The Unwritten Lean Gospel…

To my eyes, the whole Lean Startup thing seems to be little more than a nicely crafted piece of contemporary rhetoric, that sings an alluringly timely song engineers desperately want to believe is true… that through the magic of fast iteration, their crappy little startup can prosper despite knowing nothing about positioning, sales, marketing, buyer psychology, or indeed human nature.

Essentially, Ries sells a kind of techno-pipedream that Yes You Too can build a purist company that doesn’t need to sully its hands with all the grungy, old-fashioned business kruft (that every other business book ever insists you need to have as some kind of grounding), because by experimenting fast on eager early customers, you (supposedly) get to find out what works.

Put it all like that, it should be clear that this fetishizes incrementalism (i.e. ‘if made rapidly enough, many small steps can carry you far‘), and is in fact the opposite of (software and hardware) engineering as a discipline, sales as a discipline, marketing as a discipline, pretty much anything as a discipline… it’s anti-every-other-kind-of-knowledge. Put “The Lean Startup” on your bookshelf, and you should surely be able to throw all your other books away. Beguiling, isn’t it?

However, there are many other foolishly impractical messages I suspect The Lean Startup implicitly preaches, but which may not be immediately obvious:-

1. Hope big, dream small.

2. Fail fast, learn little.

3. Self-fund till you die. (For who on earth has a Sugar Daddy rich enough to fund such open-ended stuff?)

4. Alienate lots of early customers by testing lots of rubbishy iterations on them.

5. Don’t trust anybody’s goddarn theory, just iterate instead.

6. If you can’t A-B test if something works, don’t do it.

7. Customers are test subjects for your experiments, not people you have business relationships with.

8. Keep on iterating while the market changes around you (invalidating all your earlier tests).

9. It’s not a product business or a service business, it’s an iterating business.

10. Oh, and don’t forget to A-B test people on your team, that’d be a great way of [mis]managing people, right?

Have I missed any?

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Startups 3.0, The Lean Startup, and business angels…

OK, as with nearly all blog posts, the following is an outrageously reductionist simplification. But for all that, it remains a genuine and honestly held point of view that might just change the way you look at things…

Essentially, I believe that the modern financing history of “startups” divides into three overlapping generations or waves:-

• “Startups 1.0” were bank-funded, back in the days when banks had money to lend.
• “Startups 2.0” were angel-funded, back in the days when angels had both wealth and liquidity.
• “Startups 3.0” are self-funded, trying hard to move to customer-funded at high velocity.

Right now, I think that most startups are stuck in a limbo between 2.0 and 3.0 – we’re smart enough to see lots of practical problems with angel funding, but not self-confidently ambitious enough to honestly believe that we can bootstrap what we do from basically nothing all the way to a billion dollar company without angels’ alleged assistance. My advice? Have faith – you can do it, honestly you can. All you need to do is to devise a way of making it happen. Given that you solve every other problem you run into, why not try to solve that one too?

Interestingly, one common reaction to my popular post Lean Startups suck. Here are 10 reasons why… is that I must be some kind of Lean Hater. In fact, the single biggest thing I hate is seeing clever, ingenious and otherwise well-informed people suckered into following a course of action that will suck every last penny out of their pockets (and often out of their friends’ and families’ pockets too).

Unfortunately, I believe that this is what Lean will do to you if you trust it for financing. Angels don’t ‘get’ Lean, simply because Lean startups are encouraged not to make claims or promises that might have value, whereas angels are fundamentally looking for things of value to invest in. So the core issue I have with Lean is simply that we’re living in the decade before angels find a way – a ‘contract of mutual expectation’, if you like – of coping with Lean. In short, we don’t (and indeed we may never) have Lean Angels. That would be “Startups 4.0”, but we’re a long way from there just yet. 😦

Overlaying Lean onto the three startup financing generations described above, my argument would be that Lean conflates the two very different dynamics of Startups 2.0 and Startups 3.0, but ends up with the worst features of both. That is, Lean promotes the emerging incremental self-funded-to-customer-funded mindset (of Startups 3.0) but tied up with the need to expensively surrender control of most of your company to angels in order to scale (of Startups 2.0). It’s not a good mix at all.

But… “what’s so wrong with angels?“, you may ask. The awful truth is that here in 2012 we’re living at the tail end of the angel funding revolution: over the last decade, angels’ thinking has become so polluted by the “10x home-run” nonsense spouted by VCs (who have since moved en masse to far later-stage investments anyway) that angels’ overall level of ambition, expectation and – let’s face it – raw greed have all been inflated beyond the ability of any genuine startup to meet them, except purely on a vapourware or slideware level.

Lean does not fix this: in fact, Lean promotes angel funding at a time when the gap between startups and mainstream angels is widening year on year. I dramatized all that here back in 2010 as the Venn diagrams of death (and the world is still waiting for virtual angels), so it’s not exactly shocking news… but it seems to me that very few entrepreneurs get any of this at all. Don’t mind me, though, please feel free to carry on drinking that angel Koolaid all you like. As I said when I got cut up by a hearse the other day, “whatever, it’s your funeral“.

