• “Most of you are entrepreneurs, which means most of you are going to fail.”
  • we’re wasting time by pouring smart people into ventures set to fail.
  • remember when Web 2.0 was still cool?
• we have to get better about talking candidly about failure
• waterfall methodology/traditional product management
  • all entrepreneurship is difficult to manage, so we manage it by a metaphor
  • why doesn’t waterfall work?
    • we successfully can execute the plan, but we don’t know if the plan is good
    • metaphor: drive at the right speed, on schedule, but we drive off a cliff
  • three “shadow beliefs” that we don’t really know
    • #1: “we know what customers want”
    • #2: “we can accurately predict the future”
    • #3: “advancing the plan means progress”
      • if we’re building something nobody wants, who cares if it’s high-quality? is it progress to advance the plan, or do your job, if the plan is failure?
  • main idea against waterfall/traditional product management: “If we’re building something nobody wants, what does it matter if we accomplish it?”
• Lean Revolution
  • in Japan, started the lean manufacturing mantra
    • old mantra is wrong
    • if we go lean, we can drive waste out of the process
  • Ries picked up Agile Product Development
    • despite the name, agile still has its roots inside larger companies
    • Agile works when the problem is known, solution unknown
      • (this doesn’t work in startups)
• we need a iterative, waste-free customer-based way
  • Lean Startups’ unit of progress: validated learning
  • Eric Ries at IMVU: his really good idea (interoperability with instant messaging + 3d avatar system), used 6 months to build the product, which actually turned out to not be a good idea
  • had to throw it out and pivot – all of the code was thrown away
    • he built something that nobody wanted, so it was of no use
  • If my goal in the last 6 months was to learn this important bit about customers, why did we need 6 months? we would have learned the same from less code. or… even any code?
    • we could have basically learned the same with a fake landing code with a spec. we would have known people didn’t want the product because we didn’t get any clickthroughs on a landing page
  • job #1 in startup: do whatever it makes to make the company successful period.
    • need new vocabulary for what entrepreneurs “do”
• entrepreneurship is management
  • institution-building: the coordinated building of something
  • we’re prejudiced about “management” – we need something called Entrepreneurial Management
    • design and build institutions under situations of high uncertainty
• THE PIVOT
  • Eric Ries apologies for the overhypedness of this word.
  • What do successful startups have in common?
    • they know the process on how to tell good function from bad function
    • systematically re-evaluation of your startup until you achieve product-market fit (PMF)
    • what is runway? it’s how many pivots you have left
    • pivots powered by learning
    • lean startups are all about speed.
      • if you have fast cycle times to tweak until you achieve product-market fit, you can get to PMF faster than others – speed
  • startup: catalyst for ideas -> code
    • customers interacting with code: qualitative and qualitative data
  • Apple found a balance: don’t overinvest into something that doesn’t matter, but put in just enough to get to the next pivot (more learning)
• Lean startup principles
  • 1. entrepreneurs are EVERYWHERE
    • EVERYWHERE
      • “we can find entrepreneurs everywhere we seek out uncertainty”
      • no “safe industries” – “waves of destruction” went through industries
    • innovation accounting
      • the most boring topic in entrepreneurship
      • today: accounting -> accounting where money goes
      • not what it was made for – accounting was invented to drive accountability for managers
      • it’s a mathematical model for management
      • at GM, they had mathematical models – accounting was meant to separate what managers did versus the random environmental factors that happened
        • (if a manager exceeded their sales estimate by 10%, but it was a 10% better year for cars all year, they’re at parity, not exceeded)
      • we need a new accounting paradigm for entrepreneurs
        • actionable metrics, not vanity metrics
        • not what happened in the past but the future
      • test of value in the startup: customers engage in a voluntary exchange with the startup
        • time, attention, referrals,
        • Facebook: viral growth, value component, because there was customer engagement and interaction
    • need an accounting paradigm for entrepreneurs to demonstrate quantitatively that we’ve done validated learning – real experiment
      • we can affect customer actions through our own actions
      • actionable metrics: our own actions affect customer actions (mark’s notes: this is repeatable)
      • vanity metrics: random environmental events, press spikes, etc. (mark’s notes: this isn’t repeatable)
  • how do we know when to pivot?
