LEAN STARTUPS What the Father of Lean Startup Thinks You Need to Start Up Jason Saltzman Contributor Startup Mentor, Entrepreneur, CEO Of AlleyNYC NOVEMBER 21, 2014 Image credit: JD Lasica In my first tech startup, we raised $1 million. I worked 20-hour days and used every ounce of blood, sweat and tears that I had. The stress even caused a fistfight with my co-founder. He s much bigger than I am, so I bit his ear like Mike Tyson. (Sorry, Yoni.) After months and months of grueling work, we finally launched our product. We hired a top PR company for like a gazillion dollars a month and even got on a http://www.entrepreneur.com/article/240078 1/11
major media network. We spent all this time and money on building this product because we just knew it was what people wanted. Our friends and family thought it was an awesome idea, and, after all, we raised a cool million to get it started. It was a no-brainer, a surefire success that was going to make us billionaires. Well, guess what? It failed. It failed HARD. What the hell did we do wrong? We worked our asses off. We used every resource we had. What were we missing? We just had the wrong product. In 2011, a book came out called The Lean Startup by Eric Ries. After reading half a chapter of the book, the message hit me in the face like a ton of bricks. It s not that I didn't know these things, and it s not like the information in the book was earthshattering. On the contrary I knew these things all too well. However, it took me a million dollars to learn the basic ideas of the book. After one quick reading, I became a preacher of the book. Now it s 2014, and The Lean Startup has become the startup bible. Eric spoke at AlleyNYC, and I jumped at the chance to interview him. Learn from him to avoid the mistakes I made: Q: What is Lean Startup? A: The lean in Lean Startup comes from lean manufacturing. So, people who studied business-production systems or kind of old-school business philosophy maybe are familiar with it. When I was a technology entrepreneur doing startups, I kept having the experience that doing things the traditional way -- a lot of advanced planning, raising a lot of money upfront, really making sure you call your shot -- that didn t really work for me. I kept having the experience of building companies that had great technology, but no customers. http://www.entrepreneur.com/article/240078 2/11
So, I had this intuition when I was younger that we should do things faster -- more intuitive, and more in a scientific way. Customers should be more involved in the process. And when I finally had the chance to build those products according to intuitions, I found this set of techniques that really works well. And when I was trying to figure out why they work, that s where I started. The theory of Lean Manufacturing already existed, so that with some tweaking (it) can be applied directly to the process of the innovation, directly to the process of entrepreneurship and it can help us be better entrepreneurs. I called it Lean Startup and started writing about it, and it s kind of taken over my life since. Q: Was there anybody in the manufacturing world who inspired you? A: Well, the funny thing about it is that my interest in manufacturing, my desire to use those theories, well I didn t know at that time anything about manufacturing. I ve read a book and, in the manufacturing circles, it was a famous book, but in mainstream business, I don t think this book is very well known, by a guy name Taiichi Ohno. He was the father of Toyota s manufacturing system, when Toyota was starting after World War II up to the early to mid-twentieth Century. It s a very simple book. It s not very helpful actually. It s very philosophical and it s very abstract and it talks about the principle that the manufacturing process should be humane. It should use people s talents and energies well. It should produce products that are of high quality for the customer. I still remember he had a technique that he called the Five Why s, which we use a lot in the startup now. If you see a problem on the manufacturing floor, the traditional way so solve that problem is figure out whose fault it is and basically yell at that person. So the factory worker makes an error, we assume they did something wrong and they re in trouble and we force them to come over and tell them not to make mistake again. http://www.entrepreneur.com/article/240078 3/11
But the Five Why s says that whenever you see a technical problem or a problem on the line, you want to look for the root cause to try to understand what really allowed that problem to happen and you do that by asking why five times. Related: Why Competition Is Good There s a great example in the book. There s a machine that was not operating correctly. But why? The restrainer was not properly attached. But why? Because you know the procedure to fix it wasn t properly followed. Why? The procedures were too complicated and the person was never properly trained. Really, it s trying to figure out the human problems in the whole system: by management, by workers, by the form, by everybody working together. What s our corrective responsibility for this problem? Q: How important is a vision, if there's such a good chance that it s wrong? A: This is something that s frequently misunderstood about the lean startups. A lot of people who comment on Lean Startup have not actually read the book. But Part One of the book is called Vision. This is the first thing we talk about in Lean Startup because you cannot do any of the techniques of Lean Startup -- the rapid experimentation, the scientific approach, the broad development -- none of it makes any sense and can t work unless you have a vision for what you are trying to accomplish. I use a simple metaphor to understand this. It s like if you have a GPS in your car. Remember back when you could get lost when driving? GPS is a powerful tool. All of a sudden, you can never be lost. But GPS can t tell you where you want to go. You don t get in your car and you re like, Hey GPS, where do I wanna go today? It doesn t know. It s a robot. If you have a destination in mind -- you want to drive from Chicago to New York City -- a GPS is really helpful. And if you are following the route the GPS recommends and then there s terrible traffic or a highway that s http://www.entrepreneur.com/article/240078 4/11
