Lessons Learned

SXSW

2010-08-24T14:22:00.000-07:00

Next year will officially mark one-hundred years since scientific management, the first great management paradigm, burst into the national consciousness. It invented many concepts we now take for granted: efficiency, productivity, and the idea of management itself. We owe that movement an incalculable debt of gratitude. Have you decide already how to celebrate this centennial? I have: I'm going to mark the occasion at SXSW Interactive in March, 2011. You're invited (details below).

I'm starting to experiment with new ways of talking about the Lean Startup movement and the impact you all are having on the practice of entrepreneurship across countries, industries, and even sizes of companies. We are collectively bringing a new level of scientific rigor to the act of innovation itself, and our revolution is just beginning. We still have much to learn. So take a look at the ideas below, and please leave your thoughts as a comment. As always, I welcome your feedback.

The seed of this idea was planted by many of you on Twitter over the past few weeks. In fact, both I and the SXSW organizers got many emails and tweets about the necessity of having Lean Startup be part of SXSWi. As a result, they were kind enough to allow a very late Lean Startup submission to their user-generated PanelPicker system. They use crowdsourcing to figure out which speakers to invite and what topics are of interest to their audience. Even if you've never been to SXSW or don't know what I'm talking about, you can still go vote - it takes less than five minutes. Because we're getting a very late start on the other panels, our submission is way behind. We only have a few days to catch up, as voting ends on August 27 - just three days from now. So please vote, comment, tweet, and help make this happen. Thank you.

Here's the submission itself, with my first attempt at a new framing for Lean Startup as a rebirth of scientific management. I'd love to know what you think:

The Lean Startup: innovation through experimentation

2011 will mark the one-hundredth anniversary of Frederick Winslow Taylor's "Principles of Scientific Management." The tremendous material abundance we enjoy today is the result of the productivity revolution he unleashed by bringing the tools of science to the study of work itself. Management today is rigorous, scientific, and effective -at the production of physical goods.

In other areas the picture is bleak, especially for innovative new products. We fail spectacularly in startups and big companies alike. Too often we're building something nobody wants. There is a movement that is trying to eradicate this disease.

We are at the beginning of a second scientific management revolution that will bring science, rigor, and discipline to the process of innovation itself. It has already begun to transform the way startups are built around the world. It is called the Lean Startup.

All entrepreneurs face these challenges:

How do we know if we’re making progress?

How do we know if customers will want what we’re building?

How do we know what kind of value we can create?

Answering requires more than just disciplined thinking at the whiteboard. It requires the coordination of people. In other words, it requires management. The Lean Startup is a management science for entrepreneurs of all kinds. It enables rapid customer-centric iteration. It helps startups test their vision before it's too late. It is a tool for people who want to change the world.

Regardless of what the SXSW organizers decide, I intend to host an event in Austin to coincide with the conference. I'm hoping we'll be able to top last year's Lean Startup Smackdown, which was put on by the Austin Lean Startup Circle. I don't know if it will be more like a party, or more like a mini-conference. In fact, I encourage you to weigh in with a comment. Would you be interested in attending? Co-sponsoring or co-organizing? Or just getting drunk? Let me know.

Most importantly, I want to continue to send you all my thanks for your tremendous support and encouragement. I can honestly say this is something I would never have imagined attempting on my own, and it is the latest in a series of amazing experiences you've all made possible. Thank you.

Case Study: SlideShare goes freemium

2010-08-16T09:25:00.000-07:00

(Normally, I do not write about companies that are doing a marketing launch. But I have decided to make an exception today, for two reasons. First, SlideShare is a fantastic product (that I use on a regular basis) and an impressive company example of Lean Startup practices in action. Second, their story illustrates a key Lean Startup idea: proving the business in micro-scale. It requires separating the product launch from the marketing launch (see Don't Launch) as well as other staple Lean Startup tactics: minimum viable product, split-testing, customer development and the pivot. This story especially demonstrates that these techniques are not reserved only for tiny startups just starting out. When SlideShare began the journey you're about to read, they already had more than a million visitors a day. Because the stakes were high, they had to successfully use a technique I call Innovation inside the box which is important for entrepreneurs inside established companies of all sizes.

Once again, this case study is a collaboration with Sarah Milstein, who conducted the interviews and wrote the post itself, with some minor edits and commentary from me. As this is a new initiative for this blog, we especially welcome your feedback. Did you find this post useful? One recurring request I hear from Lean Startup practitioners around the world is a desire to see examples of the ideas in action. How are we doing?

In the meantime, take a look at how SlideShare performed a significant pivot while still moving at full speed. -Eric]

“The first user experience was actually terrible.” Rashmi Sinha, co-founder and CEO of SlideShare, describes an early version of the analytics package that’s part of the Pro accounts the company announced today.

If your company is using minimum viable product, you’ve probably said the same thing yourself. A lot. SlideShare, founded in 2007, started experimenting with MVPs and A/B testing this year. Those tools, combined with focused customer interviews, have turbo-charged the company’s ability to learn.

What prompted the process change? Early this year, SlideShare launched custom channels. Designed for large businesses, the channels let a company share several types of documents, brand the channel with their own design elements, and then include display advertising, contest promotions, blog aggregation, social media integration and metrics reporting. The idea seemed to SlideShare to be a natural direction. Except it didn’t take off. [I was an early adopter of this feature, and participated in the last marketing launch, as you can see here. Alas, even brilliant marketing adorned with a giant picture of me can't fix the wrong product. -Eric]

Big companies said they liked the idea, but SlideShare found it hard to close deals. Meanwhile, individuals and smaller companies emailed by the hundreds to say that they wanted the features of custom channels, but the sales model—arranged like a media buy—didn’t make sense to them.

SlideShare’s existing customers had needs that the company’s new product—along with its pricing and positioning—simply weren’t solving. Realizing it had taken a wrong turn, SlideShare rethought its approach to premium accounts and ultimately performed what we’d call a value capture pivot, one where the company changes the way it collects revenue from customers.

The process started with a few moving parts. First, the company began quietly testing subscription pricing plans, initially positing a basic plan and an enterprise version. Second, when an individual or small company signed up, Sinha would email them to ask if they’d be willing to hold a phone interview with her to discuss their experience of the product. Despite the fact that SlideShare's product is well-established with many customers, Sinha still took the critical step of (to use Steve Blank's famous phrase) getting out of the building, a particularly important job for founders. Third, SlideShare started holding sales calls with large companies to learn what would prompt them to buy the enterprise version.

“Individuals and small companies wanted analytics, they wanted to know what was happening in social media [for their content], they wanted ad removal and lead gen. Branding was less important to them,” says Sinha. Big companies had other needs. “We didn’t anticipate at all the control features. For instance, we worked with Pfizer, and they wanted the comments turned off. I hadn’t thought that would be a feature. But they’re regulated, so it makes sense.” SlideShare used the two streams of information to segment their market and come up with three plans that recombined the custom channel features in meaningful ways.

But that’s just part of the story. As SlideShare was pivoting, it was also trying out two processes to get better results: 1) A/B testing to refine the pricing plans and the page describing them; and 2) MVPs to hone the actual premium features. The combo helped SlideShare learn a lot in short order. [This is the essential approach to testing a big vision that avoids the "local maximum" trap. See Learning is better than optimization. -Eric]

The company ran landing page splits every two or three days (they initially used Unbounce to generate the pages) and measured them carefully with KISSmetrics. They also used SnapABug for live chat on their site. Between the metrics and the direct customer questions, SlideShare had what Sinha calls “minor learnings and then major shifts.”

For example, early iterations of their pricing page included the original, free version of SlideShare. “We realized that was really confusing people,” says Sinha. “We don’t give you all this Pro plan information right away when you join SlideShare. It’s more like, ‘If you’re already using SlideShare, you might want to try this.’” They removed the core plan, and conversions went up.

The A/B testing did have its challenges. Because SlideShare has more than a million visitors a day, the team is used to developing features that at least 100,000 people will use. “You get used to having a big impact,” says Sinha. With the split tests, maybe 500 people would see an iteration (SlideShare drove traffic with calls to action around their own site). “You have to get ready to deal with much smaller numbers.”

The MVPs were tricky to implement for emotional reasons, too. Because the SlideShare team was used to giving away a high-value product, engineers balked at charging for a clearly imperfect product. The analytics package, for instance, launched in what Sinha calls “a very crude version; we started off and sold it before we were comfortable with it.”

The saving grace was follow-up interviews. SlideShare asked customers what they had expected in the product; the responses were often literal descriptions. People consistently said they were dying for analytics and specifically that they wanted to track social media and understand the people visiting their content (SlideShare eventually discovered that showing visitors’ locations and timing satisfied people’s needs).

“Charging for something half-baked is really interesting,” says Sinha. “It makes the product team uncomfortable. At the same time, you make sure that you get honest feedback. If the product doesn’t meet customers’ expectations, they cancel. It’s a very honest relationship. On analytics, we got a lot of feedback that it was half-baked, that we sold it under false pretense. But we would just respond honestly and fast and say, ‘Tell us what you want.’ Then we’d get back to them when we had built it.” Customers appreciated the follow-up, and many bought again after the feature had evolved. In this regard, SlideShare used the early adopter feedback not only to improve the product, but too improve its understanding of what subsequent customers would want. [That is customer development. -Eric]

The marketing launch for SlideShares Pro accounts is today. But the product launch has been happening iteratively over the past months—which means the company is confident in its new offerings. “When we launched custom channels in February, a lot of people reached out and said, “We’d love to buy’,” recalls Sinha. “But it never happened.” [Alas, customers don't know what they want! -Eric] Since creating and refining its premium accounts, SlideShare has closed a number of deals, including high-profile accounts like Dell, Cisco and Pfizer.

Sinha notes that Eric Schmidt, in a recent interview, said that you find out whether people truly like a product in the second phase after launch. In the first phase, you get a lot of curious people. Only after the buzz has died down do you truly understand what’s going on. With careful and continuous learning processes, SlideShare is inverting that idea and going to market with a validated product. That is the essence of proving the business in micro-scale.

[We'll see if the marketing launch results follow the predictions of SlideShare's validated business model. We wish them the best of luck, and hope we can convince them to share their results - positive or negative - in the near future. In the meantime, good luck and thanks for letting us share your story. -Eric]

Case Study: kaChing, Anatomy of a Pivot

2010-07-28T20:37:00.000-07:00

(The following guest post is a new experiment for this blog. It was written by Sarah Milstein in collaboration with kaChing CEO Andy Rachleff. kaChing has been very active in the Lean Startup movement. If you haven't seen it, Pascal's recent presentation on continuous deployment is a must-see; slides are here. In the interests of full disclosure: I am an advisor to kaChing but did not participate in the interviews that led to this case.

With case studies like this, we aim to illustrate specific Lean Startup techniques through the stories of current practitioners. It is written using the information that the company voluntarily shared, and therefore reflects their current thinking and recollections. I am particularly interested in feedback on this case study. Do you find it helpful? Please give us your feedback in the comments. Thanks, Eric)

You probably know that Flickr, the photo-sharing site, started out as an MMOG. And if you’re a regular reader of this blog, you may know that IMVU started out as an instant messaging add-on. It’s common, perhaps the norm, for startups to pivot like that—to discover that a product is catching on in unintended ways worth pursuing. Yet there’s a lot of mystery around pivots, and entrepreneurs ask all the time how you know it’s time to commit to a new direction.

