According to Ries 2011, a startup is the dedication that a company develops in creating new products or goods and services under some uncertain conditions. He advances five principles that defines an organizational startup or the five principles of a lean startup. The principles includes entrepreneurs are everywhere, validating learning, innovation accounting, build-measure and learn, and entrepreneurship is a management as will be discussed herein.
Entrepreneurs are everywhere
Ries defines in his book that entrepreneurs are found everywhere within various societies. Such that a person do not really have to be in a garage to be a startup. In some cases one can start a company from a garage and build it to something big and magnificent that solves the daily societal problems. He advances that entrepreneurs are everywhere and can be found in big organizations, government facilities and other private entities. According to him, human institutions which are created to design and create products and services under some extreme uncertain conditions. Thus, entrepreneurs and startups are existing in big tech companies and organizations within garages` settings but create innovative products that gives satisfaction to their consumers (Ries, 2011). Per se, a person can start an idea in his home garage because he/she lacks the finances to get an office space or do not have the market ready to consumer its products. At the same time, lean start up is involved with other big organizations that would like to keep innovation and creativity as the steering for their income generation.
According to Erick, there is no better times of innovation on entrepreneurship than to commence it instantly. It is incumbent upon an entrepreneur to think big and start small from an idea to an actualized concept that can generate revenue and make profits. Erick thus encourages entrepreneurs that if they have ideas, they can just start small from any location or point in time and make sure they actualize the dream or the ambition as early as possible be it at the garage or in an established work environment (Ries, 2011). The key point is establishing a startup and give the goods and or services to the consumer and develop over time.
For instance, the Chief executive of Amazon, Jeffrey Preston Bezos who is a technology entrepreneur was able to start his Amazon Company in his garage in 1994. He wrote the business plan while in a bus traveling to a cross country trip from New York to Seattle. Initially, Amazon was started as an online book store. Bezos had little funds to run the company and had to accept some financing from his parents. He had an idea that would solve the book problem by offering an online platform for buying books and reading the same. The principle of entrepreneur are everywhere is seen in such an application. Jeff came from a corporate world where he was a hired professional and set up his own business to solve a problem in the society.
From a business plan in a bus during a road trip to implementing the idea in a garage as a startup. Currently the innovative ideas of amazon as a business enterprise has not ended. The business has ventured to other several fields like video and audio for music and book sales online. It has also ventured into the online sales of grocery. As such, Amazon can still be viewed as a startup whenever it ventures in something new, be it a good or service delivery to the clients. To this extent therefore, the argument placed by Erick that entrepreneurs are everywhere fits the bill from a garage in his home to a global business with various branches and offices. It doesn’t matter the time of the startup of the place, what matters more is the dedication to start and implement an idea that would be beneficial in the long run.
Entrepreneurship is management
The second principle postulated by Ries is anchored on the school of thought that entrepreneurship is a management hence startups must be institutionalized. It therefore means that startups are not just about the products and services. He advances that startups are institutions which are important in teaching an entrepreneur how to manage their various institutions. As such, Ries asserts that every startup should be distinct from others hence the uniqueness in their management styles. So that methods of startups management must be geared towards context. The methods of management according to Erick Ries should be contextualized to the features of the startup. The methods of management thus must be accustomed to an entrepreneur`s startup. Conversely, Eric Ries advances that it is imperative for every entrepreneur to be self-accountable through exercising effective skills of management (Ries, 2011). He states that a person must be able to know a process in order to be able to successfully implement such a process. Thus it would be easier for an entrepreneur to avoid certain mistakes if he or she is in a position of assessing value and determining the next steps of action.
Startup Management is the ability of an entrepreneur to have the technical expertise and intellectual ability to run the organization in such a manner that there is accountability, transparency and the path to startup destination is visible and achievable. Management would involve the entrepreneur to take actions that will benefit the institution both in the short run and in the long run. Therefore, it means that the entrepreneur must be able to create certain management techniques that will help the organization to thrive (Ries, 2011). Management will involve how to source for funds, expansion methods, employee recruitment and retention and establishing an organizational culture from a primary level. Management simple helps the entrepreneur to have total control of the startup institution and create a working system. The management of a startup will be within the context of the organization and must be able to hold the startup institution within its extreme uncertainties. The initial management strategy that involves the mission and vision of the startup and the technical input in the institution will determine the future of the organization and influence it. Such that if the management is given a strong foundation, the startup is likely to stand the uncertain markets while if it’s under weak management, it might collapse.
The Bediwin Information Services was an IT business startup which was established by James in England according to the Failory.com website which publishes the failed startup experiences of entrepreneurs. He was an IT expert working for a company, but the firm did not need him on a fulltime employment basis. As such, the company was forced to review his contract. He was either to leave the job or work as a part timer with a thirty percent pay cut. He was redundant in that firm (Failory, 2018). As such, he decided to start a startup where he could get an extra coin working for other several firms which could not need his fulltime employment status. The management concept of his company was to get more clients and get more coin in his pocket working as a part timer.
