How do you or your organisation make decisions about where to target resources? Why do you choose to pursue one new product or service idea above another? What kinds of targets do you set for success? And how do you measure whether things are going well?
Most organisations look at past sales revenue and profit figures, research what their customers want and set out grand plans to deliver feature-filled offers supported by detailed budgets and schedules. That – says Eric Ries, author of business book The Lean Startup – is almost the worst way to make decisions when you’re launching a new product or service in conditions of extreme uncertainty.
Why? Because if the world is uncertain, we don’t know the answers to all the questions that make this tried and tested approach reliable. Our sales and profits may not perform as they have in the past, our customers probably don’t know what they actually want, and casting budgets and schedules in stone doesn’t take account of the fits, starts and changes inherent in new product development.
I said "almost the worst” in the paragraph above, because Ries would consider an even dumber approach to be the "just do it” school of thinking. Many entrepreneurs take this stance – because if you can’t predict how things are going to turn out, why not just try something and see what happens? If you belong to this school of thought, the good news is that Ries says you’ll never fail to achieve your goals: because something will always happen. Even if your new venture doesn’t do well, you can retrospectively describe what you learned and – assuming the funding hasn’t dried up – you could try something different next time. Personally, this doesn’t sound like the most effective way to run a business.
If you want to avoid the randomness of the "just do it” approach, there is a third way: the Lean Startup method, which has three key components:
- Define a clear vision: even if the details of your product or service ideas change, you should always have your end goal in mind. It helps you focus your efforts – and your learning – on getting closer to that goal. It means success can be measured not just in terms of quantitative sales and customer metrics, but in terms of whether an activity has got you closer to achieving your vision.
- Develop minimum viable products (MVPs): rather than spending years developing products with multiple features, first create the simplest version of the product or service you can. Even if you’re sure you need further features, this MVP prototype helps you gain early and focused feedback from customers. In some instances this feedback may cause you to cancel the project in its entirety (before you’ve spent money and years developing something more worked-up); in others, it will help you know whether you are making the right product development decisions as you progress.
- Use validated learning: predict what you think will happen when a customer encounters your MVP, measure the response, make changes, measure the response and so on. This Build-Measure-Learn loop, and the iterative process of product development it feeds, is at the heart of the Lean Startup methodology. Unlike the retrospective lessons learned in "just do it” initiatives, validated learning helps organisations make quick and well-informed decisions as they work towards achieving their ultimate goal.
As a trained scientist, I like Ries’ approach a lot. After all, it sounds very like the scientific method: come up with a hypothesis, build an experiment to test it, report your results and then adjust your hypothesis before starting the whole process again. But it’s also the way marketeers have been working for years. Think about a direct marketing campaign, where a company has an idea that emailing customers a discount coupon will drive sales. They could just email out a discount coupon to their database and see if any of these customers buy (the "just do it” approach), but they wouldn’t necessarily know that the coupon had affected the purchase decision (these customers might have been on the cusp of buying anyway…). If they set up a controlled experiment, on the other hand (like the one outlined by Aaron Goodman on Custora’s blog), they could actually measure the impact of their campaign, and even start testing what level of discount makes the most difference to sales.
Apart from thinking a bit like a scientist, a key part of experimenting in this way is the emphasis on gaining customer insight by testing things out with potential purchasers. After all, making changes to a product’s price, packaging, features and so on isn’t much use unless you actually test whether these changes are making a difference. And if you don’t test, you could end up wasting time and money pursuing something that won’t ultimately be important to your customers. So next time you’re starting something new, don’t just do it, take the time to think about your vision, develop a minimum viable product, then experiment, learn and adapt.
Anna's new online CPD course on Enterprise and Entrepreneuship is now available from accountingcpd.net
You need to sign in or register before you can add a contribution.