Whether they're found in a garage or inside an established enterprise, startups struggle with decisions about process and infrastructure. The speed at which a startup can learn is its competitive advantage and the defining factor in its success. But startups can't rely on the processes and infrastructure that their established competitors use, because those "best practices" tend to kill disruptive innovation.
Still, startups develop some kind of process — whether it's disciplined, haphazard, bureaucratic or empowering — because building a great product depends on it.
They just need to balance process with innovation. Companies that insist on building a world-class infrastructure before shipping a product are doomed to "achieve failure," because they're starved of feedback for too long. I learned this lesson first hand in a previous company (read the sad story here). On the other hand, companies that take a "just do it" attitude without any process at all are also taking a major gamble. High-profile startup Friendster had first-mover advantage in the social networking space, but created openings for competitors when it could not scale to meet demand.
Finding the right balance requires an understanding of the fundamental feedback loop that powers all startups. It begins with an idea, which is translated into a product via the "build stage." When customers interact with that product, they create data, which startups harvest in the "measure stage." And, with any luck, that data will inform the company in the "learn stage," and that learning will influence the next set of ideas. This three-stage feedback loop sounds simple, but it's powerful nonetheless. It gives rise to this heuristic for evaluating any process or infrastructure change in the context of a startup:
Always choose the option that minimizes the total time through the feedback loop.
In other words, any change that accelerates learning is a win, and everything else is waste. This is very different from the trade-offs that need to be made in situations where the goal is to optimize for profit, margin, or growth.
The lean movement has been preaching waste reduction for many years, and anyone familiar with those ideas will understand how it applies here. The only difference here is that instead of measuring the creation of value by our ability to produce tangible high-quality artifacts, startups measure value by validated learning about customers.
This approach clashes with classic product management and product development. The detailed specification documents that PMs demand go stale too quickly to keep up with a fast-learning team. Massive data warehousing reports used in product dev do what warehosues do well, store data. They don't promote learning, because people learn best when presented with a small number of actionable metrics. And engineers who build heavyweight architectures may design a technical triumph, but lack the agility to adapt when the goal of the system changes radically.
Every process a startup uses operates at one stage of the feedback loop. But lean startup practices have the effect of optimizing the total time through the loop. Practices that are harmful are the ones that optimize our ability to do just one of the three stages well. For example, you can build much faster if you don't "waste time" measuring. That's like suggesting you can drive faster if you close your eyes and hit the accelerator. It's true, but dangerous. The same is true for departmental structures that work like silos. They may work in large companies, but in startups they're dangerous because they encourage people to improve at their specialized job rather than maximizing learning.
Using just the right amount of process can help startups accelerate. But, for the entrepreneur starting from scratch, investments in process and infrastructure are expensive, and take time and energy away from work that directly benefits customers. Even worse, process investments can quickly become obsolete as a company grows, and management challenges evolve. Adapting a process to this ever-changing reality requires a commitment to continuous improvement and incremental investment, which will be the subject of the next post in this series.
Eric Ries is the author of StartupLessonsLearned.com and is an adviser to many startups, companies, and venture capital firms.
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