I know that bookshop shelves are filled with zippily-titled easy ways to start up your company (of which Eric’s book is merely one of many), but the reality is that these simply don’t work any more. In business terms, they’re all as outdated as 18th century encyclopaedias. They promote a gospel of financing harmony and collaborational positivity that simply doesn’t match the East End barrow-boy hustle that actually passes for angel investment.

Ultimately, I believe that the only genuine way that people can deliver the kind of low-risk-yet-hockey-stick-shaped returns angels demand is through armed robbery or Enron-scale fraud. So go ahead, pitch all you like, knock yourselves out: your so-called best case endgame scenario is that you’ll end up grinding out one ridiculous, abusively one-sided offer from a ragtag set of barely-liquid angels who will then be more interested in finding tricky ways of mitigating their downsides at your personal expense than in growing your splendid company together.

Alternatively, you can start small and find ways of getting to customers and growing fast. You know which option I recommend! 😉

On Alex Payne’s “business madness”…

Alex Payne is a software engineer (& Scala fan), an early Twitter employee, and now an angel investor: he writes succinctly and well, while pulling few punches. His excellent recent post “On Business Madness” tries to nail a number of Big Bad Ideas floating around the startup business noosphere. I’ll Powerpointify his major points first so I can get on to discussing them properly. 🙂

(1) Payne berates all “the chest-beating sound bites fed to hungry reporters” (what Eric Ries, bless ‘im, calls “success theatre”), and thinks that nobody in startups has any real idea what they are doing: “we mistake dumb luck for a machine that produces success”.

(2) He thinks VCs try to justify their herd behaviour by somewhat laughably calling their decision-making process “pattern matching” when it’s nothing of the kind (well, to a computer scientist, anyway).

(3) He thinks startups who believe tech clusters cause success (a foolishness even the UK government has promoted to the level of national policy in the last 12 months) have got it Just Plain Wrong.

(4) He thinks that Eric Ries’s Lean Startup, Steve Blank’s Customer Development, and even 37signals’ methodology are “process cults”, more useful for finding like-minded co-founders than for building proper businesses.

(5) He concludes by dismissing Facebook’s “hacker way” as a soon-to-be-discredited heir to such business cults as Taylorism & Japanese management theory, and thinks that the only probable business essentials are “a good idea, great people, the willingness to work hard, and an absolute shit-ton of luck.”

Nick’s thoughts:

–> (1) As generally practised, startup success theatre is deeply insincere: this promotes unsustainable relationships not just between between entrepreneurs and the press, but also between entrepreneurs and investors. Here in the UK, business angels routinely (and openly) divide projections given to them by entrepreneurs by three or more, numerically encouraging entrepreneurs to give them ever more inflated figures to compensate for this systematic pessimism. Similarly, somewhere along the line angels now routinely expect to see slideware pitches telling them of their likely 10x or 20x return, as if every single startup they’ll see is going to be that 1-in-a-1000 outlier!

Yet if as an entrepreneur you try to break this cycle, you can quickly find yourself accused of lacking ambition or – worse still! – of pitching a niche business. Though I have always tried to be utterly honest about my own startup’s situation, assets, and potential, I can’t help but wonder whether I’m missing the Painfully Big Inference: that lying slideware has become so endemic to the startup ecology that honesty in pitching actually moves you backwards.

–> (2) (As a UK entrepreneur, I have no real opinion on VCs. You might as well ask me what I think about Peruvian microbiologists – they have just about as much to do with early stage startup investment as Euro VCs do.)

–> (3) In my opinion, tech clusters are more likely to be the sign of a tech neighbourhood dying off than of being born (i.e. it’s a trailing indicator rather than a leading indicator), and in particular of rents rising to a level that non-vanity startups can’t afford: so I agree with Alex Payne. It all seems far more likely to me to be a logical fallacy: that success leads to tech clusters than tech clusters lead to success.

–> (4) Don’t get me started on process cults (particularly the whole Lean Startup thing) – tiny techy tails trying to wag big complex dogs, driven by people brandishing back-to-front telescopes all claiming to have invented a new way of seeing the business world. Yup, Alex pretty much nailed this one too. 🙂

–> (5) Here’s where I diverge slightly (but not actually too much). I personally think luck is something entrepreneurs contrive to make – or, more precisely, that a startup is best seen as an arena carefully laid out to enable lucky things to happen within. Entrepreneurs who try to define success in terms of their monolithic Business Plan are Big Fat Fakes, because life never, ever works that way: rather, the best business plans are ones that have wide-open holes large enough for Fate to enter through.

Hence, I think the only real question to answer when assessing a business proposal is: does this leave plenty of space for luck to happen, or is it determinedly driving into a wall it will never be able to break through? Of course, no angel would ever openly agree that this is right because their thinking is still so hugely dominated by the Oh-So-Foolish Cult of the Business Plan. But perhaps they might get better results from their portfolios if they did…

Is it time for a “Small Manufacturing Tsar”?

Few people have heard of the Tech City Investment Organization, and even fewer realize that one of the main reasons it was set up was to encourage overseas companies to park themselves in Shoreditch, to “create more employment more quickly”. Hence the eyecatching entrance of Google and Cisco into the whole Tech City parade: of course, what we’ll do once all the web programmers in town suddenly disappear into their corporate maws is another matter… so yes, that was a great idea, Dave. ‘Great‘, as in… ‘utterly awful‘.

