To hold entrepreneurs accountable we need to rely upon the actual metrics at micro scale. Continuious innovation and testing must be done. This agility is the core ability necessary for contemporary entrepreneurs, and we must have innovation accounting to track their skill level. Change is key, but must be in concert with high quality, profitability, and accountability.
"I really believe that entrepreneurship is the management disipline that deals with situations of high uncertainty." - Eric Ries, Harvard's Entrepreneur in residence.
At times Eric Ries’s presentation strayed dangerously close to the messianic, but every time the author of The Lean Start Up headed too far in that direction, he pricked his own bubble.
“I have had some terrible failures,” he told the packed audience of aspirant, and actual, entrepreneurs in central London. “Follow me and you too can have terrible failures.” It is a good line and gets a big laugh.
His self-effacement plays well among the nearly 600 people who turned out on a cold Monday night to hear this young start-up “guru” speak.
His lecture was peppered with highly tweetable quotes: “If our competitor can learn faster than us, then they deserve to win, and we deserve to die”; “The question is not whether something can be built, but should it be built”; “If we’re really honest, most startups represent a colossal waste of time and energy”; “Only failure promotes learning.”
Whether you agree or not with all of that, it does make for easily digestible fare. Nor is Mr. Reis apologetic for making things simple. “If you can’t spread your message…”
Putting on the “black turtleneck”
Aware of the “cult” swipes, in private Mr. Ries is dismissive of what he calls “success theater” or “putting on the “black turtleneck” and is keen to distance himself from the “great man theory of management”. He visibly flinches at the word guru. “I always think of Peter Drucker who said people used guru because charlatan is too long to fit into a headline.”
His theory of entrepreneurial management—and he is Entrepreneur in Residence at Harvard Business School—as espoused in his book published late last year in the U.S., is that entrepreneurs need a new way of measuring value. “I call it innovation accounting—not innovative accounting, that can end you up in jail.”
“I believe that the definition of entrepreneurship is the management discipline that deals with high uncertainty situations, that therefore the unit of progress, the way we measure our success as entrepreneurs, is learning that which is valuable to know.
“I call this validated learning. We should develop practices that optimize that learning, and because there already a management system that is based on learning how to eliminate waste and promote things that are valuable called “lean”, it could not be more obvious that we should take the best such ideas and apply them to this new context with a new definition of value.”
It has to be quantifiable or this is all a waste of time
This idea of value is what Mr. Ries means when he talks about accounting. “It has to be quantifiable or this is all a waste of time,” he says. We can draw a lot of valuable lessons from science. The proof in science is that you have learned how to do experiments that show the right results. The same thing is true for validated learning. If we have learned something interesting, then prove it by building products that are in line with that learning.”
This is the development cycle Mr. Ries calls “build-measure-learn”. Build your product, see how people use it, what do they like, what do they click on, what do they hate, and use that to inform your next decisions.
But in order to know how successful or otherwise you are, you need a system of evaluating value.
“That is accounting. We have all been indoctrinated with thinking that accounting is about tracking money, but money just doesn’t work very well when the numbers are so small, like in an early stage start up. There is no RoI, there is no profitability. Everything is close enough to zero that the accountants don’t care.
If 10 people in a row hate my product, isn’t that telling me something?
“The units of innovation accounting are not the gross numbers. Rather than focus on how much money we make, we might look at what is the percentage of customers who pay. We have to look at other things.
“The nice thing about those metrics is that they are not market-size dependent. If you have 100 customers you can already say what percentage are paying. If it is zero then I can already start to be a bit worried about the model.
“If 10 people in a row hate my product is that statistically significant? It is is not conclusive evidence, but it is certainly telling you something.”
Judging from the size of his audience at the Business Leaders Network event on Monday, the buzz afterwards, and the fact that Mr. Ries has had almost 20 meetings in his brief time in the U.K. and Ireland (including a meeting at 10 Downing Street), he is preaching to a receptive audience.
The Lean Start Up, by Eric Ries, is published by Penguin.
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