In his interview, James shows some bad management practices that costed him his startup venture. One of the biggest management problem he did that resulted to the failure and closure of business was that he did not have a vision and mission of the firm. According to him, the startup was just to add some coin in his pocket hence he was looking for short time benefits. He was looking for money that could feed him, pay his mortgages and other bill without striving to make it the next big thing like Google or Facebook. Therefore the resulting mismanagements led him fail to invest in marketing his business well, getting to know his niche, failed to conduct market survey and competitor practices. In addition, he was not able to launch his services or product to the market properly and establish a proper consumer management system to reach and communicate with his prospective clients. Per se, the Learn Startup postulates the principle of entrepreneurship management which gives the entrepreneur the insight to institutionalize the startup and manage the venture as an organization with installed management system to realize profitability.
Eric demonstrates that validated learning is the knowledge of truth about a startup which can be tested scientifically to show the startups prospective future and present conditions through the study of the consumer actions and or inactions (consumer behavior). Validated learning is imperative in startup ventures as the business is not just to serve the customers and make money, they are opportunities for leaning on how to build a long-term sustainable business within the market uncertainties. The entrepreneurship learning can be validated imperially through tests by the entrepreneur which would allow him or her to test the elements of startup vision and mission. Such that to manage a startup under extreme conditions of uncertainty, one of the fundamental goals of such entrepreneurship should be validated learning according to (Ries, 2011). It is important for an entrepreneur to lean on the various components of the organizational strategy that is working and which ones needs perfection.
Validated learning gives the startup owner to know which aspect of the business is doing well, and what aspect should be modified or completely be abandoned. The empirical tests can be done on clients by offering a decoy of the product and see how the prospective consumers will react to such a product. In the sense that the entrepreneur must be able to know, within the uncertainties and market competitions, the consumers really need and want. They must be tangible facts that if realized will see an increase in sales and revenue generation for the firm. So that learning will assist the startup establish clients’ needs and how to satisfy such needs, and best market strategies, competitors and how best to navigate such environment. The essential unit of startups is learning. Per se, through the consumer behavior of how various customers interact with the goods and services of an organization, an entrepreneur is able to know what the consumer would be able and willing to maximize their utility.
According to National Public Radio on a program How I built This, Seth Goldman explained how he build Honest Tea. The cornerstone of Goldman was based on validated learning. Goldman did not have any experience in the beverage industry and had not imagined himself venturing in entrepreneurship for a startup business. One day he was running and for a work out, he felt thirsty and needed a drink. The drinks he found had a lot of sugar which he could not consumer at the time just after running. He thought of a niche in the beverage market which could offer consumers drinks which were not too sugary as the ones which were available to him. According to Goldman, the best competitive advantage he had about the beverage market rivals he was about to face was his lack of knowledge about beverage industry. He advances that it allowed him to have a rational time to think and reflect by studying the market. Per se, every item he learnt was a valuable lesson on how best to make his startup more successful.
As such, he set up a free sample to his neighborhood during community service programs. He also approached different beverage firms on his business idea. He also developed a business plan to help him source for startup capital and good market for his supply. From the above mentioned experimental ideas, he was able to get the reactions of the prospective consumers. For instance, he was able to scientifically learn about the needs of the consumer regarding high sugar contents drinks and low sugar content drinks when he availed both to the community development volunteers in his neighborhood. Most people more so middle aged and parents were able to identify more with low sugar drinks. He was also able to learn that packaging was an important part of branding for his drinks.
To that extent therefore, the principle of validated learning was implemented well with Goldman as saw his startup become a success story. He was able to learn about consumer needs, competitor products and fixed his niche within the market. Management systems was also key component of his validated learning.
Build, measure, and learn
A startup is responsible for turning the ideas of an entrepreneur into a reality of products or goods and services measure the varied responses of the consumers, and establish a lesson of weather to pivot or to persevere. As such, the build- measure- learn is a feedback loop hence at the core of lean startup model. So that every processes within the loop should be able to accelerate feedback. Therefore, a lean startup is able to hit the ground by building simple products that are able to do the basics which is called the Minimum Viable Product (MVP) the MVP is subjected to a rigorous process of evaluation and tests to interpret the feedback from the consumer behavior of targeted users. If the product works and have positive reactions from the clients, then it can be rolled in large scale and learn from such feedback how to make it even better. If the feedback is not positive and the consumers have reservations of comments, such thoughts are also taken into consideration as adjustments are done to fit in the systems to realize profitability of the products in the market.
Diagram credit by (Learn Startup.com, 2015)
Ries, 2011 advances that an entrepreneur should be able to transform their mental ideas into realities of products which are goods, services or both goods and services. The process of the transformation of ideas to products is referred to as building stage or build. Conversely, once the products has been established, the startup can collect scientific data to establish the consumer behavior with the product, if they like it or for possible needs that might arise from the clients. The process of data collection and interpretation is measuring or measure of the client needs. Finally the data obtained from the clients stating their behavior, needs, wants or opinion regarding the product can help the entrepreneur to learn whether to change certain features and processes or to continue with the production of the goods and services in what is referred to as pivot or perseverance according to Ries.