Of course, it’s true that TCIO would also like to encourage angel investors to invest in Tech City startups, but… have you seen any doing this yet? [No, neither have I]. And much as I enjoy chatting with Silicon Valley Bank’s smart & engaging Oscar Jazdowski, trying to apply SVB’s heavyweight expansion capital funding model to Tech City’s frothily lightweight, early stage social media startups is not unlike trying to crack a nut with a pneumatic Hammer-O-Tronic 9000. Well, you could… but, frankly, you’d probably lose your nuts in the process.

As normal, you don’t have to scratch very far beneath the surface hype to see the real problem. For even if you don’t remotely believe TCIO’s apples-for-mangos statistics for the allegedly dramatic expansion of tech startups in Tech City (and I for one don’t), it’s surely terrifically unfair that those [quite literally] poor darling hotdeskers have such an extraordinary burden of government rhetoric dumped on their collective shoulders. Much as I love them as individuals, how exactly are these self-funded software engineers supposed to change the fortune of UK plc? Or is it rather more likely that 95% of their startups will pivot, pivot, stutter and fall, leaving their principals to drop their principles & grab jobs with the webbed-up corporates now conveniently situated next door?

It’s a little bit galling that almost all the attention goes to Tech City, when there has (according to other recent [and probably more reliable] statistics) been a huge surge in startup activity right across the London area. I’m not blaming TCIO’s Tech City tsar Eric van der Kleij for this, but I can’t help but notice that as soon as Tech City gets mentioned in the media, it’s as if everyone’s suddenly trying to behave like an idiot venture capitalist circa 1995, but crossed with all the idiot parts of the Lean Startup circa 2011: people trying to fund VC wetly disintermediated dreams with pin money. Does that notion make any sense to you? Nope, I didn’t think so. 😦

If we can somehow manage to resist the temptation to inhale too deeply from the Tech City bong, the big question is this: what would actually make a difference? What positive thing could the Government actually do? Well…

What about a ‘Small Manufacturing Tsar’?

Being realistic, to make a macroeconomic difference you’d need at least a hundred startups to go totally platinum – to become billion dollar export-heavy industries all in themselves. And that’s a big ask, seeing as barely any UK companies have managed this trick of late.

Yet I think one sector that stands a finite chance of achieving this is modern lean manufacturing, and – not for the first time in the last few years, it has to be said – the world viewed from my seat appears to be radically different from what Whitehall seems to be seeing.

For me, modern manufacturing is totally rock & roll, and offers a real chance of making a macroeconomic difference to exports, tax revenues, and to UK plc in general. Electronics development (and even mechatronics development) has gone garage, while hardware startups are just starting to go properly guerilla too.

Yet many people – even otherwise well-informed and erudite commentators – still struggle to see the differences between, say, British Leyland circa 1975 and a miniaturized mechatronic startup circa 2011, when (apart from the “both making things” bit) you’d have a lot of trouble finding any similarities. I hate to say it, but a lot of this is just academic snobbery, self-appointed faux-elitist nonsense from people who excel at engaging with theoretical knowledge, but disdain getting involved with anything remotely practical. Score one (own goal) for academe, sadly.

The central communication problem here is that small manufacturing has no obvious champion, no clear focus, no accepted role models – the closest Vince Cable gets is when he talks up Brompton Bikes (what about Grahame Herbert and his Airframe folding bike, then? 😉 ).

Hence what I think the UK needs right now is a ‘Small Manufacturing Tsar‘ – someone who can champion, focus and promote small UK manufacturing, to help the country’s small manufacturers get the mindshare and attention they need. They’re not British Steel and British Aerospace, they’re small (yet hugely scalable) companies who don’t happen to fit the kind of startup pigeonholes and templates that funding bodies like the Technology Strategy Board would like them to conform to. They are, as per the title of a recent survey, “Born Global” – because proper manufacturing may now start small and ‘Lean’ (in the correct sense of the word), but it starts with a foot in every country. And that’s… quite a lot of feet.

And so here’s my open question to the Business Secretary: Mr Cable, do you have any current plans to champion, focus and promote the small manufacturing sector? Might I suggest that a Small Manufacturing Tsar might help to do this?

Applying “Five Whys” to The Lean Startup itself…

The biggest shadow hanging over nearly every business book is the ghost of unwarrantable universalism. Which is a fancy way of saying that, whenever any business writer claims “Methodology X worked for me, so it will work for you [despite the fact that your situation is almost certainly completely different]“, you know that pretty much every bullshit warning bell in your head should go off.

To be precise, this is because every single business success story is a particular historical narrative (i.e. of what actually happened), not a general scientific template (i.e. of what might happen in a hypothetical business): and in fact, given the terrifically small number of startups that achieve success with a high-growth development curve (often with numerous strokes of luck generously helping them on their way), such rare businesses are almost all outliers in the business landscape. Yet the temptation to post-rationalize all that ‘outlieritudinosity’ and to promote the particular approach you took as being a universal entrepreneurial path to success is apparently overwhelming: for if bookshops were taxed on the number of glowingly-confident head-shots of cashed-out entrepreneurs they had on their shelves, they’d surely all fold within a day, mmm-hmm?

