in.)"

The Five Whys provide a way to analyse why some mistakes occur in order to prevent them from happening again. This is in line with a notion that we have discussed previously on this blog, which is the fact that the no.1 step to solving a problem, is recognising there is one. 

Additionally, the Five Whys are very important because it prevents the 'curse of the five blames'. When a mistake happens, the worst thing someone can do, is to start shifting blame before actually analysing where and why the mistake occurred. Moreover, if someone starts to immediately blame someone else, that means that they have not even considered that themselves could be accountable for the error and hence, they will not realise it in order to prevent it from happening again. Ries calls for a meeting of everyone involved in the company that was part of the error to have a discussion and analyse the Five Whys.

He also states that companies should follow these 2 simple rules:

"1. Be tolerant of all mistakes the first time. 

2. Never allow the same mistake to be made twice."

Furthermore, Ries also advises companies to appoint a Five Whys Master, who is responsible for providing the reasons why a mistake happened and to specifically provide answers for the five questions outlined above. 

Finally, the valuable lesson that a company should never get complacent is again emphasised. As society and the world changes, companies must change with it. This can only happen when a company is always trying to innovate. This will be the topic of discussion in Chapter 12. 

12 - Innovate

Innovation in a company, regardless of size, is essential. 

This Chapter begins as it ended. The importance of innovation is emphasised, as even established organisations must always find ways to create disruptive innovation. This is aligned with the fact discussed in previous posts that companies fail when they become complacent. According to the author, the structure of this is very important, since an established company should also have a startup team within the organisation that is responsible for innovation.

 

Accordingly, it is notable to say that this should be widely adopted, since the author makes clear that startups are both easier and need less capital to run. However, the company must make sure not to alter that capital. This is predicated on the fact that startup teams should be independent and autonomous in order to have an environment that is suited to experimentation. Additionally, as Ries points out, "I strongly recommend that startup teams be completely cross functional, that is, have full-time representation from every functional department in the company that will be involved in the creation or launch of their early products." This would provide a diverse skill-set to the startup.

Furthermore, the entrepreneurs working in these startup teams should have a personal stake in the innovations that they have created in order to provide them with the proper motivation to complete the task. 

 

This environment of experimentation was embraced by SnapTax, the startup team of Intuit that we looked at in Chapter 2, and they were calling this environment "the island of freedom". Some lessons learned from such an environment, called a "sandbox", include the fact that the innovation trying to be achieved by startup teams should be transparent. As Ries recognises, hiding these startup teams “from the parent organisation can have long-term negative consequences." In addition, in this sandbox, the startup team should not be required to get approval from another department for an experiment. However, it should be reporting to the established organisation whether the numbers we learned from innovation accounting indicate that it is heading for success or failure. This is aligned with the fact that just like a startup we saw in the Chapter on innovation accounting, these sandbox teams should be held accountable with metrics such as innovation accounting. Additionally, other principles in the Lean StartUp methodology apply. For instance, a startup team should always launch a minimum viable product. 

Correspondingly, a startup team within an organisation should function and operate in the following 7 ways:

"1. Any team can create a true split-test experiment that affects only the sandboxed parts of the product or service (for a multipart product) or only certain customer segments or territories (for a new product). However: 

2. One team must see the whole experiment through from end to end. 

3. No experiment can run longer than a specified amount of time (usually a few weeks for simple feature experiments, longer for more disruptive innovations). 

4. No experiment can affect more than a specified number of customers (usually expressed as a percentage of the company’s total mainstream customer base). 

5. Every experiment has to be evaluated on the basis of a single standard report of five to ten (no more) actionable metrics. 

6. Every team that works inside the sandbox and every product that is built must use the same metrics to evaluate success. 

7. Any team that creates an experiment must monitor the metrics and customer reactions (support calls, social media reaction, forum threads, etc.) while the experiment is in progress and abort it if something catastrophic happens."

 

Additionally, it is also advised by the author that the entrepreneurs of the startup team in the organisation should also be responsible for the growth of that product. Furthermore, it is critical that the parent organisation does not neglect the startup team, since a failure to construct appropriate infrastructure could then chase off potential and existing clients. However, if those entrepreneurs are not comfortable with the growth phase, but would rather create new products and disruptive innovations, then they should be allowed to do so and keep on investing in research and development (R&D). This is in line with an interesting discourse that also unfolds when Ries points out that being an Entrepreneur is a job title. In his own words: "In fact, entrepreneurship should be considered a viable career path for innovators inside large organisations."

Lastly, it is very important to state the fact that the Lean StartUp methodology identified in the book, should be followed according to the specific needs of the company. In other words, the principles must not be followed or adapted blindly, but rather with genuine knowledge of the specifications of the particular company and tailor those principles to that organisation. 

13 - Epilogue: Waste Not

This Chapter primarily emphasises on stressing the fact that a company should know on which things to be working on. (This can be done through innovation accounting and testing their assumptions, as per previous Chapters) Eric Ries uses the words of Peter Drucker to deliver his point: "There is surely nothing quite so useless as doing with great efficiency what should not be done at all." However, this fear of wasting should not drive innovators away from their primary goal, i.e 'to learn that which is currently unknown.' This is in line with the principle pointed out in a previous Chapter of analysis paralysis. There is a fine line between carelessly innovating and overemphasizing planning. 

Additionally, as stated plenty of times, a startup should experiment and should optimally have the data produced by the experiment backed up by science. However, a startup should be careful of their findings so that it does not lead to pseudoscience, Ries claims. 

Furthermore, society always changes. Therefore, an organisation MUST always be ready to face uncertainty and ambiguity. Hence, Ries suggests that organisations ought to always test their products and services in order to gather further consumer data and use cross functional teams to solve problems that have 'clear right answers.'

The author of this blog has also been fascinated by an idea raised by Ries. Stock markets have existed for so long that it seemed that no one was even questioning a better way. Yet Ries proposes a Long-Term Stock Exchange (LTSE) which would require companies to function with a long-term sustainable approach and not with short-term profitability strategies to incentivize more investors to invest in their shares. This, according to Ries, hurts innovation. Moreover, companies in the LTSE should only report revenue on products that were created and did not exist a few years earlier. This, then, drives innovation. 

14 - Join the Movement

In this Chapter, Ries indicated some further reading for people who would like to learn more on the discussed issues of this book. Notably, a lot of the sources provided are either blogs or articles and therefore, as Ries rightly identifies 'The most important resources are local.' 

This is true as we can have more information and knowledge from just a click of a button using our smartphones and laptops than we can ever consume. The information provided by the internet can be priceless. Make sure you tap into it. 

In addition, there are seminars conducted in various cities that discuss the Lean StartUp methodology.

P.S. any comments that are made by the author of this blog are outlined in Italics.