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The Lean Startup-By Erick Ries: A Book Review

By Abdelkarim A Hassan

Startup companies have high rate of failures. Some studies indicate that within 3 years, 92% of startups fail. The book, The Lean Startup, how today’s entrepreneurs use continuous innovation to create radically successful businesses, is a great tool for overall businesses; it provides a valuable process improvement on how to build a sustainable and profitable business. The steps detailed by Ries on how to take a business idea and develop into a viable business are important ingredients to establish a successful business.

Author Erik Ries
Author Erik Ries

The Lean Startup, the New York Times Bestseller,  is the Bible for starting a startup company. The author delves into why so many startups fail. He argues against the perfect formula that a perfect startup only consists of the concept: if you build it they will come, that good genes and hard work have nothing to do with the success or failure of a good successful startup. A great idea, an amazing team and the right idea at the right time makes one assume they have the right ingredients for a great successful startup. What entrepreneurs with great ideas miss is how to turn product insights into a successful functioning company. It is precisely at this point at a startup’s life cycle that many entrepreneurs find out that everything you have read about hard work, perseverance, and assembling all those hard working friends to work for free because there was something great at the end of the tunnel, are crushed along with many egos and believe systems.

Through determination, a great product, hard work and great timing assures you the floodgates of success to open, this is what we read and see on the TV, read in business books and so forth, making us true believers that this is what it takes. But once you come face to face with reality, you find out that everything we have been told about successful entrepreneurs is a myth.

And yet in The Lean Startup, Ries articulates well how this is a myth. A myth sold to us by all those mass media outlets whose job is to sell us this story. We often don’t find out that most startups fail, and most new ideas never come to fruition because they are missing the necessary ingredients of what a successful entrepreneurship is made of. Ries knows this first hand, he was that idealist entrepreneur who tried to bring a great product to market, but it failed. I think it is human and the desire in us all to see people who work hard to succeed, and that is the reason we believe in the stories we hear of people persevering, working hard, being amazing entrepreneurs but failing ultimately, because most new startups ignore the most basic ingredients that will lead a new startup to see its day in the market place. The boring stuff we all rather ignore. The right stuff according to Ries can be engineered and has nothing to do with great genes, or all that hard work or even a great product. In fact it has a lot to do with the boring day-to-day things that most new startups ignore but which not only cannot be ignored but must be embraced and understood or else, like many others before them, failure is inevitable. This process can be learned, and can be thought. In reality, as it turns out, entrepreneurship is a tool of management. Success does depend on the mundane, dull, and old management style marrying it to the innovative, cool and hip entrepreneurship. One cannot exist without the other if success is the end goal.

Many new startups like IMVU (an instant messaging service that allows people to communicate using avatars), the example Ries used, ignored inputs from end-users. IMVU used a Lean Startup method where early adopters got unrefined products and their feedback was never incorporated into the product. The entrepreneurs saw the customer input as only one source. Mistakenly, they used their costumers as part of their experiment. Then, IMVU employed the genesis of a new approach of staring a startup called The Lean Start up. This new approach, according to Steve Blank, should consider the business and marketing function of a startup as importantly as the engineering and product development. Therefore, through much research and investigation, Ries came up with an idea that could be applied to a new startup adding lean thinking to product innovation. The Lean Startup was rejected by many before it became its own movement and was adopted by many Fortune 500 companies, the Pentagon and many movements across the globe. It has become an animal all on its own.

Ries suggests to enter the build phase as quickly as possible once the leap of faith assumption phase is done, it is time to enter the build phase without any hiccups that lead to the MVP (Minimum Viable Product). This means not only to develop prototypes as soon as possible but also to test the prototype on potential customers to see their reaction to the product.

Introducing the MVP (Minimum Viable Product) at an early stage prompts learning for a startup at a quicker paste. It is in many ways the fastest way to introduce the Built-Measure learned feedback loop in a manner that requires less effort than traditional product development. In traditional product development, the processes are longer and the end goal is to strive for a product without any glitches. Where MVP differs from the traditional product development is that early on it begins to answer product design and technical questions while ultimately testing the viability of the business.

The measure side of the loop comes when built in measures using innovative accounting are used to gauge the success of the product. In the measure side of the loop, Ries talks about building in methods that test if the product development is leading to real progress. After all, it really matters if the product you are making isn’t leading to the desired outcomes. This is where learning milestones are developed to learn more about the product and its potential success. Learning milestones are a way entrepreneurs measure their own progress as well as a tool for engineers and investors to use to hold the entrepreneur accountable. Then we come to the PIVOT phase where an entrepreneur decides should the product proceed to production or halt to make additional tests and improvements. This is a really important phase of the startup as an entrepreneur grabbles with the idea to make changes to the product or to persevere. If the entrepreneur choses to persevere without using the pivot phase wisely it could lead to disastrous consequences.

Some inflexible entrepreneurs stay the course until their product is rejected and their entire startup is faced with failure because they didn’t use the pivot phase strategically. Without using the Build-Measure-Learn feedback loop an entrepreneur builds a product and without setting any measures brings it to market. The entrepreneur does not take time to build in measures that test whether the product will be a hard hitter with potential customers. Sometimes, the advantage of these methods is based on the fact that if the product finds its potential customers, then there is no need to set in the Build Measure Learn loop. But on the other hand, if the product becomes a complete failure, then the entrepreneur is left to deal with the failure without knowing what went wrong. In order to find answers and to make changes, the entrepreneur is forced to use expensive methods to come to some solutions. A good example of a method that worked without the build-in Build-Measure-Learn and that used the “Just do it” method is Zappos which of course became extremely innovative and a market leader. What we don’t hear of course is the countless others who used the same method to disastrous outcomes.