As far as Lean Startups go, Eric Ries is a smart, sharp guy, one who is amply self-aware and reflective enough to know all the above… but he still persists in making universal claims. Using one of his favourite Lean techniques (the “Five Whys”), we might therefore probingly ask a series of five ‘Why’ questions, aiming to get to the root of this issue rather than getting mired in the surface details.

Firstly, why is he so certain that his consulting recommendations for startups (which in turn were built largely on his personal experience at a single company, IMVU) are well founded enough to drive a global ‘movement’?

I suspect the answer is that Ries is mainly talking about Internet businesses with a framework you can use to carry out rapid customer experiments. Even though he used to talk the Lean Startup up as an extension of Steve Blank’s Customer Development, Ries’s book actually seems to have pivoted round to the quite different idea that the customer doesn’t know best, but performing lots of A/B experiments on them helps you learn from their aggregate behaviour what path to follow. So, Ries’s certainty seems to stem from his experience at IMVU using the process of engineering statistical experiments on microtransactions (even if the early-pipeline currency is ‘attention’ rather than ‘dollars’) to learn genuine data about its customers, and his belief that it was this process that led to its success.

But why (the second why of five) does he think his personal experience at IMVU just happened to give him a unique view of startup business truth? From his account, IMVU made plenty of mistakes early on and was manifestly not customer-led or even really customer-engaged: Ries’s eventual epiphany seems to have been the realization that his company was in a position to use tech to improve itself, not just its product. And so the answer to [why #2] would seem to be that Ries’ view of the Lean Startup was as something that uses tech to institutionalize a kind of ‘customer awareness therapy’, i.e. that numbers from experiments can help your company ‘Get Real’. Essentially, it’s a tech answer to a social awareness problem that enabled IMVU to drop its stealth-mode conceptual baggage and get on with the real business of engaging with people and satisfying their needs with avatars that don’t walk. 🙂

But why (3/5) does Ries think his particular tech solution is a universal solution to the social problem of customer development? I suspect the honest answer would be that this opinion came from his background as a CTO: the answer he developed relied on appropriating tech tools to develop knowledge of IMVU’s customers. He was apparently amazed to find that the tech tools he just happened to have in his hands already were able to help his company get what it wanted, and this amazement has somehow driven his quest to help other people use their own tech tools to get what their companies want. It’s the joy of techs: a kind of engineer empowerment exercise.

But why (4/5) does Ries think engineers should be empowered in this way? Again, given that he started as an engineer and that most of his effort over the last few years seems to have been involved outreaching to countless other engineers, it seems that his Lean Startup movement is actually just a collective business land-grab by software engineers. By trying to reduce social problems to technical problems, the idea is to turn everything into an engineering exercise, a conceptual business structure where you don’t need to know about product or marketing or PR or personal relationships, your customer experiments will (eventually) tell you all that, by way of pings on a learning metric chart. As a result, it’s resolutely anti-theoretical, and indeed anti-pretty-much-everything-that-isn’t-engineering: even his “anti-waste” angle is supported only by a few carefully selected narrative tales of the unexpected. Does he have any real data to back up his assertion that non-Lean-Startup businesses are wasteful? What he manifestly fails to mention is that Lean Startup development often takes a lot, lot longer: sure, you may waste less physical resources, but you can end up wasting a vast amount of time to do so. Time never really gets factored into the economics equation: it’s somehow assumed you have plenty of it. (Errr… no, you don’t].

But why (5/5) waste all this effort on driving what is essentially a business land-grab by engineers? The biggest universal claim implicit in Lean Startup is that startups only need engineers: and that reeks to me of a parochial engineering-centric mindset being extended far beyond its genuine validity. I suspect what Lean all comes down to is that Eric likes engineers, and wants them to prosper: but surely promoting his particular experience as a universal way of running startups is a bit of an extreme way of doing that?

Really, should you lean on him?

Minimum Buyable Products and economic agency…

First off, a great big thank you! to all the people who came along to my entrepreneur guest lecture at UCL last week. Apparently one attendee was spotted IMing something along the lines of “came here expecting to be cynical, but this guy’s more than cynical enough already“. Well… bruised: yes, cynical: not really. And a special thank you to Johnathan Agnes, who managed to round off the evening with some hugely supportive comments from the back. Well worth the pint I bought him afterwards (though I’d have bought him it anyway). 🙂

The thing I recommended at the end – but failed to put in the slides – was my (definitely non-cynical) Startup Handbook, so here’s a link to it in case you haven’t already found it. What’s relevant here is that since I posted it, I’ve been thinking a bit more deeply about what it’s actually all about: really, what exactly am I proposing with the Minimum Buyable Product concept? Am I saying we should all emulate Alan Sugar and sell reconditioned car aerials in Romford Market?

