Tuesday, November 4, 2008

Principles of Lean Startups, presentation for Maples Investments

Full diagram originally drawn by John Boyd for...Image via WikipediaSteve Blank and I had the opportunity to create a presentation about lean startups for Maples Investments. Maples Investments is the only venture investor I know who has oriented their entire strategy to lean startups. They've invested in many great companies, including IMVU, Digg, Kongregate, Twitter... you get the idea. I really enjoy working with them and their companies.

Steve and I worked to find a metaphor that would help explain the power of lean startups, and why they have a serious competitive advantage, especially in these challenging economic times. We borrowed John Boyd's OODA loop, a concept from military strategy. Boyd emphasized the importance of agility in combat: "the key to victory is to be able to create situations wherein one can make appropriate decisions more quickly than one's opponent." We think this same principle applies to startups, which have the same problems of maneuvering on unknown or confusing terrain.

As I've written previously, lean startups are built upon three main trends:
  • Technology commoditization. It is becoming easier and cheaper for companies to bring products to market, leveraging free and open source software, cloud computing, open social data (Facebook, OpenSocial), and open distribution (AdWords, SEO). Lean startups have the ability to use this commodity stack to lower costs and, more importantly, reduce time to market.

  • Agile software development. Agile allows companies to build higher quality software faster. This speeds up the Ideas-Code-Data feedback loop. Combined with the technology trends above, it also enables rapid deployment strategies like just-in-time scalability.

  • Customer development. It's not enough just to build a product with great features - you have to figure out if there is a market for it. The only way to do this is to get out of the building and test your hypotheses against reality. The biggest source of cost/time advantage that all lean companies have is avoiding building features that customers don't want.
In this presentation, we tried to summarize those trends, show how they give startups an advantage in good economic times as well as bad, and explain why they enable a new and better investment strategy. Hopefully others will find it useful as well.

For those interested in getting started with agile or customer development, I thought I'd include a few links. My path to lean startups began with Kent Beck and extreme programming. The best resources there are his book Extreme Programming Explained: Embrace Change and the gentle introduction at extremeprogramming.org. For customer development, start with Steve's book The Four Steps to the Epiphany or take a look at his recent Entrepreneurial Thought Leader Lecture.

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  1. I'm working on a post that links to those videos too. How dare you! =)

  2. This comment has been removed by the author.

  3. Eric,
    Any thoughts on how forum feedback fits into customer development and agile product development?

    You've probably addressed this in the past, but I continue to be blown away by how fast Blizzard reacts to noise in their forums and rapidly makes fixes to the product. I'm sure you've noticed this yourself. I believe they are setting the standard for OODA done right.

  4. Excellent ideas! I immediately started digging deeper and found Steve's course handouts (http://bit.ly/HYtg), podcast from his presentation (http://bit.ly/146Ee) and presentation slides from SKMurphy's blog (http://bit.ly/gspB)

    And yes, The Four Steps to the Epiphany is on its way too ;-).

    My sincere thanks for sharing your insights!

  5. Is there anywhere I can download the presentation?

    Even using a bugmenot account to get around the "you're not allowed to download this without creating a user account" gatekeeping, slideshare still won't allow download - it just redirects to the view page.

  6. Fantastic post with lots of value.
    Keep posting and thank you!

  7. Tech entrepreneurs rapidly discover that programming is meaningless when not anchored to customers’ needs. I have been using Agile development for years, but it never came to my mind that this lean approach could be successfully broaden to business development. Eric Ries’ and Steve Blank’s blogs have enlightened my entrepreneur mind for the many years to come. Thank you!