Lean Eric

I was there!
I got to attend the BLN Lean Start-Up event last night, with Eric Ries presenting his thoughts to an audience of entrepreneurs. I talked to one attendee who’d flown in from an unnamed European country just for the event, and a lawyer who’d changed from smart casual into a suit and tie. In other words I was just there to listen, and here’s what I heard. (By the way I did get the chance to make friends with Davor Hebel from Fidelity Growth Partners, following Eric’s prompting to introduce ourselves.)

The audience for Eric RiesPhoto by Stuart Glendinning Hall

Essentially Eric said that the traditional tools of scientific management were not so much use to entrepreneurs, whatever type or size of organisation. That what was needed though was a validated means to manage entrepreneurial activity. This is what he suggests the Lean Startup methodology provides.

Suits vs engineers
Of course it’s not perfect, as he admitted when he presents to engineers they blame the lack of success on the business people, and vice versa. So there’s still some magic required to apply in bringing the business and tech people together, but how to do that seemed to lacking? Fortunately not long after I spotted a nice example of a lean approach to product development in the recent edition of Wired UK, with the piece about German games company wooga’s approach, which mixes e-commerce, usability, and games design to great effect: ‘Test. Test. Test: How wooga turned the games business into a science’. Love wooga’s slogan for sure: “Be fast and be bold. Only do features that increase DAU monetisation.” DAU stands for daily active users, btw. Which if you think about it is also a great way to get engineers and business folks to agree, using the real time data to guide product development. Certainly this holding entrepreneurs to account is a big theme with Eric Ries, that you need to do small scale testing to get validated results. So there it is the accounting method is the means to unite suits and engineers!

Q. So how does this accounting method work? Answer below, from WSJ’s ‘The Nearly Cult of the Lean Start-Up’

A. It has to be quantifiable or this is all a waste of time

This idea of value is what Mr. Ries means when he talks about accounting. “It has to be quantifiable or this is all a waste of time,” he says. We can draw a lot of valuable lessons from science. The proof in science is that you have learned how to do experiments that show the right results. The same thing is true for validated learning. If we have learned something interesting, then prove it by building products that are in line with that learning.”

This is the development cycle Mr. Ries calls “build-measure-learn”. Build your product, see how people use it, what do they like, what do they click on, what do they hate, and use that to inform your next decisions.

But in order to know how successful or otherwise you are, you need a system of evaluating value.

“That is accounting. We have all been indoctrinated with thinking that accounting is about tracking money, but money just doesn’t work very well when the numbers are so small, like in an early stage start up. There is no RoI, there is no profitability. Everything is close enough to zero that the accountants don’t care.

If 10 people in a row hate my product, isn’t that telling me something?

“The units of innovation accounting are not the gross numbers. Rather than focus on how much money we make, we might look at what is the percentage of customers who pay. We have to look at other things.

“The nice thing about those metrics is that they are not market-size dependent. If you have 100 customers you can already say what percentage are paying. If it is zero then I can already start to be a bit worried about the model.

“If 10 people in a row hate my product is that statistically significant? It is is not conclusive evidence, but it is certainly telling you something.” [note: this is the validated means to create a minimum viable product or ‘MVP’, one which has been tested and validated using accounting techniques]

Judging from the size of his audience at the Business Leaders Network event on Monday, the buzz afterwards, and the fact that Mr. Ries has had almost 20 meetings in his brief time in the U.K. and Ireland (including a meeting at 10 Downing Street), he is preaching to a receptive audience.

Eric Ries The Lean Startup London 004Photo by marklittlewood1

Update: a couple of things have happened since 16 January:

1. I am attending the lean start-up weekend starting 3rd February to better understand the Ries methodology (and jargon;-)

2. Using insights from the evening and this weekend I am presenting at Cass Business Business School on 13th February on using this approach in building online communities on existing platforms that is, to clarify!