"This is to inform you that I have already obtained all the investment funds that I need to launch my project. I thank you for doing all you have done for me. I am thrilled beyond measure. Apparently I have a better idea than even I knew."
The author, David Flemming, died in 2010. He had been working on this book for 30 years without officially publishing it. That task was taken on by his protégé Sean Chamberlin and he has done a superb job producing a high quality book from his writings.
I have a strong bias to read books beginning-to-end but a dictionary format does not promote that sort of reading. There are about 15 pages of orientation material at the beginning that you should read. In these pages David offers 3 ways to navigate the book:
He has a 2 page Guide to Lean Logic organized by 14 main questions it addresses and under those 14 questions he lists all the relevant entries.
He has a 6 page introductory essay outlining some of the main themes of his work with links to entries you can go to in order to dive deeper.
He has a large list of Ways to Cheat in an Argument. Many of these "cheats" are discussed in more detail as entries in the book. The word "Logic" is used in the book title so this method of indexing might interest those wanting to hone critical thinking skills.
I would hazard the guess that many people will just dive into the book reading entries that look most interesting to them. An entry often suggests other related entries you can look at. He uses the device of an asterisk * next to terms with a corresponding dictionary entry. I found myself navigating the book by checking out related entries much like hyperlink clicking (see quote below for an example of the use of asterisks). The book makes for a good coffee table book, a good book to take to a coffee shop, or a bathroom reader.
Before the book was published it was called Lean Economy for a long time. David eventually changed the title to Lean Logic. The book dedicates many entries to understanding aspects of the lean economy concept. One gets the impression that a very well read and deep thinker is addressing each topic. David was a Schumacher College professor that studied economics and history among other many other topics.
I particularly enjoy the caliber of writing and thinking skill on display in David's writing. Here is an example of his writing/thinking skill in an entry on Local Currency in a sub-section called "time banking".
Time banks are an asset in places with a comparatively high rate of unemployment and only a modest inventory of skills, and which are not well enough connected to provide a natural source of information about their needs, *skills, and availabilities. This is the kind of local knowledge which was formerly supplied by the hubs of *social capital, such as a church, chapel, pubs, working men's clubs, local shots, schools, *festivals and events. In a sense, the laborious brokerage of time banking which requires time to be recorded and credited can be seen as the scaffolding of a heroic attempt to rebuild community with information flows and a *culture of reciprocal obligation. It brings in people who would otherwise be socially excluded. Communities whose inheritance of social capital remains intact do not need that scaffolding; the informational links of awareness and obligation are already in place. But where that rare ideal is not present, time banks meet a need. ~ p. 298-299
A final reason I would advise you to read this book is if you want to learn more about "lean" ideas and techniques. David not only address "logic" issues in this book by discussing logical "cheats", he also usefully extends the scope of "lean" ideas into discussions of the economy, food systems, health, materials, transport and many other topics. The lean economy is made up of subsystems that each have be run in a lean manner in order to have a lean economy. I suspect that the book will help to advance lean thinking into new areas and make us think about what it means to be "lean" in these new domains of lean thinking. David's concept of a "lean economy" is provocative and will, I predict, eventually enter into mainstream debate as an alternative view of how economies might operate either by choice or by necessity.
This review is still quite superficial in its treatment of David's ideas. I hope in some future blogs to delve more deeply into his lean economics ideas. I've read enough to know, however, that this is a book worth recommending (and I'm not alone).
Posted on January 27, 2017 @ 10:26:00 AM by Paul Meagher
Lately I've been blogging about Eric Ries' book The Lean Startup (2011). Before there was the lean startup there was a large literature dedicated to lean manufacturing, lean production, lean thinking, agile development, etc... The lean startup concept did not materialize out of thin air and to properly frame the lean startup concept it is important to understand some of the history behind lean ideas and techniques.
