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The Lean Startup | Eric Ries | Talks at Google
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Google hosts Eric Ries author of, "The Lean Startup" The Lean Startup movement is taking hold in companies both new and established to help entrepreneurs and managers do one important thing: make better, faster business decisions. Vastly better, faster business decisions. Bringing principles from lean manufacturing and agile development to the process of innovation, the Lean Startup helps companies succeed in a business landscape riddled with risk. This book shows you how. Eric is the author of the popular blog Startup Lessons Learned and the creator of the Lean Startup methodology. He co-founded and served as CTO of IMVU, his third startup, which has today has over 40 million users and 2009 revenue over $22 million. An entrepreneur in residence at Harvard Business School and a frequent speaker at business events, he advises startups on business and product strategy using the Lean Startup approach. http://theleanstartup.com/ Order the book here: http://lean.st/orders/new
Segments Timeline
Introduction to Eric Ries
Eric Ries, founder of the Lean Startup movement, is introduced at Google. He shares his background and the purpose of his talk, emphasizing the importance of entrepreneurship in various contexts beyond traditional startups.
">>Thomas Sharon: Hi everyone. Thanks for coming. My name is Thomas Sharon. I'm a UX Researcher here. And without further ado, I would like to introduce you to Eric Ries, the founder of the Lean Startu..."
The Journey from Programmer to Expert
Eric discusses his transition from a programmer to a professional expert in entrepreneurship. He reflects on the challenges of managing teams and the evolution of his career, highlighting the disconnect between coding and managing product development.
"know. It's hard to know what to say. So, some of you maybe know the blog, Startup Lessons Learned. Anybody? Quick show of hands. OK, good. We have true new people. So, thank you. Thank you for coming ..."
Redefining Entrepreneurship
Ries redefines entrepreneurship, stating that it is not limited to small startups but exists in various forms across organizations. He emphasizes that entrepreneurship is fundamentally about management and validated learning, not just product creation.
"I'm in New York because I'm writing a book. So one of things you do when you're writing a book is you have to go to tell as many people as possible that this book is coming out. It'll come out in the ..."
The Build-Measure-Learn Feedback Loop
Eric introduces the concept of the 'build-measure-learn feedback loop' as a crucial process for entrepreneurs. He explains how this loop accelerates learning and accountability through a new system called 'innovation accounting'.
"So that's what I wanted to talk to you guys about. Thanks for coming. So anyway, and this book, of course, will be available in stores everywhere in the fall. So, if you read the book, you will learn ..."
The Myth of the Entrepreneurial Journey
Ries critiques the common narrative of entrepreneurship portrayed in media, highlighting that the real work occurs in the often-overlooked 'photo montage' phase. He stresses the importance of the mundane tasks that drive successful entrepreneurship.
"Now, I apologize. You came to a very, I'm sure, you saw the signs up here like, "Ooh, an exciting talk about entrepreneurship and startups and that's gonna be cool." And what did you get? You got mana..."
Defining a Startup
Eric provides a definition of a startup as a 'human institution designed to create something new under conditions of extreme uncertainty'. He emphasizes that this definition applies regardless of company size or industry.
"What I think is really interesting about these stories about entrepreneurship is that 95 percent of the time of the movie is spent in Acts One and Act Three, even though in real life, all of the impor..."
Entrepreneurship as a Career
Ries argues for recognizing entrepreneurship as a distinct career path. He explains that when individuals engage in entrepreneurship, they shift from their previous roles to a new identity focused on innovation and risk management.
"My goal, my mission in doing this whole Lean Startup thing has been to try to put the practice of entrepreneurship on a more rigorous footing. And so, I started out with a definition. Here's mine: Wha..."
The Science of Entrepreneurship
Eric discusses the need for a scientific approach to entrepreneurship, emphasizing the importance of hypothesis-driven experimentation. He critiques the inefficiencies in product development that lead to wasted resources.
"confusing. That's all a fancy way of saying a startup is an experiment. What I mean by "experiment" is not just like let's ship it and see what happens, OK? That's not science. If you just put some co..."
Lessons from Web 2.0 Failures
Ries reflects on the failures of Web 2.0 startups, using visual examples to illustrate the high rate of failure in the industry. He questions the definition of success and the sustainability of businesses acquired by larger companies.
"but building things very efficiently that nobody wants. And I brought a demonstration. We all know that most startups fail. Who remembers Web 2.0? Remember Web 2.0 when that was really cool? At the he..."
The Real Challenge: Should It Be Built?
Eric emphasizes that the critical question for entrepreneurs is not whether something can be built, but whether it should be built. He discusses the implications of this mindset for future economic growth and innovation.
