In our last post we looked at various management approaches to reduce risks. One of them pertained to business experiments. In this post, we’ll dig a bit deeper to better understand this approach.
You have most likely heard of business experiments. The Harvard Business Review, as well as many other business management publications, published multiple articles on the topic in the last few years. They were mostly in the context of innovation.
What is a business experiment?
If you have not, a business experiment is simply testing a concept (idea, program, process, design, product, strategy, etc.) with stakeholders (customers, suppliers, distributors, employees, etc.). The experiment’s goal is to provide pertinent data to assist with decision making (usually with go/no go decisions or sometimes fine-tuning).
So yes, you do know what a business experiment is. It’s been around for, well, pretty much ever. Now you’re asking yourself; Why this article is drawing my attention to it?
The reason is that business experiments are no longer used as an occasional management tool, they are transforming into the way businesses are managed.
Why are companies experimenting at an increasing rate?
As we mentioned, business experiments are used to collect data that assists management with decision-making.
Decision-making in the business world is becoming a more demanding task (to say the least).
- Companies are significantly leaner (i.e. less resources and more work for everyone, including managers).
- The amount of information available, from secondary sources, is enough to make any manager’s head spin.
- There is a higher supply than demand for managers hence making bad decisions is a riskier proposition for your longevity in a given company than ever.
- In many sectors, markets are moving at a faster pace than ever before with competitors coming in from everywhere and customers’ choices exploding.
Hence managers are turning to ways to reduce the time and the risk involved to make the best possible decisions.
Running a business experiment to gather pertinent and timely data quickly answers the needs of over-burdened managers to reduce the risks of the decisions they make.
This explains, in part, why organisations are experimenting. What explains the increasing rate at which they are doing it, and transforming it into a management approach, has more to do with the following reasons:
- It’s cheaper and faster than ever to run business experiments (many can be done in minutes with free tools)
- An increasing number of employees or outside consultants have the skills to run experiments, analyse and interpret the collected data
- The costs to store, process and communicate the data/result are very low (compared to a decade ago) and falling constantly.
Business experiments and the Lean Startup framework
So how does an organisation go about implementing business experiments as a managerial approach? There is no one way to do so. There are however experimentation frameworks out there that can structure your approach.
One of these is the Lean Startup framework.
The base of Lean Startup is the experiment. The Lean Startup experiment is based on the scientific experiment model. It follows a build, measure, learn process.
Build (designing your experiment)
Building your experiment is a 3 step process
1. Identify the critical assumption associated with the concept to be tested
When you stop to think about it, there are thousands of assumptions we could test to assist with decision making when managing a business. If we tested all of our assumptions there would be no time or other resources left to run the business. Hence, you only want to test the critical assumptions. The ones that, if not validated, pose a business risk that you (or your organisation) are not willing to take.
2. Transform your critical assumption into a hypothesis statement
Your critical assumption was a thought you put into words. Your hypothesis statement is one sentence that can be validated (or invalidated).
3. Design the experiment that will validate (or invalidate) your hypothesis
Designing your experiment is only limited by your (and/or your team’s) imagination. The way you choose to render the concept of your hypothesis (how you present it or illustrate it) is called your Minimum Viable Product (MVP).
An important part of the MVP is the minimum part of it. In the design of your experiment, you will be aiming at spending the least amount of resources in order to obtain the maximum amount of learnings from your experiment.
This doesn’t necessarily mean bootstrapping your experiment. It simply means that you will make sure that whatever learnings you need to get from your experiment, you get by using the least amount of resources possible.
This can mean it will cost you nothing but a few minutes of the time of one person or tens of thousands of dollars, if that’s the only way to go about getting the information you need. Of course, the cost of your experiment must be proportionate to the financial risk associated with it.
The reason you are making the experiment is to get data that will help you with your decision making. Hence, you want that data to be reliable.