The answer is: sort of, but not really. For once, economics has a diffuse term which usefully touches on this issue – the “economic agent“. Roughly speaking, this is an abstraction of embodied human behaviour embedded within an overall economic system: you model a system of people as a set of economic agents, each doing his/her thing. However, whereas many economics papers (particularly in behavioural economics) obsess about the countless ways how economic agents differ from real people, what I’ve been thinking about is the degree to which many entrepreneurs apparently try to avoid displaying economic agency.

What I’m saying is that if you invest all your efforts on specifically non-economic behaviours (e.g. planning, modelling, forecasting, graphing, pitching, presenting, meeting), that you’re largely avoiding the burden of economic agency has to be a valid criticism. I’d say this is largely a byproduct of MBA careerist thinking, where you try to promote yourself beyond the niggly twistiness of actual transactions and actual data to the point that you need only think about optimizing an entire process that’s already working. Really, an entrepreneur wearing an MBA hat circa 2011 could easily look quite foolish.

Similarly, I would say that Eric Ries’ whole Lean Startup model (proper book review to come soon) is built upon a model of pure microeconomic agency, in that unless your business is able to do continual B2C microeconomic experiments, I don’t think it can properly be run as the kind of lean startup he envisages.

Hence with the Lean Startup people espousing pure economic agency, and the MBA people espousing zero economic agency, it seems that the two groups have us surrounded, though not in an entirely useful way. I think what startups need to develop is limited economic agency, somewhere in the vast practical gulf yawning between the two extrema: which is where my concept of Minimum Buyable Product comes in, to be used as a developmental focus for something that gives your startup a moderate amount of self-determination within an external market. Selling stuff, however small that stuff happens to be.

This division may well highlight the biggest difference between the UK and US angel funding ecosystems: a complete lack of economic agency seem to be no handicap when it comes to getting funding in the US, whereas in the UK it seems as though only startups with full economic agency get even a sniff of interest from angels. Something to think about, eh?

Innovate11, VCs, Lean Startups and design…

Willkommen!

Earlier this week, the Technology Strategy Board’s held its “Innovate11” conference at the Business Design Centre in Islington: but rather than traipse into town and lose a day’s work, I decided to stay working at my PC with the TSB’s live web stream burbling in the background. As you’d hope/expect, there were plenty of familiar faces on show:-

• The TSB’s Iain “Old Town” Gray as the cabaret host (or am I thinking of Joel Grey?)
• Amadeus’ Hermann Hauser and my old pal Alex van Someren
• Deyan Sudjic (director of London’s funky Design Museum)
• Will Hutton (who was plainly annoyed by the indifferent reception he received)
• Coalition business ministers David Willetts and Vince Cable.
• etc

Pretty much everyone on the stage stayed in character, with the notable exception of the wirily energetic Hermann Hauser, who I thought was on particularly fine form talking about the slightly surprising business logic behind Solexa’s success.

I must admit that while Alex van S was going through a fairly sweeping summary of contemporary VC pitching wisdom (e.g. Guy Kawasaki’s famous 10/20/30 maxim, i.e. 10 slides / 20 minutes / 30 point font minimum, la-la-la), I kind of zoned out for a while, musing about the whole challenge of investing in startups.

You see, the whole VC model is to invest in high growth companies early in their curve, so that you stand a chance of getting a few 10x “home runs” in your portfolio, to balance out the (sadly almost inevitable) duds that you’ll also pick up. In the overall business landscape, such high-performing startups are without any shadow of a doubt statistical outliers – so to my eyes, the VC challenge is surely to use nous and experience to search out exceptions to the rule, not companies who slavishly follow the rules. For all the adulatory press that has followed Steve Jobs’ recent death, for me the most telling stories have been the ones that point out how mainstream investment criteria would exclude him rather than reach him.

My point here is really that if VCs need to find exceptions to the rule, why do they now seem to invest so much time in building yet more rules for potential investees to follow? For example, Alex stressed that Amadeus never invests in one-man-bands, while other VCs love to talk about the shamelessly brutal “truck count” metric (= ‘the number of individuals in an organization that could be killed by a truck before that company becomes unable to function’) to emphasize the same point – that small is fragile. Yet I think a typical entrepreneur (a) has to do ten different jobs simultaneously just to get by (and I suspect that’s pretty much always been true), and (b) builds up a network of partners, suppliers, mentors, advisors and indeed customers all helping him/her to get the job done. OK, there’s only one of me, but my network is an army sans frontieres, so what’s the metric for that? Set the [number of employees] field to [1] in Amadeus’ pre-funding application form and you’ll no doubt get filtered out straight away: ‘computer says no‘ *cough*.

Perhaps the bigger issue is whether VCs spend too much effort filtering for excellence when they should be looking for brilliance – there’s a big difference between the two, as my old school housemaster Mr Tarrant used to say.

Anyway, going back to Innovate11, while listening in to the design panel’s protracted noodlings I was struck by how very similar the kind of design-led approach the participants described (customer-focused, iterative, uncertainty-based, etc) was to the whole Lean Startup thing. And the more I’ve thought about it since, the less I can see any obvious differences.