"selling it three years later for tens of millions of dollars. That's not supposed to happen. In general management, that doesn't happen. When you buy an asset, it depreciates in a predictable way. But..."
The Legacy of Scientific Management
Ries critiques the principles of scientific management established by Frederick Winslow Taylor, highlighting how outdated ideas still influence modern management practices. He discusses the need for a new approach to managing innovation.
"imaginations, which I think is a very strange place to be. That is really different than the kinds of economic problems that general management was designed to solve in the 20th Century. Now, most of ..."
The Culture of Soldiering
Eric explains the historical concept of 'soldiering' in the workplace, where workers intentionally slow down to avoid penalties. He draws parallels to modern management challenges and the need for a culture that encourages innovation.
"And my favorite, Fred Taylor, invented something called "The Task and Bonus System", which we just call "tasks". The idea was if you want to do a large project, the best thing to do is decompose that ..."
Rethinking Management for Entrepreneurs
Ries argues for a new paradigm of management tailored for entrepreneurship, distinct from traditional management practices. He introduces the concept of 'pivoting' as a crucial tool for entrepreneurs, emphasizing that successful startups often adapt their strategies based on learning rather than sticking rigidly to initial plans. This segment sets the stage for understanding the Lean Startup methodology.
"But they also believed something else that I think maybe you'll find a little bit familiar. They had this idea that what basically was the great man theory of work. That fundamentally, the job of mana..."
The Importance of Pivots
In this engaging discussion, Ries elaborates on the concept of 'pivoting' in startups, explaining its significance in navigating challenges. He emphasizes that successful entrepreneurs do not necessarily have better ideas but are adept at pivoting when faced with obstacles. This segment highlights the Lean Startup principle of reducing the time between pivots to enhance the chances of success.
"And so, here's my attempt. The first concept in the entrepreneurial management toolbox is this thing we call the "pivot". Who's tired of hearing about pivots already? Anybody? OK, I apologize. In Sili..."
The Flaws of Waterfall Methodology
Ries critiques the waterfall methodology in software development, likening it to outdated manufacturing practices. He argues that while it may work for well-understood problems, it fails in the entrepreneurial context where customer needs are often unknown. This segment underscores the necessity for a more flexible approach to product development that aligns with the unpredictable nature of startups.
"See, the way you think about startup runway, is not how many months of burn do I have left? It's fundamentally how many opportunities to pivot do I have left? And sure, we can extend the runway by rai..."
Lean Startup vs. Traditional Management
In this segment, Ries contrasts Lean Startup principles with traditional management approaches, emphasizing the need for a customer-centric focus. He references Deming's philosophy that the customer is central to the production process and critiques the internal focus of many organizations. This discussion sets the foundation for understanding how Lean Startup methodologies can lead to more effective innovation.
"Now, when you do waterfall, you have this problem I call "achieving failure" where you successfully build the wrong thing and you boast about how good you are at doing it. My question is, if you go to..."
Customer Development in Lean Startup
Ries introduces the concept of 'customer development' as a critical component of the Lean Startup methodology. He explains how this iterative process helps entrepreneurs identify their customers and validate their assumptions. By merging customer development with Agile practices, startups can create a feedback loop that fosters learning and adaptation, moving away from traditional product development models.
"These are two other unfortunately deceased men who made this possible. Deming is famous for having said, "The customer is the most important part of the production line." By which he meant everything ..."
Lessons from IMVU's Journey
In this personal narrative, Ries shares his experiences with IMVU, illustrating the pitfalls of assuming customer preferences. He recounts the challenges faced when trying to introduce a 3D avatar instant messaging technology and the critical feedback received during usability tests. This segment highlights the importance of listening to customers and adapting products based on real-world insights rather than preconceived notions.
"Let me try to illustrate what I mean. I created a company called IMVU in 2004. We make a 3-D avatar instant messaging technology. And at that time, we wanted to be the next AOL back when that was stil..."
The Pain of Code Rejection
Ries expresses his frustration as the CTO of a startup when all his meticulously crafted code was discarded after a pivot. He discusses the emotional toll of investing time and effort into a product that ultimately failed to meet customer expectations, illustrating the harsh realities of startup life.
"flawed in every respect because it’s based on empirically incorrect facts. Now, we wound up having to pivot the company and we created our own instant messaging network and it all turned out fine. But..."
Learning from Failure
In this reflective moment, Ries contemplates the lessons learned from failure and the importance of validated learning in entrepreneurship. He questions the value of his efforts and the necessity of pivoting to better align with customer desires, emphasizing that failure is often a crucial part of the learning process.
"ourselves to build this product. And we had spent I don't know how many hours of my life that I can never get back arguing with each other about the following. Which bugs did we absolutely, positively..."