One of the books most responsible for introducing and popularizing lean ideas and techniques is the book by James Womack and Daniel T. Jones called
Lean Thinking: Banish Waste and Create Wealth in Your Corporation
which was originally published in 1996 but the version I am consulting is the revised and updated 2003 edition. One of the reasons the
book was popular and influential is because it documented the Toyota Production System practices that the Japanese automaker used to achieve incredible success in a short period of time. Toyota was also becoming a dominant force in the industry around the time they first published the book. This lent alot of credibility to the ideas then and continues to do so today.
Another reason the book was popular is because it focused upon the thinking behind lean production practices and not just the practices themselves. In today's blog I want to quote the opening paragraph of that book on the definition of the Japanese word "muda" because I think it is important to understanding the primary motivation behind the lean startup approach - to banish waste:
Muda. It's the one word of Japanese you really must know. It sounds awful as it rolls off your tongue and it should, because
muda means "waste," specifically any activity which absorbs resources but creates no value: mistakes which require
rectification, production of items no one wants so that inventories and remaindered goods pile up, processing steps which aren't actually
needed, movement of employees and transport of goods from one place to another without any purpose, groups of people in a downstream
activity waiting around waiting because an upstream activity has not delivered on time, and goods and services which don't meet the needs
of the customer. ~ p. 15.
According to the authors, the antidote to muda is lean thinking. Lean thinking is first and foremost about banishing waste or muda.
Where Eric's book fits into the literature on lean thinking is that he was the first to define in some detail how lean thinking can be applied
to startups so that startups don't waste alot of energy doing stuff that just ends up being wasted effort. The term lean often conjures up associations with being light and agile and fast. The idea of banishing waste is probably not the main association but it should be because that is the justification for why the lean startup approach is considered useful.
In my last blog on Experimentation I didn't discuss the muda concept but it is important to keep in mind because experimentation done wrong is just another form of muda for the startup. The purpose of experimentation is to make sure the startup vision is on track before you go too far down the road in believing your startup vision. Spending alot of time on a business plan for an innovative product or service is muda because it often does not survive contact with the first customer.
Lean startup proponents advocate the use of scientific methods to test the startup value and growth hypothesis. One might think this is being done in an effort to arrive at the truth or validated learning, but the prime motivation is to try to avoid as much muda as possible during the
startup process. This is how lean principles are justified and it is why we can agree on them. It is easier to agree on what muda is than what the truth is.
The fourth chapter is titled "Experiment". The object of experimentation is the startup vision. Entrepreneurs are encouraged to test their
startup vision by 1) starting small, 2) experimenting immediately, and 3) breaking it down.
Although your vision may be big, you should start by figuring out ways to test a smaller version of your vision. In the case Zappos, a company
with the vision of becoming the leading e-commerce retailer of shoes, they started by taking pictures of shoes from a local shop and agreeing
to purchase them at cost from the retailer if anyone ordered them online. This provided them with valuable opportunities for validated learning
on what works and what doesn't at an early stage of their companies journey. The lean startup literature offers useful ideas such as minimum viable product for how you might test a smaller version of your product or service.
If you start small, you can begin to experiment immediately on testing your vision. Some entrepreneurs may feel the need to engage in alot of
planning before getting to the stage of testing their vision. This imperative reminds startups to start testing their vision as soon as
possible to get feedback that will shape the details of your vision or cause you to pivot.
Break it down
You can also engage in testing earlier if you break your grand vision down. The two most important components of your vision is 1) your value hypothesis and 2) your growth hypothesis. Testing your value hypothesis involves testing "whether a product or service really delivers value to customers once they are using it" (p. 61). Testing your growth hypothesis involves testing "how new customers will discover a product or service" (p. 61). Your small and immediate testing would ideally address both these components of your vision in some fashion.
By starting small, experimenting immediately, and breaking the startup vision down we can start to gather early feedback from the customer to
test the startup vision.
The experiment you create to test your startup vision can also be viewed as your first product that allows you to gather feedback that suggests
a new experiment which is the next version of your product. An experiment is a product is the last main point that Eric wanted to get across in this chapter.