This is where you need a bit of knowledge about primary data gathering. You need to make sure the data you collect is not biased. You won’t be looking to get statistical quality data. That would take too long, cost too much and be an over kill for your purpose.
You’ll simply need the clear direction that your data in headed for.
In business experimentation instead of gathering a lot of data once, you gather a small amount of data repetitively. Although not as precise as statistical data it does provide you with a sufficient amount of information to de-risk, to a great extent, your decision. It is also a more suited approach to an environment that changes rapidly.
When deciding on the data you will be capturing in your experiment, remember these three important rules.
Your data should be:
If it doesn’t go in the direction you thought it would then you can change something in your business strategy or product or program that will make the data go in the direction you want.
You need to be able to re-produce the exact same experiment, in similar conditions and get similar results. For example, if you are testing the design of a snow shovel and are doing it during the storm of the century, the data you collect won’t be accountable.
The more people who interpret the data you collect, the deeper and richer your learnings will be. So make sure that the data captured during your business experiments is shared throughout your organisation. Ensure that everyone knows they are welcome to share their interpretations on the data. Making your experiments, the data collected and the results accessible throughout your organisation will also accelerate business experiments process as some parts/resources of one experiment can be used for others.
The more experience one has at conducting experiments, the faster and more accurately they are done.
This part of business experiments, although it may seem like the easiest, is the hardest. Learning means you are either
- absorbing completely new information (rarely the case) or
- you are changing in some way (sometimes drastically) already stored information in your brain
The second type of learning is the hardest. The more contradictory the data you have is to the one you previously had, the more difficult it is to learn from it.
This stored information in your brain will create a filter that will impact how you interpret new data.
Also, the more resources that has already been invested in a project, the more difficult it is to pivot on a previous course of action.
The benefits of using business experiments to manage
The main benefit, as mentioned previously, is to reduce the risk of your business decisions. This in turn will minimise your losses on various projects.
Another benefit, that is not obvious, is the improvement in work relationships. This happens for multiple reasons.
First, employees get a sense of empowerment. If they submit ideas to upper management with supporting empirical data, they know their idea will be considered.
Also, managers don’t need to spend as much time justifying their decisions. They let the data speak for itself. They do however need to include questioning the quality of the data into their process.
Finally, as mentioned, organisations that use business experiments on a daily basis to manage usually encourage employees to share the results of their experiments. This not only improves internal communication and efficiency it also creates an environment where mistakes, that bring new learnings, are valued.
This type of environment is essential to not only foster innovation but pro-activity.
Getting started with business experiments
If you think that using business experiments may be a profitable management approach for your business, start with one project (which will be a meta experiment) during which all higher risk decisions will be taken with supporting data. The project you select should be one that has high inherent risk within it (like launching a product in a new and different market). It should also be a type of project that is somewhat recurrent in your organisation. This will help you have a baseline scenario in order to compare the results of the meta experiment. Make sure to identify the metrics you’ll be evaluating before starting your meta experiment.
Some metrics (there are many others) you may want to look at would be:
- How long the project took from start to finish
- Overall budget
- What % of the initial planed output was achieved
- Variables pertaining to team cohesion
- Variables pertaining to employee (the ones who worked on the project directly and indirectly) satisfaction
- ROI projected vs achieved on a timeline (3, 6, 12, 24 months)
Implementing any new management approach takes a while. There is no one-size-fits-all recipe. You need to…yes you got it…experiment and find the approach best suited for your organisation.
If you need coaching or help getting started with your first experiment Baker Marketing can definitely help.
 Although MVP most often refers to a prototype of a product, it also means the representation of your hypothesis you will present to participants of your experience.
You may have already heard about Lean Enterprise but, because it is a relatively new concept, you most likely haven’t yet.
What is Lean Enterprise?
In short, Lean Enterprise is the Lean Startup approach adapted to large organisations. It has already been adopted by many large organisations such as GE, Toyota, the White House (about 4 years ago), NPOs and many startups that became large such as Zappos.