The Shift in Customer Needs
Ries reveals a key insight gained from his experience: customers preferred using the product to make new friends rather than connect with existing ones. This seemingly minor semantic shift had profound implications for product development, highlighting the need for startups to adapt quickly to customer feedback.
"Would the company have been just as well off if I had spent the last six months on a beach somewhere, having nice drinks and doing nothing?" And I was, "Did I even need to be here given that all the w..."
The Cost of Learning
In this segment, Ries grapples with the question of why it took so long to learn critical information about customer preferences. He reflects on the inefficiencies of the development process and the importance of focusing on learning rather than just coding, challenging traditional notions of productivity in startups.
">>audience 2: So, what did you learn? >>Eric Ries: So here's what we learned specifically. We learned the hard way, that customers did not wanna use our product to connect with their existing friends...."
Defining Value in Startups
Ries discusses the concept of value in the context of startups, emphasizing that the primary goal should be learning how to build a sustainable business. He introduces the idea of the 'minimum viable product' as a means to eliminate waste and focus on what truly matters for customer validation.
"And then I was like, "But would we have had the same learning if we'd built a slightly different first product?" Like, for example, did we have to support all seven IM networks? What if we'd supported..."
The Lean Startup Feedback Loop
In this segment, Ries outlines the Lean Startup feedback loop, explaining how startups can use data from customer interactions to inform future decisions. He emphasizes the importance of minimizing time through this loop to enhance learning and improve product development.
"code. Now, in the lean manufacturing revolution, the first question they had to teach people to ask was "what is the difference between value and waste"? And in a factory, this is actually relatively ..."
Navigating Startup Advice
Ries critiques common startup advice, highlighting its often contradictory nature. He proposes a heuristic for evaluating advice based on its ability to expedite the feedback loop, encouraging entrepreneurs to focus on actionable insights that drive learning and progress.
"So I don't know about you, I go to a lot of startup talks, I read a lot of startup blogs. All the advice is like this. "You know, it's really important to have great design. Design always wins. Except..."
The Role of Innovation Accounting
Ries introduces the concept of innovation accounting, explaining its purpose in driving accountability within startups. He contrasts traditional accounting methods with the unique challenges faced by new ventures, emphasizing the need for metrics that reflect progress in the absence of established customer bases.
"good idea. And if not, not. There's a lot more, of course, to Lean Startup. There's a zillion things on this graph. You can read them all on my blog, Startup Lessons Learned. Of course, you can buy a ..."
The Origins of Accounting
Eric Ries discusses the historical purpose of accounting, which was designed to drive accountability across different divisions in large companies like General Motors. He highlights the concept of 'Standard Volume' as a method for setting sales expectations and how it reflects the challenges of measuring performance in varying economic conditions.
"across departments. Because if you wanna have a large company with many different divisions, you have to be able to hold the managers of those divisions accountable to some things so that you know tha..."
Forecasting Challenges in Startups
Ries reflects on the absurdity of accurate forecasting in startups, sharing his skepticism about the reliability of predictions regarding customer growth. He emphasizes the difficulty of holding teams accountable when there are no customers yet, raising questions about how to measure success in the early stages of a startup.
"Now when I read that concept, I laughed out loud because I was like, "Wait a minute. Are you telling me there was a time when people could make forecasts about what was going to happen in the future, ..."
Introducing Innovation Accounting
In this segment, Eric Ries introduces the concept of 'innovation accounting' as a solution to the challenges of measuring progress in startups. He contrasts traditional accounting metrics with actionable metrics focused on customer behavior, advocating for a more rigorous approach to evaluating startup performance.
"If the CFO of a company, hypothetically speaking, gives a certain team a bunch of money and sends them off to some remote location to do their work, like to Australia or something. And then they hang ..."
The Pitfalls of Vanity Metrics
Ries warns against the dangers of vanity metrics, which can mislead teams about their performance. He illustrates this with examples from the tech industry, emphasizing the importance of focusing on meaningful data that truly reflects customer engagement rather than superficial numbers that serve to impress competitors.
"I think we can answer that question now with something I call "innovation accounting". Here it is. Instead of focusing on product milestones and gross numbers, we have three learning milestones we can..."
Actionable Metrics vs. Private Realities
Eric discusses the divide that can form within organizations due to differing interpretations of metrics. He highlights how teams often live in their own 'private realities,' attributing successes and failures to their own actions, which can lead to misunderstandings and conflict within the company.
"numbers go up, it's always because of what I was working on"? Everyone thinks I made this feature last week and now the numbers went up. So obviously it's due to me. Of course, the people in marketing..."