What I would add to this chapter is that not only is it important to experiment, it is also important to observe and interact (Permaculture Principle # 1). If you are starting a market gardening operation you would want to observe and interact with potential customers to determine what is best to grow. Experimentation suggests a more exacting standard for achieving validated learning than is sometimes necessary. So I would add observation and interaction with customers as additional means of generating and testing hypothesis related to your startup vision.
As a final note I would like to re-affirm my belief that a great way to absorb as book is to engage in "slow reading" of it. I never got much from this chapter on my first reading and had to re-read sections a few times to appreciate the structure of the chapter and what lean startup guidance it was offering.
The the third chapter is titled "Learn" and the main focus is to identify "validated learning" as the key dimension that startups have to be productive at in the beginning.
Imagine that you have come up with a brilliant vision for a new software product, given yourself a 6 month timeline for launch, financed the development through investors, and after 6 months worth of long days you are ready to launch. It is then that you realize no one is willing to download your product or pay for it. You then make lots of changes to see if you can get customers to download and pay for it but your earnings peak at a measly $500 per month for many months until you start pivoting from a major aspect of your initial vision and start focusing on what your customers really value. That is the story of the eventually highly successful company, IMVU, that Eric helped found in the capacity of product designer and software engineer.
Eric was schooled in the bible of lean manufacturing, lean production, agile development and lean thinking so wasting so much time and effort in developing features and software no one wanted was deeply embarrassing. The concept of the "lean startup" emerged from this deep sense of frustration:
Anything we had done during those months that did not contribute to our learning was a form of waste. Would it have been possible to learn the same things with less effort? Clearly, the answer is yes .... As the head of product development, I though my job was to ensure the timely delivery of high-quality products and features. But if many of those features were a waste of time, what should I be doing instead? How could we avoid this waste? ~p. 48-49
Fortunately, Eric had a scientific mindset and studied his users and conducted many experiments to figure out what was working and what wasn't. He also had enough investor-financed runway to recover from his initial misjudgement where many might have gone under. Perhaps setting a 6 month launch date gave him enough time to recover and figure things out for the next 6 months. I suspect the investors weren't in it just for a 6 month experiment.
When the company started firing on all cylinders was when they starting determining what was of value to their customers and what was not. This was done through numerous changes to the product, to their website, to the value proposition to customers, to branding and then measuring whether the existing versus changed versions produced different quantitatively (or qualitatively) different results. The product that a customer eventually consumes is not just the product itself but also includes the way it is branded, marketed, and distributed into the marketplace. These have to be tested as well. If, however, the "product" is not something that customers value then they won't remain customers so validated learning should be first and foremost focused on defining what product customers will value. It should be noted, however, that when Eric changed the name of their product from "avatar chat" to "3D instant chat" signups and paying customers increased so what defines your "product" is not just the software coding and UI design.
Eric doesn't explicitly define what validated learning is in this chapter but it is easy to get a sense of what it is from this passage:
Positive changes in metrics became the quantitative validation that our learning was real. This was critically important because we could show our stakeholders - employees, investors, and ourselves - that we were making genuine progress, not deluding ourselves. It is also the right way to think about productivity in a startup: not in terms of how much stuff we are building but in terms of how much validated learning we're getting for our efforts .... This is true startup productivity, systematically figuring out the right things to build. ~ p. 51-52
We see here that the definition of validated learning is linked to "quantitative validation" using "metrics" that inform us about "the right things to build". It involves forming hypothesis about what might improve the value of your product, thinking about changes that might be made to test whether it does, and then measuring whether the difference makes a difference. This is where the learn startup should focus most of its initial time and resources, not on extensive planning exercises based on preconceptions about the expected value the product.
Keep in mind that we know quite a bit about the expected value of some products in the marketplace (e.g., coffee, housing, oil wells, etc...) but startups are engaged in creating innovative products that don't currently exist in the marketplace so the best investment of time and resources early on is to validate assumptions about product value as early as you can in whatever form you can.
