strategy+business Winter 2013 : Page 93

nies, people carve out this beautiful little bubble of orderliness and calm and low variation—or they think they do. But that’s getting harder and harder to sustain as business be-comes more and more uncertain, as things keep moving faster. The cost of starting a new com-pany is going down. And the distri-bution and scale that it’s now possi-ble for even a tiny little company to access is growing. So, in previously safe industries, where there were very few competitors and an oligopoly once controlled everything, you can now wake up one day to find that 100 startups have entered your mar-ket, and then things suddenly go to hell. We’re all facing that chaos. Part of the challenge is just to acknowledge that the reality of com-petition has changed, rather than trying to fit the signals from an in-creasingly uncertain world into fore-casting-based spreadsheets that de-mand predictability. S+B: How is your methodology different? RIES: It starts with a few principles. We’ve talked about two of them. First, entrepreneurs are everywhere; not just two guys in the garage but anyplace uncertainty is being man-aged. Second, entrepreneurship is a system of management. Next, there’s the idea of vali-dated learning. The most difficult problem in entrepreneurship is that you can’t tell if you’re making prog-ress. For people who have only ever held a “regular” management job, this is a foreign idea. They try to use the same measurement tools from elsewhere in the organization and we end up with those shadow start-ups in large companies. Compare that to your typical Silicon Valley startup. The business plan says that on such-and-such date the product will be launched and a certain amount of time later we’ll have this many customers and that much revenue. There’s always a beautiful appendix with spread-sheets and hockey-stick graphs. The hockey stick shows a few months passing after the product launch, with the curve nice and flat—and then boom, up into the black. People forget that the defining characteristic of the hockey-stick shape is the long, flat blade, not the vertical shaft. I’ve been in startups where we launched our product, and six months afterward we thought we were on track. “Wow, we have al-most no customers and almost no revenue; we’re on plan. We’re going to have a hockey stick in three, two, one....” Then I had the really pain-ful experience of being in the flat part indefinitely. There was no me-teoric rise up the handle. What happened? We were on time. We were on budget, on sched-ule. We did everything that we said we were going to do. It took me a long time to understand the real fundamental issue: It is impossible in a startup situation to make an ac-curate forecast. Then how do you measure your progress? How do you hold yourself and your colleagues accountable during the early stages of building a new business? This ties to my great-est fear as an entrepreneur: going to sleep at night unsure of what I ac-complished. I know I spent some money. I kept a lot of people busy. We built some new features and hit some development milestones. But if I’m building something that nobody wants, why would I be proud that I did it on time and on budget? The antidote is validated learn-ing. You prove one step at a time that you are figuring out how to build a sustainable business. That’s where the concept of minimum via-ble product comes in. Instead of building the whole product over many years and shipping it all at once, you try to find the smallest ex-perimental version of the product you can launch, to begin the process of getting feedback. S+B: What are you measuring in that feedback? RIES: Learning is the unit of prog-ress in entrepreneurship. It’s more important than making money, get-ting customers, building features, or engineering technical quality. Of course, those things are important, but only insofar as they contribute to learning what creates value and what creates waste. In the lean startup, we assume that we know nothing; we don’t even know who our customer is. We have nothing but a hypothesis. We use that hypothesis to pull experi-ments through our “factory” as quickly as possible and get them into the hands of potential customers, with the goal of maximizing learn-ing and eliminating waste. At the outset, waste is anything that doesn’t contribute to the learning. S+B: How might an actual product go through this process? RIES: Our first goal is to build a thought leader 93 minimum viable product: a working prototype we can get into the hands of prospective customers. We do this by constraining the production run—say, to 100 or even just 10. Then we move right past traditional market research; we just go ahead and sell them. We skip traditional distribution channels, which would obviously be wasteful for such a small number. We go to one store, or

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