    • we know when to pivot when our product experiment efforts don’t really move the needle
    • we can make excellent decisions 3 years ago, but if our current experiment efforts aren’t doing anything, there is a problem
  • the automobile revolution: 500 other companies before Henry Ford that failed because they didn’t have the right process that Ford had
  • when we pivot, we DON’T pivot the VISION, we PIVOT the STRATEGY
• should a feature be in your MVP?
  • good rule of thumb: no
• http://lean.st/LeanStartupBos

QUESTIONTIME!

• #1: Jason Evanish: how do you keep your engineers having faith in the process when so much is done without them initially for mvps? #leanstartups cc @msmamet
  • keep them calm
  • abandon the crutch of the reality distortion field to keep them calm
  • dishonest to do that ^ — accept uncertainty
• #2: questioning the usage of the word “movement”
  • it’s not religion, it’s science
  • ……. still going
  • used to think VCs are the way to evangelize to entrepreneurs
    • (though they want to advance their portfolio)
• #3: How do you test a product people aren’t actively searching for?
  • when does it work?
    • solves an acute problem
    • … that customers know they have
    • … that customers know the name of the problem
  • what if it doesn’t work?
    • need another way
    • outbound advertising to inbound learning
      • IMVU: adjacent markets
      • “world of warcraft chat”, etc.
      • didn’t want to know anything but: what are the differences in conversion rates across channels?
        • they found out who the customer wants
    • dropbox’s video: an MVP on Digg and etc
      • perfectly well-targeted to early adopters
      • a huge invite list
      • case study at the startups lessons learned conference – http://www.justin.tv/startuplessonslearned/b/262672510
    • Ries works with MBAs. why?
      • process/discipline oriented
      • predisposed to learn a new management paradigm, since they’ve already done that
      • entrepreneurs are a bit sloppy about it
    • we need to know what exactly is making things go up or down – reject vanity metrics
• #4: innovation accounting: know what to measure? consistent across all startups?
  • the right things to measure are clear and consistent across all startups (but only at a high level of abstraction)
    • measure two things:
      • value test: does it make value?
      • if yes, does it have an engine of growth that is working?
    • driving metaphor
      • engine: constant revolutions
      • driver: build-measure-learn
        • you can’t build a list of step-by-step actions of how to drive a car to a destination (with every action, turn on steering wheel, etc.), because you respond to the environment
        • however, that’s how we do product development, right now — build a plan, execute on that plan, without responding to the environment
      • compulsive behavior with Facebook, like photo tags (viral)
    • sticky growth: engine of growth that is addictive
  • engines are all feedback loops: they have compunding effects
    • we can have hockey-stick improvements but we don’t know what is driving it
    • that is what we’re trying to prevent – control over the actions that really make change and results
• #5: advice for getting to market first if your product is easily replicated?
  • exercise
    • take your second best idea.
    • try to get somebody to steal it.
    • contact a product manager and try to get them to implement it in their next version.
  • <over-repeated>ideas have no value</over-repeated>
  • you have to go through the process of REFINING a good idea
  • first-mover advantage: extremely rare in reality
• #6: how to get this into a company that isn’t really built on lean startups?
  • work is a system, and systems are perfect at what they do today
    • what is the organizational change process we want to do?
    • implementing cold-turkey lean startup methodologies won’t work
  • find one areas where there is a stress/pain point in the company
    • there are a community of people that might be trying to solve the problem
    • try an experiment – lean startups are a science
  • can’t have high expectations – have to measure the actions with validated learning
• #7: how does lean startups affect the world of sales force?
  • four steps to the epiphany – Steve Blank
    • http://www.amazon.com/Four-Steps-Epiphany-Steven-Blank/dp/0976470705
  • sales people aren’t really paid at listening – they don’t take no for an answer
    • entrepreneurs: no is powerful: we want to figure out why
    • Mark’s notes: to sales people, no is a dead end. to entrepreneurs, no isn’t a roadblock or a dead end, it’s an opportunity for validated learning to take place – why did they say no?
  • entrepreneurs should start out doing their own sales for validated learning