One Goal Every Business Has in Common? Validated Learning
When you’re running a business in the face of great uncertainty, your essential unit of progress becomes learning. And, if you take the Lean Startup approach, anything that doesn’t lead to learning more about your business, product, and customer is essentially waste. According to Eric Ries, the author of The Lean Startup, learning how to build a sustainable business is far more valuable than merely building products, serving customers, and making money. So how can you learn in the most effective way possible?
The main lesson of The Lean Startup is to take a scientific approach to creating your MVP, which means systematically testing your assumptions without losing sight of your overall vision. However, when you test your assumptions, you also need to measure their success. Ries calls this validated learning, and it’s key to understanding your growth as a business. In essence, what you’re trying to learn is whether or not your assumptions are correct, and that means asking yourself:
- Do my customers recognize that they have the problem I’m trying to solve?
- Can I even create what they want or need?
- Would they buy it from me?
- If a solution existed for this problem, would they even buy it at all?
Ideally, you want to learn as much as you can before you even begin to build a product (or service). You do this by communicating directly with potential customers. Why? Because your assumptions are only as good as the value the market places on them, and your customers hold the key to understanding that value. Moreover, customers force us to face reality - are we trying to create something our customers actually want, or just something we think they should want? That answer should guide your business strategies moving forward, because even though your idea may make sense to you, if your customer doesn’t see the value, what you think doesn’t matter.
Now, according to Ries, you should keep tabs on this learning through something called innovation accounting. This is where the “scientific method” really comes into play. Think back on science experiments you did in school: you start with a baseline hypothesis, test that hypothesis, then adjust based on the results. It’s the exact same concept. So, before you even speak with customers, establish your baseline. Where are you right now with your business? Be brutally honest with yourself and jot down a few concrete answers that you can refer to again and again over time. How are you currently performing, if at all? Now ask yourself where you would like to be. What’s the next milestone you need to hit? And what’s your overall goal moving forward?
Next, look at your customers. If you don’t have any customers yet, just make some assumptions and estimates. Look at each customer segment. How many customers will you need in each segment to make your business work? What kinds of customer behavior do you care about? Then, take a look at your product. Are you making your product (or service) better? How do you know? How will you measure results moving forward? If something does change, how will you know the cause of that change? How will you know that you’re learning the right lessons as you go?
The reason you want to ask yourself such detailed questions is to be sure that you understand the reasons why your business is growing once it does begin to show signs of life. You don’t want to get caught up in what Ries calls “success theatre,” where you look like you’re growing, but you’re really not. You need to seek out concrete evidence of growth because growth means that you’re creating value, and that’s very important. Secondly, you need to actively seek out waste in your business and eliminate it immediately. In other words, if you see something that’s not adding value or benefiting your customer, you need to get rid of it as soon as possible. Understanding how and why your business is growing will help you spot this waste right away, so you don’t end up paying for it later.
But why innovation accounting over traditional accounting? While you do need to manage your finances properly, you also need to come to terms with the fact that you’re dealing with a great deal of uncertainty when just starting out - especially with a creative business - so traditional accounting practices will not help you measure learning or growth in an effective way. Still, you want to make sure that your efforts towards turning your assumptions into quantitative metrics are actionable (demonstrating clear cause and effect), accessible (easy to understand with tangible evidence), and audible (made credible by talking with customers).
So, in summary, write down your baseline, set clear milestones, and strive to learn as much as you can from your customers. If you discover that your assumptions are incorrect through talking with your customers, that’s still a good thing. It means that you’re learning something about your business and product, and that’s invaluable. Just put yourself out there, test your riskiest assumptions first, and keep working towards building a sustainable business rooted in reality rather than fantasy. And worse case scenario, if you discover that you can’t build a business around a specific idea, you can always pivot to a new idea based on customer feedback. Just keep trying!