closed, the GPS can help you find another path to get to your destination. All of the techniques, strategies, all the tactics of testing and experimentation, protagging -- all of those are simply tools that help us in experimentation, growth hacking, and everything else. All of those are simply tools that help us find the best route to that destination. Q: What s the easiest way to start implementing the Lean Startup methodology? A: The easiest place to start is with the recognition in a startup situation that everything you do is an experiment, whether you admit it or not. You could pretend that it is not an experiment if you want, but if you don t know what s going happen in the future, then you are running an experiment. And so the question is, do you want a science experiment or should we resort to astrology? Astrology is: I look at the stars, I think about things real hard, and I say what s going to happen in the future through some part of intuition. I don t want to denigrate my friends who believe in astrology, but, fundamentally, you re in a nonscientific or irrrational process. When you hear people saying entrepreneurs just make it happen through force of will, then that s just astrology. If you want to take a scientific approach, then you ask, What s my hypothesis? What do I think is going to happen? What are some ways that I can go about testing to see if that hypothesis is actually correct or not? And that s where the entry point is to all the specific techniques for lean startups. Of course, you can read about them online. There are meetups practically in every city where there is an entrepreneurial community. So there are more details to it. That mental model, that we re running an experiment. The goal of the experiment is to find which elements are brilliant and which ones are crazy, and make the http://www.entrepreneur.com/article/240078 5/11
adjustments. Q: Why do you feel that most startups fail? A: I think it s pretty simple; they re basically building a product that customers don t want. It seems like that s so dumb, like everybody knows that, to the point now where Y Combinator s slogan is, Just build something people want. If it was so obvious, they wouldn t make it a slogan. As technologists, entrepreneurs sometimes get confused about what they re doing. We hear startups want high growth, but where does the growth come from? What does it mean to have high growth? Cancer has high growth. A Ponzi scheme has outstanding growth. Are those good startups? No. We don t want to create a cancer society. We want to create something that makes the world better. What does that mean? It means that it actually makes our customers lives better -- in such a way that that betterment allows us to serve more customers. It s called the Law of Sustainable Growth. New customers come from the actions of past customers. And so that s what our goal should be as entrepreneurs. When we fall short of that goal, when the world does not look the way it looked like in the business plan, then we have a tendency to fail. It s important to recognize failure of the idea tends to equal failure of company. Related: Content Is Boring, So FunnyBizz Was Born I personally made a mistake. I ve been through it. It destroys your thinking. In most situations, your startup basically gets one shot. You raise all that money, you have your secret R&D, and you launch your product. You better be right or you re doomed. If you fail to live up to the expectations, the company is out of http://www.entrepreneur.com/article/240078 6/11
money, the burn rate is too high and investors pull out, and it goes ugly really fast. In the Lean Startup model what we re trying to show is that something can be wrong with your idea but that doesn t mean your company has to fail. It s very common for lean startups to take their initial concept and turn it to minimum viable product, or MVP, which is the small experimental version of what they hope will eventually grow into their vision. Q: What do you feel is the most common misconception about Lean Startup? A: There s a couple that vie for supremacy, but I think, right now, the biggest one is being driven by Peter Thiel in his excellent book Zero to One. He talks about his criticism of Lean Startup as agnostic experimentation that is pretty much about doing surveys and asking customers what they want and not really having a vision of your own. And so because you don t have that kind of conviction, you haven t done the hard work or taken your contrarian bet, then Lean is taking you away from that core entrepreneurial virtue. I don t doubt that, as an investor, he is being pitched by entrepreneurs that meet that criteria, that there s quite the fad going on with people using these kinds of tools and techniques, as a kind of substitute for vision. But to claim that is what the Lean Startup movement stands for, and that is something we endorse, is still the leading misconception. Fundamentally, if you re going to do science, you have to have a hypothesis. If you follow the scientific method, if you re regularly spot-testing your hypothesis -- even if you start with a dumb hypothesis -- you have the opportunity to get better. As you fail, you learn, and you will develop better intuition, and a better understanding of the market. You look at these famous entrepreneurs, their initial experiments didn t go very well at all but they learned from that experience and that eventually made them great. http://www.entrepreneur.com/article/240078 7/11
