Pivot or not to pivot, that is the question


The Lean Startup – Eric Ries, Crown The Business

The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses – Eric Ries

In short

According to Steve Blank, a former serial entrepreneur and a professor of entrepreneurship, this is one of the top three books about entrepreneurship. While I consider this book and the concepts to be difficult to understand, I tend to agree that it is an important book for everyone interested in entrepreneurship.

What is the book all about

There are two generic methods to building a business. One of them is the “no planning” – way. If you manage to build a sustainable business, it happened with a some guesswork, accidental discoveries and/or a lot of luck. I have seen this happening especially in small startups that have literally stumbled upon a working business idea.

The second method is the “lets do a project” – way. You research the market, make analyses and define an idea. Then you develop a product and hone it to perfection. When you are ready, you launch the product to the market, cross you fingers and hope it works. If it does, you have a working business. If it doesn’t, the game is over. This is often seen especially in big companies, where failed projects are shut down and hidden from sight.

Eric Ries suggests that there is also a third, more rigorous way. It is a mix between the “no planning” and “lets do a project” methods, with best parts of them both. It combines the guesswork and sudden discoveries with more scientific approach. This method is called “the Lean Startup”.

The Lean Startup method is based on five principles:

  1. Entrepreneurs are everywhere – Eric Ries defines “a startup” very broadly as “a human institution designed to create new products and services under conditions of extreme uncertainty”. This of course means that you can be an entrepreneur wether you work for a small startup or a large corporation.
  2. Entrepreneurship is management – As the startup is an institution and not just a specific product, it needs to be managed to make the best out of it
  3. Validated learning – Traditional companies exist to produce goods or services and can be measured by the money they make out of it. Startups exists to learn how to build a sustainable business. Their progress cannot be measured the traditional way. They can prove they are making progress through the validated learnings they have gained throughout their existence.
  4. Build-Measure-Learn – The core activity of a startup is to build a product, measure how customers respond to it and learn if it makes sense to continue the build-measure-learn-loop (perserve) or to drastically change plans (pivot). All the startup processes should focus on accelerating this loop, in order to reach a working business model as fast as possible.
  5. Innovation accounting – The problem in startups is that traditional accounting is not sufficient due to their unpredictable nature. Innovation accounting is a way to hold the entrepreneurs accountable. Basically it consists of setting a baseline and the ideal state as soon as possible. Then the startup should focus on adjustments to move the company towards the ideal. If the progress is good it makes sense to continue and if not, a serious change of plans is needed.

You can learn more about the principles here.

What I love about the book

The book takes a very fresh approach to the definition of a startup and to why they exist. It brings clarity and order to the chaos that is often associated with startups. You have an actual useful model to follow in setting up and building a successful business. This is not an easy feat to accomplish.

The focus on finding the way to build sustainable business through validated learning makes much sense. As an entrepreneur you have only limited resources to reach that target. Your company’s very survival depends of finding a way to do profitable business. Therefore aiming to run through the “build-measure-learn”-loop as fast as possible makes a lot of sense. Each time you run through the loop you learn something new and are closer to reaching the sustainability.

As a bonus the long list of additional reading at the end of the book warms the heart of people who love to read and are always on the lookout for good suggestions.

What could be better

I have rarely met a book that is harder to read than this one. It is full of difficult concepts and terms like “validated learning” and “innovation accounting”. While author tries to cover them in the book, I feel they were left undefined. In fact it has taken me months to make the concept clear enough for me to write this review. Many chapters could have also used stricter editing to make the flow better and to make the message to stick.

This book is probably at its best when coupled together with some lectures about the subject or a workshop. I believe it would help to make the hazy ideas in the book more concrete.

Who is responsible of it all – Eric Ries

Eric Ries is 34 year old serial entrepreneur with experience from both unsuccessful and successful startups. His learnings from these companies are distilled into the Lean Startup book.

He currently serves on multiple companies advisory boards and is also an influential blogger, speaker and a lecturer. You can read more about him and his work from wikipedia.

Taking it all together

I think that the core idea of the Lean Startup method is sound and exiting. The method will no doubt be useful for both entre- and intrapreneurs. However this concept is not easy to understand. Be prepared to seek others for advice and support.

As a side note, I admire Eric. He is just four years older than I am and has already done incredible things. Makes you feel humble but at the same time exited. I need to set my own targets just as high (or even higher). =)

The book “The Lean Startup” is available for example from Amazon.com and Amazon.co.uk.