To shed some light, I talked with kaChing, a destination that enables individual investors to find outstanding money managers to manage their money. The company’s audacious goal is to disrupt the $11 Trillion mutual fund industry. The startling part is that kaChing started out as a…Facebook game. That’s an epic pivot, like shifting from making solar calculators to powering the Space Shuttle. How’d it happen?

kaChing launched a virtual portfolio management game on Facebook in January 2008 and a similar version shortly thereafter on kaChing.com. The intent was to discover amateurs who could manage a portfolio as well if not better than professionals (think American Idol) and then facilitate individual investors giving them their real money to manage. In other words, the game would serve as a kind of minor league for the profession. Because kaChing prefers its portfolio managers to have a long track record, the marketplace launch (i.e., the version that would facilitate the investment of real money) was planned for late-2009.

kaChing deployed the game across a slew of platforms, including MySpace, the iPhone, and the Yahoo App Platform. The result? They attracted more than 450,000 portfolios—a decent number for a company that hoped a good percentage would prove out as capable managers. They also hoped a reasonable percentage would realize they were lousy money managers and would then convert to clients.

In the early fall of 2009, as kaChing prepared for its marketplace launch, the management team showed the app—which included real time market data, SEC-grade accounting, analytics, compliance and customer management tools—to a number of investment pros to get feedback and endorsements. One of those pros was John Powers, head of the Stanford endowment. He noted the platform would be good not only for amateurs who had proven themselves as outstanding portfolio managers in the game, but also for professional money managers —a group that had insufficient tools for managing and scaling their businesses.

The kaChing system was based on full transparency. A portfolio manager’s entire track record & holdings had to be disclosed. The company didn’t believe professionals would be willing to reveal that level of detail. But Powers’s reaction was intriguing enough to prompt Andy Rachleff, kaChing’s CEO, to call friends who were professional money managers and describe the idea. The response was surprisingly positive.

Andy Mathieson, a founder and managing member at Fairview Capital, was particularly supportive. He was unconcerned about transparency, noting the good have nothing to fear. Mathieson signed on to be a money manager in the marketplace launch, committing five years worth of prior transactional data. Mathieson’s firm has a minimum investment of $1 million dollars outside of kaChing. On kaChing, consumers could invest in Fairview Capital’s strategy with as little as $3k.

When the marketplace launched on October 19, it included seven amateurs who had risen through the game’s ranks and four professionals, including Mathieson. Within a month, kaChing observed several interesting things. First, because the amateurs weren’t SEC-registered, the site had to refer to them with awkward terms like “geniuses.” That was confusing for consumers, who already had to figure out what on kaChing.com was a game and what was real. Second, out of 450,000 gamers, only seven had qualified to become kaChing managers. Third, the company expected hundreds of amateurs who performed poorly in the game to realize they weren’t good at investing and therefore become customers. in fact only five people converted into paying customers. Finally, after launch, 30 professional money managers, having read articles on the company, contacted kaChing out of the blue. These managers weren’t concerned with transparency. They were interested in the tools and new distribution medium kaChing provided.

In November, kaChing held an all-hands meeting, circling up chairs in their small Palo Alto office, to discuss whether they should focus solely on professionals and abandon the systems for proving amateurs. “Some people weren’t comfortable because it wasn’t as fun, and one senior engineer thought we’d be losing the part of kaChing that was an enabler for anyone who wanted to make it as a pro,” Rachleff recalls. “But what we really wanted to change was not who manages the money, but who has access to the best possible talent. We’d originally thought we’d need to build a significant business with amateur managers to get professionals to come on board, but fortunately It turns out that wasn’t necessary.”

The staff agreed they could better fulfill their goals by working just with professional managers. In December, they removed the game from kaChing.com. In February, they held another all-hands meeting to talk about shutting down the legacy Facebook game, which still had 60,000 active users. “Everybody felt the burden of supporting all those transactions every day,” says Pascal-Louis Perez, kaChing’s CTO. “It took a ton of our time, and just wasn’t contributing to our long term vision.” That all-hands lasted five minutes.

Which is a nice story. But when kaChing actually shut down each game, hundreds of angry players spewed venom. “We had to ignore them, because they weren’t our target audience – and were never likely to become customers.” says Rachleff.

kaChing says they had the fortitude to make quick decisions and stay the course not just because they’d observed how people were using the marketplace, but also because they’d spoken with hundreds of potential and past customers. To acquire new money managers, the company makes traditional sales calls, which means they’ve interviewed many, many professionals and gotten a strong sense of their needs. At the same time, whenever a customer closes an account, kaChing contacts the person to find out why; most agree to a short phone interview. (The site has about 700 active paying customers.

Perez says this level of contact, synthesized with their own observations, has given them confidence to make bold decisions. Of the money managers they’ve interviewed, he notes, “The feedback is consistent; we solve big enough problems for people that we believe they’ll come on board.”

With 21 employees today, kaChing is devoted to recruiting professional managers and finding product/market fit, first for money managers, then for consumers. Thus far the results are encouraging. More than 30 qualified professional money managers have been attracted to the platform and more than $190 million of customer assets have been committed as well.

The kaChing team is quick to note that because they’re still closing-in on product/market fit, they’re less data-driven than they plan to be once they’re in optimizing mode. “We create hypotheses, and test them,” says Rachleff. “If something fails, we cut it off. If something seems to succeed, we pursue it aggressively. You have to have the courage of your convictions. With limited data, you have to make tough decisions.”

Special thanks to Pascal-Louis Perez for sharing information and making this post possible.

Some IPO speculation

2010-07-15T13:29:00.000-07:00

Inspired by Steve Blank’s post today about the “lost decade” of IPO’s, I’d like to make some predictions. Let me be clear: Steve is the historian. His posts are born of tremendous research into the secret history of Silicon Valley, and if you haven’t read those essays, you should. By contrast, what I’m about to say is pure speculation.

The fact that IPO’s are disappearing makes intuitive sense to me. And the fact that the effects of this IPO vanishing act are being felt first and foremost in the software business also makes sense to me. In fact, I believe that the software business is the canary in the coal mine: increasingly, all businesses are going to look more and more like software businesses.

My belief is that the root cause of the IPO shortage is that successful startup companies cannot find productive ways to invest large amounts of money to scale anymore. For software companies especially, scaling distribution and development is comparatively cheap. The old ways aren’t working. Large capital investments simply don’t have the ROI they used to. The world is changing too fast. New products become commoditized too fast. Increasingly, the only profitable thing to invest in is innovation, which means investing in people. And we don’t yet know how to do that on a consistent, scalable, basis.

Ironically, the VC’s who depend on IPO’s and the CEO’s who are supposed to be creating them are struggling with the same basic problem. They do not have a comprehensive theory of entrepreneurship that allows them to consistently invest in innovation that can create long-term value.

The only way I can see to achieve sustained growth is to create an innovation factory. The modern CEO needs to build an organization that is truly diversified: it is continuously investing in successful sustaining innovation and disruptive innovation. Such an organization should be able to deploy large amounts of capital effectively, by investing in its people. But this is a very different kind of diversification from the old-school GE model. We can’t just diversify across industries or geographies. We can’t even rely on a suite of line-extension products. We have to continually invent new categories of products, new platforms, and new business models – all extremely risky bets. Oh, and by the way, we still have to execute flawlessly. (Even the smallest flaw with an antenna can derail the whole train.)

Today’s management reality is just plain harder than that of the past. General managers need to know how to manage the execution-oriented "twentieth century" general managers that work for them. But they also need to know how to manage the new entrepreneurial managers that, increasingly, are essential to their growth. In other words, the old “manager vs. entrepreneur” dichotomy is breaking down. You cannot be a competent general manager in today’s economy if you do not understand entrepreneurship.

We are living in a transitional moment. The last of the old-school IPO companies are behind us (at least in software), and yet we have not yet witnessed the new-style IPO companies. Despite Google’s reputation as an innovative company, they seem to me to be counted as one of the last of the old breed. Their entrepreneurial successes are mostly to be found outside the organization, in the form of ex-Googlers who became entrepreneurs. Their internal “startup” projects seem, at least to my eye, to have a success rate only marginally higher than Microsoft’s (perhaps with Android – an acqusition – as a major exception). Certainly a large proportion of them end in failure.

The new breed of company currently finds itself satisfied with private capital, and has no need for an IPO. I think Zynga and other games companies may be the earliest exemplars for us to look at. Game companies naturally lend themselves to a “studio” model, with semi-autonomous teams building out their own franchise of sequels and spin-offs. From public reports, it seems like Zynga has really mastered a formula for innovating repeatedly and relentlessly across segments, platforms, and genres. And there are plenty of imitators and fast followers on their way. Will that cohort of companies need an IPO?

When private capital is available in sufficient quantities to satisfy investor and founder liquidity needs, why go IPO? The only reason I can think of is when you need dramatically more capital to grow your business, at a magnitude only available on the public markets and therefore worth the loss of control that going public entails. Our leading crop of pre-IPO web companies apparently do not need that much capital – yet.

It’s a debatable proposition why they don’t need IPO levels of cash. I freely admit that I have no inside information, no unique insight into what they are thinking. But I am nonetheless confident in my prediction: they don’t yet have the ability to manage an innovation factory at that scale. That’s not a criticism; nobody knows how – yet.

We need a new generation of managers trained in a comprehensive management theory of entrepreneurship. Comprehensive means it has to address all aspects of a startups life: marketing and product development, especially. It has to address all stages of startup growth and development – especially including the evolution into a true innovation factory. Tomorrow’s managers will need to know how to build a learning organization (where progress is measured by validated learning) and an execution organization (where progress is measured according to traditional value streams). They will need to know how to combine those organizations into one coherent whole.

I believe that the Lean Startup is the first such comprehensive entrepreneurship theory. But these are still early days. We have much work to do. We face problems today that would have bewildered the earliest management theorists. Their struggle was to use management to create enough productivity to feed, clothe, and house the world. Our civilization has excess capacity everywhere. We can build anything we can imagine. But the ranks of highly educated unemployed and the abysmal failure rates of new products both speak to the same question that needs answering: not, “can it be built?” but rather, “should it be built?”

The sum total of all we know about entrepreneurship is just the tip of the iceberg. We need to be disciplined, to study what works scientifically, and – above all - to introduce scientific methods into the practice of entrepreneurship itself.

When we master that, I think we’ll know what to do with IPO’s again. At least, that's my speculation. In the meantime, it’s going to be fun.

Founder personalities and the “first-class man” theory of management

2010-07-09T16:42:00.000-07:00

At any given time, something like four percent of the US population is engaged in some form of new-company-creation. And that narrow definition of entrepreneurship doesn’t count all of the managers inside established companies who are effectively engaged in the same process of building an internal startup (see What is a startup? for my more expansive definition).

What motivates all these entrepreneurs? Typical explanations tend to focus on the well-known anecdotes and larger than life archetypes we have in mind: the twenty-something college dropouts (men, of course) from Stanford inventing some radical new technology. The academic research tells a very different story.

What do entrepreneurs look like? Are they born or made? This is a hard question. I think the root cause of that difficulty is that we tend to conflate two different questions into one. First, what causes someone to attempt entrepreneurship instead of a more traditional career path? And second, what attributes make someone likely to be a successful entrepreneur?

The difficulty lies in this paradox: many of the attributes that increase the likelihood of becoming an entrepreneur actually impede startup success.

Let’s start with the startup personality attributes. The academic research here is extraordinary. Here are the personality traits that are positively correlated with likelihood to pursue entrepreneurship: extraversion, skepticism, need for achievement, risk taking, desire for independence, locus of control, self efficacy, overconfidence, representativeness (the tendency to over-generalize from small samples), and intuition.

I think most of those factors correspond to our shared image of what an entrepreneur is supposed to look like. But many other attributes (especially demographic realities) cut against that stereotype. For example, Vivek Wadhwa and others have shown that most entrepreneurs are much older than we expect. Career experience and industry expertise are both positively correlated with entrepreneurship: contrary to stereotype, most entrepreneurs are not young and inexperienced outsiders. And unlike some psychological factors, these experience-based factors also increase the odds of the subsequent venture being successful.