Posted on January 17, 2017 @ 07:24:00 AM by Paul Meagher
One of the most influential voices in American farming, Joel Salatin, gave the keynote presentation at last year's Permaculture Voices conference. This is a man who knows how to pitch ideas and is obviously doing so at certain stretches of his presentation. Joel's presentation reflects years of honing his ideas and expressions over the years.
The second chapter is simply titled "Define" and the main focus of this chapter is to define what a startup is. Here is Eric's definition:
A startup is a human institution designed to create a new product or service under conditions of extreme uncertainty. ~p. 27
Not all businesses that are started should be considered startups according to this definition. Eric elaborates:
To open up a new business that is an exact clone of an existing business all the way down to the business model, pricing, target customer, and product may be an attractive economic investment, but it is not a startup because its success depends only on execution - so much so that this success can be modeled with high accuracy. (This is why so many small businesses can be financed with simple bank loans; the level of risk and uncertainty is understood well enough that a loan officer can assess
Most tools from general management are not designed to flourish in the hard soil of extreme uncertainty in which startups thrive. The future is unpredictable, customers face a growing array of alternatives, and the pace of change is ever increasing. Yet most startups - in garages and enterprises alike - still are managed by using standard forecasts, product milestones, and detailed business plans.
~ p 28-29.
This is a pretty strict definition of what a startup is. Many people opening a new restaurant or flipping their first house might think of themselves as startups but they could be wrong according to this definition. Ideally, when you decide to flip your first house you have done some reading and acquired some renovation skills so you can carry out a "textbook
execution" of the flip. To acquire the skills and concepts around flipping houses you can watch TV shows and YouTube videos, read blogs, articles, and books, and practice necessary skills in smaller projects. All of these activities will serve to reduce the uncertainty of the venture. To the extent that you have not done so, your execution might be poor because you have not planned things out as well as you could have been.
Eric is not arguing that traditional management textbooks are useless when starting a new business. It depends on the type of business and how much it uncertainty there is around it. If there is alot, then lean startup principles are more useful for managing it. If less, then traditional management strategies might be appropriate (e.g., business plans, forecasts, milestones).
If you are starting a small business is there any value to learning lean
startup theory? Lean startup theory is focused upon techniques for achieving "validated learning" in the context of extreme market uncertainty. It could be argued that learning these techniques is something that all types of businesses can potentially benefit from because we are all dealing with uncertain situations to some extent. Just don't forget that the uncertainty in flipping a house is not as great so you
can achieve "validated learning" in other ways that a startup is not able to (from books, videos, etc...).
If I had to reduce this chapter to a principle it would be to define whether your new venture is a startup or a small business and manage it accordingly.
Johnny was able to purchase a distressed and dilapidated house for $10,000 with the idea that he would fix it up and rent the upstairs and downstairs levels to respectable clientele.
Below is the house Johnny purchased and the changes he wanted to make to it (i.e., add a floor).
Where the proverbial shit hit the fan was trying to get these plans approved which he found near impossible (read the article for the full details). In the end, to proceed he could not add a second level and would have had invest in fixing up a 700 square foot house for rental income. Given his bad experiences, and his failure to see the upside to proceeding at this square footage, he flipped out of the house for a bit less than his cost of purchase and the service fees for an architect who helped him try to get his plans approved.
For the guy he flipped the house to, the house was part of a larger plan to fix up 8 similarly failing houses in the neighborhood and sell them. The guy had a bigger plan involving private investors, a local building contractor, and a quick turnaround on the resale of each property. His remodels were not flashy or big new upgrades so didn't have issues with getting approval from the city but were appealing to the people he would ultimately sell them to (e.g., modern kitchen and appliances, new windows and doors, nice facade, etc..). He was able to develop a good perception for the project as a whole given his local developer status and the general improvement in the appearance of the neighborhood that he helped foster.
StrongTowns.org is the online journal these articles were published in. I like the strong towns theme of the journal and the quality of the articles collected there. Looks like a site I might be visiting more frequently in the future.