How can Lean Enterprise be used?
Lean Enterprise can be used as the guide to an entirely new innovation program. However, since most large organisation already have an innovation program, Lean Enterprise can simply build on the existing program, improve it, make it more efficient and, over time, permeate the entire organisation with a culture of innovation.
Explaining Lean Enterprise
Explaining Lean Enterprise could be a very long process given that it touches all aspects of business and will take a very distinct flavor in each or the organisation that adopts it.
When entrepreneurs or intrapreneurs (folks responsible to make innovation happen in large organisations) want to explain their projects to me, I usually ask them to describe their business model.
Hence, I’m thinking that describing Lean Enterprise’s business model is will be a good way to explain this approach to manage innovation in large organisations succinctly.
Understanding Lean Startup first
If you are unfamiliar with the Lean Startup approach then I suggest you brush up on it. Lean Enterprise requires a very good understanding of the underlying principles as well as the capability to run Lean Startup-type experiences. There is an abundance of Lean Startup documentation online including the many Lean Startup related posts on this blog. Here is a sample of them that you can check out as a primer.
The Lean Enterprise Business Model
The image below (click to make it larger) is Baker Marketing’s version of what Lean Enterprise’s business model would look like. This version would not make for a good investors’ pitch but it’s also not its purpose. Hopefully, this business model canvas will help you to understand, at a glance, what Lean Enterprise is all about.
The Lean Enterprise Business Model Canvas
Click for full view
Although this canvas is pretty straight forward, I will detail the Customer Segments and Value Proposition sections of the Lean Enterprise business model for better comprehension.
Targeted Customer Segments
The Lean Enterprise innovation approach can be used is just about any large organisation that needs to innovate. The more disruptive the innovations it produces, the more gains it will get from the Lean Enterprise approach.
For profit organisations
This segment has the most straight forward application of Lean Enterprise for innovation purposes.
There are already dozens of large organisations incorporating Lean Enterprise in their existing innovation programs to make them more efficient. It is the case of such companies as Google, GE, Intuit, Toyota, Adobe, etc.
Non profit organisations
NPOs around the world all have a common pain; they are struggling to get enough resources to achieve their goals.
In many cases they are also faced with the task to innovate in order to keep being relevant to both their users and benefactors. Lean Enterprise helps them by ensuring that all the resources they do have are used as efficiently as possible when they innovate.
Lean Enterprise also helps large NPOs develop a more innovation-friendly culture.
Public and para-public organisations
Given that efficient use of resources is a basic principle in the application of Lean Enterprise, most public organisations could benefit from its implementation greatly. Government institutions are also in dire need of catching up to economies changing at the fastest pace ever in history.
The White House initiated the Healthcare.gov portal re-design in 2011 with a Lean Startup (not yet known as Lean Enterprise) team. The embryonic project was then taken over by CGI. When CGI was unable to deliver on time and on budget, the project was reverted to the Lean Startup team. The results they achieved were so spectacular that the White House eventually adopted Lean Enterprise for all of their innovative projects. The approach also spread to other American government agencies and departments.
Aneesh Chopra, who was appointed CTO of the United States by Obama in 2009 (until 2012) was one of the catalysts in propagating the Lean Enterprise approach through the US government. 
This is, in part, what a large organisation can expect to obtain with the implementation of a Lean Enterprise approach to innovation that their current program may not be bringing them.
Help innovate more efficiently
The efficiency is obtained in large part with the fact that an innovation project that is completed, within a Lean Enterprise-based innovation program, will necessarily answer the needs of its target customers/users. Hence a product/market fit or a service/user fit will be achieved every time.
Efficient use of resources (especially human) being an underlying principle of Lean Enterprise, it is therefore a constant preoccupation of the project participants.
