Entrepreneurship

Feb 01 2012

Startup Risk and the Ego

Usually when we talk about risk at a lean startup event, it goes something like this:

There are two types of risk: market risk and technological risk.
Agile methodologies are used to reduce technological risk, and lean startup (and customer development) helps reduce market risk.

The discussion continues when someone adds:

Web startups don’t really have technological risk. We know we can build it. We don’t know if anyone wants it.
Biotech companies typically have tech risk, but no market risk. Everyone wants a cure for cancer, but we don’t know how to build it (yet).

But I found myself in the middle of a very interesting conversation at last week’s DC Lean Startup Circle. We were talking about a third type of risk that is critical for startups, what Ben Willman calls “ego risk.”

From what I’ve seen, the vast majority of people working in startups have a tendency to want our work to be as good as possible before we show it to people. This instinct runs counter to the concept of a Minimum Viable Product.

We all get attached to our clever solutions, sometimes even after we’ve discovered that they solve the wrong problem (or no problem at all). Ego is why we get attached to our solutions and stop questioning, and why we want to avoid customers until it’s perfect. It’s why we conflate our sense of self-worth with the success of our product or startup.

Ben Horowitz (of Andreessen Horowitz) has written that the most difficult skill for CEOs is to manage their own psychology. He also points out that it’s almost taboo to talk about personal psychology. It’s too easy for founders or CEOs to get in their own way and prevent themselves from executing with objectivity and mindfulness.

We talk about the technical and market risks facing a startup. Why don’t we talk about this more important risk? We need to acknowledge and address ego risk.

Startups have tech risk (can we build it?), market risk (will they buy it?), and ego risk (can I get out of my own way?).

If you want to join the conversation, come check out Ben Willman’s presentation on the subject at the next DC Lean Startup Circle.

Nov 22 2011

Four Lessons Learned at Lean Startup Machine DC

I had the pleasure of being a mentor and judge at Lean Startup Machine DC (#lsmdc) this weekend at GeekEasy. The participants spent the weekend learning to validate hypotheses; the winning team discovered that people would be willing to share their personal genetic data to help fight disease. They got out of the building and asked passers-by to spit into cups. They collected one sample every 3 minutes, taking the first step toward proving the viability of creating a massive genetic database to support research into personalized medicine. As they were learning, so was I. Here are a few things I learned along the way:

LSM DC at GeekEasy — LSMDC at GeekEasy. Photo by Stephen Strasser, Strasser:Studio.

Lessons

Lean is hard, and not everyone will succeed.

Especially not in one weekend. But it’s also not a binary state. An organization can be varying degrees of lean, and the more I learn about lean startups, the more I can apply it in my own work.

Small teams of experts are more prone to confirmation bias.

If you know the space well, you need to be even more careful that you test your hypotheses with real data. Make sure people on your team can call you out. If you’re working solo or with one partner, set time aside to take a reality check with someone outside your team.

The market you know is not the only market.

It’s tempting to sell to startups because you are one, lots of people you know work for one, and you like thinking about startups. Most startups don’t have money, so think twice. There are other markets that might have the qualities you are looking for but actually have money. For example, if you are targeting startups because you are looking for companies without entrenched policies, consider embattled companies who have hired turnaround consultants instead.

You are not your target market.

Make sure other people share your problem. It’s great to build something you want to use, but if no one else wants it, it’s a hobby, not a business.

Nov 11 2011

It’s Time for Nonprofits to Get Lean

Want to change the world, but have limited time and money at your disposal? Join the club.

You can’t drive change if you pour your heart and soul into an inefficient engine. You need to get lean.

Nonprofits and social movements need to learn from the lean methodology, or risk wasting resources and throwing away the most precious commodity, attention. The principle of lean methodology is to produce maximum value with the minimum amount of wasted resources, and nonprofits are often guilty of failing this test.

You’re not always building something for your constituents. Whales don’t use web apps.

Nonprofits have a vision of a better world, and a theory of how to remake this world into the one they envision. For a nonprofit, the goal is change, and waste is any resource spent that doesn’t help achieve that change.

Is Occupy Wall Street a Lean Nonprofit? — Occupy Wall St. has garnered a lot of attention, but is it lean?
Photo by Bob Jagendorf

Waste can cost you money or human resources, but when your goal is change, waste can also squander attention. If your organization is getting attention and failing to use that to drive change, you are wasting attention.

In an era of nonprofit proliferation, it is even more important that nonprofits learn to be lean. Attention is a finite resource. If your organization or movement is getting attention, some other organization is not. If two nonprofits are competing for attention around a specific issue, the problem becomes even more pronounced. If you capture attention but don’t turn it into change, you are not only wasting the attention, but you are preventing another organization from catalyzing that attention into change.

Don’t just demand attention. Create change.

The Origins of Lean

The lean methodology began in the manufacturing industry. The basic principle is to produce an increment of value with as little waste as possible. In manufacturing, an increment of value is a high-quality physical good. Waste takes many forms – including defects in production, excess inventory, unnecessary processing, and rework.

The lean startup movement, pioneered by Eric Ries, applies these principles to the startup community. In a lean startup, value takes a different form. To paraphrase Steve Blank, a startup is an organization searching for a business model. Since the purpose of the organization is to discover something, not to create a product, the increment of value is validated learning. Startups create value by testing assumptions and proving or disproving hypotheses. After the business model and growth model are validated, the business ceases to be a startup, and can focus on scaling.

[For a good introduction, checkout Ries’s book, The Lean Startup]

Lean for Nonprofits

Nonprofits and social movements are another animal. They still need to reduce waste – but value lies neither in validating hypotheses (unless the nonprofit also happens to be a startup, a topic for another post) nor in producing physical goods. You’re not always building something for your constituents. Whales don’t use web apps.

For a lean startups, it’s about learning. For a lean nonprofit, it’s about impact. Lean nonprofits create increments of value by enacting, provoking, or inspiring change with as little waste as possible.

It’s time for nonprofits to be more lean.

Less waste, more change.

Want to learn more? Let THG help you change the way you change the world.

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Aug 23 2011

The Biggest Mistake Entrepreneurs Make

The biggest mistake entrepreneurs make is building their product before finding out if people want it.

I was working on a company last year to develop a product to help small business owners start leveraging social media and the web without spending hours on them. We had the business plan and the feature list. We had plenty of people telling us it was a great idea.

Notecards galore About the time we were planning to start development, I attended Lean Startup Machine in Boston, a weekend-long competition where teams try to create a business, prove the market, and achieve revenue by the end of the weekend using Eric Ries’s lean startup method. The opportunity to practice lean startup hands-on crystallized a set of assumptions that had nagged me for months.

After the conference we started talking to people who weren’t social media experts or small business experts. We talked to people who could conceivably become our customers some day and asked them if they would pre-order the service. Over and over we got the same response: small business owners who needed web presence help didn’t want a tool that made creating and managing it easier; They wanted guidance from someone who could walk them through the process, and they wanted someone else to worry about all the technical details.

We had identified a valid problem, but our solution didn’t fit the market. So we pivoted.

We cancelled development of the product and migrated to a services model instead. We still help businesses create and handle their web presences, but instead of building tools that none of them wanted, we guide them through the process and take care of all the technology so our clients can focus on running their business.