The Lean Start-up, by Eric Ries. How Today's Enterpreneurs Use Continuous
Innovation to Create Radically Successful Business. 1. The Situation. Eric Ries, a
...
The Lean Start-up, by Eric Ries How Today’s Enterpreneurs Use Continuous Innovation to Create Radically Successful Business 1. The Situation
Eric Ries, a Yale graduate, which (co-)founded several start-ups himself (such as IMVU) and now is an entrepreneur-in-residence in Harvard Business School, explains which possible hick ups a young entrepreneur can encounter, when he or she is starting his/her own start-up. With the help of his own experiences and many examples from practice, Ries explains how to solve or avoid these problems and how to set up your start-up the leanest way.
2. The Challenge
How do I start my own company successfully? How do I make sure that my company, once ‘full-grown’, stays successful?
3. The Method
As a start-up entrepreneur, you and your start-up will go through several developments. Roughly, Ries divides these developments into three phases. By means of examples, Ries takes the starting entrepreneur through those phases and sketches a plan of action: Part One: Vision (Start, Define, Learn, Experiment) Start by developing a vision, not only by defining the product of service you’re planning to launch, but also by defining way you manage your start-up. Both processes (of management and product development) should be focussed on flexibility an offer enough space for creativity and innovation. ‘Lean thinking defines value as providing benefit to the customer; anything else is waste.’ Be bold enough to experiment with your product. Learn from the outcomes of these experiments and the customer feedback they generate. Part Two: Steer (Leap, Test, Measure, Pivot/Persevere) ‘Every business plan begins with a set of assumptions’ Dare to take a leap of faith the moment you believe your assumptions will become reality. Keep testing and adapting your business plan when necessary, but do not wait with the launch of your start-up until you have reached perfection. Start with a ‘Minimum Viable Product’. AN MVP enables you to start against minimal costs, and will generate essential and decisive customer feedback in an early stage. It will help you to develop your product and/or service further. Measure your business result in an objective way by means of accounting: Under the leadership of people such as Alfred Sloan at General Motors, accounting became an essential part of the method of exerting centralized control over far-flung divisions. Accounting allows to set a baseline and future milestones and holds each manager per division accountable for success and reaching goals. It provides insights in the actual success of experiments (either on their own, or in comparison to one another) and will give you clear insights in the direction your start-up is going. The latter will help you decide whether to change direction or not; whether to pivot or to persevere. All rights reserved, Zapplied B.V. (www.zapplied.com). Unauthorized use, disclosure or copying of this document or any part thereof are strictly prohibited.
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Whatever you do, avoid vanity metrics; total gross numbers, which will paint a rosy (but not a realistic!) picture of your start-up. Instead, use methods such as cohort analysis; an accounting method showing the actual performance of each group of customers that comes into contact with your product independently. Part Three: Batch (Grow, Adapt, Innovate) As your start-up has grown into a full-grown company, keeping your lean business model, which enabled your start-up to be fast and flexible, is key. Toyota learns us that one way to keep your company lean, is to produce in small batches. In the post-World War II economy, the Japanese car market was too small for companies such as Toyota to employ economies of scale. Consequently, it chose to produce in small batches instead. This enabled Toyota to produce a much greater diversity of products and thus serve a smaller, more fragmented market. This enabled Toyota to compete with mass producers such as Ford and to gradually move into larger and larger markets, until it became the world’s largest auto maker in 2008. Small batches will also enable you to a) detect (technical) defaults at an early stage, b) produce at a faster pace and c) produce and deliver in conformity with the just in time principle, what will further reduce costs. Secondly it is key to define the engine of growth, which best fits your business (model): ‘The engine of growth is the mechanism that start-ups use to achieve sustainable growth.’ Is it the Sticky Engine of Growth, which focuses on the attraction and retention of customers for the long term, the Viral Engine of Growth, where customers do the lion’s share of the marketing via (digital) networks or the Paid Engine of Growth, where you focus on the reduction of the costs of customer acquisition? Thirdly, create a natural internal feedback loop on staff level to accelerate. Five ‘Why’ questions will enable you to expose problems at the root (a human problem) and to correct them and therefore, adapt your start-up. Lastly, keep stimulating and enhancing innovation by means of a ‘start-up team’ inside your organization. Equip the start-up team with scarce but secure resources; independent authority to develop their business and a personal stake in the outcome thereof. Next, decide under which rules the start-up team can operate without interfering and or damaging the business model which enabled your initial start-up to become the full-grown company it now is; protect your parent organisation from your start-up and vice versa; create a sandbox in which the start-up team can play around harmlessly. 4. The Success
Obviously, there is not a single road to success. Every start-up will have its own ups and downs and therefore its own way to get there. The Lean Start-up learns us not to be afraid to hit this (sometimes) bumpy road and to learn as much as we can from the experiences we undergo along the way and most importantly; to pivot or to persevere, to be an entrepreneur.
All rights reserved, Zapplied B.V. (www.zapplied.com). Unauthorized use, disclosure or copying of this document or any part thereof are strictly prohibited.
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