The author of Lean Startup, Eric Rees and Ilya Korolev (IIDF), on the advantages of a “lean” approach to creating companies

We continue to publish new format materials on the FRIA blog - in order to compare the approaches to the development of start-ups in the US and Russia, we arrange cross-interviews in which well-known entrepreneurs, investors and IT experts of the two countries answer the same questions.

In the first issue, Paul Graham (Y Combinator) and Dmitry Kalaev (FRIA Accelerator) talked about the reasons for the success and failure of startups. In today's article, the Lean Startup author Eric Rees and the IIDF investment manager Ilya Korolev ilyakorolev will discuss the topic of a “lean” approach to creating startups.
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In preparing the material, Eric Rees interviewed Wired , The Blueprint and the McKinsey website.

What do you think lean startup really means?

Eric Rees: The idea was born on the basis of the concept of "lean manufacturing", common in Japan. Its essence is to study the difference between the actions that bring corporations profit, and actions that result in a waste of resources.

I wanted to apply this approach to the process of creating a new company. The problem with many startups is that they create products that are not in demand by the audience. Therefore, we want to understand what is valuable for a startup and what is not. In other words, how to create a sustainable business. According to the Lean Startup methodology, you need to disassemble the company “by bone” and focus on understanding who the customer is, what the market is and what product you need to create.

Ilya Korolev: Lean Startup is a scientific approach to creating a company in the face of maximum uncertainty. The concept of Lean Startup was introduced by Eric Rees in his book “Business from scratch” (Lean Startup) - he tried to apply the principles of customer development of Steve Blank and “lean production” of Toyota to the creation of startups.

The main "sin" of entrepreneurs is that they focus on their product, and not on the real problems of users - many companies die because they make useless products and services. Lean Startup "pulls out" the startup manager on the right path and gives an understanding of the fact that first of all you need to focus on the needs of the client and the study of the target audience.

Simply put, Lean Startup is a system of principles that helps an entrepreneur to understand what stage of a company's development he is at and why a business plan and reality are “two big differences”.

The methodology involves a large number of iterations, but how to understand in which direction should the project go in the course of each of them?

Eric Rees: This is a serious question. Many companies spend a lot of effort and resources to make their products worse, not better. Updates to almost any product are real trouble for users. Upon reaching a certain point, updating the product, making it better than it was, is becoming increasingly difficult. Therefore, it is necessary to focus on testing and hypothesis testing - before making any changes, you need to understand whether it will please the users.


Eric Rees

Ilya Korolev: Steve Blanca's Classic Customer Development consists of four stages - customer discovery (customer research and its problems), customer validation (determining whether the product is valuable to the customer), customer creation (sales and scaling), company building (debugging business -processes).

For a startup, the first two stages are the most important, and without a quality study of these stages, success will not be achieved. I have already spoken about this above - understanding the needs of users and their “portrait” is very important for a startup.

How important are those “vanity metrics” - that is, the achievements described by the companies of their press releases? How does the announcement of beautiful, but not the most important business indicators affect the company?

Eric Rees: Companies like to fill out press releases with numbers, because it allows them to look cool without revealing any real-world performance indicators. If the announced metrics said something about the business, no one would publish them. Why the media reprints this nonsense is a different conversation ...

All this can be very dangerous. Employees of the company read the same press as the competitors, and they believe in the same things. The danger here is that everyone is starting to think that the company has achieved such brilliant results, including thanks to their wonderful work. If the numbers fall, then someone else is to blame, but not this particular employee. As a result, confusion and vacillation begins in the team - people shift the blame on each other and cannot come to a common opinion.

Instead of creating a “theater of success”, companies should use this energy to form some real benefit for their clients.

Ilya Korolev: Metrics are necessary in order to understand whether there is progress. At the same time, a number of such indicators (like the number of users - without specifying whether they are paying or not) sound nice in presentations or press reports: they are well suited to attract attention, but building a really working business, relying on them, is hard.


Ilya Korolev

Is there a problem of reassessment of their capabilities by startups who have read success stories on Facebook and Twitter?

Eric Rees: There is a problem. Mainly because of the success of large companies covered in the media. People watch "Social Network", and this can lead them to a sad result. In general, I am one of the main beneficiaries of all this startup hysteria. I can not say that I am not grateful to the journalists who write about me as a genius. But I know this is not true. I really look at things and I know that success comes after painful failures and it is accompanied by a lot of difficulties.

The fact is that people want to create the next Facebook, but no one wants to make a “new Facemash ”. Imagine that someone was in the dorm room at Harvard, where Zuckerberg lived at the time when he wrote the site code for voting for the beauty of the girls. If he was told: “Listen, Mark, you should be more global, stop these children's games,” one hundred percent, today we would not have Facebook that we all know.

Starting a startup is a boring thing, and often it leads to negative results. There is nothing "cool" in business.



Ilya Korolev: Success stories are needed to ensure that the endless market is constantly replenished with new people who want to create a successful business (including those who only dreamed, but did not try to start a company - they are called “wantrepreneur”). Later on, in the course of natural selection, the market will sift through this multitude of people, revealing new Zuckerberg Markovs. From this point of view, I view information about the success of entrepreneurs as a necessary element in order to increase the chances of new “yard stories”.

Of course, there are also negative moments - success stories form the effect of “rose-colored glasses” among start-up entrepreneurs. They see the success of Google and Facebook, this tip of the iceberg in the form of a working product, but they do not understand the whole history of its creation (the same Facebook did not immediately become the same as now, but went through a lot of stages that are described in the Lean Startup methodology). This can lead to setbacks and serious disappointment. However, again, those who can avoid this are more likely to succeed.

