The Lean Startup - Eric Ries [65]
A STARTUP’S RUNWAY IS THE NUMBER OF PIVOTS IT CAN STILL MAKE
Seasoned entrepreneurs often speak of the runway that their startup has left: the amount of time remaining in which a startup must either achieve lift-off or fail. This usually is defined as the remaining cash in the bank divided by the monthly burn rate, or net drain on that account balance. For example, a startup with $1 million in the bank that is spending $100,000 per month has a projected runway of ten months.
When startups start to run low on cash, they can extend the runway two ways: by cutting costs or by raising additional funds. But when entrepreneurs cut costs indiscriminately, they are as liable to cut the costs that are allowing the company to get through its Build-Measure-Learn feedback loop as they are to cut waste. If the cuts result in a slowdown to this feedback loop, all they have accomplished is to help the startup go out of business more slowly.
The true measure of runway is how many pivots a startup has left: the number of opportunities it has to make a fundamental change to its business strategy. Measuring runway through the lens of pivots rather than that of time suggests another way to extend that runway: get to each pivot faster. In other words, the startup has to find ways to achieve the same amount of validated learning at lower cost or in a shorter time. All the techniques in the Lean Startup model that have been discussed so far have this as their overarching goal.
PIVOTS REQUIRE COURAGE
Ask most entrepreneurs who have decided to pivot and they will tell you that they wish they had made the decision sooner. I believe there are three reasons why this happens.
First, vanity metrics can allow entrepreneurs to form false conclusions and live in their own private reality. This is particularly damaging to the decision to pivot because it robs teams of the belief that it is necessary to change. When people are forced to change against their better judgment, the process is harder, takes longer, and leads to a less decisive outcome.
Second, when an entrepreneur has an unclear hypothesis, it’s almost impossible to experience complete failure, and without failure there is usually no impetus to embark on the radical change a pivot requires. As I mentioned earlier, the failure of the “launch it and see what happens” approach should now be evident: you will always succeed—in seeing what happens. Except in rare cases, the early results will be ambiguous, and you won’t know whether to pivot or persevere, whether to change direction or stay the course.
Third, many entrepreneurs are afraid. Acknowledging failure can lead to dangerously low morale. Most entrepreneurs’ biggest fear is not that their vision will prove to be wrong. More terrifying is the thought that the vision might be deemed wrong without having been given a real chance to prove itself. This fear drives much of the resistance to the minimum viable product, split testing, and other techniques to test hypotheses. Ironically, this fear drives up the risk because testing doesn’t occur until the vision is fully represented. However, by that time it is often too late to pivot because funding is running out. To avoid this fate, entrepreneurs need to face their fears and be willing to fail, often in a public way. In fact, entrepreneurs who have a high profile, either because of personal fame or because they are operating as part of a famous brand, face an extreme version of this problem.
A new startup in Silicon Valley called Path was started by experienced entrepreneurs: Dave Morin, who previously