It is in the psychological factors that we find the most paradox. For example, consider the propensity for risk-taking. Research has demonstrated the obvious: that people who have greater tolerance for risk or ambiguity are more likely to attempt entrepreneurship. That’s not too surprising. But does a risk-taking attitude actually lead to more startup success? The studies that have looked at this question in particular have found a negative correlation between risk-taking behavior and startup success.

That doesn’t strike me as shocking. And, although this hasn’t been subjected to a great deal of study (yet), I believe this same pattern will be found in a variety of other entrepreneurial characteristics: overconfidence, determination to succeed, perseverance, and even the desire to be in control. All of these factors are helpful in getting people to take the plunge, but all of them cause serious impairment of decision-making down the road. Think of the startups you know who are caught in a reality distortion field, heading full-speed off a cliff. Most likely, you will find the above attributes in excess supply.

I believe this is also why breakthrough success stories in entrepreneurship often feature a “classic” zany entrepreneur paired with someone you wouldn’t expect to be taking those kinds of risks. We often talk about this as the “visionary” and “the quant” or the “leader” and the “manager.” But I’m not convinced those labels are right at all. I think it much more likely that we’re seeing the embodiment – in the form of personality - of the “problem team/solution team” organizational structure. One team is in charge of carrying out the vision as currently specified, and one team is constantly asking the skeptical questions: who is the customer? Are we solving the right problem?

Although we have historically viewed this structure in startups by focusing on the personalities of the founders, I think that reflects our current, relatively poor, understanding of how startups work. We can do better by focusing on process instead of personality. We can consciously organize startups to become much more resilient organizations. Otherwise, we risk having them degenerate into cults of personality.

In the early twentieth century, before the advent of scientific management, the overriding management philosophy was that of the first-class man (and they were always men). The idea was, for any job, if you can simply find an individual with just that right combination of virtues, talents, and experience, you could safely delegate all decisions to them. Sound familiar? This kind of reasoning is almost impossible to disprove. If you empower someone to make decisions and then something goes horribly wrong, does that disprove the first-class man theory? Probably not; it’s much easier to blame the particular person who made the mistakes. In fact, making mistakes is seen as “proof” of being second-class.

In management jobs related to operations – that is, the people tasked with actually making and distributing physical products – this kind of thinking is now considered ludicrous, thanks to a century of progress. Our modern philosophy of management has this core belief (taken straight from scientific management) at its heart: that the performance of companies is determined by the systems they create, not just the people they hire. No amount of individual superstardom can overcome a badly organized factory, because the weight of the system eventually overwhelms any well-intentioned but poorly organized resistance.

Yet we tolerate our modern version of the first-class man theory in the management of more “fuzzy” topics, especially innovation and entrepreneurship. When we look back on this period in history, it will seem just as ludicrous to future entrepreneurs as pre-scientific management looks to us.

I am determined to do everything I can to hasten the arrival of that day. If you’re part of the Lean Startup movement, then you’re actually making it happen. Thank you.

All of the academic research alluded to in this essay is drawn from Scott Shane’s General Theory of Entrepreneurship which is a fantastic and wide-ranging overview of the state of the art in academic research on entrepreneurship.

The Entrepreneur’s Guide to Customer Development

2010-07-05T11:24:00.000-07:00

Brant Cooper and Patrick Vlaskovits have written a new book, The Entrepreneur’s Guide to Customer Development, which builds upon the foundational work of The Four Steps to the Epiphany, while improving accessibility, updating the ideas, and making it more actionable. I believe it is the best introduction to Customer Development you can buy.

As all of you know, Steve Blank is the progenitor of Customer Development and author of The Four Steps to the Epiphany. I have personally sold many copies of his book, and continue to recommend it as one of the most important books a startup founder can read.

I used to give copies of Four Steps out to my employees, in the hopes that it would instantly indoctrinate them into the methodology of Customer Development. I just assumed that everybody would love the book as much as I did, and would instantly change their behavior based on what they read in a book. You can imagine how well that worked. Instead of that naive approach, I wish I'd had a book like this one, to help me figure out how to get started with customer development step-by-step.

When I wrote a review of Four Steps on this blog in November, 2008, I did my best to be candid and warn of a few shortcomings:

And Steve is the first to admit that it's a "turgid" read, without a great deal of narrative flow. It's part workbook, part war story compendium, part theoretical treatise, and part manifesto. It's trying to do way too many things at once. On the plus side, that means it's a great deal. On the minus side, that has made it a wee bit hard to understand.

Brant and Patrick undertook a difficult challenge: to provide a generally accessible introduction to Customer Development, without diluting its impact or dumbing-down its principles. I think they've succeeded.

The Entrepreneur’s Guide is an easy read. It is written in a conversational tone, doesn't take itself too seriously, and avoids extraneous fluff. It does a great job of laying out general principles and suggesting specific, highly actionable tactics. You can easily take from it whatever makes sense for your business, and leave the rest. And it's incredibly to-the-point: you can digest this book in a couple of hours.

While the customer development framework of Four Steps is universally relevant, The Entrepreneur’s Guide updates its practices for modern startups. Four Steps primarily centers its stories and case studies on B2B hardware and software startups. This new volume also tackles examples from the Internet and wireless startups of today, both B2B and B2C. And throughout, they maintain a thoroughly realistic take on the power - and limitations - of an entrepreneurship methodology:

Successful implementation of Customer Development, let alone simply believing in it, will not guarantee success for your business. Customer Development will help you – force you – to make better decisions based on tested hypotheses, rather than untested assumptions. The results of the Customer Development process may indicate that the assumptions about your product, your customers and your market are all wrong. In fact, they probably will. And then it is your responsibility, as the idea-generator (read: entrepreneur), to interpret the data you have elicited and modify your next set of assumptions to iterate upon.

Many “airport business books” urge entrepreneurs to never give in. They tell them to persist in their dream of building a great product and/or company, no matter what the odds are or what the market might be telling them – success is just around the corner. They tend to illustrate this sort of advice with inspiring stories of entrepreneurs who succeeded against all odds and simply refused to throw in the towel. While maintaining persistence and willpower is certainly good advice, Customer Development methodologies are designed to give you data and feedback you may not want to hear. It is incumbent upon you to listen.

The Entrepreneur’s Guide to Customer Development includes four powerful case studies/interviews with successful entrepreneurs who have taken iterative approaches to their respective startups that very much resemble the spirit of Lean Startups and Customer Development. I found these to be particularly interesting and worthwhile.

At the heart of Brant and Patrick's interpretation of Customer Development is their belief that its fundamental teaching is to question assumptions. This gives them a hook with which to apply their ideas to a wide variety of situations. In other words, if particular examples in the book don’t apply to you directly, Brant and Patrick show you how to figure out what might work for you. This is important, since every situation is different. I'll give them the last word:

You are already skeptical of Customer Development and Lean Startups and the slew of emerging buzzwords and supple-to-the-point-of-meaningless terms. That’s great, more power to you; we applaud your skepticism. But be philosophically consistent: periodically take the time to question your own expertise and that of your friends, partners and investors. Make the effort to test your assumptions.

If there’s a shortcoming to this book, it’s that it focuses primarily on the Customer Discovery step in The Four Steps. Here’s hoping they soon tackle Customer Validation. Well done, Brant and Patrick. I can't wait to see what's next. In the meantime, go buy a copy of The Entrepreneur´s Guide to Customer Development right now.

What is a startup?

2010-06-21T07:48:00.000-07:00

I think most people have a fairly specific image that gets conjured up when they hear the word startup. Maybe it’s the “two guys in a garage” made famous by HP, or the idea of Jobs and Wozniack walking barefoot and shaggy through the Homebrew Computer Club. Maybe it’s the more recent wunderkinds like Zuckerberg or Brin and Page. What all of these pictures have in common is a narrative that goes something like this: scrappy outsiders, possessed of a unique genius, took outrageous risks and worked incomprehensible hours to beat the odds.

But this cinematic view of entrepreneurs is flawed in many ways. Let’s start with the most basic. It leads people to mistakenly believe that any time they see two guys in a garage attempting the impossible, that’s a startup. Wrong. It also causes them to miss the numerous other kinds of startups that appear in less-glamorous settings: inside enterprises, non-profits, and even governments. And because both small businesses and startups have a high mortality rate, sometimes these images lead us to believe that any small business is a startup. Wrong again.

So let’s begin with a definition of a startup that captures its essential nature, and tries to leave behind the specific associations of the most famous startups.

A startup is a human institution designed to deliver a new product or service under conditions of extreme uncertainty.

Let’s take each of these pieces in turn. First, I want to emphasize the human institution aspect, because this is completely lost in the “two guys in a garage” story. The word institution connotes bureaucracy, process, even lethargy. How can that be part of a startup? Yet, the real stories of successful startups are full of activities that can rightly be called institution-building: hiring creative employees, coordinating their activities, and creating a company culture that delivers results. Although some startups may approach these activities in radical ways, they are nonetheless key ingredients in their success.

Isn’t the word human redundant in this definition? What other kinds of institutions are there, anyway? And yet, we so often loose sight of the fact that startups are not their products, their technological breakthroughs, or even their data. Even for companies that essentially have only one product, the value the company creates is located not in the product itself but with the people and their organization who built it. To see proof of this, simply observe the results of the large majorities of corporate acquisitions of startups. In most cases, essential aspects of the startup are lost, even when the product, its brand, and even its employment contracts are preserved. A startup is greater than the sum of its parts; it is an acutely human enterprise.

And yet the newness of a startup’s product or service is also a key part of the definition. This is a tricky part of the definition, too. I prefer to take the most expansive possible definition of product, one that encompasses any source of value for a set of people who voluntarily choose to become customers. This is equally true of a packaged good in a grocery store, an ecommerce website, a non-profit social service or a variety of government programs. In every case, the organization is dedicated to uncovering a new source of value for customers, and cares about the actual impact of its work on those customers (by contrast, a monopoly or true bureaucracy generally doesn’t care and only seeks to perpetuate itself).

It’s also important that we’re talking innovation, but this should also be understood broadly. Even the most radical new inventions always build upon previous technology. Many startups don’t innovate at all in the product dimension, but use other kinds of innovation: repurposing an existing technology for a new use, devising a new business model that unlocks value that was previously hidden, or even simply bringing a product or service to a new location or set of customers previously underserved. In all of these cases, innovation is at the heart of the company’s success.

Because innovation is inherently risky, there may be outsized economic returns for startups that are able to harness the risk in a new way – but this is not an essential part of the startup character. The real question is: “what is the degree of innovation that this business proposes to accomplish?”

There is one last important part of this definition: the context in which the innovation happens. Most businesses – large and small alike – are typically excluded by this context. Startups are designed to confront situations of extreme uncertainty. To open up a new business that is an exact clone of an existing business, all the way down to the business model, pricing, target customer, and specific product may, under many circumstances, be an attractive economic investment. But it is not a startup, because its success depends only on decent execution – so much so that this success can be modeled with high accuracy. This is why so many small businesses can be financed with simple bank loans; the level of risk and uncertainty is well enough understood that a reasonably intelligent loan officer can assess its prospects.

Thus, the land of startups is a unique place, where the risks themselves are unknown. Contrast this with other high-risk situations, like buying a high-risk stock. Although the specific payoff of a specific risky stock is not known, investing in many such stocks can be modeled accurately. Thus a decent financial advisor can give you a reasonably accurate long-term expected return for a set of risky stocks. When the “risk premium” is known, we are not in startup land. In fact, when viewed in retrospect, most startups appear like no-brainers. Probably the most famous example today is Google: how did we ever live without it? Building that particular product was not nearly has risky as it seemed at the time; in fact, I think it is a reasonable inference to say that it was almost guaranteed to succeed. It just wasn’t possible for anyone to know that ahead of time.