Establishing Baselines for Success
In this segment, Ries emphasizes the importance of establishing a baseline for customer behavior to guide product development. He explains how setting clear expectations for conversion rates can help teams measure their progress and make informed decisions about their strategies.
"Maybe that sounds a little bit familiar. Okay. Just checking. So instead of that, we're gonna use actionable metrics, which are about per customer behaviors, things that can be measured at microscale...."
Navigating the Crisis of Zero
Ries introduces the concept of the 'audacity of zero,' explaining how having no revenue can sometimes be advantageous for startups. He contrasts this with the challenges of having even minimal revenue, advocating for a mindset that celebrates discovering the truth about a startup's performance, regardless of the numbers.
"And most likely, when you do that experiment, the baseline will be horrible. Like, it'll only be one percent and it's supposed to be ten percent. And like, oh my God. In general management, that provo..."
The Importance of Pivoting
In this segment, Eric discusses the critical decision-making process of pivoting or persevering based on data. He stresses the need for teams to schedule regular evaluations of their progress and to use innovation accounting to inform their decisions, moving away from vague concepts like product-market fit.
"Of course, theoretically, it is possible. The next iteration will be that magic one more feature that gets you to ten percent. But in reality, that's not the case. When the team gets to the point wher..."
Preparing for Questions
As Eric wraps up his talk, he invites questions from the audience, indicating his openness to discussion and further exploration of the Lean Startup methodology. This segment highlights the interactive nature of the event and the importance of engaging with the audience's inquiries.
"should we measure in each of the engines of growth? How is it that products grow? How do we know if we're on that hockey stick, or on the long, flat part forever? How do we test if we're creating valu..."
Understanding the First Pivot
Ries addresses a question about the effort required for the first pivot in a startup. He emphasizes the need for concrete predictions and the importance of testing assumptions early to determine if a product is viable, advocating for a strategic approach to pivots based on customer feedback.
"[pause] Sweet. [pause] >>Female Audience Member #1: So, I just wanted to touch on something that you mentioned is reviewed too many times; the pivot. >>Eric Ries: Uh-huh. >>Female Audience Member #1: ..."
Adapting Lean Startup Principles to Enterprise Sales
In response to a question about applying Lean Startup principles to enterprise sales, Eric explains that while the time scales may differ, the core processes remain the same. He encourages adapting the methodology to fit the context of larger commitments and longer sales cycles.
">>Eric Ries: OK. Any other questions? [pause] >>Male Audience Member #4: So most of the rapid feedback you're talking about seems to be very applicable to consumer applications where the cost of tryin..."
The Risks of Brand Association
Ries discusses the challenges faced by large companies like Google when launching new products. He illustrates how the pressure of brand reputation can stifle innovation and pivoting, using a personal anecdote about a Google product that failed despite significant investment, emphasizing the need for a safe environment for experimentation.
"And so, the principle of the build-measure-learn feedback loop is cross-industry. So for example, in consumer internet, because we're used to having large numbers of customers, we do all this analytic..."
The Value of Obscurity in Innovation
Eric Ries highlights the advantages of being a lesser-known startup, where the pressure to succeed is lower, allowing for more flexibility and experimentation. He contrasts this with the challenges faced by established brands, arguing that obscurity can be a significant asset in the innovation process.
"we were gonna face competition from Google. Here's what happened. Google spent two years working on that product. Spent, I can't imagine how much money developing it. And when it finally came out, the..."
Creating a Culture of Experimentation
Ries advocates for a shift in corporate culture towards celebrating experimentation and learning from failures rather than fearing them. He suggests that leaders should provide teams with the freedom to experiment without the burden of brand expectations, fostering an environment where innovation can thrive.
"Nobody cares. Obscurity is a benefit. By putting the Google name on it, by claiming it was the next big thing, Google put that team, I assume, in a position where there was no way for them to pivot. I..."
Evaluating Failure and Celebrating Learning
In this segment, Eric Ries discusses the importance of distinguishing between instructive failures and mere mistakes. He emphasizes the need for a system that recognizes valuable learning experiences and encourages teams to pivot based on insights gained from their experiments.
"In my humble opinion. Yes. >>Male Audience Member #6: So let me follow up with that directly. >>Eric Ries: OK. >>Male Audience Member #6: Let's say you write a new mobile application and you post it t..."
Final Thoughts on Innovation
As the session wraps up, Eric Ries reiterates the significance of providing teams with a platform for experimentation and clear metrics for success. He concludes by emphasizing that fostering a culture that celebrates pivots and learning is essential for innovation in any organization.
"what the learning turned into in the next try. So yeah, if Google corporate was fine with people failing and having the Google name be associated with nasty stuff, that'd be fine. But I just think tha..."