Posted on January 8, 2017 @ 12:50:00 PM by Paul Meagher
This blog is the first in a series of 12 blog posts decidated to each chapter in the book The Lean Startup (2011) by Eric Ries. The first chapter is simply called "Start" and it addresses what mindset you should have going into your startup venture. Eric argues that launching an explosive startup is not rocket science in the literal sense that you can't fully plan beforehand the trajectory of your business from launch to landing. There are severe limitations in our ability to predict the trajectory of a new product or service in the marketplace. Eric argues that a better way to frame the predicament of the startup is to use a driving metaphor that involves tuning the engine to perform well and continually making adjustments in light of detours to reach our destination. The "driving" metaphor suggests that more cybernetic-type control is involved.
It is difficult to determine what role a business plan is supposed to play in startups that adopt a lean methodology. Eric views traditional business plans as a predictive device that may be more appropriate for established industries and businesses where there are existing business models, market data, and financial data we might use to plan the roll out of a new product or service. An explosive startup, however, is by definition a business that must navigate its way through extreme initial uncertainty regarding the product it will ultimately offer to the customers and who the customers for the new product or service will eventually be. A startup might take the advice of traditional business texts and spend alot of time trying to plan everything out beforehand but that can be a waste of time for explosive startups as you will likely need to throw away most of your business plan when you get into the product development and consumer testing cycle.
Where does that leave us then with regards to planning your startup? Eric does not get into this much in the Start chapter, but
the lean startup movement has spawned newer alternative approaches to business planning that are arguably better adapted to initial
startup planning for explosive startups. They don't ask us to plan out everything in advance, but they try to make sure we at least have a business model hypothesis that we are provisionally working from and can share with others if need be. I don't get the sense that banks or more conservative investors would accept a business model canvas or lean canvas as a substitute for a business plan, but explosive startups will not want to invest alot of time up front into traditional forms of business planning. You will want to be more action-oriented and engaged in validating your ideas as soon as possible rather than get stuck in a prolonged business planning exercise.
A few days ago I had a conversation with a local entrepreneur in the process of starting a third business. I talked to him about
business plans and he told me he gave up on revising his business plan for the first business after the 13th iteration and that he may
never write another business plan. I asked what was the alternative. He said he is just using the pitch deck that he created to raise seed funding for his venture. His route to starting a venture was concept selling to investors using his pitch deck and using that approach managed to raise 100k so far. Now he has enough money to get down to figuring out what he needs his website to do to enact the vision and to sell the concept to customers instead of investors to get traction towards the vision so he can proceed with another Series A round of funding in a year or less.
This reminded me that there is not just one way to start a business. My friend comes from a sales background so it is probably more natural
for him to start a business by selling the concept to investors rather than building a demo. When I say selling a concept, I specifically mean he believes that he has a good business model that would address a large and growing market in the health care industry. To begin testing the business model hypothesis is a $100k proposition.
One template that is often used for Lean Startup planning is the Lean Canvas, a simplified version of the Business Model Canvas. It is also called the One Page Business plan and here is what it looks like:
In this blog, I used the term "explosive startup" when referring to startups because lean startup advice may not be appropriate for all forms of startups. If you are starting up a coffee shop there are alot of "knowns" that you might consult to help you better plan out your business and know what your costs are, wages are, and so on. It would be foolish not to do some research on the coffee industry and demographics and formalize it into a business plan before you go looking for money to start a coffee shop. Where you have the ability to forsee the future somewhat you should try to do it to avoid the school of hard knocks. There are explosive startup scenarios, however, where you cannot predict the future that well for a variety of reasons. Here you need to be more action oriented to figure things out and the main "planning" you should be engaged in is about how to test key business model hypothesis and assumptions as fast and efficiently as you can so you can evolve that business quickly. Pitch decks and business model canvases might be the preferred business planning/selling tools in these contexts.
Posted on January 4, 2017 @ 12:07:00 PM by Paul Meagher
I'm planning on re-reading the landmark book The Lean Startup (2011) by Eric Ries.