Startups are designed for the situations that cannot be modeled, are not clear-cut, and where the risk is not necessarily large – it’s just not yet known. I emphasize this point because it is necessary to motivate large amounts of the theory of the lean startup. Fundamentally, the lean startup is a methodology for coping with uncertainty and unknowns with agility, poise, and ruthless efficiency. It is a completely different experience from the equally hard job of executing in a traditional kind of business, and my goal is not to disparage those other practitioners – after all, most startups aspire to become non-startups someday.

Still, these differences matter, because the “best practices” that are learned in other contexts do not transplant well into the startup soil. In fact the most spectacular startup failures result when people were in a startup situation but failed to recognize it, or failed to recognize what it meant for their behavior.

This definition is also important for what it excludes. Notice that it says nothing about the size of the company involved. Big companies often fail because they find themselves in a startup situation but are unable to reorient in time to cope with this situation; this specific pathology is explored in The Innovator’s Dilemma. This kind of crisis can be precipitated by many external factors: macroeconomic changes, trade policy, technological change, or even cultural shifts. But most often, the entrant of a startup into a previously calm market precipitates this kind of crisis. This has significant implications for general managers in enterprise, about which you can read more at HBR: Is Entrepreneurship a Management Science?

No departments

2010-06-17T08:26:00.000-07:00

Big companies have departments. Startups are companies. Startups aspire to become big companies. Therefore, startups should have departments. Right?

Why do companies have departments? There are a lot of reasons: ladder of advancement, sharing of best practices, functional specialization. Each of these benefits also exists in startups, which is why most startups are also organized in departments. But I have come to believe that because of the unique context of startup land, the payoff is a lot smaller than it is for larger companies. Meanwhile the drawbacks of functional departments can cause real and lasting harm.

I once worked at a startup with an exceptional functional department system. The leaders of each department were world-class experts in their respective fields. The team hired only the best and the brightest. Looking back after a few years, it’s evident that many of the people who worked in these departments have gone on to do incredible things in industry. They are leaders, visionaries, founders and managers having tremendous success.

Yet talent organized improperly can lead to failure. I was an engineer on the engineering team. We had to work closely with artists on an art team. We sat in different parts of the building, ate lunch separately, spoke a different specialized jargon, and generally didn’t understand each other. According to the Waterfall methodology in which we worked, this shouldn’t have been a problem. After all, we rarely had to work on the same project at the same time. The art team would often be involved in the specification phase of a new feature, since they were responsible for the look-and-feel of the product. Then we’d build the feature, which would often include tools that were intended for the art team to use to build the parts of the product that they were responsible for (in video game parlance, this is the “art path” that allows artists to get their work into the production product).

Sure, some communication was necessary, especially as artists had to be trained on new tools periodically. But according to the theory, this should have been covered by the various specs and documentation we were rigorous about producing.

If anyone has ever worked in an environment like this, you’ll probably be able to imagine the things that can go wrong. For one, the engineers consider the artists stupid; the artists consider the engineers arrogant. Not a lot of trust builds up that can be used when real disagreements emerge. Instead, there’s a positive feedback loop of bad feelings. And like feedback on a simple microphone sound system, this would occasionally boil over into screeching.

I remember one such meeting vividly. I was the junior guy on a project team; I was called in to do some technical due diligence for reasons that were obscure to me, because the team already had much more senior engineers assigned to it. I was invited to a feature decision meeting, where the team was closing in on a detailed spec. The meeting was tense. The artists on the team had called in the big guns, and VP-level folks were there to explain the importance of certain aspects of the visual design that threatened to be cut. I eventually realized that I was there as part of the same plan – the art team has specifically requested someone technical but unimportant to be able to render opinions that might undermine their more senior opposition. Not to be outdone, the technologists on the team had also brought their big guns, and the meeting was packed with employees of every level – from VP’s all the way down to me.

As the meeting progressed, the temperature kept rising. At first, I couldn’t even follow the recriminations back-and-forth. Eventually, though, I realized what was at issue: the art team was insisting that the UI for this feature have rounded corners. Incredibly, they were willing to bring the company to a standstill to protest that this was an absolutely essential feature. Even more surprisingly, the engineering team was equally vocal about their contention that adding rounded corners would add weeks of development time to the project, which would have pushed it out way past its hard deadline, effectively killing it. On the surface, this was a ludicrous dispute – both sides were willing to kill the project rather than proceed with (or without) a minor UI tweak. Were they just crazy?

I don’t think so. This meeting was just the latest in a series of escalating skirmishes that had taken place over many months. The feedback loop looked something like this. The art team would create a spec for a feature, detailing the UI as best they could. The engineering team would then build that feature, mimicking the UI as close as they could using the current primitives supported by the system. When the art team would review the final product, they were inevitably outraged – it deviated from the spec in ways they considered major. So there would be a lot of scope negotiation at the very end, when it is most expensive. Sometimes, the art team would win the argument, and the engineers would pull a few all-nighters to make them happy, but feeling betrayed at the new additions to the spec. Sometimes the engineering team would win, and the art team would have to accept (and be held responsible) for a feature that didn’t really work the way they wanted, feeling betrayed at the violation of their agreement.

As an isolated incident, this wouldn’t be a big deal. But scope negotiations between departments are an example of an “iterated prisoner’s dilemma” situation, where the same parties repeatedly negotiate, and rely on their previous experience to inform their choices in the current round. Unfortunately, the equilibrium in this particular setup has one overriding outcome: longer and more detailed specs. Here’s why.

The art team feels burned that they didn’t get what they asked for. Last time, the engineers weaseled out of their commitments by point out areas where the spec didn’t specify what was really important to the artists. So this time, they are going to spell out what’s important in even greater detail, to leave less wiggle room.

The engineering team feels burned too, and feels that they were blamed for deficiencies in the spec as if it was their fault that the technology doesn’t really support what the artists want to do. So they react in two ways. First, they actively encourage a more detailed spec, and are more aggressive about pointing out possible inconsistencies. This forces the art team to make concrete decisions about stuff they don’t really care about. Second, the engineering team starts to pad their estimates, knowing that each feature in the spec is not really done when they think it’s done – there’s going to be inevitable scope creep from the art team when they finally see the final result.

What are the consequences of this more detailed spec? For one, it takes a lot longer to create, meaning that the projects themselves get larger in order to rationalize the increased investment in planning. Second, the extra detail obscures the artists’ original intent in specifying the feature, so the engineers are even more likely to miss the big picture and build the wrong things. And lastly, it removes the engineering team’s ability to find breakthrough solutions that might deliver most of the value at a fraction of the cost. They can’t use any discretion for fear of breaking the spec’s contract, even if the changes would probably go unnoticed or even be in the company’s best interests. The lack of trust (and the procedure of the Waterfall methodology) makes it very difficult to ask for clarification or changes in the spec while the implementation is underway.

This feedback is a nasty trap, and it’s just how this room full of otherwise rational adults wound up in a screaming match about rounded corners. It was painful to watch. Now, part of the reason I remember this particular meeting so well is that I wound up doing something considered really radical at the time. I suggested that we change the underlying architecture of our UI system so that the artists would be able to build their own UI pieces themselves and then integrate them into the product without requiring new code every time. It took an incredible amount of politicking and arm-twisted, but I did eventually get the teams to agree to that solution. I’m proud of that contribution, but the reason I tell that part of the story is not to show off, but rather to be able to tell you what happened next. Although both teams got something valuable about the new system, neither was very happy. I had successfully defused the situation, and by reducing the feedback loop between the artists spec and its implementation, I was able to help them realize their goals better. As a technical fix, it was brilliant. As a solution to the underlying problem, it was useless.

Neither side liked me very much for having "fixed" their problem. In particular, the artists felt like I had created a lot more work for them – they were used to having other people grapple with implementation details for them, and now they had to do it themselves. They either had to hire a developer onto the art team itself (unthinkable) or learn those development skills themselves (which was, to be fair, really hard). The engineering team wasn’t happy either. Creating this new architecture was a fair bit of work, and they couldn’t shake the feeling that I had basically sided with the enemy, giving them tools that would require a lot of engineering support but basically deprive the engineering team of any credit for the resulting features.

I’ve now come to believe that this confrontation was a direct result of the partition between the departments in this company, and that rather than seek technical solutions to the disagreement, I would have been better off working to break down those walls.

Let me tell one more story from that same company. I mentioned before the art path, the set of tools the engineering team was required to build and maintain for the art team to be able to create content. Because the art team was considered an internal customer (and “friendly” to boot), we didn’t waste a lot of time making the tools easy to use. Instead, we spent time making sure the exact behavior of the tools were well documented – by engineers, naturally.

This led to some pretty bizarre situations. One time I remember in particular, an engineer fixed a bug that was causing artists’ creations to render in our 3D environment with a skewed rotation. The details aren’t important, but it turned out that under certain relatively common conditions, the objects would come out completely upside-down.

I’m sure this engineer was expecting to be treated as a hero by the art team, since he had just fixed a major bug. But instead he was reviled. Why? The artists had known about this bug for ages, but had just assumed it was a natural part of the system. They had learned that the best way to solve problems is through trial-and-error, doing whatever it takes to get the object to look right. So sometimes the object would come out upside-down, sometimes not. When it did, they’d just invert their original work so that after the upside-down transformation, it looked right. Sure, there was a lot of randomness in whether they would need to take this extra step, but this was nothing unusual. From their point of view, the tools were full of meaningless jargon and bizarre incantations that resulted in nearly random behavior. This bug was not even considered a major one, since at least it had a deterministic fix.

But now you can see what happened when the bug was fixed. A large, but mostly random, sample of objects started rendering upside-down! This required either that we leave the bug in place, or that the art team go back and rework all those thousands of upside-down objects. Neither solution is particularly alluring.

Again, this led to lots of mutual recriminations. Why didn’t the art team come to the engineers and tell them of this bug as soon as it manifested? Why aren’t they smart enough to figure out what the tools actually do? On the other side, why don’t the engineers just deliver tools that work like they’re supposed to? Other more established companies have tools that are intuitive to use, why can’t we?

The solution to this problem is actually really simple. Just create an art path team, composed of some artists and engineers. Force them to live and work in the same physical space, force the engineers to actually do some art production, and force the artists to actually learn what the technical limits of the tools are. As the team gets traction, simply rotate members from both departments through this team, so that the knowledge they gain is eventually diffused through both organizations. And hold the leaders of that team – artists and engineers alike – accountable for a set of clear goals for the tools that are important to the company.

There’s nothing intrinsically difficult about this problem, just as their was nothing intrinsically difficult with the “rounded corners” problem I discussed earlier. The barrier to doing the right thing is the entrenched ideas originating from departments. Who would lead this team? Who would they report to? How would we ensure that the team was faithful to the best practices of both the art team and the engineering team? And plus, do we really want to be cross-training engineers in art and artists in engineering? Isn’t that a waste of time? After all, both teams are already too busy, how can we afford to pull people off and waste time?

This is another variation of the time/quality/money fallacy – the very quality problems that a team like this would address are currently wasting time and causing the team to be “too busy” to invest in the solution. So: enough with functional departments at startups. Let's start holding people accountable solely for their contribution to the only thing that matters: validated learning about customers.

The Five Whys for Startups (for Harvard Business Review)

2010-06-02T09:50:00.000-07:00

I continue my series for Harvard Business Review with the Lean Startup technique called Five Whys. Five Whys has its origins in the Toyota Production System. I've written about this before in some detail, but this was an opportunity to try and frame it for a general business audience. After all, Five Whys is the most general, most transferable technique in the toolkit, because it can act as a natural speed regulator for any kind of work. (If you're curious about the theory behind this idea, see Work in small batches.)

The Five Whys for Start-Ups - The Conversation - Harvard Business Review

Root cause analysis and preventive maintenance are concepts we expect to see in a factory setting. Start-ups supposedly don't have time for detailed processes and procedures. And yet the key to startup speed is to maintain a disciplined approach to testing and evaluating new products, features, and ideas. As start-ups scale, this agility will be lost unless the founders maintain a consistent investment in that discipline. Techniques from lean manufacturing can be part of a startup's innovation culture.