So here’s what I now think: that for Lean Startups, treating everything as if it were a design process is claimed to be the best way of doing business. Furthermore, below this top-level approach there lies an implicit set of (what I personally think are actually fairly corrosive) claims:

• that design-driven iteration is vastly superior to principle-driven architecture;
• that what other people (particularly customers) know is vastly more important than what you know;
• that it is more practical to fix what didn’t work than to predict what should have worked; and
• ultimately, that it is better to cope fast than to manage well.

For me, the biggest irony of all is that for all Lean’s claims of being a scientific “methodology”, it is built around an inherently anti-science design loop, predicated on what looks eerily like a postmodernist dismissal of Enlightenment knowledge. Why would a Lean Startup need any PhDs or even (*spit*) MBAs, if its development starting point is always going to be one of ignorance?

Pointing this out doesn’t make me a Lean “hater”, it just means that I think I can see Lean for what it really is. Which is to say that, contrary to what is normally claimed, Lean is not about saving money, avoiding process waste or even about learning-focused development, it’s simply the claim that strongly iterative design-based development is the best strategic choice best for all startups. Which isn’t really supportable, IMHO.

As such, I see Lean as arguably just an overreaction to the long-discredited “if you build it they will come” business strategy, which I think overbiased startup discourse in quite the opposite direction (i.e. towards PhDs and MBAs, and towards big science over iterative design). Personally, I try to follow a more blended approach, fusing big science and iterative design within the constraints of a shoestring budget – it may not be fashionable, but it works for me. 🙂

If Lean Startups went to the movies…

…how would they make films?

First of all, they wouldn’t do anything so consciously planned as write a script – oh no, that would be far too deterministic and control freakish. Only an MBA trapped in the early 1970s would start with a plot treatment, let alone a shooting script, right?

No, the #1 thing Lean Startups would do is to “get out of the building” to meet lots of film-goers (customers), form tentative hypotheses (themes), and try them out – excuse me sir/madam, we’re planning a remake of George Méliès’ iconic (1902) “Le Voyage Dans La Lune“, does that sound great to you? No… well how about “Thelma & Louise 2“? Yes, we do know they both died at the end, but… oh, OK, then. Finally, what about “Cats Wearing Dresses Beat Dogs With Sticks“? It’s just a working title, but… sorry? You do like the sound of that? Oh, OK… thanks for your feedback!

Oh, and we’re thinking of casting Colin Firth? Keanu Reeves? Paris Hilton? Oh, you really like her, do you? That’s great. Thanks again!

So, having pivoted and iterated several more times for good measure, they’d then take their well-researched title to film production companies, who would say – OK, but how are you going to write the script? You can’t get filmgoers to write it for you, that would be just plain idiotic. Aha, they’d reply, but we’re Lean and customer responsive, and our customers are always right, so we are indeed going to ask them to write all the best lines which we’ll then stitch together, iterating in the edit suite until it works. Having A/B tested our home page three hundred and fifty eight times, we’re now certain that this will end up with the biggest viral coefficient since Jaws. Everyone’s going to talk about it, it can’t fail!

There’s a pause, as a sudden cold draught ripples across the room (even though it’s in Malibu): the film production guys look warily at the Lean Startup film schmucks and say – even though you’re even bigger schlemiels than we first thought, maybe-just-maybe you’re on the money here. And that’s not because of but in spite of this so-called ‘Lean’ bass-ackwards way you’re going about this. So, just this once, we’ll put the money in, see if you can make a big success of “Cats Wearing Dresses Beat Dogs With Sticks” starring Paris Hilton as a psychopathic catwoman leather fetishist going on a bullet-time Hong Kong martial arts quest to revenge the death of her pet mouse Iggy…

* * * * * * *

…of course, you probably already know that the above isn’t entirely fictional . The 2006 film “Snakes on a Plane“, despite having languished in production limbo for over a decade, got built up into an Internet sensation with many lines of (often foul-mouthed) dialogue suggested by enthusiastic pre-release fans actually added to the film. Samuel Jackson’s most famously quotable line was subsequently ‘dubbed-down’ for US TV into the hilariously Puritan “Enough is enough! I have had it with these <monkey fighting> snakes on this <Monday to Friday> plane!”

But none of this is actually a tribute to Customer Development, Lean Startups, or indeed Lean in any way. It was all basically an Internet marketing stunt by New Line Cinema, to see if they could get film-goers to ‘pre-cult-ify’ what was no more than a B-movie – they had already wrapped the shooting, but then came back to add five more days of the (largely potty-mouthed) dialogue suggested online.

However, despite all that hype and fuss, the film still “only” grossed $62m worldwide, which for New Line made it a bit of a disappointment. In fact, it turns out that the key demographic who really, really wanted to watch the film was young teenage boys, who found themselves unable to get into the now-“R”-certificate movie (restricted because of all the, ummm, boisterous language added). So the whole exercise may have actually served to lose New Line Cinema money overall.

To be honest, the Non-Lean lessons I learned from this whole story are very much like the ones I learned from my own startup. Pre-adopters may be vocal and loud, but they’ll happily encourage you to overfocus your efforts on their particular corner of the world, rather than on your real customers. If you take Lean too literally, don’t be surprised if your startups end up as a Web 2.0 version of “Cats Wearing Dresses Beat Dogs With Sticks“.

