The Lean Startup - Eric Ries [83]
Alphabet has eliminated many other potential markets as well, leading to a series of customer segment pivots. The company’s current efforts are focused on manufacturing firms, which have the ability to experiment with new technologies in separate parts of their factory; this allows early adopters to evaluate the real-world benefits before committing to a larger deployment. These early deployments are putting more of Alphabet’s assumptions to the test. Unlike in the computer hardware business, customers are not willing to pay top dollar for maximum performance. This has required significant changes in Alphabet’s product, configuring it to achieve the lowest cost per watt possible.
All this experimentation has cost the company a tiny fraction of what other energy startups have consumed. To date, Alphabet has raised approximately $1 million. Only time will tell if they will prevail, but thanks to the power of small batches, they will be able to discover the truth much faster.10
The Toyota Production System is probably the most advanced system of management in the world, but even more impressive is the fact that Toyota has built the most advanced learning organization in history. It has demonstrated an ability to unleash the creativity of its employees, achieve consistent growth, and produce innovative new products relentlessly over the course of nearly a century.11
This is the kind of long-term success to which entrepreneurs should aspire. Although lean production techniques are powerful, they are only a manifestation of a high-functioning organization that is committed to achieving maximum performance by employing the right measures of progress over the long term. Process is only the foundation upon which a great company culture can develop. But without this foundation, efforts to encourage learning, creativity, and innovation will fall flat—as many disillusioned directors of HR can attest.
The Lean Startup works only if we are able to build an organization as adaptable and fast as the challenges it faces. This requires tackling the human challenges inherent in this new way of working; that is the subject of the remainder of Part Three.
THE STARTUP WAY
10
GROW
I recently had two startups seek my advice on the same day. As types of businesses, they could not have been more different. The first is developing a marketplace to help traders of collectibles connect with one another. These people are hard-core fans of movies, anime, or comics who strive to put together complete collections of toys and other promotional merchandise related to the characters they love. The startup aspires to compete with online marketplaces such as eBay as well as physical marketplaces attached to conventions and other gatherings of fans.
The second startup sells database software to enterprise customers. They have a next-generation database technology that can supplement or replace offerings from large companies such as Oracle, IBM, and SAP. Their customers are chief information officers (CIOs), IT managers, and engineers in some of the world’s largest organizations. These are long-lead-time sales that require salespeople, sales engineering, installation support, and maintenance contracts.
You could be forgiven for thinking these two companies have absolutely nothing in common, yet both came to me with the exact same problem. Each one had early customers and promising early revenue. They had validated and invalidated many hypotheses in their business models and were executing against their product road maps successfully. Their customers had provided a healthy mix of positive feedback and suggestions for improvements. Both companies had used their early success to raise money from outside investors.
The problem was that neither company was growing.
Both CEOs brought me identical-looking graphs showing that their early growth had flatlined. They could not understand why. They were acutely aware of the need to show progress to their employees and