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strategy and business
 / Winter 2013 / Issue 73(originally published by Booz & Company)


Why Eric Ries Likes Management

But guess what? That would be true if you launched on a larger scale anyway. The technology life-cycle adoption curve is New Products 101. Every product requires you to go through an early-adopter phase before it gets to the mainstream.

One counterintuitive lesson from this is the need to hold back your marketing. If you know that you’ll have to sell to early adopters before you sell to the mainstream, then every bit of work that you do beyond appealing to early adopters is waste, even if you do it in the name of quality.

A lot of people won’t buy a product they’ve never heard of from a guy in a booth at a store, but they’re not your market yet. People with a real need for the benefit this product provides are willing to overlook things that other people might not. They accept defects in packaging, design, and usability because they want the benefits so badly.

In this experiment, we learn which customers value the product and hopefully why. We also learn what the customer is willing to pay. We start to learn how to distribute it. Our assumptions no longer require a leap of faith; we now know something about them.

S+B: And if the experiments are successful and customers take to the product?
You can then proceed along your normal business plan: Increase product runs, go from 10 to 100 to 1,000, eventually do the big launch. But my prediction, based on every startup I know, is that in that early sequence somewhere you will discover that certain leap-of-faith assumptions in your business plan are wrong. You’ll have to do what we call a pivot: a change in strategy without a change in vision. You may pivot several times before you get it right—if you get it right at all.

S+B: What you’re espousing is more than a change to current product development approaches. There are more deep-seated issues here.
Woe to any manager who comes in one day and says, “Guys, we’re doing MVP, starting today. Let’s just do it.” This approach is a radical change to the systems that companies use to govern themselves. It requires thoughtful executive management and leadership.

When I first started writing about lean startup ideas, if you had told me big companies were going to make this kind of transformation, I would have said, “Impossible. They’re too hard, too set in their ways, too bureaucratic.” It’s only because some visionary leaders came to me and said, “I want to try this out, can we do this together?” that I’ve seen it happen.

You have to change how people hold the startup accountable inside the established organization. In fact, the same goes for a startup with venture capitalists [VCs]. You have to be able to prove to somebody else that you’re making progress, and that the progress is not just academically interesting but economically viable. VCs are every bit as demanding about their investments as corporate VPs.

S+B: How do you measure that progress?
This is where accounting enters the picture. But first, we need to look more closely at the problem with current forms of measurement.

At the outset of launching a new venture, the business plan is always based on this sentiment: “Listen, VC, spouse, or CFO—if you give me $1 million, or our whole life savings, or a year and this team of five people, I promise you astronomical results. We’re going to have millions of customers and we’re going to be on the cover of magazines. It’s going to be great.”

The political capital that you and your team have is never so high as the day after the money and the plan are authorized. It decreases steadily from that day forward. One year later, I guarantee the money has been spent on schedule. Everybody has been very busy. You probably did a good job hitting your milestones. But what are the odds that you beat the forecast results? The incentive in creating the forecast was making it as big as possible to increase your odds of getting the funding. Now that huge forecast is a major liability. Quite often, you’re back in front of the VC, spouse, or CFO saying, “Remember when we projected millions of customers? Just kidding. We have hundreds. And remember when I said we’d have billions in revenue? Just kidding. We have thousands. But we have learned so much! And boy, if you just give us another year and $25 million more and a bigger team, I promise you it will work this time.”

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