Like searching for a ring swallowed by an elephant, you’re likely to hit a glint of gold eventually, but don’t be so sure that every bit of feedback that passes your way is of immense value… 😉

Lean Startups suck. Here are 10 reasons why…

Eric Ries’ 2011 book “The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses” has garnered lots of attention, and indeed plenty of favourable reviews. He’s a thoughtful guy, who has been gradually building up interest in his “Lean Startup” ideas over the last few years: if you haven’t really heard of it, it’s basically an abstract conceptual toolkit aimed at very young companies that offers plenty of sensible-sounding advice, with very little to obviously disagree with.

But even so, I think that Lean Startups still suck. And here are ten big reasons why:-

(1) The “Lean Startup” approach is not a science. In fact, even though much of it is couched in terms such as “empirical” and “hypothesis”, it’s not even properly scientific. What it offers is a load of consulting-style models mixed in with contemporary truisms about business presented as hypotheses, which Ries hopes you will then go out and test for yourself. Why? Because despite all his evangelism, so few businesses have actually tried being lean startups that he hasn’t yet got enough data points to construct convincing arguments for his book. Which is why he so wants you to go test his ideas for him with your money and your business on your customers. If his ideas were scientific, they would have been tested already: but because they’re not, they’re merely hypothetical, which is a different thing altogether.

(2) “Lean Startup” is not a Scientific Management theory. I’ve seen Eric Ries talk, and he likes to claim Scientific Management as a (retrospectively adopted?) parent of Lean Startups, but in practice that’s simply not so. True, he likes metrics (and Frederick Taylor’s ghost would surely approve of that): but metrics and dashboards have been in high management theory vogue for well over a decade, so they are merely things that Ries has appropriated rather than devised in any useful way.

(3) “Lean Startup” is not a Quality System for R&D. The core of Ries’s claims is that his Lean Startup ideas provide a more productive way of getting to “product/market fit”. However, in its current state it is not even remotely close to an ISO-9001 approach for systematizing R&D: as a general rule, I’d say quality systems are a poor fit for R&D companies. Rather, the key test Ries applies to everything is relentlessly Darwinian: is your product a good market fit yet? (If not, iterate and try again). But as far as I know, there is as yet no substantive academic research on whether relying so utterly on customer feedback is in fact a good way to design new things: it could be argued just as strongly that it’s merely an effective way of making incremental design changes.

(4) Lean Startups are unfundable by angels. I estimate that 95%+ of current business angels (oh, and 99%+ of VCs, too) would not currently invest in any lean startup. This is because the Lean Startup toolkit has a single operating model: a Zen state of sustained-yet-aggressive ignorance while you intuitively develop some kind of tentative product-market fit by repeatedly bouncing things off enthusiastic early customers. Even though this may be in some ways inevitable if you’re trying to build a startup using your own savings, it is anathema to almost everyone looking to back a startup. I’ve talked with 130+ business angels, and almost without exception I would say that they want to put money into small, highly productive teams who have the self-belief that they already know what they are doing, so that those people can get on with executing their plans and making them work. Angels don’t want to fund your industrial education, they want to fund your market-focused business.

(5) Lean Startups are not lean. That is, as far as I can tell the ‘lean’ part of the title was merely appropriated from “Lean Manufacturing”, which – I would argue – bears almost no relationship to Eric Ries’s customer development ideas (which were instead built to a very large degree on Steve Blank’s Customer Development ideas). In fact, Ries’s idea’s correct title should probably be “The Learn Startup” because it is 100x more to do with learning than with reducing process waste and quality management: it’s certainly not to do with doing things cheaply or even fast, because educating yourself into a constantly changing market via progressive iteration can take an entire lifetime, and can happily absorb every penny you care to throw at it.

(6) Lean Startups makes little sense outside Web 2.0 startups. If you are considering setting out as a “lean startup” manufacturer, I’d urge you to think again. Iterate with your customers all you like, but you still need to pony up heavy-duty capital when setting up a manufacturing process, and the Lean Startup consulting toolkit is of little use when funding or developing this kind of thing. Regardless, you’d probably be better off reading up on mechatronics development, because this covers an awful lot of the same area (did I mention that it’s not new?) without telling you that you need to iterate in order to build worthwhile things.

(7) “Lean Startup” ideas have not yet been tested. Look, anyone – and I do mean anyone – can assemble a set of contemporary-sounding statements about how best to run a business, and then claim that the multiple similarities between those statements and carefully-selected details of the runaway success of { Google | Facebook | whatever } form cast-iron proof that your overall theory works universally. Eric Ries knows (and indeed points out) that this does not amount to any kind of real wisdom: however, because he has as yet amassed no real data, I think this is exactly what his ‘Methodology’ reduces to.

(8) Lean lacks cojones. Or “bravery”, if you wish. By delegating design decisions purely to the result of customer iterations, it encourages startups to produce incremental me-too wannabe products that appeal only superficially to customers, and to make design decisions based more on incrementalism than disruption. As such, it is a way of developing things that is intrinsically anti-engineering. Yet I would argue that to build company value and have lasting societal impact, startups need to be (quite literally) revolting.