According to the Daymond Garfield John was able to establish his FUBU startup in his mother’s house and according to his interview at the (National Public Radio, 2018) he was able to use learn startup principle of build, measure and learn as an entrepreneur. In his early days, John had imagined himself working in the Hip Hop industry. He was not a singer, producer or dancer hence his options were limited. One day he was walking in the streets and saw some wool ski hats being sold at twenty dollars and he saw that as expensive. He was interested in the hip hop industry and thus saw a window of opportunity. His mother taught him how to make the hats and sew other clothes from her house in Hollis, Queen (National Public Radio, 2018).
The ide he had was the expensive hats which were being sold at twenty dollars. The code was the hats as an end product hence build was the process of converting such idea into reality. He was able to make ninety hats and changed them at half a price and he managed to sell all of them in a single day. He then started sewing other clothes and making graffiti on them and selling them on hip hop concerts and public gatherings since they were trendy clothes. The customers likes his products and the fact that they were affordable as compared to his competitors. From the short experiences, he was able to learn a lot and he needed to persevere to make it big in the industry. He learnt that he needed big marketing and to make his company a leading brand name in the hip hop dressing. He thus made a deal with LL Cool J to wear his branded FUBU logo hats and shirts in his concerts and during a TV interview (National Public Radio, 2018). As such, the market was in love with FUBU designs hence needed more money for expansion. His mother took a mortgage with their house for a hundred thousand dollars which enabled him to have as a starting capital for expansion.
To that extent therefore, it is clear that the lean startup principles of build- measure- learn if applied by an entrepreneur in the startup is able to build a bigger brand and future successful startup just as the case of Daymond Garfield John.
The lean startup from the Eric`s principle of innovation accounting assist in keeping detailed records of tests and analytics to establish working or productive concepts. Innovation accounting is thus responsible for helping entrepreneurs to hold themselves accountable, and investors or mentors of the startups are able to help the entrepreneurs to gauge progress. The progress of the amount learned regarding innovation as opposed the newly created work (National Public Radio, 2018). Per se, innovation accounting is responsible for helping an entrepreneur prioritize work, measure progress and delineate milestone. Ina startup, accounting is just not about balancing the books of accounts to establish revenue collection, profits and losses but also the aforementioned items. The entrepreneur must be responsible for creating innovative ways of auditing the processes and procedures of how certain things function within the startup institution.
The case of Wikipedia started by Jimmy Wales shows how if the learn startup principle of innovation accounting is applied to a startup, it can be a success. Jimmy started an online dictionary which would allow the community key in information about areas or anything they have information about. As such, he conducted routine audit to counter check if the information given by anonymous people were credible and informative. He was also able to monitor which sites and information people looked out for most of the time and craft more valuable content. From such an internal innovative audit, he was able to create the fifth largest visited site in the world (National Public Radio, 2015). The principle of lean startup of innovation accounting was applicable in the case of Wikipedia to the extent that an audit was conducted on the content being developed, sources of information to assert the validity or credibility of the information posted on the online information hub.
In summation, Eric Ries advances that a startup established by entrepreneurs are better placed if the startups are anchored on the five principles. That entrepreneurs are everywhere meaning a person doesn’t just need to begin from a garage but can start at anyplace even in government and big established firms. Secondly that entrepreneurship is management that needs a person to understand the scope of operations and develop a strategic management system. Thirdly that validated learning is an integral aspect of a startup hence the entrepreneur must be critical on the lessons that can help navigate the market best. Ries advances that build- measure- learn as a principle is important in helping entrepreneurs to make an idea a reality by building a product, measure the product from the consumer responses and learn whether to pivot or persevere. Finally he advances that innovation accounting is able to assist an entrepreneur to audit his systems, processes and procedures to get things done best hence assist in future success of the startup.
Failory (2018). Bediwin Information Services: Shutting Down my IT Support Company. [Online] Retrieved on June 11, 2018 from https://www.failory.com/interview/bediwin-information-services
National Public Radio. (2018). FUBU: Daymond John [Podcast]. Retrieved on June 11, 2018 from https://www.npr.org/templates/transcript/transcript.php?storyId=599900951
National Public Radio. (2018). Honest Tea: Seth Goldman [Podcast]. Retrieved on June 11, 2018 from https://www.npr.org/2018/06/08/618252345/honest-tea-seth-goldman
National Public Radio. (2018). Wikipedia: Jimmy Wales. Podcast]. Retrieved on June 11, 2018 from https://www.npr.org/templates/transcript/transcript.php?storyId=588068536
Ries E. (2011). The Learn Startup: How Today`s Entrepreneurs Use Continuous Innovation to Create Radically Successful Business. Crown Business, New York.