Use existing resources more intensively
If you work in a large organisation, I am certain you are aware of either unused resources or resources not fully used that can be put to contribution in innovation projects. If not, I suggest you ask and snoop around. You will find some in no time. The infusion of entrepreneurial attitude, brought by Lean Enterprise, makes using these resources second nature.
Build on existing innovation programs/practices
Lean Enterprise is based on principles, tools and techniques borrowed from many existing and proven management theories such as:
- Lean production
- Customer development
- Agile development
- Design Thinking
Most innovation programs already make use of the principles, tools or techniques of some of these theories. Lean Startup implementation can ‘’surf’’ on these existing programs in an organisation and add to them. This greatly flattens the learning curve and is more easily adopted.
Implementing a Lean Enterprise approach to innovation is like any other change management program. It must be done incrementally, ensuring all are onboard.
Increase speed to market of innovations
Lean Enterprise is based on rapid iteration testing of the various parts of a business model until you reach a product/market fit or service/user fit.
The approach has a built-in control mechanism to ensure innovation teams don’t go astray, lose focus or momentum.
Pivot quickly on ideas with no positive ROI
All of the products or services that get to market with a Lean Enterprise approach are successful. This, however, doesn’t mean that these successful products or services look anything like what was imagined initially.
Lean Enterprise does not prevent or fix product or service ideas that would flop in the market. It does however quickly show which ideas need to be discarded thus avoiding the waste of resources to bringing them to market. Luckily, most ideas simply need a few pivots (okay many pivots) to achieve success with their markets.
Better manage innovation financing risks
The use of innovation accounting in Lean Enterprise innovation programs allows for incremental financing with a known risk coefficient of each of the projects increments.
It bridges the gap between corporate innovators and financial managers.
You can read more about innovation accounting in these previous posts.
Creates innovation culture in the long run
The real prize, at the end of the journey of implementing Lean Enterprise, is the creation of a true culture of innovation.
Some of the most important barriers today in achieving a true organisation-wide culture of innovation are the following:
- Mistakes are neither welcome nor tolerated
- Resources (human, financial, physical, etc.) are kept in silos
- Decision making power is diluted (with a heavy weight at the top of the pyramid)
- Over-abundant and rigid processes that result in slow reactions to market changes
The Lean Enterprise approach to innovation, intrinsically, removes those barriers.
As any other change management program, Lean Enterprise takes time, effort and commitment. Commitment from the innovation project champions but also from top management. Although still in its infancy, the Lean Enterprise approach shows promise of integrating innovation into large organisation’s main stream of business instead of treating it like a special cousin, as it is now.
If you want to learn more about Lean Enterprise and its application, you can pre-order Eric Ries’ new book due out in the fall, called TheStartup Way.
If you have a Lean Startup Circle community in your area, you can contact the organisers to locate experienced coaches or attend their meetups and see how entrepreneurs and intrapreneurs can help each other innovate more efficiently.
 This hour-long talk with Aneesh Chopra explains how Lean Enterprise came to be in the US governement
 Characterised by a sharp increase in the sales or adoption growth for a sustained period.
It’s the end of the year already. It went by incredibly fast. This is the time to look back and identify what needs to be fixed. It’s also the time to be grateful for all that we were able to achieve.
One of the things I am always very grateful for is the knowledge I gain during the year. Important sources for the knowledge I pick up are the books and articles I read.
I have to admit that I didn’t have as much time to read this year as I got involved in many (maybe too many) projects. I did however manage to read some very good books on marketing, innovation and Lean Startup.
As I did last year, I am sharing with you some of the ones I especially liked.
Best Reads on Marketing
I didn’t keep up with all that is new in marketing this year. It’s nearly impossible to do so. I tuned in to a few webinars that helped me focus my readings.
I read mostly on mobile marketing (various aspects), influencer as well as community marketing. Community marketing is a strategy that isn’t as easy to implement as one might think. Here is a post I wrote on how to find a profitable community marketing partner.
