As i mentioned in Principles of a lean startup in December, I´m studying Eric Ries´ book “The Lean Startup” at the moment.
I´ll spend the next week for posting summaries of the important chapters day by day, so that we will have a great overview of the book in the end. All the chapters in this book are explained by a lot of real examples – so it´s definitely a benefit to buy and study this book.
After we started with the roots and the principles of a lean startup – Today´s chapters:
LEARN and EXPERIMENT
Unfortunately “learning” is the oldest excuse in the book for a failure of execution. It´s what managers fall back on when they fail to achieve the result we promised. We can all tell a good story when our job, career or reputation depends on it.
But however we can´t take “learning” to the bank or the investors.
Yet if the fundamental goal of entrepreneurship it to engage in organization building under conditions of extreme uncertainty, its most vital function is learning. We must learn the truth about which elements of our strategy are working to realize our vision and which are just crazy. We must learn what customers really want, not what they say they want or what we think they should want. We must discover whether we are on a path that will lead to growing a sustainable business.
In the Lean StartUp model we are rehabilitating learning with a concept Eric Ries calls validated learning. Validated learning is not after-the-fact rationalization or a good story designed to hide failure. It is a rigorous method for demonstrating progress when on is embedded in the soil of extreme uncertainty in which startups grow.
Eric Ries gives an example about his own success story. The IMVU Story, when he created a concept of “avatars” for instant messengers and learn step by step the need of customers until there was a standalone IM with a “random chat” function and own avatars … Take a look in his book for further information.
Eric Ries opens the chapter with the Zappos story. Zappos.com is an online shoe and apparel shop. In July 2009, the company announced it would be acquired by Amazon in an all-stock deal worth about $1.2 billion.Since its founding in 1999, Zappos has grown to be the largest online shoe store.
There was an idea of selling shoes online in the beginning – nobody knew if it would work out. The founders talked to local shoe stores and asked if they can take pictures of their sales areas to use them for an online shop. As reward they would buy their shoes for the regular price. They started their experiment with not a lot of profits at all – just to test if the market for buying shoes online is there. And besides they learned a lot about payment, distribution, running the business and product returns, they were successful.
If Zappos had relied on existing market research or conducted a survey, it could have asked what customers thought they wanted. By building a product instead, albeit a simple one, the company learned much more:
- It had more accurate data about customer demand because it was observing real customer behavior, not asking hypothetical questions.
- It put itself in a position to interact with real customers and learn about their needs. For example, the business plan might call for discounted pricing, but how are customer perceptions of the product affected by the discounting strategy?
- It allowed itself to be surprised when customers behaved in unexpected ways, revealing information Zappos might not have known to ask about. For example, what if customers returned the shoes?
Traditionally, a product manager says “I just want his”. In response, the engineer says “Im going to build it”. Instead, Eric Ries tries to push his team to first answer four questions:
- Do consumers recognize that they have the problem you are trying to solvE?
- If there was a solution, would they buy it?
- Would they buy it from us?
- Can we build a solution for that problem?
Tomorrow we´ll focus on STEER and LEAD. So stay tuned!
The audacity of zero.
If it comes to get investors or partners and discussing with them your business plan: Small gross numbers don´t invites imagination. They invite questions about whether large numbers will ever materialize. Everyone knows stories of products that achieved breakthrough success overnight. As long as nothing has been released and no data have been collected, it is still possible to imagine overnight success in the future. Small numbers pour cold water on that hope.