Preparing for Long-Term Success (Part I)

Eric Ries closes his book, The Lean Startup, with an important discussion about bringing everything together to ensure startups leverage their initial foundations as they transition into more mature businesses. Ries writes, “I believe that with the proper foundation, Lean Startups can grow to become lean enterprises that maintain their agility, learning orientation, and culture of innovation even as they scale” (Ries, 2011, p. 182). Some of the most relevant factors will be explored over the next two posts. This post will focus on the first two factors: the power of small batches and growth metrics.

Small Batches

At a first glance, the idea of batch production seems to be more applicable to manufacturing production rather than entrepreneurship. However, Eric Ries has transposed many concepts to illustrate some of the goals entrepreneurs must pursue. In the case of small batches, Eric Ries writes,

“In the Lean Startup the goal is not to produce more stuff efficiently. It is to –as quickly as possible –learn how to build a sustainable business… Working in small batches ensures that a startup can minimize the expenditure of time, money, and effort that ultimately turns out to have been wasted” (2011, p. 188).

Small batches provide the ability to almost immediately evaluate the output and make any necessary adjustments to the product and the process itself. Integrating rapid iteration to startup’s operating practices helps to prevent stagnation and implement continuous improvement practices.

Growth Metrics

Growth is extremely important for any organization, but sustainable growth is the key to long-term success. The four primary ways past customers can drive sustainable growth are:

1. Word of mouth
2. As a side effect of product usage
3. Through funded advertising
4. Through repeat purchase or use

While these sources of growth are important, entrepreneurs must find the most fitting “Engine of Growth” or systematic approach to growth. Eric Ries defines engines of growth as “feedback loops that… like a combustion engine, [turn] over and over. The faster the loop turns, the faster the company will grow (2011, p. 208). Whether your engine of growth is based on retention, viral growth or payment to acquire new customers, it is important to remember that growth must be evaluated as a rate and not as a dollar value since numeric values can be misleading.

Also, it is important to remember that strategies need to be adjusted as business and industries evolve. Engines of growth will “run out of gas” sooner or later and companies need to be prepared beforehand. The New York Times enjoyed significant growth throughout the 20^th century until the advent of the internet and social media platforms revolutionized news consumption. Those newspapers that survived the pressures of the internet and social media have been able to do so by adapting to a drastically changed landscape.

There are plenty of examples depicting what happens when companies refuse to adjust their methods of operation. Understanding these pressures and the need to change will help to avoid being the next victim.

References

Ries, E. (2011). The lean startup: How today’s entrepreneurs use continuous innovation to create radically successful businesses. New York, NY: Currency.