One such technique is called Five Whys, which has its origins in the Toyota Production System, and posits that behind every supposedly technical problem is actually a human problem. Applied to a start-up, here's how it works....

Read the rest of The Five Whys for Start-Ups.

You can view previous essays in this series here:

Thank you

2010-05-31T09:13:00.000-07:00

The past month has been an incredible roller coaster: #sllconf was a trending topic (briefly topping Justin Bieber before the wifi in the hotel gave out), the Web 2.0 Expo Intensive rocked, the mainstream media has started writing about the Lean Startup, and - most of all - the movement continues to grow and evolve. Having had a few weeks to recover from the adrenaline crash, I find myself full of gratitude.

First of all, the Startup Lessons Learned conference exceeded my wildest expectations. I could barely keep up with the reaction in the weeks leading up to it; the transition from cynicism to hype almost caused whiplash. Sean Murphy has an excellent and comprehensive roundup of resources about the conference: all of the slides, videos, summaries, notes and write-ups are listed on his blog here. I'd like to call special attention to Kurt Carr's perspective (let's hope he finishes his five-part series):

Now that I’m back in Ohio (I was one of the token foreigners in a room full of Silicon Valley residents), I have found myself reliving and rethinking much of what I saw there. It has taken me a while to integrate what I learned into my experiences but I think that I have gotten at least the MVP version of that integration completed. These posts are the result.

I went to the conference thinking that I was well grounded in the basics of the Lean Startup approach and that attendance would hone the edges of that understanding. As it turned out, my thinking was short sighted at best.

It’s not that I was ignorant of the fundamentals of Lean Startup thinking, but that hearing these fundamentals discussed by some very intelligent, experienced folks helped me transform and internalize that knowledge. I had really debated about whether there was any value in spending the time and money to fly to San Francisco when there was a perfectly serviceable simulcast going on in Cleveland. All I can tell the folks who attended the simulcasts is that I’m not missing either the time or the money.

(You can read the rest of his posts on his blog: Introduction, Part 1, Part 2.) All video from the conference is available for free at Justin.tv here. It's in reverse-chronological order, so start with page 3 or just use Sean's handy reference..

I am grateful to everyone who helped make this event a success, especially my co-organizers Charles Hudson and David Sachs. Erin Turner helped organize the dozens of simulcast venues. All of those venues had their own local organizers who deserve our thanks as well (especially those in distant time zones who had the stamina to watch live). And a special thanks is due to all of our presenters, panelists, and mentors. You are the ones that consistently blew the audience away.

One of the themes of the conference was that we all stand on the shoulders of giants. I'd like to supplement that with some personal thank-yous.

Steve Blank has been a mentor to me for several years. He had the courage to speak out about the need for a rigorous theory of entrepreneurship long before that was a popular idea. When I first encountered customer development, it was considered pure lunacy by mainstream entrepreneurs and VC's. He inspired me to take a deeper look at what we all thought we understood about startups. We all owe him our thanks for persevering. His latest project, to reform the teaching of entrepreneurship worldwide, will have no less an impact. Do you know the difference between Durant and Sloan? If not, you'd better watch video of his talk ASAP. And then you can buy a t-shirt.

Kent Beck is deservedly famous for his many contributions in the software industry. His characteristic humility and clear thinking were on display as he casually demolished one sacred cow after another. Although many of the non-technical folks in the room didn't understand what was happening in the moment, plenty of hackers were on high alert. By the time he was done, he had launched a new Agile Manifesto:

Team vision and discipline over individuals and interactions (or processes and tools)
Validated learning over working software (or comprehensive documentation)
Customer discovery over customer collaboration (or contract negotiation)
Initiating change over responding to change (or following a plan)

And he made it seem like no big deal. Of course ideas have to evolve and change. How often do you see that level of intellectual honesty on display? Thank you, Kent.

Randy Komisar is someone I am pleased to consider a friend and mentor. We were colleagues briefly at KPCB, where Randy has been working not just with individual companies, but also working to change the mindset of entrepreneurs everywhere. Unfortunately, the video of our sllconf conversation is not online (due to technical problems), but we have a physical tape backup which we are endeavoring to get online soon. In the meantime his two books, The Monk and the Riddle and Getting to Plan B are both a must-read.

There are so many more people to thank: Sarah Milstein and the Web 2.0 Expo team for their tireless efforts to give us a fantastic stage in San Francisco (my keynote and Steve Blank's are both online), Steve Lohr at the New York Times for two great pieces on the Lean Startup concept (The Rise of the Fleet-Footed Start-Up and What Start-Ups Can Teach Big Companies), Pui-Wing Tam of the Wall Street Journal for exposing the larger movement to a mainstream audience (with minus points for calling me a guru), Harvard Business School professor Tom Eisenmann who has helped behind the scenes, conference sponsors (especially Steve Anderson), Mark Graban and the Lean Enterprise Institute, my comrades-in-arms and fellow-bloggers (you know who you are, including David Binetti for correcting my spelling), and my family and friends who have supported/put up with me during this intense roller coaster.

Most of all, I wanted to say a huge thank you to all of you: readers, entrepreneurs, agents of change. I get more credit than I deserve for being in the right place and the right time, putting your aspirations and frustrations into words. Together, I believe we are changing the face of entrepreneurship. If that's true, it's primarily due to your hard work, building companies and testing new ideas. Entrepreneurship is the life-blood of our global civilization. We all owe you. Thank you.

Philosophy Helps Start-Ups Move Faster (WSJ on the Lean Startup)

2010-05-20T10:13:00.000-07:00

The Wall Street Journal covers the Lean Startup movement in today's paper. Although the article is a bit me-centric, I think they did a good job capturing the fact that this is more than just the bloggers and writers, but represents a shift in thinking among entrepreneurs all over the world. The article includes comments from Kevin Dewalt and Drew Houston. Even Marc Andreessen weighs in. I think this means we've officially diffused our first major misunderstanding (that lean means cheap and small) - congratulations. Apparently, the article is in today's print edition (in the Bay Area section), but I'm in the wrong time zone to see it.

Here's an excerpt:

Philosophy Helps Start-Ups Move Faster - WSJ.com

Silicon Valley entrepreneurs and venture capitalists often churn out how-to business books and fancy themselves as management gurus, but few see their methodologies adopted. Eric Ries is experiencing something different.

...

"Eric is espousing a different way to build companies," says Kevin Dewalt, 40, an entrepreneur in Arlington, Va., who has organized three Lean Startup meetings for Beltway entrepreneurs since October 2009. All the events sold out, says Mr. Dewalt, adding, "We've realized entrepreneurship is a unique management science.'

Mr. Ries's Lean Startup philosophy aims to help new companies make speedier decisions by taking a more disciplined approach to testing products and ideas and using the resulting customer feedback.

The Lean Startup Intensive is tomorrow at Web 2.0 Expo

2010-05-02T12:24:00.000-07:00

I'm extremely excited that tomorrow is the Lean Startup Intensive at Web 2.0 Expo. This is basically your last chance to sign up, and if you do so, the fine folks at TechWeb have offered me a last minute 25% discount code that you can use: websf10lean25.

The agenda for the day is below. As you can see, this is a new collection of speakers and case studies, in an intimate venue, which should allow maximum dialog between presenters and attendees.

Session 1 9:00-10:15
Eric Ries: Welcome & Introduction to Lean Startup 9:00-9:30
Steve Blank: Customer Development 9:30-10:15

AM Break 10:15 - 10:45

Session 2 10:45-12:00
Sean Ellis: Product/Market Fit & the Startup Pyramid 10:45-11:30
Matt Brezina: Xobni case study, "The 5 stages of Xobni's growth and 5 pivots along the way" 11:30-12:00

Lunch 12:00 - 1:00

Session 3 1:00-2:15
Dave McClure: Startup Metrics 1:00-1:35
Dan Martell & Ethan Bloch: Flowtown Case Study 1:35-1:55
David Binetti: Votizen Case Study 1:55-2:15

PM Break 2:15 - 2:45

Session 4 2:45-4:00
Panel: Investing in the era of the lean startup 2:45-3:45
- Moderator: Dave McClure
- Panelists: Ann Miura-Ko, Josh Kopelman, Jeff Clavier

Hiten Shah & KISSmetrics team: Case study 3:45-4:15

Joint session with the Applied Communilytics Intensive (including Q&A with Eric Ries, Sean Power, and Alistair Croll) 4:15-5:00

I hope you'll join us. If you do, please come say hello.

PS. For those of you planning to attend the full Web 2.0 Expo, I'll also be presenting a keynote on the main stage on Tuesday at 4:45pm: "The Lean Startup: Innovation Through Experimentation. Not Just for Startups Anymore."

Video update on the Startup Visa Act

2010-04-29T10:58:00.000-07:00

The Startup Visa Act continues to gain momentum on Capitol Hill, thanks to grassroots support of all of you. Without lobbyists or PACs, we're getting the word out in DC and nationwide that we have an opportunity to act - this year - to create jobs right here in America by supporting entrepreneurship and innovation. As bills in both chambers of Congress pick up supporters and co-sponsors, it's more important than ever for citizens who care about this issue to call, write, and tweet their representatives.

On our most recent trip to DC, the Startup Visa team produced two new videos to encapsulate our work to date, and hopefully inspire future action. They feature two of the rock stars of the Startup Visa team, Shervin and Brad, looking like, well, rock stars. Please take a look and, if you're as inspired as I am, please take a moment to help spread the word, embed these videos, or take another action outlined below. Thanks!

Shervin Pishevar, activism at 30,000 feet.
"My big belief in the Startup Visa Act: Entrepreneurship is very much representative and symbolic of what America's all about."

Brad Feld, the Startup Visa Act.
"When you think bout the economic stress and economic crisis we've been going through in this country, and you think about future economic growth, there's no question that entrepreneurship and innovation is a huge driver of future success."

Want to get involved? We have a list of ways on the StartupVisa website:

Go to our campaign page & tweet your support NOW! (<30 sec)
Write your local newspaper & tell them you support the Startup Visa Act
Call your senators & let them know you support Startup Visa legislation
Add the Startup Visa Widget to your blog or website
Follow the #startupvisa hash tag on Twitter and voice your support
Contribute to Startup Visa so we can spread the word!

In particular, we are also working on a letter of support from university presidents and entrepreneurship professors across academia. If you know someone who might be willing to sign on to that letter, please contact Brad Feld, who is organizing the letter.

Lean Enterprise Institute webinar, April 28

2010-04-26T18:57:00.000-07:00

I can barely write, as I'm still recovering from the amazing but overwhelming Startup Lessons Learned conference last Friday (great summary here). I'll follow up with a more detailed post later, but for now let me just say: thank you to everyone who participated, spoke, sponsored or helped organize. It exceeded my expectations totally.

Want to learn more about lean startups? Want to talk about applying the lessons beyond software, internet, and small companies? The Lean Enterprise Institute, the official keepers of lean, are hosting a free webinar on Wednesday, April 28. Details are below. This will be a unique cross-cultural meeting between entrepreneurs and traditional lean experts. I believe we have much to learn from each other.

920 people from over sixty countries have already signed up to attend - help us break 1000 by registering here.

Lean mindsets and methods for innovation in any company
a free webinar featuring:
Eric Ries
April 28, 2010 at 2:00 PM EDT

The "Lean Startup" is the application of lean thinking to the process of innovation in startup companies — defined as a type of business where both the problem (customer need) and the solution (product) are unknown. Traditional product development efforts often invest millions of dollars and years of time into one fixed product concept that is assumed to meet known customer needs — creating a high level of risk that the "waste of overproduction" occurs and creating a product that customers reject. The "Lean Startup" methodology, instead, tests new ideas early and cheaply, with early and frequent customer feedback. Critical to product success is creating a learning feedback loop that's company-wide, continuously testing new ideas so that idea failure doesn't have to equal company failure. Iterating more quickly is the key to success rather than having the one initial perfect concept.