Can investment attraction play a negative role for a startup?

Eric Rees: Startups can equally well die from lack of money and from oversupply. The root of evil here is that people confuse funding with the validation of their idea. I don’t like it when startups celebrate attracting money - if they gave you investments because of your excellent results, show off better than these successes, rather than the fact that you have a round sum in your account.

If you managed to attract money due to your charisma, then you should not deceive yourself - this is not an achievement. In fact, attracting investment carries a lot of problems. The day after you were given the money, you have to wake up with a weight on your shoulders, because now you have a shareholder who wants to get his money back and still earn money. This is more like a nightmare than a reason for celebrations. It is necessary to always maintain the fear of failing and failing an investor; only in this way can one adhere to the discipline that helps to spend money correctly.

Ilya Korolev: Venture fund investments are the most expensive money for an entrepreneur, since they imply the need to donate part of the business. If you take a bank loan, you just need to return it with interest - for a startup creator it may be cheaper than giving a piece of a multi-million dollar pie to your own company (if it grows to the desired level).

At the initial level, attracting serious investment can defocus the team and founders. Under constraints, they could not afford to engage in non-priority business development things, and financial freedom contributes to the desire to “play with colors” of a product or rent a beautiful office instead of testing hypotheses and searching for monetization models.

It is better to go through the stages of studying users and their problems with their own money, without attracting investors - a combination of lack of time, money and people will force you to act faster and more clearly. After passing the first stages, it makes sense to go to the investor - this will increase the chances of raising funds and evaluating the business itself, since the founders will already have answers to the most unpleasant questions about the prospects for a startup.

Is it possible to use Lean methodology not only in software development?

Eric Rees: In the 21st century, we are all so accustomed to having global production chains and optimizing production, which helps minimize the waste of resources that we forget that all this, generally speaking, is a rather new thing.

A hundred years ago, this was nothing. And it's not just the development of technology - the approach to company management has changed. The Lean Startup methodology is based on different ideas and approaches. One of them is “lean manufacturing” - this approach was created by the Japanese from Toyota.

So those who talk about the impossibility of using Lean-techniques outside the scope of software, just do not want to introduce them, because it will require them to work.

Ilya Korolev: This is suitable for both online and offline [business]. A good example is the company Virt2real - its team managed to create an “iron” product with competitive advantages over the Arduino using Lean Startup approaches.

At first they were looking for an investor, spent a lot of time on it, and did not receive money. Then they created a landing page with an explanation of the product advantages and a pre-order button, published a post on Habré — in two weeks it gave them a couple of thousand bids. It turned out that the company immediately tested the demand, then a test batch of the product was created and an online store was launched to collect pre-orders - users paid money for the device, which they expected to receive only after several weeks or months.

Tell us about your most unsuccessful business experience.

Eric Rees: At the moment, perhaps the most unfortunate project is Catalyst Recruiting - I like to tell people that I had everything, like in the first part of the film “Social Network”. I ran a project in a college dorm room, we had a great idea - the students had to create online profiles that could be used for job search.

In the movie, every startup has a bunch of detractors who predict its failure. In the end, the viewer is satisfied when he sees how these skeptics find themselves confounded. In ordinary life, however, these whiners are more likely to win. And the founders of the company then have to look into their eyes and say that they were right.

So it was with me - I infected many of my friends with my vision, some of whom even dropped out of school for the sake of our startup. In the end, I was forced to tell them that their options in the company are worthless, and that I am very sorry. Humiliating experience.

I once came across a university newspaper, where I, as a young and promising CEO, made various challenging statements that our project - this is the next big thing - I was an arrogant idiot, and I regret this almost Total. Naturally, if I had succeeded, the story would have been rewritten in such a way that I would look like a genius, as it happened with ... However, I will not give any names.


Frame from the film "Social Network"

Ilya Korolev: I had a company in which my partner and I decided to create a project that changes the paradigm of content consumption on the Internet. We wanted to give users the opportunity to make their own TV and attract the audience to view video content.

This user-generated online TV did not "go", because users simply uploaded videos to the site, in relation to many of which there were issues related to piracy. It was not possible to achieve the creation of high-quality content on an ongoing basis, although at the peak of its development the service had about 150 thousand viewers per day and 13 million views.

The experience of creating this product has become useful - later we managed to create a more popular online service, which now brings a good income. In many ways, the subsequent success was due to the fact that it was precisely the failure in business that provoked my interest in the development methodologies of the company, such as Lean Startup.

Should an entrepreneur be afraid of failure?

Eric Rees: One of the tips that I give to companies is that they should encourage "productive failures" of employees. If someone claims that for a year he has not had a single failure, then either this person lies to your face, or he is terribly conservative and does not try anything new. In both cases, there is nothing good.

Much better when a person failed, but learned from it a lesson, or was able to modify his approach so that something that did not work, finally began to function. It often happens that failure at the cost of $ 100 thousand saves the company $ 10 million - if you can pay less to understand the futility of an idea, then you have to do it.

Therefore, the alternative to failure is the fate of Kodak or Blackberry - the fear of being wrong did not lead them to anything good.

Ilya Korolev: You do not need to be afraid in any way - this is a rewarding experience. I like the Fail fast approach common in the USA - it is much better to make a critical mistake faster to figure out how to avoid this in the future. The entrepreneur can not be mistaken, it is necessary to extract experience. The faster he makes a mistake, the less resources he will waste.