Again this year, I found that my most interesting marketing reads came from blog posts on mainly two sites; eMarketer and HubSpot
Speaking of HubSpot it is one of the case study in Sean Ellis’s book; Growth Engines: Case Studies of How today’s Most Successful Startups Unlock Extraordinary Growth.
Through ten case studies, including Yelp, Uber, LinkedIn and HubSpot, Ellis explains the different types of growth engines and the contexts in which they worked best for those companies.
Although I read Growth Engines to better understand a concept that is integral to Lean Startup, this book offers some very valuable marketing lessons. It also touches on growth hacking, a term coined by Ellis. It inspired me to write a post on what growth hacking is and isn’t.
Another book that I thoroughly enjoyed was UX Strategy by Jamie Levy. Having been a Product Manager at a time where UX was but one part of the job description, it was great to delve into the depths of UX strategy.
Whether you are starting a new venture to create the killer app, or trying to innovate in an existing small, medium or large business, this book is a must read before you start. It can help you define a winning value proposition. It also guides yourr competitive analysis and helps you see which features you need to focus on.
The book is an easy read and doesn’t require any prior knowledge on UX design or app development.
Best Reads on Innovation
I was invited to a university workshop on blockchain earlier this year. Given I knew nothing on the topic I figured that it would be a great opportunity to learn. Montreal, where Baker Marketing is located, is a hotbed for blockchain research and development. The workshop did teach me the basics of blockchain but left me wanting to know more (a lot more, this is exciting stuff and definitely a game changer) about how this new technology could be used.
One of the researcher at the workshop suggested Blockchain Revolution: How the Technology behind Bitcoin is Changing Money, Business and the World, by Don and Alex Tapscott. It was exactly what this non scientific reader needed. The Tapscotts explain the concept in very simple terms. They also explore a large number of applications for blockchain. They clearly show how significant a game changer this technology could be.
In Spring I also contributed to the organisation of the Montreal edition of the Intrapreneurship Conference.
During the conference one of the keynote speakers was Guillaume Hervé. Hervé is a veteran practitioner of intrapreneurship. He contributed to several corporate spinoffs in the aeronautics and health sectors. In case you are not familiar with the term, intrapreneurship is entrepreneurship adapted to large enterprise.
Intrapreneurship is however not the same as entrepreneurship. These differences are the focus of Hervé’s book Winning at Intrapreneurship: 12 Labors to Overcome Corporate Culture and Achieve Startup Success.
Based on the 12 labors of Hercules, Winning at Intrapreneurship looks at the traps, pitfalls and myths of innovating in large businesses. Hervé saw them all in his career as an intrapreneur. He shares with us some tricks of the trade on how to avoid and debunk them. You can read more on this topic on the post I wrote titled Entrepreneurs as Corporate Innovators.
Best reads on Lean Startup
Continuing on the innovation in large business topic, Eric Ries published a second book this year. It’s titled the Leader’s Guide to Adopting Lean Startup at Scale.
First, Eric innovated in the way he published the book. He financed the book with a Kickstarter campaign. The backers were invited to join the Leader’s Guide community (managed by Mightybell). He used the community to test hypotheses about the content and cover of his book. Yep, he did it the Lean Startup way.
Unfortunately however, Eric only printed as many books as there were backers who pledged the sufficient amount. It isn’t available anywhere for purchase now that the Kickstarter campaign is over. You can however get a free digital copy if you know someone who invested in the campaign.
The Leader’s Guide is based on Eric’s experience (as well as that of some backers) on implementing Lean Startup in large corporations, like GE, and government organisations (like the White House).
I especially like the format of the book. Symbols are used in the margins throughout the chapters in order to quickly understand what the text pertains to. The coach’s Guide sections, for example, are about tips and subtleties in implementing the concepts.
It’s truly a guide that you will go to when implementing a Lean Startup approach to a large organisation.
Eric also announced that he will be publishing a third book next year. It’s tentative title is The Startup Way.