Since successful startups grow into larger mature companies, how do the lessons from "Lean Startups" apply? How can businesses of all shapes and sizes use lean methods to be innovative and disruptive? Where a startup is a high uncertain opportunity in a highly uncertain business, how can more stable businesses use these methods for their new uncertain products or ideas? How do familiar lean manufacturing mind sets and philosophies for quality management, training, and problem solving contribute to innovation?

Specifically, you will learn:
How to define "value" in an innovation setting

What is a "minimum viable product" and why is that preferable to big batch
development?

How to create a blame-free development culture that encourages learning, root
cause problem identification, and improvement

How a process focus can lead to discipline, not bureaucracy

How to apply the right learnings from "Lean Startups" to a non-startup environment

Who Should Attend:
This webinar is designed for a broad audience: everyone who is interested in learning how companies with unknown problems and solutions can use rapid P-D-C-A cycles to better understand and meet customer needs. This is intended for anybody who is working on new innovations, whether that means continuous improvement at the front lines, or new product development in a mature manufacturing company.

I hope you'll join us. More information is available here.

Four myths about the Lean Startup

2010-04-18T18:33:00.000-07:00

Myth: Lean means cheap. Lean startups try to spend as little money as possible.

Truth: The Lean Startup method is not about cost, it is about speed. Lean Startups waste less money, because they use a disciplined approach to testing new products and ideas. Lean, when used in the context of lean startup, refers to a process of building companies and products using lean manufacturing principles applied to innovation. That process involves rapid hypothesis testing, validated learning about customers, and a disciplined approach to product development.

Myth: The Lean Startup methodology is only for Web 2.0/internet/consumer software companies.

Truth: The Lean Startup methodology applies to all companies that face uncertainty about what customers will want. This is true regardless of industry or even scale of company: many large companies depend on their ability to create disruptive innovation. Those general managers are entrepreneurs, too. And they can benefit from the speed and discipline of starting with a minimum viable product and then learning and iterating continuously.

Myth: Lean Startups are small bootstrapped startups.

Truth: There’s nothing wrong with raising venture capital. Many lean startups are ambitious and are able to deploy large amounts of capital. What differentiates them is their disciplined approach to determining when to spend money: after the fundamental elements of the business model have been empirically validated. Because lean startups focus on validating their riskiest assumptions first, they sometimes charge money for their product from day one – but not always.

Myth: Lean Startups replace vision with data or customer feedback.

Truth: Lean Startups are driven by a compelling vision, and they are rigorous about testing each element of this vision against reality. They use customer development, split-testing, and actionable analytics as vehicles for learning about how to make their vision successful. But they do not blindly do what customers tell them, nor do they mechanically attempt to optimize numbers. Along the way, they pivot away from the elements of the vision that are delusional and double-down on the elements that show promise.

Sneak preview, KISSmetrics (and more)

2010-04-17T12:32:00.000-07:00

Hear the CEO of KISSmetrics give a sneak preview of what he'll be presenting at the Startup Lessons Learned conference on April 23 (we're less than a week away!):

Conference updates continue to pour in:

Want to see more preview videos? Take a look at our new sneak-preview site, sponsored by KISSmetrics.
We've updated our list of simulcast locations (see below). Thanks to volunteer organizers around the world, the conference is now available on every continent (well, except Antarctica) and in almost fifty cities. Most of these events are free, but they do require that you RSVP. An up-to-date list of simulcast locations is always available at http://sllconf.com/streaming.
Our sponsors continue to support the conference as well as deserving entrepreneurs. Three premier early-stage venture investors have joined forces to sponsor the event: Baseline, Floodgate, and First Round Capital. In addition to supporting their portfolio companies in coming to the event, they also have taken the additional step of underwriting a limited number of discounted tickets that are available to the general public. The latest batch, sponsored by First Round, is available here.

Thanks again to all of our amazing sponsors, volunteers and staff who are working very hard to make this event a reality.

Africa

Cape Town, South Africa http://sllconf-capetown.eventbrite.com

Asia

Tokyo, Japan http://startuplessonslearnedtokyosimulcast.eventbrite.com

Europe

Barcelona, Spain http://www.eventbrite.com/event/638921030
Birmingham, UK http://sll-birmingham-uk.eventbrite.com/
Bucharest, Romania http://sllconf-bucharest.eventbrite.com/
Budapest, Hungary http://sllbudapest.eventbrite.com
Cambridge, UK http://startuplessonslearnedcam.eventbrite.com
Copenhagen, Denmark http://sllconf2010copenhagen.eventbrite.com
Delft, Netherlands http://sllconf-delft.eventbrite.com
Edinburgh, Scotland http://www.eventbrite.com/myevent?eid=652392323
Gothenburg, Sweden http://gotsllconf.eventbrite.com/
London, UK http://www.meetup.com/agile-entrepreneurship/calendar/12944310/
Madrid, Spain http://www.eventbrite.com/event/640820712
Munich, Germany http://www.eventbrite.com/event/650629049
Timisoara, Romania http://www.meetup.com/The-Timisoara-Agile-Software-Meetup-Group/
Vienna, Austria http://at.amiando.com/sllconfstream.html

North America

Atlanta, GA http://atlantasll.eventbrite.com
Austin, TX http://www.meetup.com/Austin-Lean-Startup-Circle/calendar/13090413/
Boise, ID http://sllconf-boise.eventbrite.com/
Boston, MA http://www.meetup.com/Lean-Startup-Circle-Boston/calendar/13093640/
Boston/Cambridge, MA http://dplc-lessons.eventbrite.com/
Boulder, CO http://sllconf-boulder.eventbrite.com/
Chicago, IL http://www.meetup.com/Chicago-Lean-Startup-Circle/calendar/13056515/
Cleveland, OH http://startuplessonslearneduniversitycircle.eventbrite.com
Cleveland, OH http://sllsimulcastcleveland.eventbrite.com/
Grand Rapids, MI http://startupgr.eventbrite.com/
Los Angeles, CA http://www.meetup.com/Los-Angeles-Lean-Startup-Circle/calendar/13082783/
Monterrey, NL México http://www.eventbrite.com/event/654293008
Montreal, QC Canada http://leanstartupmontreal.eventbrite.com
New York, NY http://dplny-lessons.eventbrite.com
New York, NY http://www.meetup.com/lean-startup/calendar/13102326/
New York, NY http://sllnyc.eventbrite.com
Omaha, NE http://sllconf-omaha.eventbrite.com
Providence, RI http://sllconfprovidence.eventbrite.com
Provo, UT http://wsg-lsc.eventbrite.com
Raleigh, NC http://www.meetup.com/lsc-rtp/calendar/13161035/
Redmond, WA http://www.eventbrite.com/event/648075411
San Juan, PR http://startups.eventbrite.com
Toronto, ON http://startuplessons-toronto.eventbrite.com
Twin Cities, MN http://www.meetup.com/Twin-Cities-Lean-Startup-Circle/calendar/12849312/
Vancouver, BC Canada http://sllyvrsimulcast.eventbrite.com/
Washington DC http://www.meetup.com/DC-Lean-Startup-Circle/calendar/13068744/

Oceania

Sydney, Australia https://s.eventarc.com/event/view/597/entry/startup-lessons-learned-simulcast-conference
Wellington, New Zealand http://www.meetup.com/Lean-Startup-Wellington/calendar/12624714/

South America

Belo Horizonte, Brazil http://sllconf-bhz.eventbrite.com/
Buenos Aires, Argentina http://buenosairessll.eventbrite.com/
Florianópolis, SC, Brazil http://www.meetup.com/Floripa-Startups/calendar/13090194/
Santiago, Chile http://sllsantiago.eventbrite.com

Sneak preview, Grockit

2010-04-14T12:13:00.000-07:00

Hear the CEO of Grockit give a sneak preview of what he'll be presenting at the Startup Lessons Learned conference on April 23:

The Lean Startup Intensive at Web 2.0 Expo SF (May 3, 2010)

2010-04-12T05:41:00.000-07:00

I'm discovering the truth of the old saying, "when it rains, it pours." I keep waiting for the tide of interesting people, opportunities, and ideas to ebb - but so far it has done nothing but accelerate. Thank you all so much. Just one year ago, I gave my first big conference talk at the 2009 Web 2.0 Expo in San Francisco. I had no idea what to expect, and the response was truly humbling. So I am particularly excited that the Lean Startup is a big part of this year's Web 2.0 Expo. Steve Blank and I are both giving keynotes in the main conference track. And for those who want more than just the overview, we're offering the Lean Startup Intensive on the first day of the conference: May 3, 2010.

We've built the Intensive into an all-star program designed to give a comprehensive overview of the methodology, taught by its leading practitioners. Unlike the conference on April 23, the Intensive does not assume any prior knowledge of lean startups, and is designed for a wide audience. Anyone who's thinking of attending the Expo will get something out of it. I believe it will be the first time each of the following speakers will be presenting a full session back-to-back: Steve Blank, Dave McClure, Sean Ellis, Hiten Shah, Dan Martell, as well as an investing panel which we'll announce soon. Here's an excerpt from the official program:

“A startup is a human institution designed to deliver a new product or service under conditions of extreme uncertainty.”

All entrepreneurs face the same fundamental challenges:

How do we know if we’re making progress?

How do we know if customers will want the product we’re building?

And, if they do, how do we know what kind of value we can create with it?

But because every startup also strives to become an institution, answering these questions requires more than just disciplined thinking at the whiteboard. It requires the coordination of many different people, working in concert to answer them. In other words, it requires management.

[...]

This event brings together the leading thinkers and practitioners of the Lean Startup movement. The goal is to provide a complete introduction to the theory as well as a grounding in advanced techniques that you can put to immediate use.

This program is designed for people who have a stake in creating great products: engineers, designers, product managers, marketers and businesspeople—from companies of any size. And, of course, for present or future entrepreneurs who are hoping to do more than punch a lottery ticket.

Read the rest here...

I'm incredible excited about the lineup, and think it'll provide the world's first comprehensive introduction to these ideas. If you're thinking of attending the Web 2.0 Expo, I hope you'll consider spending your first day with us.

To sweeten the deal, we also have a special 25% discount code which you can use for either the Intensive itself or for a whole Expo pass. The code is websf10ls25 and can be redeemed here. And there are still a (very) few application spots open for a complete conference pass scholarship; details are available here.

So yes, there are two major lean startup events coming up in San Francisco in the next month. Both are going to be amazing, so take your pick. And, as always, if you do decide to stop by, please say hello and let me know you're a reader. I'm looking forward to meeting you.

Conference streaming, sponsors, discounted tickets

2010-04-08T23:37:00.000-07:00

Simulcasting in twenty cities worldwide leads today's news for the Startup Lessons Learned conference on April 23. Thanks to the generosity of new sponsors, we also have a handful of heavily-discounted tickets available.

Discounted Hotel Rate
Traveling to SF for the conference? We have a special hotel rate of $189 a night at the Westin where the event is being held. However, this discount expires this Monday, April 12: be sure to reserve your room before then.

Streaming
Our simulcast program has expanded to five continents (so far). We have a new section of the website devoted to remote viewing, which is located here. More locations are being added as we can confirm them. If you'd like to host a simulcast, please sign up here. A complete list of locations is below. Most events are free, but they all require that you RSVP in advance. Special thanks to our streaming sponsor Justin.tv for handling the actual broadcasts.

