With an eye on what a lean startup requires to grow Eric Ries, the author of The Lean Startup, writes:
”A startup’s job is to 1. rigorously measure where it is right now, confronting the hard truths that assessment reveals, and then 2. devise experiments to learn how to move the real numbers closer to the ideal reflected in the business plan.”
Are you scheduling time on the calendar to exhaustively examine your company’s current position, relative to your business plan? Yes, you are documenting revenue, cost, profit, and your core competencies but are you focused on growth?
A startup is a volatile ecosystem which is plagued with uncertainty so measuring success by milestones paints an inaccurate picture of the company’s growth, Ries explains the issue:
”I asked the team a simple question that I make a habit of asking startups whenever we meet: are you making your product better? They always say yes. Then I ask: how do you know? I invariably get this answer: well, we are in engineering, and we made a number of changes last month, and our customers seem to like them, and our overall numbers are higher this month.”
You are hitting your milestones. Your customers are content. Profits are higher this month than last month. Now on to the next milestone, right? Not so fast. While the wins are significant, how do you know those characteristics are what your rate of growth depend on?
There is a danger in relying on “vanity metrics;” making the product better is not an exercise in metrics but in testing assumptions:
1. Ries shares that you must leverage the minimal viable product (MVP):
”This single MVP would test most of the startup’s assumptions and establish baseline metrics for each assumption simulation.” Ries continues: ”An MVP allows the start up to fill in real baseline data in its growth model—conversion rates, sign-up and trial rates, customer lifetime value, and so on.”
2. Ries considers that tuning the engine is a critical step in improving the product:
”Every product development, marketing, or other initiative that a startup undertakes should be targeted at improving one of the drivers of its growth model.” Ries continues: ”A good design is one that changes customer behavior for the better.”
3. Ries concludes that after the engine is tuned a decision needs to be made — to pivot or preserve:
”If we’re not moving the drivers of our business model, we’re not making progress. That becomes a sure sign that it’s time to pivot.”
For every initiative that your startup undertakes don’t rely on assumptions but focus on the process: establish the baseline, tune the engine and make a decision to pivot or persevere. The super power of Ries’ strategy is to help you align your efforts in building a product the customer wants.
Ramon B. Nuez Jr. is an independent business advisor who helps you increase profits while delivering significant value to your customer.