Why scientific approach is so important
The media and blogs are full of wonderful stories about successful start-ups. Their founders, having started without a penny in their pocket, exclusively thanks to their outstanding intellectual abilities combined with perseverance, successfully chosen moment and an excellent product, are quick to gain fame and fortune. Do not believe these tales. Most startups are doomed to failure from the first day of their existence.
“The success of a startup is not a consequence of good genetics or lucky chance. This success can be planned if we follow the right processes. In other words, success can be learned. ”
Even the most adjusted business plan, the most thoughtful strategy, the most thorough market research is often useless. Forecasting and planning work only under conditions of relative stability. But startups, as a rule, can not even dream of anything like this: they operate in conditions of complete uncertainty. And marketing research often gives incorrect results: it is difficult to evaluate an innovative product without having experienced it in business. Therefore, a completely different approach is needed here, such as the company IMVU (a social network where users can communicate and play games using 3D avatars)
Five principles of “lean startup”
The first IMVU developments were completely raw. Nevertheless, the company has customers. The traditional approach to business requires to meet all their wishes, but IMVU did not. She used customer feedback as a source of information about the product created, making the changes she deemed necessary. You can say that the company was experimenting with its customers.
“Do not be surprised that” learning from their mistakes “enjoys such a bad name among entrepreneurs and managers.”
Gradually, IMVU formed its approach to doing business. Eric Rice called it “economical (thrifty) start-up.” Much of this approach has been derived from the concept of lean manufacturing by Toyota. Its main features include short cycles, decision making with the help of scientific methods and attention to the wishes of customers (although it is not necessary to specifically ask them about what they want). As far as IMVU’s approach proved successful, one can judge by the fact that in 2011 the annual turnover of the company amounted to more than $ 50 million.
“If we do not know who our client is, we do not know what quality is.”
The “lean startup” method is based on the following principles:
“The product should be quality as long as necessary to attract customers.”
Entrepreneurship is a broad concept. Entrepreneur can be considered everyone who is developing a new product in the face of increased uncertainty. And it does not matter where he works at the same time – in his garage or in a large company. Therefore, the ideas of a “lean startup” are applicable in companies of any size and in any industry.
Start-ups need management. It is a mistake to reduce the startup only to the product; in fact it is an enterprise. And, like every enterprise, it needs competent management, and one that will take into account all the features of the work in conditions of complete uncertainty.
Startups need to confirm their hypotheses with facts. The meaning of the existence of a startup is to figure out how to build a viable business model. For this, it is necessary to constantly conduct experiments that will allow testing in practice the hypotheses put into the new product. This is the essence of the scientific approach to entrepreneurship.
Startups regularly go through the “create-evaluate-learn” cycle. All processes in the company must be subordinated to the task of promptly receiving feedback – clarifying the reaction of consumers to the product. As a result, a decision is made whether to continue moving in the chosen direction or if a “turn” should be made.
Startups should keep an “account of innovation”. Startups can not do without measurements: you need to select the indicators by which success will be measured, and establish control points. For this purpose, new type of reporting is used – specifically for start-ups, their managers and investors.
The only way to victory is to learn faster than everyone else. ”
Learn to drive a car, do not try to launch a rocket
In the early twentieth century, the use of scientific methods of labor organization increased production efficiency. Then businessmen were interested in the question of how to produce cheaper, and the question of what exactly to produce was practically not standing. Nowadays the situation has changed: many inexpensive and quality things can be produced, but it is only unknown in advance whether they will be in demand. Therefore, instead of focusing on production efficiency, today it is necessary to increase the effectiveness of entrepreneurship and start-ups – to bring scientific methods into the development of innovations.
All the founders of start-ups are visionaries. They are ready to take on the risk of creating new goods and services in a situation of extreme uncertainty. But to develop a viable product they can only in the process of its continuous improvement based on feedback. This can be compared with driving: every turn of the rudder is caused by a change in the situation on the road. Some startups, instead of “driving their car,” are trying to “launch a missile.” They prepare for a long time, they strive to achieve the ideal, they press on to launch and … the missile flies past the target – the product is not in demand. Therefore, from any activity that does not give feedback from consumers, it is necessary to refuse. The continuous learning process in the “create-evaluate-learn” cycle is one of the key elements of the “lean startup” model.
“If you create an unnecessary product, its optimization or marketing will lead to nothing.”
First of all, it is necessary to check the initial assumptions, which are among the most risky components of the business plan, those on which everything else depends. The two most important of these components are the assumption of the value of the product and the assumption of increased sales. To test them, you need to create a “minimally working product,” that is, a product that allows you to run the “create-evaluate-learn” cycle with the least amount of time and effort. “Minimal work product” does not include many of the options that can later be important. In a sense, it’s a prototype.