My reading strategy is going to be a bit different this time. I am going to adopt a reading strategy similar to the strategy I used for another landmark book I did a series of blogs about; namely, Permaculture Principles: Principles & Pathways Beyond Sustainability (2002) by David Holmgren. The Permaculture Principles book is broken down into twelve sustainability principles with wide ranging discussion around each of these principles. You can also go online and see what others have said about each Permaculture principle by googling the name of the principle (e.g., permaculture principle "Obtain A Yield"). It is common for those wanting to learn Permaculture as a set of principles to think up their own applications of each Permaculture principle and either enact it, blog about it, write a song about it, or do something that expresses their take on the principle. My approach was to blog about each principle which I did over a 4 month period from mid April to early July, 2015 (April 2015, May 2015, June 2015, July 2015).
Interestingly, the core of the Lean Startup book also consists of 12 chapters and each of these chapters could be viewed as a lean startup principle. The book is broken down into three main parts (Vision, Steer, Accelerate) with 4 principles per part:
Pivot (or persevere)
For completeness, I should mention that there are also "Introduction", "Epilogue", and "Join the movement" chapters that I consider non-core and don't intend to blog about. Each of the above-mentioned lean startup principles is only one word long so it is quite open ended as to what the principle is specifically asking you to do. Each chapter/principle is stated in imperative mode (i.e., start, define, learn, experiment, etc...) which suggests that they are to be taken as stating a particular design principle indexed by that action label.
Even though I could reread this book in a few days, I will resist the urge to mow through it. I will read each chapter/principle separately, think about it, check online discussion of it, and then blog about it before moving onto the next chapter/principle. Advocates of slow food encourage people to slow down on food-related matters in order to better appreciate the many aspects of it. Likewise, I will slowing down on reading this book to better assimilate the message and relate it to my own experiences and ideas.
Because lean startup theory takes a scientific approach to starting a business, I am particularly interested in exploring the idea of whether some recent research in causal models might be used to extend or clarify some of the lean startup principles. Previously I discussed how lean startup theory might be formalized/visualized when I talked about the lean startup lens. I think more can be done to formalize/visualize what "validated learning" actually consists of, but it will involve incorporating some newer ideas about causation that Judea Pearl has been pioneering in his own landmark book Causality: Models, Reasoning, and Inference (2009, 2nd Edition):
I recommend reading the epilogue of the book (PDF link) to get a sense of issues the book addresses in technical detail.
For me, it comes down to this. Does including the word "causal" in the phrase "lean startup" add anything useful to the lean startup approach? What role might causal modelling and reasoning have in the success of a lean startup? Maybe nothing, or maybe incorporating a few of these ideas can help to make the lean startup approach stronger just as recent critical discussion of Permaculture has helped to make Permaculture stronger. I'm also interested in relating some lean startup ideas to some Permaculture ideas as there many similarities, one being the focus on design principles as a way to convey a body of knowledge.
Notice: The Texas Investment Network is owned by
Dealfow Solutions Ltd. The Texas Investment Network is part
of a network of sites, the Dealflow Investment Network, that provides a platform
for startups and existing businesses to connect with a combined pool of potential
funders. Dealflow Solutions Ltd. is not a registered broker or dealer and
does not offer investment advice or advice on the raising of capital. The
Texas Investment Network does not provide direct funding or make any
recommendations or suggestions to an investor to invest in a particular company.
Nothing on this website should be construed as an offer to sell, a solicitation of an
offer to buy, or a recommendation for any security by Dealflow Solutons Ltd.
or any third party. Dealflow Solutions Ltd. does not take part in the negotiations
or execution of any transaction or deal.
The Texas Investment Network does not purchase, sell, negotiate,
execute, take possession or is compensated by securities in any way, or at any time,
nor is it permitted through our platform. We are not an equity crowdfunding platform
or portal. Entrepreneurs and Accredited Investors who wish to use the Texas Investment Network
are hereby warned that engaging in private fundraising and funding activities can expose you to
a high risk of fraud, monetary loss, and regulatory scrutiny and to proceed with caution
and professional guidance at all times.