Eric Ries' book, The Lean Startup, is a fascinating book. And not just for the start-up. Having written Bright Marketing for start-ups it has been great to see lean principles applied to the whole start-up process. In fact, I would argue that it is really designed at the growing business. It is a handbook for new product development and product launch that can teach us all a lesson or two.
A lot of what Ries says has been applied to my fast-growth clients over the years so I can vouch that this stuff really does work. However, it is important to emphasise that his model is Silicon Valley-centric and then Ries tries to apply the model from high-growth start-ups outwards.
My start point is the opposite end of the spectrum, working with existing growing businesses. But so many of the principles are similar.
For the sake of this article I will focus on Ries's work rather than my own.
In his blog and book, Ries uses specific terminology relating to the core lean start-up principles. Understand these principles and his whole viewpoint makes sense.
Minimum viable product
A minimum viable product (MVP) is the "version of a new product which allows a team to collect the maximum amount of validated learning about customers with the least effort.”The goal of an MVP is to test fundamental business hypotheses (or leap-of-faith assumptions) and to help entrepreneurs begin the learning process as quickly as possible”.
Continuous deployment is a process “whereby all code that is written for an application is immediately deployed into production”, which results in a reduction of cycle times.
A split test or A/B test is an experiment in which "different versions of a product are offered to customers at the same time”. The goal of a split test is to observe changes in behaviour between the two groups and to measure the impact of each version on an actionable metric.
The work that I have replicated in my own business, and that of clients, is around the concept of: "pivot or persevere?" Let me explain.
Innovation accounting helps start-ups build some discipline into managing questions associated with pivoting or persevering. It works against vanity metrics in favour of truly actionable metrics that answer very specific questions about each experiment in learning.
Pivots are the points where you decide to continue or re-jig the offer (but keep some core fundamentals) and include:
• Zoom-in Pivot
• Zoom-out Pivot
• Customer Segment Pivot
• Customer Need Pivot
• Platform Pivot
• Business Architecture Pivot
• Value Capture Pivot
• Engine of Growth Pivot
• Channel Pivot
• Technology Pivot
After your experimentation/testing period you reach the decision point, “pivot or persevere?” Too many businesses stay wedded to old decisions and poor assumptions. Ries tries to speed things up by getting you to twist or stick! If your leap of faith assumptions are right and your model works then it is time to move on to the next stage. If not, then it is time to put on your thinking cap.
You do need to see the book to get a sense of the real value, but for me the ‘pivot or persevere’ question is worth its weight in gold. Especially in recessionary times where so many businesses plod on regardless, waiting for things to change… when maybe they need to change themselves!
On the topic of growth, Ries argues that sustainable growth comes from the actions of past customers. As a result, there are three engines of sustainable growth: paid, viral, or sticky.
• A sticky engine of growth is where growth comes from satisfied customers continuing to use the product. When the rate of new customer acquisition exceeds the churn rate, the product will grow.
• A viral engine of growth is where customers bring in new customer merely by using the product. The key metric is how many new customers each customer brings in – a “viral coefficient”.
• A paid engine of growth acquires new customers through advertising or sales. Here the lifetime value of the customer must exceed the cost of customer acquisition.
We knew all (or most of) this already, but it is great to see how he maps it all out.
His lean manufacturing roots make it easy to see the business as a series of models and machines. Worth a read!
Robert Craven is an entrepreneur, businessman and author who has run Mastermind Groups and action-centred learning with Warwick Business School, Business Growth Programme and London’s Accelerated Growth Programme among others. His latest book is Grow Your Service Firm . He is managing director of The Directors’ Centre.