The Lean Startup - Eric Ries [90]
For example, imagine two startups that are working diligently to tune the sticky engine of growth. One has a compounding rate of growth of 5 percent, and the other 10 percent. Which company is the better bet? On the surface, it may seem that the larger rate of growth is better, but what if each company’s innovation accounting dashboard looks like the following chart?
COMPOUNDING GROWTH RATE AS OF COMPANY A COMPANY B
Six months ago 0.1% 9.8%
Five months ago 0.5% 9.6%
Four months ago 2.0% 9.9%
Three months ago 3.2% 9.8%
Two months ago 4.5% 9.7%
One month ago 5.0% 10.0%
Even with no insight into these two companies’ gross numbers, we can tell that company A is making real progress whereas company B is stuck in the mud. This is true even though company B is growing faster than company A right now.
WHEN ENGINES RUN OUT
Getting a startup’s engine of growth up and running is hard enough, but the truth is that every engine of growth eventually runs out of gas. Every engine is tied to a given set of customers and their related habits, preferences, advertising channels, and interconnections. At some point, that set of customers will be exhausted. This may take a long time or a short time, depending on one’s industry and timing.
Chapter 6 emphasized the importance of building the minimum viable product in such a way that it contains no additional features beyond what is required by early adopters. Following that strategy successfully will unlock an engine of growth that can reach that target audience. However, making the transition to mainstream customers will require tremendous additional work.4 Once we have a product that is growing among early adopters, we could in theory stop work in product development entirely. The product would continue to grow until it reached the limits of that early market. Then growth would level off or even stop completely. The challenge comes from the fact that this slowdown might take months or even years to take place. Recall from Chapter 8 that IMVU failed this test—at first—for precisely this reason.
Some unfortunate companies wind up following this strategy inadvertently. Because they are using vanity metrics and traditional accounting, they think they are making progress when they see their numbers growing. They falsely believe they are making their product better when in fact they are having no impact on customer behavior. The growth is all coming from an engine of growth that is working—running efficiently to bring in new customers—not from improvements driven by product development. Thus, when the growth suddenly slows, it provokes a crisis.
This is the same problem that established companies experience. Their past successes were built on a finely tuned engine of growth. If that engine runs its course and growth slows or stops, there can be a crisis if the company does not have new startups incubating within its ranks that can provide new sources of growth.
Companies of any size can suffer from this perpetual affliction. They need to manage a portfolio of activities, simultaneously tuning their engine of growth and developing new sources of growth for when that engine inevitably runs its course. How to do this is the subject of Chapter 12. However, before we can manage that portfolio, we need an organizational structure, culture, and discipline that can handle these rapid and often unexpected changes. I call this an adaptive organization, and it is the subject of Chapter 11.
11
ADAPT
When I was the CTO of IMVU, I thought I was doing a good job most of the time. I had built an agile engineering organization, and we were successfully experimenting with the techniques that would come to be known as the Lean Startup. However, on a couple of occasions I suddenly realized that I was failing at my job.