We were lucky to have another great Lean Startup practitioner write his second book this year. Ash Maurya penned Scaling Lean: Mastering the Key Metrics for Startup Growth.
As a follow up to his first book, Running Lean, Ash is now looking at how to use metrics to scale your business once you have found the elusive product/market fit.
His rigorous approach to using key metrics to track your progress and focus your efforts has shown great results in many successful startups.
Finally, I want to mention a website whose author consistently publishes great Lean Startup material. Tristan Kromer’s Grasshopper Herder is chalk full of Lean Startup ideas, tools and resources. Tristan was until recently one of the organisers of the San Francisco Lean Startup Circle.
If you are starting a new project and interested in putting Lean Startup into practice take a look at the series of posts on implementing Lean Startup. It is meant to guide you along your journey when you first start your project.
This concludes this year’s crop of my best reads on marketing, innovation and Lean Startup. Maybe some of them will become your favorites.
Thank you for taking the time to read Techno Marketing this year. I hope you take some time off during the holidays to rest and replenish, as we will.
Baker Marketing offers you its best wishes for the holidays. May 2017 be filled with health, serenity and lots of successful projects.
This is the second post of a series that will try to show how Lean Startup can be useful at various stages of an organisation’s life. The inspiration comes from entrepreneurs and intrapreneurs I have worked with throughout my career, including myself, who wasted way too much of their time on projects that never reached the market.
The very first stage of any start-up is the ideation stage. This is the stage when you will come up with, what you think, is a solution to answer a need you perceive to be present in the market.
Should I embark on a start-up project?
Just before your ideation stage, or during, you will have reflected on whether or not to embark on a start-up project.
The context you are in at the time will vary but it is important as it most often will be a defining factor of your motivation.
Given this isn’t a post on entrepreneurial psychology; I won’t delve too much into motivation. I can however tell you that insufficient or wrong type of motivation is, by far, the most important reason for failure of a start-up in my observations.
Very few types of businesses can be developed or managed part-time. A start-up is rarely a part-time job. The only stages at which you can get away with doing it part time are the ideation and early customer discovery phase. After, it’s a round the clock activity where you only get a few hours of sleep and have no life outside of your project for a long while. If you are at a very busy time of your life for years to come, you may want to reconsider the timing for starting a new venture.
A factor that is rarely a reason for a startup failure is that the project owner didn’t have the right entrepreneurial profile. 
I do believe that anyone can be an entrepreneur but not everyone is born one. I would make the analogy to a concert pianist. Some may be born great pianists but a majority of them become great only after tens of thousands of hours of practice, coaching and basically dedicating the majority of their life to it.
Of course, if you are tone deaf, don’t know how to read music and don’t have any of the discipline required to practice long hours daily, the road ahead may be a very long and hard one for you.
It should also be noted that there is a strong correlation between knowledge of the field your start-up is in and success in launching a company.
Hence, the more you know about your field and the more of the entrepreneurial aptitudes you possess, the ‘’easier’’ and faster your start-up journey will be. Otherwise, you simply need to accept that you will need a co-founder’s help and/or be working harder and longer at it.
The Lean Startup approach
The ideation stage or concept stage is when you start thinking about not only your product/service idea but also the entire business model.
Even before you have anything other than you want to start a business figured out, you should talk about your idea with people around you.
You really need not worry your idea will get stolen (unless you are in an industrial environment and competitors are listening). I have often seen multiple entrepreneurs or teams work on very similar projects simultaneously. All of the times, they took very different paths along the way that resulted in very distinct businesses, when they persisted.
When talking to people you know about your business idea, listen to their impressions and feedback. Some of it will be helpful later on. It will also get you used to handling the various reactions you can get when discussing your project. Don’t worry about not always sounding coherent. It’s normal. Your mind is still not set at this point and it shouldn’t be.