Africa

Cape Town, South Africa http://sllconf-capetown.eventbrite.com

Asia

Tokyo, Japan http://startuplessonslearnedtokyosimulcast.eventbrite.com

Europe

Barcelona, Spain http://www.eventbrite.com/event/638921030
Birmingham, UK http://sll-birmingham-uk.eventbrite.com/
Delft, Netherlands http://sllconf-delft.eventbrite.com/
London, UK http://www.meetup.com/agile-entrepreneurship/calendar/12944310/
Madrid, Spain http://www.eventbrite.com/event/640820712

North America

Austin, TX http://www.meetup.com/Austin-Lean-Startup-Circle/calendar/13090413/
Boston, MA http://www.meetup.com/Lean-Startup-Circle-Boston/calendar/13093640/
Boulder, CO http://sllconf-boulder.eventbrite.com/
Chicago, IL http://www.meetup.com/Chicago-Lean-Startup-Circle/calendar/13056515/
Montreal, QC http://leanstartupmontreal.eventbrite.com
New York, NY http://dplny-lessons.eventbrite.com/
Provo, UT http://wsg-lsc.eventbrite.com/
Twin Cities, MN http://www.meetup.com/Twin-Cities-Lean-Startup-Circle/calendar/12849312/
Vancouver, BC http://sllyvrsimulcast.eventbrite.com/
Washington DC http://www.meetup.com/DC-Lean-Startup-Circle/calendar/13068744/

South America

Buenos Aires, Argentina http://buenosairessll.eventbrite.com/
Florianópolis, SC, Brazil http://www.meetup.com/Floripa-Startups/calendar/13090194/

Sponsors
We are enormously grateful to our latest conference sponsors: KISSmetrics, Microsoft BizSpark and Baseline Ventures. Microsoft will be making scholarships available to companies in their BizSpark program; stay tuned for details.

Discounted Tickets
As part of their sponsorship, Baseline is offering discounted tickets to their portfolio companies. However, in an additional act of generosity, Baseline's Steve Anderson has asked us to make discounted tickets available to the general public as well. He's footing the bill for a block of half-price tickets which are available now on a first come, first served basis. You can get those tickets here, while they last. (And, if you feel so moved, you can leave Steve a thank-you message; he's @standers on Twitter.)

And, don't forget, full ticket scholarships are also available from IMVU. The application form is here.

Learning is better than optimization (the local maximum problem)

2010-04-07T20:55:00.000-07:00

Lean startups don’t optimize. At least, not in the traditional sense of trying to squeeze every tenth of a point out of a conversion metric or landing page. Instead, we try to accelerate with respect to validated learning about customers.

For example, I’m a big believer in split-testing. Many optimizers are in favor of split-testing, too: direct marketers, landing page and SEO experts -- heck even the Google Website Optimizer team. But our interest in the tactic of split-testing is only superficially similar.

Take the infamous “41 shades of blue” split-test. I understand and respect why optimizers want to do tests like that. There are often counter-intuitive changes in customer behavior that depend on little details. In fact, the curse of product development is that sometimes small things make a huge difference and sometimes huge things make no difference. Split-testing is great for figuring out which is which.

But what do you learn from the “41 shades of blue” test? You only learn which specific shade of blue customers are more likely to click on. And, in most such tests, the differences are quite small, which is why sample sizes have to be very large. In Google’s case, often in the millions of people. When people (ok, engineers) who have been trained in this model enter most startups, they quickly get confused. How can we do split-testing when we have only a pathetically small number of customers? What’s the point when the tests aren’t going to be statistically significant?

And they’re not the only ones. Some designers also hate optimizing (which is why the “41 shades of blue” test is so famous – a famous designer claims to have quit over it). I understand and respect that feeling, too. After you’ve spent months on a painstaking new design, who wants to be told what color blue to use? Split-testing a single element in an overall coherent design seems ludicrous. Even if it shows improvement in some micro metric, does that invalidate the overall design? After all, most coherent designs have a gestalt that is more than the sum of the parts – at least, that’s the theory. Split-testing seems fundamentally at odds with that approach.

But I’m not done with the complaints, yet. Optimizing sounds bad for visionary thinking. That’s why you hear so many people proclaim proudly that they never listen to customers. Customers can only tell you want they think they want, and tend to have a very near-term perspective. If you just build what they tell you, you generally wind up with a giant, incoherent mess. Our job as entrepreneurs is to invent the future, and any optimization technique – including split-testing, many design techniques, or even usability testing – can lead us astray. Sure, customers think they want something, but how do they know what they will want in the future?

You can always tell who has a math background in a startup, because they call this the local maximum problem. Those of us with a computer science background call it the hill-climbing algorithm. I’m sure other disciplines have their own names for it; even protozoans exhibit this behavior (it's called taxis). It goes like this: whenever you’re not sure what to do, try something small, at random, and see if that makes things a little bit better. If it does, keep doing more of that, and if it doesn’t, try something else random and start over. Imagine climbing a hill this way; it’d work with your eyes closed. Just keep seeking higher and higher terrain, and rotate a bit whenever you feel yourself going down. But what if you’re climbing a hill that is in front of a mountain? When you get to the top of the hill, there’s no small step you can take that will get you on the right path up the mountain. That’s the local maximum. All optimization techniques get stuck in this position.

Because this causes a lot of confusion, let me state this as unequivocally as I can. The Lean Startup methodology does not advocate using optimization techniques to make startup decisions. That’s right. You don’t have to listen to customers, you don’t have to split-test, and you are free to ignore any data you want. This isn’t kindergarten. You don’t get a gold star for listening to what customers say. You only get a gold star for achieving results.

What should you do instead? The general pattern is: have a strong vision, test that vision against reality, and then decide whether to pivot or persevere. Each part of that answer is complicated, and I’ve written extensively on the details of how to do each. What I want to convey here is how to respond to the objections I mentioned at the start. Each of those objections is wise, in its own way, and the common reaction – to just reject that thinking outright – is a bad idea. Instead, the Lean Startup offers ways to incorporate those people into an overall feedback loop of learning and discovery.

So when should we split-test? There’s nothing wrong with using split-testing, as part of the solution team, to do optimization. But that is not a substitute for testing big hypotheses. The right split-tests to run are ones that put big ideas to the test. For example, we could split-test what color to make the “Register Now” button. But how much do we learn from that? Let’s say that customers prefer one color over another? Then what? Instead, how about a test where we completely change the value proposition on the landing page?

I remember the first time we changed the landing page at IMVU from offering “avatar chat” to “3D instant messaging.” We didn’t expect much of a difference, but it dramatically changed customer behavior. That was evident in the metrics and in the in-person usability tests. It taught us some important things about our customers: that they had no idea what an avatar was, they had no idea why they would want one, and they thought “avatar chat” was something weird people would do. When we started using “3D instant messaging,” we validated our hypothesis that IM was an activity our customers understood and were interested in “doing better.” But we also invalidated a hypothesis that customers wanted an avatar; we had to learn a whole new way of explaining the benefits of avatar-mediated communication because our audience didn’t know what that word meant.

However, that is not the end of the story. If you go to IMVU’s website today, you won’t find any mention of “3D instant messaging.” That’s because those hypotheses were replaced by yet more, each of which was subject to this kind of macro-level testing. Over many years, we’ve learned a lot about what customers want. And we’ve validated that learning by being able to demonstrate that when we change the product as a result of that learning, the key macro metrics improve.

A good rule of thumb for split-testing is that even when we’re doing micro-level split-tests, we should always measure the macro. So even if you want to test a new button color, don’t measure the click-through rate on that button! Instead, ask yourself: “why do we care that customers click that button?” If it’s a “Register Now” button, it’s because we want customers to sign up and try the product. So let’s measure the percentage of customers who try the product. If the button color change doesn’t have an impact there – it’s too small, and should be reverted. Over time, this discipline helps us ignore the minor stuff and focus our energies on learning what will make a significant impact. (It also just so happens that this style of reporting is easier to implement; you can read more here)

Next, let’s take on the sample-size issue. Most of us learn about the samples sizes from things like political polling. In a large country, in order to figure out who will win an election with any kind of accuracy, you need to sample a large number of people. What most of us forget is that statistical significance is a function of both sample size and the magnitude of the underlying signal. Presidential elections are often decided by a few percentage points or less. When we’re optimizing, product development teams encounter similar situations. But when we’re learning, that’s the rare exception. Recall that the biggest source of waste in product development is building something nobody wants. In that case, you don’t need a very large sample.

Let me illustrate. I’ve previously documented that early-on in IMVU’s life, we made the mistake of building an IM add-on product instead of a standalone network. Believe me, I had to be dragged kicking and screaming to the realization that we’d made a mistake. Here’s how it went down. We would bring customers in for a usability test, and ask them to use the IM add-on functionality. The first one flat-out refused. I mean, here we are, paying them to be there, and they won’t use the product! (For now, I won’t go into the reasons why – if you want that level of detail, you can watch this interview.) I was the head of product development, so can you guess what my reaction was? It certainly wasn’t “ooh, let’s listen to this customer.” Hell no, “fire that customer! Get me a new one” was closer. After all, what is a sample size of one customer? Too small. Second customer: same result. Third, fourth, fifth: same. Now, what are the odds that five customers in a row refuse to use my product, and it’s just a matter of chance or small sample size? No chance. The product sucks – and that is a statistically significant result.

When we switch from an optimization mindset to a learning mindset, design gets more fun, too. It takes some getting used to for most designers, though. They are not generally used to having their designs evaluated by their real-world impact. Remember that plenty of design organizations and design schools give out awards for designing products that never get built. So don’t hold it against a classically trained designer if they find split-testing a little off-putting at first. The key is to get new designers integrated with a split-testing regimen as soon as possible. It’s a good deal: by testing to make sure (I often say “double check”) each design actually improves customers lives, startups can free designers to take much bigger risks. Want to try out a wacky, radical, highly simplified design? In a non-data-driven environment, this is usually impossible. There’s always that engineer in the back of the room with all the corner cases: “but how will customers find Feature X? What happens if we don’t explain in graphic detail how to use Feature Y?” Now these questions have an easy answer: we’ll measure and see. If the new design performs worse than the current design, we’ll iterate and try again. But if it performs better, we don’t need to keep arguing. We just keep iterating and learning. This kind of setup leads to a much less political and much less arbitrary design culture.

This same approach can also lead us out of the big incoherent mess problem. Teams that focus on optimizing can get stuck bolting on feature upon feature until the product becomes unusable. No one feature is to blame. I've made this mistake many times in my career, especially early on when I first began to understand the power of metrics. When that happens, the solution is to do a whole product pivot. "Whole product" is a term I learned from Bill Davidow's classic Marketing High Technology. A whole product is one that works for mainstream customers. Sometimes, a whole product is much bigger than a simple device - witness Apple's mastery of creating a whole ecosystem around each of their devices that make them much more useful than their competitors. But sometimes a whole product is much less - it requires removing unnecessary features and focusing on a single overriding value proposition. And these kinds of pivots are great opportunities for learning-style tests. It only requires the courage to test the new beautiful whole product design against the old crufty one head-to-head.

By now, I hope you’re already anticipating how to answer the visionary’s objections. We don’t split-test or talk to customers to decide if we should abandon our vision. Instead, we test to find out how to achieve the vision in the best possible way. Startup success requires getting many things right all at once: building a product that solves a customer problem, having that problem be an important one to a sufficient number of customers, having those customers be willing pay for it (in one of the four customer currencies), being able to reach those customers through one of the fundamental growth strategies, etc. When you read stories of successful startups in the popular and business press, you usually hear about how the founders anticipated several of these challenges in their initial vision. Unfortunately, startup success requires getting them all right. What the PR stories tend to leave out is that we can get attached to every part of our vision, even the dumb parts. Testing the parts simply gives us information that can help us refine the vision – like a sculptor removing just the right pieces of marble. There is tremendous art to knowing which pieces of the vision to test first. It is highly context-dependent, which is why different startups take dramatically different paths to success. Should you charge from day one, testing the revenue model first? Or should you focus on user engagement or virality? What about companies, like Siebel, that started with partner distribution first? There are no universally right answers to such questions. (For more on how to figure out which question applies in which context, see Business ecology and the four customer currencies.)