(9) Lean is not a movement. It is not even a popular revolution. It’s one guy touring the world telling developers telling them how smart they are, and selling them an unsustainable dream – that it is in their power to build their own company cheaply and effectively by iteratively running prototype product versions past early adopter customers. It’s a tempting notion – after all, it’s the same basic dream that fills hot desk seats in Old Street and all the other tech hotspots worldwide. But ‘ought’ doesn’t make it ‘true’, no matter how many times you say it to audiences who would like it to be true.

(10) It would be nice if Lean was truly as good as Ries claims. But it’s not. In some idealized parallel universe, it might well possibly be true. But in this particular universe, it is at best no more than a technical hack for trying to avoid really big customer-facing design mistakes. So, unless you (and your optimistic co-founders) can entirely self-fund your killer startup through a (probably very prolonged) lean development phase, I would strongly advise taking your Lean Startup noodle soup with a large pinch of salt.

Update: you might also consider what a disaster it would be if you applied Lean Startup principles to your Real Life…

Fred Destin miniseedcamp lecture, ohhhhh dear… :-(

As recommended yesterday by Ben Markland on the London OpenCoffee meetup forum, here’s a video from July 2011 you might enjoy: a 50-minute lecture + Q&A session by Fred Destin at Miniseedcamp Ljubljana. Fred’s a smart guy, and manages to squeeze in the whole lifecycle of startups: founders (the magic number is two), funding, launch, build, the Chasm, scaling, all the way to maturity. As a rapid precis of currently accepted startup wisdom presented by a communicative ex-Euro VC (now in Boston), you’d think it would be hard to beat.

Except that, as a unified body of knowledge, it really sucks – basically, the pieces don’t fit together .

Here’s the paradox: even though Fred really likes lean startups (he lauds Steve Blank’s Customer Development Cycle and Eric Ries’ Lean Startup Movement), he clearly doesn’t believe that lean scales up – at some point, you have to put your lean ways behind you and go “fat”, he says. So do you think smart, well-connected VCs who are anything like him would make VC-scale investments in lean startups while they are still lean? No chance.

So, the lesson to be learned from that would seem to be: Lean Is Good, Except If You’re Pitching To VCs.

But that’s only half the paradox. Here we have a top-flight VC exhorting a roomful of startup people to go lean, even though he personally wouldn’t invest in them while they’re still lean. Clearly, he must be expecting other investors – specifically business angels – to step in and fund lean startups, to build them to the point where they can sensibly exit and pass the equity baton onwards to eager VCs.

But those seed funding rounds are clearly problematic, and Fred is well aware of the problems of getting funding going: he discusses (in the Q&A) the initial “funding no-man’s land” many startups get stuck in , and advises entrepreneurs to “always move the company forward”, and not to get caught in a waiting-for-funding-rather-than-actually-doing-stuff “death trap”.

Yet the problem is that by endorsing Lean as the best startup methodology of the day, I’d say he’s making that initial funding no-man’s land wider. I like lean, but it comes with an implicit set of values, pretty much all of which are antithetical to angel investing principles:-

• We don’t initially know what to do, but we plan to keep failing fast until the market teaches us
  (Angels want to put their money into building something, not funding your education)
• We don’t have a business plan, just a set of vague market opportunities we’re trying to incrementally build into
  (Angels want a business plan and cash flow forecast to negotiate the equity value of their investment)
• We don’t see any division between customer development and product development: we constantly (micro-)pivot
  (Angels like to work with people who put their money to a specific use, not changing their mind all the time)
• We wear many hats simultaneously, and the business side is tightly interwoven with the development side
  (Angels prefer dealing with non-business-savvy entrepreneurs, who are more ‘coachable’ and ‘malleable’)

How on earth can angels price investment into Lean Startups? In fact, “are there any ‘Lean Angels’ out there?” I asked Eric Ries a while back, “And since engineers already ‘get’ Lean so readily [probably because it’s so much like mechatronics development], why are you lecturing them rather than angels?” He didn’t really have an answer then (beyond “well, there are a few… in the US”), and sadly I don’t think he’s got one now. There is no Lean Funding Movement. Unless someone can explain to me otherwise, I assert that Lean is basically unfundable by the current generation of angels (and I’ve met more than 130), unless you dress it up as something that it ain’t.

Fred is right about the importance of the pre-funding quagmire: I suspect this has got worse of late because angels’ and entrepreneurs’ focuses have progressively diverged – angels want more certainty before putting their money in (though still with a 10x return, ha!), while entrepreneurs are trying to find cost-effective ways of managing product/market uncertainties (e.g. Lean). There is – at least in the UK – less shared conceptual ground between these two camps than ever.

Right now, the only lean path to huge growth seems to be patient bootstrapping over an extended period – basically, to self-fund beyond the point that lean is a central part of the business mix. (Sure, feel free to set lean sweat teams in motion later, but that’s the icing on a cake you’ll have already baked by then.) And where do angels and VCs fit into that business landscape? Angels and VCs love evangelists, customers, traction, metrics, virality: but the kind of patient, bootstrapped, self-reliant, compact development that’s at the heart of Lean is a terrible fit for their explosive, percussive business models.

Ultimately, a lean business is not an angel business, nor is it a VC business. What a mess! 😦