First Lean Startup tools
The very first work tool I recommend to lean startup students will vary according to their type of project and their experience answering the needs of their target market.
If your project is heavily IT based or it’s a first one for you in a fast moving market you are unfamiliar with, I recommend using the Lean Canvas. The Lean Canvas will help you focus on what is the problem you are trying to solve and notions such as metrics. It will force you to explain what makes you better than the, likely, dozen or more competitors out there. A second step would then be to work on the business model canvas. It is important that you follow the recommended path to fill out the canvases. You first start with your customer segments and follow with either the problem you are trying to solve or the value proposition. Notice that the solution is NOT the starting point.
If you already have a few years experience answering the needs of the market you are aiming for, or your project is not addressing a fast moving market, I suggest going directly to the business model canvas.
The business model canvas will allow you a deeper dive into your value proposition as well as the elements that will impact your cost and revenue structures.
The following resources to help you fill out both the lean and business model canvas.
There are literally thousands of texts and videos available on the web to help you fill your canvases. A simple Google search will lead you to them.
Do your math
Although it is still too early for you to have a good idea of all of your costs and revenues, create a rough version of your income statement either in an Excel spreadsheet or with the help of an application such as Budgeto.
The purpose of this exercise is in no way shape or form to get to reliable net revenue projections. Any numbers you will produce at this point in time for your project are not worth the paper they are written on.
The objective of doing this rough draft of your financials is to get an idea of what parts of your business generate the larger costs and how exactly the money flows in. You can do some sensitivity analysis with fictional numbers and understand how various choices of business model components (like suppliers, distributors, pricing strategies, etc.) will impact your profitability.
The more you play with your financial model, the better the understanding you will get of what business model scenarios make financial sense and the ones that don’t.
Our next post in this series will look at the customer discovery phase of your project. It will take for granted that you have mulled your idea over thoroughly, have gotten some informal outside feedback, and are now confident about a first version of your business model.
 Some accelerator programs, owned by venture capital firms, will request a personality test before accepting you. That is because they are not willing to wait for anyone to develop those traits. Doing so would entail higher risks and longer return periods for them. Failing their entrance test doesn’t mean that you cannot be an entrepreneur.
 By fast I mean having significant market shifts happen within 6-9 months.
This post is the first of a series that will try to show how Lean Startup can be useful at various stages of an organisation’s life. My inspiration comes from entrepreneurs and intrapreneurs I have worked with throughout my career, who have wasted way too much of their time on projects that never reached the market.
This and following posts don’t, in any way shape or form, pretend to be the recipe to a successful startup or project. Hopefully, however, they will give entrepreneurs and intrapreneurs a new outlook on management, new ideas and new tools to help them achieve their goals.
What is Lean Startup?
I have often referred to Lean Startup as a tool box but it is so much more than that. Lean Startup:
- Gives you a way to look at problems and questions that always keeps in mind the raison d’être of your organisation
- Helps you to prevent wasting your time developing products or services that no one wants or is willing to pay for
- Exposes you to management tools and processes adapted to extreme market uncertainty
- Brings structure and discipline during chaotic times hence reducing some of the risks
- Creates a culture that enables the real power of any organisation; maximising the use of the brain power and creativity of internal and external resources
- Introduces you into a community of people whose mindset is to help one another.
In my observations these last two elements, although not the better known ones in Lean Startup, are the most powerful ones.
Understanding the basics of Lean Startup is necessary if you wish to apply it in your organisation. This series will not spend much time explaining them, instead focusing on the practice of Lean Startup. Hence I am sharing with you a short list of what I consider the best references to understand Lean Startup. These are not even the tip of the iceberg as to what can be found on the web. They are, however, sufficient to give you an excellent comprehension of the basics and more.
There are millions of other web references. Many of them are excellent.
If you are new to Lean Startup, I urge you to start with the references above.