Systematically testing the assumptions that support the vision is called customer development, and it’s a parallel process to product development. And therein lies the most common source of confusion about whether startups should listen to customers. Even if a startup is doing user-centered design, or optimizing their product through split-testing, or conducting tons of surveys and usability tests, that’s no substitute for also doing customer development. It’s the difference between asking “how should we best solve this problem for these customers?” and “what problem should we be solving? and for which customer?” These two activities have to happen in parallel, forming a company-wide feedback loop. We call such companies built to learn. Their speed should be measured in validated learning about customers, not milestones, features, revenue, or even beautiful design. Again, not because those things aren’t important, but because their role in a startup is subservient to the company’s fundamental purpose: piercing the veil of extreme uncertainty that accompanies any disruptive innovation.

The Lean Startup methodology can’t guarantee you won’t find yourself in a local maximum. But it can guarantee that you’ll know about it when it happens. Even better, when it is time to pivot, you’ll have actual data that can help inform where you want to head next. The data doesn’t tell you what to do – that’s your job. The bad news: entrepreneurship requires judgment. The good news: when you make data-based decisions, you are training your judgment to get better over time.

Kent Beck keynote, "To Agility, and Beyond"

2010-04-04T17:30:00.000-07:00

Kent Beck will give the opening keynote at the Startup Lessons Learned conference on April 23. Our mystery keynote is now revealed and I couldn't be more excited. Kent is a significant figure in the field of software development. To his credit are Extreme Programming, jUnit, patterns, TDD, the list goes on. His keynote will kick off the day as well as our module on the build phase of the fundamental feedback loop that powers all startups.

In Kent's honor, we've extended earlybird pricing for conference tickets (one last time) through Monday, April 5.

Six streaming locations

2010-04-03T22:43:00.000-07:00

Can't travel to San Francisco for the Startup Lessons Learned Conference on April 23, but still want to participate? Thanks to the support of organizers around the world, you can join in remotely - in most cases, free of charge. I'm excited to announce the first six confirmed simulcast locations:

Delft, Netherlands http://sllconf-delft.eventbrite.com/
Provo, UT http://wsg-lsc.eventbrite.com/
Boulder, CO http://sllconf-boulder.eventbrite.com/
Chicago, IL http://www.meetup.com/Chicago-Lean-Startup-Circle/calendar/13056515/
Barcelona, Spain http://www.eventbrite.com/event/638921030
Vancouver, Canada http://sllyvrsimulcast.eventbrite.com/

Please RSVP so our organizers can plan capacity accordingly. We're offering this simulcast service free of charge to organizers; if you'd like to host a simulcast in your city, you can sign up to do so here. We'll continue to post links to new events to the conference website as we get them confirmed. If you're curious about whether there are others in your area who'd like to get together to watch, feel free to contact a local meetup or post a comment below.

I want to thank everyone who has volunteered to host, and especially thank our simulcast organizer Erin Turner. If you have any questions, please feel free to leave a comment. Hope to see you on April 23.

Interviews

2010-04-02T06:20:00.000-07:00

Robert Scoble came by my office to learn about the Lean Startup and the Startup Lessons Learned Conference on April 23. By all accounts, the conversation was a success. I certainly had a great time, and the early Twitter reactions seem positive. Of course, you can judge for yourself. I've embedded parts one and two below:

Part One:

Part Two:

And, as a special bonus, I've included a recent podcast episode of The Web 2.0 Show, in which we discuss Lean Startups and the upcoming Lean Startup Intensive at the Web 2.0 Expo. Enjoy:

New conference website, speakers, agenda

2010-03-29T08:17:00.000-07:00

The Startup Lessons Learned Conference on April 23 is fast approaching. Earlybird Admission pricing ends in just two days. We have a brand new website up at http://sllconf.com. We've got a new scholarship program up and running. Most importantly, we've announced a big chunk of the agenda for the day (go take a look).

I want to say a few words about why I am so excited about this event. Traveling the past year, I have heard loud and clear that it's time for the Lean Startup movement to enter its next phase. We've gone from total obscurity to something people are beginning to misunderstand and even co-opt. People are starting to argue about who should get credit for coining the term. Congratulations. Being misunderstood is a big step up from being ignored. I believe it means we're achieving product/market fit for a set of ideas. And it's time to completely ignore the nonsense and start focusing on: how do we take this movement to the next level?

Here's what you had to say about it. Almost a thousand of your weighed in on the last Lessons Learned reader survey (thank you!). When asked, you were pretty clear in your answers. Here's a tiny sample:

"Case studies, case studies, case studies presented by real people. Lot's of opportunity for personal interaction with people that have or are adopting the methodology."

"Detailed case studies of how it was done. Practical advice on how to do it in companies at all stages."

"Case studies
Serious entrepreneurs not wannabes
actual nuts and bolts, I'm sold ont he phiilosophy
debates of contentious issues - not just yes men"

"Some of the core personalities of the group, a number of startups (who have already achieved fit etc and have success) who can talk from experience."

I know one thing for sure: I don't have all the answers. The way forward requires getting everyone together in a room, and having a conversation about where we're headed. That's what this conference is for. The focus is on case studies and real entrepreneurs. Our goal is to create the most coherent startup conference ever. When I was a practicing entrepreneur, startup events usually made me crazy. You had a lot of conflicting advice and success theater. Tactics were discussed out of context, and there wasn't an overarching framework for figuring out what works for what kinds of companies, industries, and stages of growth. My aspiration with the Lean Startup methodology has always been to provide such a framework, so that we have more intelligent conversations about what works and what doesn't for startups. This event will be a chance to put that idea to the test.

Each part of the program is organized around one phase of the Build-Measure-Learn feedback loop and begins with a keynote address from a heavy hitter: Steve Blank on Customer Development, Randy Komisar on "Getting to Plan B" and - a third person, not-yet-announced-but-extremely-cool-trust-me. Then, we'll talk case studies in each area, presented by practicing entrepreneurs who have actually grappled with the topic at hand. I've asked each presenter not to pull any punches and to, whenever possible, share real data: what worked, what didn't. We're in pursuit of the truth, not orthodoxy. These case studies range in size and scope: from pre-product/market fit to already exited, bootstrapped to venture-backed, solo practitioner to large organization.

Each part of the agenda also features a difficult question. These are the big questions I've heard over and over again as I've traveled presenting the lean startup methodology:

"Sure, sounds great for a five-person team, but how can such a fast-paced development process scale? Doesn't the communication overhead of a large team lead to chaos of overlapping experiments and continuously-deployed bugs?"
"If you just throw a minimum viable product out the door to see what sticks, won't that necessarily be ugly and badly designed? Is design important to lean startups? What does viable mean, anyway?"
"Sure, everyone knows that getting customer feedback is important. But can't I outsource that to a market researcher? And do I still need to get out of the building if I've got great metrics and surveys?"

We'll tackle these questions head-on with a combination of practitioners and theorists. At the end of the day, you'll have the data and have heard the theories - it'll be up to you to make your own decisions and test them out for yourself.

Well, not entirely by yourself, actually. I've mentioned before that this event is designed to be best-experienced by teams, not just individuals. So we've made a limited number of team tickets available, which give teams of up to four people the opportunity to experience the day together. We'll have special seating for teams combined with exclusive access to a set of mentors who have agreed to be part of the conference as well. Mentors will sit with the teams throughout the day, and be available to answer questions and help put what you're hearing in context. Most important, they can help you make a plan for how to translate the insights from the stage into action back at the office. Like the speakers, mentors are a mix of theorists and practitioners. We've just started to list the mentors on our new website, and will add more as we get closer to the event itself.

This conference has been one of the most stressful things I've ever done. It feels surprisingly personal and surprisingly vulnerable. As an entrepreneur, I am used to having people attack my product or complain about my decisions (you can see the evidence here). But, in the past, being in a company gave me something to hide behind. Not anymore. For the conference, the most common criticism has been that it is too expensive, and therefore "not very lean." Here's an example from a recent Hacker News discussion:

"how can you be a lean startup if you have to pay $699 to know how to be lean? $699 buys you months of server infrastructure."

I think this is a fair question. Of course, readers of this blog know that the lean in "lean startup" doesn't refer to cost, but - rather - to Lean Thinking. Or, as Steve Blank put it, Lean Startups Aren't Cheap Startups. My fundamental belief is that by changing the way that we approach building startups, we can dramatically change our odds of success - and the magnitude of that eventual success as well. I think that's worth the price of admission and a better investment than marginally more infrastructure. Am I right? The verdict is in your hands. Maybe we won't get a huge crowd. If a relatively small number of highly-motivated entrepreneurs attend, then we'll have an intense and intimate conversation. Either way, I'm going to be satisfied.

For those who cannot afford the ticket price, who don't think it's worth the price, or who cannot travel to San Francisco, there are other ways to participate. We have scholarship programs available to help with ticket prices. We're offering a live stream to event organizers around the world. Meetup groups, universities, incubators, and anyone else who wants to get together to watch is welcome to do so. We'll be listing these viewing parties on our website as we confirm them. If you'd like to host an event, please let us know using this form. If you have questions, please contact our simulcast organizer, Erin Turner.

The Lean Startup movement is already global (see the map). That's as it should be, as the new era of entrepreneurship that is now dawning is intrinsically global. Ideas, products, and capital flow easily across borders. People, not as much. Startups may be intellectually global but they are physically local, which explains the increasing importance of startup hubs around the world. My hope for this conference is that it will benefit the global community of entrepreneurs. For those who can travel to be part of the conversation in San Francisco, I thank you. I hope you'll take back what you've learned and share it in your own cities. For those who can host a local simulcast, I thank you. By creating a space for your startup community to congregate and share new ideas, you're enabling a new kind of economic growth. And most importantly, to everyone who contributes to this movement - by writing, asking hard questions, joining meetups and mailing lists, and above all creating companies - I thank you. See you in April.

Two new scholarship programs for lean startups

2010-03-28T08:16:00.000-07:00

Thanks to the generosity of sponsors, I'm pleased to be able to announce two scholarship programs for upcoming lean startup events.

The first, sponsored by IMVU, will provide free tickets to deserving companies who want to attend the Startup Lessons Learned conference on April 23. I'm especially grateful to IMVU which is, after all, where I first experimented with many lean startup practices. Now the company is growing, profitable, and proving that lean startups can scale. Oh, and did I mention that they're hiring? It's an exciting time to join, as IMVU is poised for a year of explosive growth. What better way to learn how to build a lean startup than to see one up close and personal? Right. Scholarship: you can apply here until April 12.

I'm hopeful that other companies will step up and become scholarship sponsors, too. This conference will be the first of its kind: an opportunity to have a conversation about the future of the lean startup movement. We want everyone who can contribute to that conversation to be there, regardless of their ability to pay. To ensure that those who are regular contributors to the movement to be able to attend as well, I've given each Lean Startup Meetup leader a set of discount codes and a few half-price tickets to distribute to their members. Please get in touch with your local meetup if you'd like to learn more.

The second scholarship, sponsored by TechWeb, will provide free passes to the entire Web 2.0 Expo, including the Lean Startup Intensive on May 3. When I agreed to setup the Lean Startup Intensive this year, I required that it include a scholarship program for deserving startups who couldn't otherwise afford the price of admission. TechWeb has decided to expand this program to provide scholarships for the whole Web 2.0 Expo. You can apply here until April 15 or until they receive 100 submissions--whichever comes first.

I look forward to seeing many of you at these events. If you have any questions or are interested in becoming a sponsor, please get in touch.