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Webfund chairman, entrepreneur and supporter of startups Dave Moskovitz gave his review of Eric Ries book, ‘The Lean Startup’ at a lunchtime meeting at Wellington’s Southern Cross hotel recently.

Ex-pat American Moskovitz brought back a few copies of the book from a recent trip to the States, where the Lean Startup Methodology of applying the scientific method to starting, and growing, or shutting down a fledgling business has become mainstream.

Moskovitz says the book’s central thesis is that previously a startup has been considered more of an artform than a science, but Ries reckons that treating a new business as a series of scientific experiments can quickly refine a concept into a viable business.

By applying three stages — build, measure, learn – hypotheses can be tested quickly, and the problems solved to achieve product-market fit.

It goes without saying that the objective of this startup method is to make money.

Under Ries’ model, the basic unit of success is validated learning — and there’s no use spending time or money on anything if this isn’t the outcome.

Moskovitz gave a potted summary of the book as well (thanks Dave).

Value vs Waste

  • You can only improve your product by measuring what customers actually do (and will pay for). Therefore, charge from day one, the information you get is the measure of real value

Minimum viable product (MVP)

  • Start with a smoke test. (Particularly with regard to a website) advertise a feature that doesn’t exist, such as a landing page or button to a feature that doesn’t exist. If nobody clicks on the new feature, don’t build in — you’re wating your time and money
  • ‘any work beyond what is required to start learning is a waste’
  • (make a) video MVP — video of what the product does/will do
  • Concierge MVP — pretend that there is an expert system in the background, have it as a person who does the job — a simple way to measure whether it is worthwhile

Innovation accounting = learning milestones

  • Different from usual profit and loss accounting
  • Establish baseline metrics. Document all your assumptions
  • Real metrics are numbers like trial rates, referral rates, conversion rates, customer retention
  • Bad news is good news. (You are going to fail continually, therefore you have to be reinventing, learning from mistakes and an incorrect hypothesis….don’t make the same mistake twice)
  • Tune the engine
  • Pivot or persevere….or….shutdown

Warnings

  • Optimisation vs learning. If you are building the wrong thing, optimising it doesn’t matter
  • The three A’s of success
  • Actionable
  • Achievable
  • Auditable

Pivoting

  • The true measure of a runway (how much time/money you have left) is how many pivots you can make before you’re dead
  • An unclear hypothesis makes it impossible to experience complete failure, and to make the required changes for success

Types of pivot

  • Zoom-in
  • Zoom-out
  • Customer segment
  • Customer need
  • Platform
  • Business architecture
  • Value capture
  • Engine of growth
  • Channel
  • Technology

Small batches

  • Doing things in small chunks lets you do more = rapid, incremental development cycles

Adapting to problem

  • Use ‘The five whys’ — question five times what the problem is….often comes down to a person as the root
  • Use ‘proposition/investment’ in problem correction
  • Be tolerant of all mistakes the first time
  • Never allow the same mistake to be made twice

Conclusion

  • It’s mostly about not wasting peoples’ time

In conclusion, ‘The Lean Startup’ is a how to manual, where failure is welcomed, almost celebrated as a means to learn and adapt and grow — or, just as importantly quit and not be one of the ‘living dead’.

As Moskovitz gave his summary, it struck me as being a type of antidote to New Zealanders’ underlying ability to shoot ourselves in the foot as identified by Tony Smale (see here, here and here).

Again, having ‘failed’ (i.e. gained experience) in trying to set up a business a few years ago, (and looking for other opportunities now) such a mindset and scientific process would’ve been invaluable.

Among the thousands of management books I haven’t read, this is one I’ll be buying.

The Wellington Lean Startup Meetup group meets every second month and has over 250 members. For more information, go here.