Lean Startup is getting to be a bit like a holy book. Some read it and understand the concepts behind it and apply them well. Others read it, retain the words but don’t really understand the concepts behind them so they interpret it their own way, sometimes with disastrous results. Yet others still, haven’t even read the book, use the buzz words like MVP and pivot but have no clue as to what they really mean. Hence, always be critical of what you read on Lean Startup, even the posts on this blog.
Why we need Lean Startup
Organising the Montreal Lean Startup Circle, as well as working with entrepreneurs as a consultant, a coach and a mentor, has proven to me that when properly applied, Lean Startup has the potential to take a mediocre idea and evolve it into a lucrative business (figuratively in the case of NPOs). It will also show quickly when an idea is so bad (in the context of achieving your business goals) that it needs to die.
Current management models, which were created in a different era, are no longer suited or efficient in uncertain markets. The astronomical failure rates of startups in North America and the incapacity of our large enterprises to innovate are proof.
It is time to think differently. It is time to act intelligently.
This series will examine how Lean Startup can be applied throughout the entire life cycle of an organisation. Our next post will look at how Lean Startup can help during the ideation stage.
 In case you ever wondered, Ries is pronounced rice in Europe but Eric, who is American, pronounces his last name reess.
Have you ever presented (pitched) your disruptive business idea – one that had yet to be seen in the market – to a venture capitalist, a CFO or a gating committee? If so, you know you need to come prepared with a solid business plan (deck).
The one part of your plan your investor will be the most concerned with is the financial forecast. Detailing costs is usually not a problem. The part however that requires you to put your creative hat on is the revenue forecast.
When presenting this forecast, you can most likely do so with a straight face with the numbers for the first few months. You know very well, however, that any number past this time horizon is based on wishful thinking rather than any market facts. Market facts would require some kind of market history. The problem is that a disruptive innovation is, by definition, not found in the market. Hence, keeping a straight face in front of an investor requires serious acting talent on your part. Fearing that at any time you will be called out.
You can rest assured you won’t be called out. Why? Because your investor, if he or she has any experience at all with financing disruptive innovations, knows that the revenue numbers on your forecast in year 2 are probably less likely to be exact than the chance they have to win the jackpot with that lottery ticket they have in their wallet.
So why are investors and entrepreneurs still relying (or pretending to) on these financial forecasts to decide whether or not to invest in innovation projects? That is the question Eric Ries, author of The Lean Startup, asked himself.
As a serial entrepreneur he knew very well that forecasting sales revenue on an innovation project, never mind a disruptive one, with any accuracy was impossible until you achieved product/market fit (time when you have found the correct business model to generate consistent growth in your sales).
He also understood that investors needed to be reassured that the money they poured in the project, before product/market fit occurred, was used to achieve it and not dilapidated.
Those of you who are not yet familiar with the Lean Startup methodology, it requires the owner of an innovative project to do a series of market experiments in order to validate the underlying assumptions of his or her business model until the model that generates the maximum long term revenue is found.
These experiments, when done rigorously, generate reliable metrics. These metrics are measured against a standard to validate (or invalidate) the assumptions.
A multitude of experiments, done in rapid iterations, are required to test the large number of assumptions on which are based any start-up or project. When an experiment shows that an underlying assumption is not proven, this part of the business model must be changed. Experiments are conducted until the optimal business model is found and then continue during the entire life of the project to constantly adapt the model to market changes.
What is Innovation Accounting?
Innovation accounting is defining, measuring and communicating the process of innovating either in the context of a start-up or a project in an established organisation.
Innovation accounting uses the data generated by the experiments to determine, at a point in time, the maximum value of a start-up or project. The experiments data feed an econometric model similar to the ones used to calculate the value of stock derivatives in the financial sector. The maximum value of the start-up or project at a given time can be used by investors (venture capitalist or CFOs) to gauge how much they will invest given the returns they are targeting.
Now that we understand the why and what of innovation accounting, in the second part of this post, we will dive into how innovation accounting is done.