There is no magic formula for creating new products and services
Often, different innovation techniques and processes get bandied around as if they’ll guarantee a successful outcome. Sorry, but that is nonsense. When’s the last time you had any certainties in life? There are simply too many variables at play for any project, so you have to think of it as a stochastic process.
Silicon Valley, and the world over, took the LEAN Start up methodology as a nearly infallible process for creating successful businesses and product, to the point it became religion. Doing anything different was heresy. The question is, did LEAN Start-up reduce the number of failed start-ups? LEAN start-up was first mooted in 2008 by Eric Ries, gaining real traction by 2012. To date, very few robust studies have been conducted to understand the efficacy of the LEAN start framework, and even those that exist aren’t conclusive. In fact, one study found success was correlated with writing a business plan, the one thing LEAN Start-up claims “doesn’t survive first contact with customers”1. Why is a business plan so effective, even in the absence of historical data? An Emerald Insight study stated:
“The most interesting aspect of our findings is likely the combination of activities across business planning and lean startup. While lean startup proponents might argue that “no business plan survives its first contact with customers” (Blank and Dorf, 2012, p. 53), the act of writing a business plan is correlated with success. It is worth noting that the separation between lean startup and business planning may be a false dichotomy. The underlying activities are not mutually exclusive and do not seem to be detrimental to each other. It is entirely possible, and based on these results advisable, that an entrepreneur would interview customers throughout the process of creating a business plan and use customer feedback to alter both the plan and the business itself. Furthermore, taking customer preorders serves to solidify the relationship between customers and the firm which would only improve that communication.”
So is the conclusion LEAN start up is completely flawed, and should be ignored? My answer is an emphatic no, and no. I’ve seen first hand the benefits. It doesn’t guarantee success, but it does promote excellent practises, which certainly improve the chances of succeeding, or at least reducing the cost of failure. The elements of the LEAN start-up methodology I strongly advocate are:
- Assume nothing — Treat everything you think you know as a “hypothesis”. As with any hypothesis, you have to validate (or invalidate) it. Putting aside personal biases is hard, and I should know, because I sometimes have an unshakeable belief in things.
- Learn to interview customers - Sounds easy, right? Structuring a customer interview to test a hypothesis, without leading the witness, is harder than it seems. Anytime we’re dealing with humans, psychology comes into play, and managing interviews effectively requires robust questioning techniques that aren’t always obvious. There’s a good book by Ash Maurya called Running Lean to help get you started.
- Watch what customers’ do, not what they say — Hang on, doesn’t this contradict the previous point? People often tell you what they think you want to hear, or what they genuinely think is true, but what we say and what we actually do aren’t always one and the same thing. Asking customers what they want must be part of your feedback loop, but you need to pay close attention to what actually happens. Define metrics and watch them closely to see what’s happening. For example, what is the consideration time for a purchase, what is the customer churn, what is the customer lifetime value, which features are being most used, what was the cost of acquisition, and how are customers using your product are the sorts of questions you need to pay close attention to. This is what your customers are actually doing, rather than what they think they’re doing.
- Engage in validated learning - Revenue and profit are key metrics for any business, but proving you’ve a viable business model should be the primary focus, not the absolute numbers. Just because you can close sales and grow revenue, it doesn’t mean you can scale a profitable business. Be patient and pay close attention to the cost of acquisition and profit per customer to see what that they tell you.
- Understand what an MVP is, then build one — An MVP is a poorly understood term, and often what people describe as an MVP, really isn’t. An MVP is a “version of your product that allows a team to collect the maximum amount of validated learning with the least amount of effort”2. An MVP might be embarrassingly sparse in features and lack polish, but its purpose is to learn and validate, not to make you proud.
Understand the LEAN start-up isn’t infallible. Know its limitations and use it, or at least parts of it. O, don’t forget the business plan too.
NOTE: Don’t go forgetting the lessons you learned.