Q: Has Lean Startup evolved since you ve started the book? A: Oh, man, it s been an incredible evolution. I think that it s evolved in a couple of ways. One, it started out as a technology phenomenon: Silicon Valley, high-tech companies with the fruit-fly incubator for this idea. That s my background. Now this concept is being applied in all kinds of contexts, really, really, different from that domain. The last two years of my life, I spent a huge amount of time building a program for GE, where we ve trained thousands of GE s top managers in the Lean Startup. I ve worked with a dozen of their teams to build products. You name it, GE has used Lean Startup for it. So not just small companies, but huge companies do it. Not just software and hightech products but also low-tech, highly regulated products. We re not talking about mobile apps anymore. We moved into the government. We ve built programs for the Seattle government, for local government. We work with a group called Code for America. That s an organization where I was on the board for a time. They are huge Lean Startup advocates. So I think the most interesting evolutions of it have been just trying to stretch the idea into new places. We ve done NGO s and all kinds of nonprofits, social, and plenty of apps and Web 2.0 and mobile, and all the usual stuff, too. Q: What motivated you to actually write the book? A: I wish I could say I had a grand master plan. The situation was, I d done a bunch of startups. Most of them failed. The most recent one I had done has been somewhat successful, as it s still going, a profitable company called IMVU. And I was starting to think about what to do next. I was a co-founder, and I'm probably in the Silicon Valley career path, going to be a startup CEO someday. I probably should find out, what does a startup CEO do? And there were a lot of http://www.entrepreneur.com/article/240078 8/11
questions I didn t really know the answer to. How did you know when to launch the product? Do you do the minimum version or should you wait for a long time? Should it be three months? Six months? Twelve months? How do you know when to launch? How do you know how big the team should be? Related: Using Entrepreneurship to Save the World. Really. I asked more and more people for the answer to those questions, and I felt like, gosh, nobody really knows. And this is 2004, 2005. This is long before it was popular with startup bloggers, before the explosion of startup content today. At that time, you had to apprentice yourself to the great. But I found that a lot of the great -- although they had an amazing intuition themselves about what to do -- couldn t actually explain why the things they believe work. They say, I know this works. I know that we should do it this way. But when you why, they say, Well, that s just my experience. They have an intuitive sense of what to do. There wasn t a good theory. And I am a little bit theory-oriented. I also had the experience of being an advisor to a lot of startups. So many of my friends who are engineers who I worked with who has gone out and made companies of their own and go and work at other companies. I just kept seeing this appalling, appalling thing from the most talented, smartest, creative people I know in the world. They were working months or even years of their lives on products that nobody used. It seemed like a catastrophic waste of human potential and I felt like, God, it can t possibly be right. So, that was really my signal to start writing. I started blogging about it at first, just telling stories of things I had seen or things that worked for me and trying to work out some of this theory on a very basic level. And that really started to take off. And people started to get excited about it and people started to create meetups http://www.entrepreneur.com/article/240078 9/11
about it. And I got asked to speak. and it became a thing unto itself. At a certain point, I realized that there are only so many people you could reach through a blog. A lot of the people who are causing the problems we were trying to solve, they read business books. So I wrote a business book. Q: Did you use Lean Startup to write The Lean Startup? A: I used a lot of techniques in the publishing process of the book to reiterate and test the content, the subtitle, the cover -- you name it. Very Lean Startup. People in publishing, they think I m crazy. Q: You have this conference coming up. What s the importance of it? I think we're going about five years. We ve sort build this Lean Startup conference once a year, coming up the week December 8th in San Francisco. You can read all about it and sign up at theleanstartup.com. Here s what I ll say about the conference, why I think it needs to exist: It is a hundred percent different from every other startup and tech event that exists. It is a no-launch, no-hype zone. So nobody launches anything on stage, there s no startup battlefield, there are no exhibits on the floor, no vendors that will sell you anything. It s a hundred percent made up of entrepreneurs with contemporaneous case studies of these ideas in the real world. So, it s not like, here s a famous person and how did you get rich 10 years ago? Not, Hey, here s a somebody who wants to buy a bunch of startups. It s all practicing entrepreneurs. It s an honest conversation about what s really going on in entrepreneurship and, because of that, we have an extremely rigorous, yearlong speaker-selection process. Most of the people you ll hear on stage at the Lean Startup conference, you will http://www.entrepreneur.com/article/240078 10/11
not see at any other conferences at all. They re not on the speaker circuit. They re not famous people who do a lot of speaking. They re people we carefully curate to make sure that they tell their story in the most honest way. It s a unique opportunity to hear true behind-the-scene stories of what is actually going on in today s startups. Well, there you have it, from the man who write the book himself. Being selfemployed for my whole adult life has taught me many things, which I love to share with you (or anyone else who will listen). By no means do I know it all, but I do know one thing: If you read this book and truly adopt the methodology when growing your business, it WILL save you time and money (and possibly fights with your co-founders). Until next time, HUSTLE ON. Related: Why the Hell Would Anyone Want to Be an Entrepreneur? http://www.entrepreneur.com/article/240078 11/11