You don’t have to run your business on a shoestring budget or out of your parents’ garage to have a lean startup, says entrepreneur Eric Ries. Lean startups are more about your point of view, process and product than about the size of the pot you’re drawing from. And running one calls for a new breed of entrepreneurial manager.
This need for a sea change in management may well mark the dawn of Management 2.0, Ries told BusinessNewsDaily. That would be fitting, after all, since this is the 100th anniversary of the publication of "The Principles of Scientific Management," by management consultant Frederick Winslow Taylor, a document that launched management as a subject in its own right.
Ries hopes his new book, "The Lean Startup," (Crown Business, 2011), will shake up the practice of management today as much as Taylor's monograph defined the received wisdom of management thinking a century ago. Ries, an entrepreneur-in-residence at Harvard Business School, has played a pivotal role in the creation of three startups.
The future of management
"I really figure we're entering management's second century," Ries said. In the future, Ries said, entrepreneurial management will be seen as a peer discipline to general management .
"It's neither better nor worse," he said. ""It's a separate set of tools we must master as our world becomes increasingly uncertain. As the world gets less and less stable, more work is shifted from general management to entrepreneurial management."
Uncertainty and the lean startup is a match made in heaven, Ries said.
"What defines a startup is that it's a human institution trying to create a new product under conditions of extreme uncertainty," he said. "The deep, deep, deep core is we're trying to figure out what is the path to a sustainable business and we don't have an existing playbook we can execute against. I make the case in the book that entrepreneurship is the management discipline that deals with uncertainty."
The lean startup
Point of view and process create the launch pad for a lean startup, Ries said. What sets most lean startups apart from the pack is a combination of a rigorous decision-making process with a sense of humility about their own ideas—there is room for pride of authorship, but not for in the illusion of infallibility.
"You have to really want to know the truth more than you want to be right," Ries said.
The mythological figure Narcissus and the consequences he suffered as a result of his infatuation with his own reflection should serve as a cautionary tale for entrepreneurs who become too uncritically smitten with their own ideas. What happens, Ries said, is that entrepreneurs fall in love with their idea. It seems like the best idea they've ever had. And when they ask other people for validation on the merits of the idea, approval seems close to universal. Humility is the antidote, he said.
Humility is the antidote
"But if you have a little bit of humility and some discipline, you can break the idea down and systematically test each element and figure out what's true and what's not," Ries said. "The scientific method is at the heart of the lean startup world view."
Another common denominator for lean startups is the need for speed, Ries said.
"You would see an obsessive focus on speed," he said. "There is a sense of urgency to get to the information we're looking for."
In this mode, Ries said, all decisions — infrastructure, personnel, platform — are evaluated with an eye on picking the platform that will allow the business to run experiments quickly to create a build-measure-learn feedback loop .
That build-measure-learn feedback loop helps an entrepreneur steer a lean startup and know when to pivot by making a sharp turn or persevere on the current path.
"Pivoting is fundamental to the process," Ries said. "If you look at successful startups, most of them started out without the exact right business model, idea or strategy. Most of the time, the idea is downright crazy. But there's just a kernel of truth buried inside it."
That's where the pivot comes in to play.
"A pivot is a change of strategy without a change of vision," Ries said.
Knowing the customer is the key to that vision, he said.
Knowing the customer is key
"Unless you get inside their heads and understand their needs and their use case, you're creating a product in a vacuum," Ries said. "And most of the time, founders are convinced they know the customer but they're just kidding themselves. They have a vision of who they think the customer is and what the use case is. I'm not against visionary entrepreneurs — I still believe vision is the foundations of successful entrepreneurship. But vision is primarily an internal thing. The problem is that you also have to be outward focused in terms of testing the vision."
The goal is to get the minimum viable product (MVP) out the door as quickly as possible, Ries said. The MVP is not necessarily the smallest product imaginable, though — it is simply the fastest way to get through the build-measure-learn feedback loop with the minimum amount of effort.
"What that will do is really undermine our traditional notions of quality," Ries said.
Building quality in is the foundation of most modern product development methodologies, going back to the 20th century's high priest of quality, W. Edward Deming, he said. Deming helped make Japan synonymous with quality for manufactured goods with his use of statistical analysis to improve product design and quality But understanding quality is more a function of knowing the customer than it is function of the product itself. Quality does not exist in the abstract; it is dependent on customer expectations .
What does quality mean?
"But if you don't know who the customer is, you don't know what quality means," Ries said.
One of the challenges for an entrepreneurial manager is maintaining focus in the midst of ambiguity and uncertainty to pick the right path to creating a sustainable business.
"Most companies have more good ideas than they know what to do with," Ries said. "The test of entrepreneurship is the ability to winnow through all the good ideas out there and pick the ones that map to their customers' needs, preferences and desires. The big question of our time is not, 'Can it be built?' We can build anything we imagine. The question of our time is, 'Should it be built?'"
Continuous innovation and ability to keep the lean startup DNA churning are the sine qua non for creating and maintaining a successful business in the early 21st century, Ries said.
The virtues of failure
It took several bouts with failure before Ries understood that a new paradigm was called for and began to stray from the path of conventional management wisdom. He drew on this experience to develop and test the theory of the lean startup. It was a bumpy ride, but it paid off.
"It took me several failures to figure it out," he said. "I am an engineer by training, so I ways thought that failures were caused by insufficiently good technology."
He kept banging his head against the wall with no success at all, Ries said. He felt like every technology he touched withered on the vine. The better the technology was, the fewer people there were who used it.
"The only way to have any kind of sustainable profitability as a public company is to build what I call an innovation factory — a company that continuously innovates and constantly unlocks new sources of growth," Ries said. "If you just sit on your laurels, you are so toast."
Photo of Eric Ries by Nick Wilson.
- 17 Great Business Ideas for 2012
- How to Avoid the 5 Most Common Startup Mistakes
- What Can the U.S. Do to Rekindle Entrepreneurship?
Reach BusinessNewsDaily senior writer Ned Smith at email@example.com. Follow him on Twitter @nedbsmith.