The Lean Start Up - Applied today to Non-Profits

From "The Nearly Cult of the Lean Start Up", by Ben Roony, from the Wall Street Journal's TECH BLOG Europe.

"I really believe that entrepreneurship is the management disipline that deals with situations of high uncertainty." - Eric Ries, Harvard's Entrepreneur in residence.

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.

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.

Define Entrepreneurship

"Entrepreneurship is the pursuit of opportunity without regard to resources currently controlled." -Howard Stevenson, Harvard Business School

In other words, Entrepreneurship is the optimistic acceptance of risk regardless of consequences to (other people's) money. Entrepreneurs are confidence men. They build up your trust, offer you a deal that seems too good to be true, and take your 'investment' for all it is worth. The crazy thing is, in modern markets, controlled much more by feelings than facts, if you can convince enough people to trust your opinion, then you make money, regardless of the facts. That doesn't seem fair, does it? But such business is never fair. This is why the French invented the word and why Marxists despise entrepreneurs.

Breakthrough Entrepreneurship by entrepreneur and teacher Jon Burgstone and writer Bill Murphy, Jr.

The world is not fair, but it is we who make it unjust. I love JUSTICE (not Law, that is something different). Justice is how men make the world a fair place. That's why my personal evolution in business has taken a turn toward SOCIAL ENTREPRENEURSHIP, rather than traditional forms. Social Entrepreneurs have other goals besides money.

When we define our values, we can see our goals, and that helps us choose our actions. Right action is difficult in a complex world, and each individual situation requires a unique judgment, but with good values as your compass, you can find your way through the darkness of the forest, around obstacles, across rivers, to your goal. If your only goal is money, then that is all you shall have.

I have pursued justice without regard to money, and I am willing to use other people's resources toward that end. I'm a social entrepreneur, non-profit business proprietor, and I know my values and my goals. Do you?

Why I became an Entrepreneur

I grew up in the 1970's, at a time when the United States promoted it's business models around the world. It was the Cold War Era, and Capitalism was in a death match with Communism. What I didn't know then was that 'Capitalism' wasn't really capitalism and 'Communism' was really Stalinist U.S.S.R.

At that time we had a program called JUNIOR ACHIEVEMENT which was a non-profit (I think) that would come into public schools to teach kids about the fundamentals of capitalism. We made widgets, and then sold them in competition with other schools, and whomever sold the most won. The program sucked, didn't teach us anything, and thus wasted our time, but looking back, I think that was the goal.

I did like the idea of being an inventor, of creating something, and selling it to make a living. Working for other people never appealed to me. In my teens, I stole some bicycle parts, and got caught. My Dad was so disappointed in me that it made me cry, but I was only 14 yrs. old, and could not legally work for money. I was dependent upon my parents for money, so I stole my families lawnmower and other equipment, and put out some fliers to houses within walking distance. Soon I had all the work I could handle.

Unfortunately, I wasn't aware of my sever allergies and hay-fever. It was the summer of '84 and every day I would mow a lawn, then go home and collapse, unable to breath for the next 8 hrs. At that time, I lived in Plano, TX, and the lawns were only 1/4 acre, and I charged only $20, which was a lot in my 14-year old mind. What I didn't realize was that the gas, the equipment, and my time were worth much more, and the 8 hrs. of recovery wasn't added in. I was loosing my life in the hot Texas sun for about $2/hr. It was only profitable with heavy subsidies from my parents, and child labor.

This experience taught me a lot about what it means to work. It taught me that I could pick and choose my customers, and that I should never work for less than I am worth. I vowed never to work for mean people, or make more money for a company than I made for myself.

Later, when I reached working age (16) I got a job at the local grocery store where I had stolen the bicycle parts. They paid me minimum wage ($3.35/hr) part time to bag groceries and collect shopping carts. It sucked, bored me to tears, and I quit after two weeks. I vowed never to do work that insulted my intelligence and had no opportunity for advancement again.

That year I paid $125.00 for a Red Cross Lifeguard Training Class, and even got a job with the big local pool ($6/hr.). It lasted two weeks, and I over slept one Saturday morning, had to walk to work, and was fired. Texas is big and lacks public transport, but my parents made my Driver's License dependent upon my Grades, and there was no way I could meet their expectations, every-time that I came close, they moved the goal-posts. So, I resolved never to work with anyone who broke their word. I then didn't work for two years, because I didn't have transportation.

Eventually I stumbled onto an opportunity with the YMCA, a non-profit. They hired me as a Lifeguard ($10/hr), and paid me to train as a swim-instructor. Then they charged local house-moms $30/child for two-weeks of swim lessons (ten 40-minute sessions). I was in heaven, working 50 hours/week, outside, with hot girls, fun summer. I worked for the YMCA part-time as a weight room attendant through the winter, and as a pool guard and swim instructor for a few years, but eventually I quit to make more money. Little did I know.

At age 19, my Mother wanted to throw me out of the house, and I wanted to go, but without any credit-history or a good paying job, no one would rent me an apartment. My Dad brokered a compromise, so I could stay at home and pay rent, if I was enrolled at the local community college.

At age twenty-one, I still had no car. It seemed impossible to save enough to buy a car that worked while paying school expenses and rent. My parents let me drive their cars, or gave me rides to places, but I wanted to move out of the house, and needed a job that paid more than I spent to save any money. Only problem was, those jobs were too far away from home, and I didn't have a car. My parents surprised me with a 1978 Chevy Monte Carlo ($1200). I had to pay the insurance ($2500/year), but it was mine, freedom. I immediately applied to work at the local pizza delivery store, and started making $20/hr. in tips (unreported income) plus minimum wage. (I ate a lot of free pizza, too)

I spent too much partying with my friends, but I still had money in the bank. I failed out of college, but I kept going back for more punishment, because my friends were there. Eventually I met a girl, and everything went to hell. But I had my rules:

• Choose your customers
• Demand what you are worth
• Do what you love, love what you do, or don't do it
• Never work for someone else unless you gain more than they do
• Don't work with people you can not trust

That's how I became an Entrepreneur.

When Patents Attack: from THIS AMERICAN LIFE

Lawyers kill innovation, and steal the profits.