ment, and encourages rapid and flexible response to change.
Agile development doesn’t apply only to software. In his book, Eric Ries gives the example of SGW Designworks. Their specialty is rapid production techniques for physical products. They were engaged by a client who had been asked to build a ruggedised portable complex x-ray machine to detect explosives etc. at border crossings and in war zones. SGW designed prototypes with CAD (Computer Aided Design). Three days after the design was agreed by the client, they delivered physical prototypes. The parts were machined in aluminum directly from CAD using computer numerical control and hand assembled by the SWG team. A second iteration was done in 5 days.
Another important aspect of lean innovation championed by Ries is the focus on Actionable Metrics. These are metrics that can lead you to informed business decisions and subsequent action, and are in contrast to ‘vanity metrics’ – measurements that give “the rosiest picture possible” but do not accurately reflect the key drivers of a business.
However, vanity metrics for one company may be actionable metrics for another. For example, a company specializing in creating web-based dashboards for financial markets might view the number of web page views per person as a vanity metric – their revenue is not based on number of page views. However, an online magazine with advertising would view web page views as a key metric since page views are directly correlated to revenue.
A typical example of a vanity metric is ‘the number of new users gained per day’. While a high number of users gained per day seems beneficial to any company, if the cost of acquiring each user through expensive advertising campaigns is significantly higher than the revenue gained per user, then gaining more users could quickly lead to bankruptcy. Be honest and realistic about your metrics!
Validated learning, mentioned earlier, is a term coined in the lean startup scene, but it can be applied universally. Validated learning is defined as a process in which one learns by trying out an initial idea and then measuring it to validate the effect. Each test of an idea is a single iteration in a larger process of many iterations whereby something is learnt and then applied to succeeding tests.
Validated learning is especially popular on the Internet, where analytics software can track visitor behavior and give accurate statistics and insight on how website features work in reality. Validated learning can, however, be applied to anything; one just needs to be innovative on what to use as metrics.
Typical steps in validated learning:
- Specify a goal
- Specify a metric that represents the goal
- Act to achieve the goal
- Analyze the metric – did you get closer to the goal?
- Improve and try again
Finally, a pivot is a “structured course correction designed to test a new fundamental hypothesis about the product, strategy, and engine of growth”.
A notable example of a company employing the pivot is Groupon; when the company first started, it was an online activism platform called The Point which was intended to organize people around some sort of cause or goal. After receiving almost no traction, the founders decided to pivot in order to focus entirely on group buying. Their first deal was a two-pizzas-for-the-price-of-one offer at Motel Bar, a restaurant on the first floor of their building in Chicago. Even though they only got 20 redemptions, they considered their hypothesis validated. Three years later, Groupon would grow into a billion-dollar business.
The Lean Startup has led to a whole Lean Startup movement. Eric Ries and others created an annual technology conference called Startup Lessons Learned which subsequently changed its name to the Lean Startup Conference. There are Lean Startup meetups in cities around the world. The Lean Startup Machine created a new spin on the lean startup meetups by having attendees start a new company in three days.
Manage your innovation strategy with the right tools
Build, communicate and execute your strategy all in one pl