[Book Review] The Lean Startup by Eric Ries

Field-tested, lean principles for high growth businesses and corporate projects that rely on disruptive, constant innovation for growth and sustainable success

A business executive once told me that Agile is just a catch-phrase for making it up as we go along and “you IT guys need to get back to disciplined process”

I didn’t disagree with him.

High-tech start-ups look chaotic at worst and highly experimental at best.

Where is the five year business plan, an experienced management team and a strong balance sheet that 20 years ago were the minimum requirements for building a world class business?

Now the software nerds are running the multi-billion dollar firms – and the business schools have had to rewrite their text books.

Eric Ries is a techpreneur, software engineer and lean thought leader who lived through a startup that nearly failed but which taught him the principles he sets out for other entrepreneurs.

Through the widespread adoption of his thinking and the success of The Lean Startup movement he has worked with hundreds of entrepreneurs and the essence of his book and ongoing writing is a simple, yet counter-intuitive conclusion: “Entrepreneurship is a kind of management”.

Even though successful innovation looks like a constant guessing game, there are principles and approaches that can be learned and applied, this is what Ries sets out in his book and some of these I found particularly useful, and equally applicable to the corporate context.

The Build-Measure-Learn flywheel is at the heart of a successful steering and growing approach to creating a sustainable business or launching a new product in an existing company.

The vision sets the destination but constant calibration between the planned journey and real life circumstances achieves successful navigation and real progress.

Small batch sizes, just in time production, inventory control and other tenets of lean manufacturing apply equally well to help entrepreneurs find and reduce the sources of waste that result in so many failed start-ups.

A typical example is “Vanity metrics” which reinforce confirmation bias with an ego-boosting distraction while “actionable metrics” provide real data for “pivot or persevere” decisions.

Chapter 8 on this topic is required reading for anyone who wants a tough love diagnosis for their pet project or new business.

Standard burn-rate calculations don’t factor in the build-measure-learn feedback loop and how any financial decisions will affect it.

If a business can only make the right pivot-or-persevere decisions through successful feedback loops then simply cutting costs or raising additional funding might not extend its useful runway.

“If the cuts result in a slowdown to this feedback loop, all they have accomplished is to help the startup go out of business more slowly.”

Following a dream gets you out of bed in the morning but the business will never get out of infancy stage unless “financial, marketing, managerial and operational processes are in place.”

Sikhakhane acknowledges that over-emphasizing these aspects can also kill energy and innovation but with sufficient focus, entrepreneurs don’t have to be in perpetual survival mode.

They may need to perform multiple roles in early-stages when teams are small but very much in line with Ries’s thinking, the message is clear, “Entrepreneurs need to get a grip on management”.

Part of managing a successful startup under changing conditions is having the courage to change course, or to pivot and more importantly do so for the right reasons at the right time.

The Lean Startup catalogues a number of different types of pivots, which are extremely useful to structure the thinking process around these stressful inflection points.

A “zoom-in pivot” elevates a single feature to the whole product while a “zoom-out” pivot recognises that the product’s killer feature isn’t drawing the customers and more features are added.

When a new group of customers emerges in the feedback loop, this is the “customer segment pivot” and if other customer needs emerge, the business might decide to do a “customer need pivot”.

Other pivots can occur around the platform, business architecture, engine of growth, channel and technology.

Ries also proposes some radical ideas such as a new stock market or Long Term Stock Exchange. He believes companies should be rewarded for long-term sustainable thinking not just quarterly and yearly profits.

Jeff Bezos presented the same growth mindset in his famous 1997 letter to shareholders where he outlined Amazon’s relentless customer obsession and a focus on long term shareholder value.

Accordingly, Amazon didn’t make consecutive quarterly profits until 2016 but they mastered countless pivots, created a culture of learning and lean management and built a stunningly successful business for the long term.

Like similar, exponential tech giants they have embedded the disruptive, constant innovation thinking they had in their infancy when such thinking was necessary for survival.

You might not be the next Amazon but The Lean Startup will help you think rigorously about building your business in the same way.

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