Ries also elaborates on the validated learning process that takes the guess work out of the learning process of a new startup. It’s not empty learning but rather a more present truth learning about a startup’s past, present and future. It is based on measurable empirical methods that are accurate and concrete. It is a method of embedding demonstrative progress within the growth stages of the startup. Validated learning has to add value to the successive product. The idea of preserving or pivoting is important here because within the validated learning environment if an entrepreneur is realistic and not stubborn, they will learn whether to start the product from scratch instead of wasting time, money and relationships, or persevere the product because the entrepreneur has tested the environment in such a way that it makes sense to persevere.

There may come a time when the strategic entrepreneur must throw away a product he or she has invested so much money and time in because keeping it is worse than throwing it away. An entrepreneur must learn from this process what adds value to the product for the customer. If the entrepreneur shifts sooner he/she saves time and builds a product that is viable with added value and is ready to go out to market. Learning is so central for a product to progress that avoiding the steps necessary can be a total determinant to an entrepreneur’s early startup. This validated learning is based on positive improvements to the product that will only result in the success of the product if the entrepreneur is open to the idea of collecting empirical data based on real customers in the early stages of the product.

The author discusses in detail the importance of measuring the startup product early on through the MVP at the customer level to test the impact of the product. This means building a product that customers want. Ries stresses this stage of measure phase by stressing that if the product we are building is not something customers want, then being on budget and on time doesn’t really matter. This is where innovation accounting comes into place. Innovation accounting is a quantifiable method that measures progress toward reaching the goal of the startup. This measuring phase provides the entrepreneurs the mechanism to create learning milestones to assess the progress of the startup objectively, timely and accurately. Innovation accounting is critical to the startup as it provides important measuring tool for improvement in the process, engine tuning thus cutting waste in resources and time.

Another aspect of the startup that Ries clearly delves into is that the foundation of quality as outlined by W. Edward Deming, states that the customer is the most important part of the production process. Ries elaborates on Deming’s principle of quality with one of his own descriptions that if we do not know who the customer is, we do not know what quality is. At the initial stages, as I elaborated earlier, startups similar to other business undertakings formulate their business plans, which often details their sales and financial projections. Ries stresses the need to have learning milestone, measurable milestones of the success or the lack thereof which includes the use of minimum viable product (MVP) to establish records on current status of the startup to uncover any obstacle met along the way, thus developing measures to address them (Tuning the engine) to reach the planned goals. The fundamentals of the metrics is based on the three A’s: actionable; that leads to understanding the cause and effect of the actions taken by the startup to either pivot or persevere, accessible; keeping reports simple and easy to be understood and auditable; that provides the means to review the data reports reflecting facts. Vanity metrics could however impede the success of the entrepreneurship by falsely leading to the believe that the startup is on the right track towards desirable company goals, while in fact the progress is being measured by the wrong metrics. These false assumptions are the result of using erroneous measuring tools that do not paint the true picture of the startup. Ries provides great examples in the book, on how vanity metrics lead some startup founders to the path of waste of resources, more cost and perhaps the end result may be complete failure. One example that stands tall in his book is Grokit, a standardized test support startup founded by Farbood Nivi. To measure its success, Grokit was using vanity metrics such as total number of customers and total number of questions asked. The results from their success measures were giving Grokit the wrong progress reports, while Grokit was not making any improvements. Ries discuses in details that the right tool to measure the progress of a product should be actionable metrics such as using Cohort and split testing that allows startups to evaluate product improvements at customer levels in the early stages as well as Kanban which is the use of capacity constrains with product validation. (Kanban, is a system developed by Taiichi Ohno, at Toyota, to improve and maintain a high level of production and to control the logistical chain of the production). These steps by Ries in his book, if followed, would indeed save time and resources to address issues in early stages and pivot or persevere in due time.

Ries’ book is very valuable to entrepreneurs who could benefit from reading it, which may add much value to the product as a result. The book provides a plethora of business cases, particularly on startups and on how to build a profitable and sustainable business that is based on what customers want through the build measure learn feedback loop. The steps detailed in the book enables the entrepreneur not to rush to market with a faulty product that could be costly, but to focus on how to improve processes, validate assumption with the application of lean manufacturing model in business. One may take away from the book that taking a business from an idea to a product that customers want should be put into testing, customer validation and iteration to achieve a product that is successfully launched.

The ideas and concepts in the book such as Build-Measure-Learn, validated learning, to pivot or persevere would help the entrepreneur to utilize the many different phases detailed in the book so that, the Startup that is at its infancy, will benefit and would develop and improve process in business model canvas. The book is indeed an asset to entrepreneurs on building and launching a profitable and sustainable Startup.

Although the author focuses more on the high tech industry, I believe his model of building a sustainable and profitable business is applicable to all businesses regardless of the field. I was very amazed on how Ries used his own experience on the things that went wrong with IMVU, and the steps his team took to address challenges encountered. This hands-on example conveys the author’s message of how to build a startup that delivers what the customer wants, through the methods Ries lays out in the book including validated learning, to pivot or persevere learning which is an important method of ongoing valued added learning that every new startup must employ. His pain is our gain in that if one pays enough attention to the methods laid out, one can come out a winner, although the entrepreneur has to be really present in all the stages of the business, a hard concept to swallow when you just want to put out a product. The book is a fact sheet on dos and don’ts for a new startup. Before reading this book, I was a great believer that through hard work and a great product idea one could really have great success as a startup. But now I know better.

Abdelkarim A Hassan
WardheerNews
Email:[email protected]


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