This week at SXSWi I attended a side event, the “Lean startup smackdown” with Eric Ries and Dave McClure, organised by Ash Maurya of the Austin Lean Startup group. Here is a summary of my notes.
The idea of a lean startup is something which enhances the chance of success and comes from the idea of lean manufacturing, made famous of course by Toyota. Ironically one of the main tenents of the lean startup philosophy is listening to the customer, something that Toyota should probably be embracing now.
Lean startups are trying to create something new while acknowledge they operate in conditions of extreme uncertainty. The key is getting to a product which your customer values, as quickly as possible, maximising value creation while minimising irrelevant time-wasting and resourceconsuming activities. Fundamentally lean is about the speed of iterations. Let’s say you start your business with some funding, how much runway do you have left before you run out of money, and in that time how many iterations of your product do you have left?
It’s a cyclical processs which follows and then repeats:
You can develop faster without waiting for feedback, but overall it is not more effective. You start with the minimum viable product and go through the iteration loop until you have a clear understanding of the core product. Question all your assumptions. You do not optimise at this stage. Micro-optimising and seeking incremental improvements is something which you concentrate on when you have solved the macro problem and have a core product that people want, as defined by product/market fit. You also don’t add features as adding features at this stage can actually inhibit conversion as it can lead to lower conversion.
Take 3 to 5 conversion metrics and measure that data to provide a feedback loop. As a result of the data, change the product, or the marketing and see if that makes things better or worse. You are seeking Validated learning about your customers, rather than guessing.
How often do you make the changes? The aim is to reduce the batch size, which makes for a faster feedback loop and means you are continuously developing.
Lean startups are not cheap startups; when you get to the point where you understand your business model – product/market fit is one definition of this – you want to accelerate as quickly as possible and if that necessitates spending money, do it. Lean does not imply how much funding you raise as this varies for each type of product that a startup tries to build. VCs have rules of thumb which serve them well at a portfolio level, but poorly at a company-level. VCs demand plans, and milestones, but being on time and on budget is irrelevant if you are not managing to buidl something that the customer wants. So rather than focusing on getting to the next round of funding, remember the VC is not your customer, and focus on real success with customers, in the leanest way possible. (Two VCs were specifically mentioned though for their support of the Lean Startup philosophy: Polaris Ventures and Mike Maples.
Examples of recent successful startups which have followed the lean methodology include Dropbox and Xobni, both advised by Sean Ellis, who I recently wrote about after a talk on the subject of product/market fit and what that means for funding at Edinburgh University. Xobni started out building email analytics to enterprise customers but discovered there was just not enough value in this. In their search for developing something with recurring value to users they reinvented the product as an Outlook plugin for individuals to help analyse and search their email.
Finally, McClure and Ries pointed out there is a lack of empirical evidence or research on this area, so don’t assume that this philosophy is necessarily “correct”, and use what aspects of it most make sense to you. I am sure both would welcome any examples of your success or otherwise following the lean startup philosophy.
[Update: within hours of writing this blog I found the following article, “The Case for Fat Startups” by Ben Horowitz. Despite the name I am not convinced the two philosophies necessarily disagree with one another, it seems more like Horowitx is arguing against cheap start-ups.]
Hungry for more? There’s a Lean Startup Conference coming in San Francisco in April.