“Companies of any size, having a working growth mechanism, can begin to focus on unsuitable indicators.”
Lessons learned at each stage of the “create-evaluate-learn” cycle should be taken into account when developing the next version of the product. This cycle is repeated until “product / market compliance” is achieved. The prospects for the product and the team that created it depend on how large the market is, with which it was possible to find a match.
“As they say in the theory of systems, when optimizing one part of the system, we necessarily reduce the effectiveness of the system as a whole.”
To make sure that the startup really turned out to be viable, you will need to keep an “account of innovation”. It consists of three stages.
“Is it any wonder that each department invents its own jargon, culture and methods of protection against” idiots “sitting on the other floor?”
Issue a minimum working product. It will provide information on the actual situation on the market.
Try to bring the product to the ideal. This will help evaluate the reaction of the market.
Choose the future path of development. This decision is whether to continue working in the chosen direction or to make a “turn”.
“Almost everyone will easily understand what it means to lose 50,000 customers – this is a whole stadium full of people who no longer want to buy your product.”
Any experiments to improve the product should lead to an understandable and positive response from customers, which can manifest itself, for example, in increasing their number. If this does not happen, then the team begins to move away from its goal. Such experiments should be entered without hesitation into the list of failed, return one step back and begin the cycle of improvements again. When and why do you need to “turn”
If the original hypothesis has not materialized and the growth rates are far from expected, the company needs to think about a “bend” – a significant product change, a business model or a forecast of sales growth. If the company made a wrong turn, it must find the strength to return to the right path. This, as a rule, a fairly serious change is not easy to make. However, entrepreneurs who committed it usually regret that they did not do this before. Correctly and in time, the completed “turn” brings the company closer to creating a viable business. There are several options for such changes:
“Virage-increase.” A new product is created based on only one of the functional characteristics of the original version.
“Virage-reduction”. This is the opposite: the original version becomes the basis for a multifunctional product.
“Consumer segment”. The product was interested in an unexpected group of clients, and it will be reoriented to a new target audience.
“Virage needs of customers.” The target audience has a different, more serious problem that the startup team can solve.
“Virage platform.” The transformation of a single product into a platform (or vice versa).
“Virage of business architecture.” Transition from a mass product to a high-margin (or vice versa).
“The turn of the way of monetization.” In this case, the way of monetization of the value created by the company changes.
“Virage of the growth mechanism.” The company abandons the original growth strategy in favor of a more promising one.
“Virazh channel sales.” Transition to a new distribution channel, for example, to direct sales.
“Virage technology.” Existing customers are offered a solution based on the new technology. It is usually taken by stable companies.
Minimize the loss of time, money and energy start-up will help the Toyota method of small lots. Transition to work in small batches at all stages of production helps manufacturers to improve quality and increase efficiency. In addition, with this method of production, it is much easier to make changes in products. In the case of start-ups, working in small batches helps entrepreneurs to respond as quickly as possible to the wishes of customers.
To achieve a viable growth, the startup needs to focus on certain indicators. But such indicators can be very much, how to choose the most important ones? This will help to know the main mechanisms of growth.
“Sticky growth.” If the rate of attracting new consumers exceeds the rate of their outflow, then the popularity of the product or service will grow. Therefore, companies using this mechanism should closely monitor the “loss factor of consumers”. If this indicator has become too high, then – take measures to keep customers.
“Viral growth.” There are products, information about which is distributed during use. These “viral products” include PayPal. When a user sends money to a friend through this system, he immediately knows about it, even if the sender makes no effort to “advertise” it. Companies targeting this growth mechanism should expect a “viral coefficient”. It shows how many customers each new customer leads. If the coefficient is greater than one, then the company can expect exponential growth.
“Paid up the growth.” For each client, you can determine the period during which he will use the product or service, which means you can calculate the amount that he will eventually spend. Part of this amount (it is called the value of the consumer’s life cycle) can be invested in attracting new customers, for example, to direct to advertising and marketing. To increase the growth rate in this case, you can in two ways: increasing revenue from existing customers or reducing the cost of attracting new ones. Growth is possible if during the life cycle each client brings the company more money than is necessary to attract a new one.
Thus, if all the things mentioned above are taken into consideration, the start-up has all the chances of growing and developing into a big company. This is the advantage of scientific approach in planning, as just by looking at the preliminary data, some minor researches and right decisions made at the right time.