Lean Startup In The Enterprise

Episode 106

April 17, 2013

16:12

The Agile Weekly Crew and Mike Vizdos discuss lean startup in the enterprise, vanity metrics and lean pub.

Derek Neighbors: Hello and welcome to another episode of the Agile Weekly Podcast. I’m Derek Neighbors.

Roy vandeWater: I’m Roy vandeWater.

Jade Meskill: I’m Jade Meskill.

Clayton Lengel‑Zigich: I’m Clayton Lengel‑Zigich.

Derek: Today, fresh from Twitter, we have Mike Vizdos.

Mike Vizdos: Hello.

Derek: A custom that we want to do with our special guests is we’re going to allow them to pick the topic of their choice. You get to hear what we’re passionate about all the time. We want to hear what some of our listeners are passionate about. Mike, what’s got your interest today?

Mike: Let’s see. We won’t talk about estimation and planning or certification. Let’s see what are some other hot topics that we don’t want to talk about.

Jade: Can I get certified in estimation?

Mike: Certified estimation planning. Although, Mike Cohn might have a copyright on that one, too, right?

[laughter]

Derek: Anything’s possible.

Mike: He’s planning poker, I think. I’ve got to send him a two cent royalty just for saying that on here. OK, you’ve got to check.

Derek: There you go.

Lean Startup Didn’t Work For Me

Mike: I don’t know. What are you guys doing with the Lean Startup role? Anything there or what’s going on with that for you?

Clayton: We were just talking about Lean Startup the other day at lunch. I had shared a blog post that I had read about some people that had tried to create a start‑up. I can’t remember what space it was in.

But they tried to create a start‑up and they tried to use Lean Startup.

Jade: It was in the non‑profit space.

Clayton: OK. It sounds like they were 37signals devotees, so they read a bunch of 37signals blog posts and their books and everything. They tried it and it didn’t work. It was the fault of Lean Startup.

Then, if you read the blog, it didn’t look they were very “Lean Startuppie.” I’m curious, how many other people are in that same boat where they read the book, they try it and it fails and they blame Lean Startup?

The Early Adopters

Jade: I used a Lean Canvas, why didn’t this work?

Derek: I think you’re going to have a lot of Agile adoption, horror stories. The early people that are doing Lean Startup actually have experience and spent decades figuring out how to be successful in bringing product to market fast.

So they started a document in it. They wrote books about it. They are doing conferences about it.

Now, as you start to get into a little past the early adopters on the curve, you’re going to have people that read a book, but have no experience doing anything. Then, go out and basically say, “Look, I followed all the rules, but it didn’t work. I’m not making a million dollars, what is wrong with this”?

In the same way that people go out and read a user’s storybook and they will still go out and write bad users story or go to a Scrum certification and still do all sorts of horrific things to their teams.

Jade: But, we did it iteratively. [laughs]

Derek: There you go.

[laughter]

We Failed Fast

Clayton: That’s right. We failed fast.

Roy: I think that’s exactly the problem though especially with this Lean Startup one is a fear of failing. The entire idea, at least for me, the big motivation of Lean Startup is to try to fail as early as possible, so you can eliminate a possibility and I think that’s really difficult for people when they get passionate about something is to all of a sudden find evidence that it’s not worth your effort. You would claim the term I think “Fat Startup” at some point.

Jade: That’s the name of their book that you can buy.

Roy: That seems like if you try and develop the entire product and wait until the end to release it to find out that it doesn’t actually meet any customer demands.

Decomposition As A Product Owner

Derek: Yeah. What I’m seeing a lot in the places where we’re doing a lot of this stuff at, people are really, really bad in breaking functionality down into small bits and I’m not talking developers I’m talking product owners. They don’t know how to ask any of the right questions. They say, “I want to do Lean Startup,” awesome, great “What experiment are you going to run”? “What do you mean”?

What needle are you trying to move, especially when they have got an existing product were this thing is existed from a year to 10 years and they have never ever done anything other than a customer service satisfaction survey before. It’s like, “Our biggest problem is that we’re trying to reduce churn.” OK. Awesome. ”Do you know what’s causing the churn”? “No.” Do you know what could possibly be causing it”? “No.”

“Is there anything you could potentially measure to try to change, that might affect it”? “Oh, maybe.” “OK great so how are you going to measure that”? “I don’t know.” I mean it’s so difficult for people to figure out how to ask questions, how to do experiments, how to make the hypothesis…the other thing that I’m seeing is that development teams are not high‑performing enough to actually do Lean Startup work.

Meaning, even if you have a product owner come in and say, “Hey I want this.” It’s like “Oh you want that piece of data, that’s going to be 3 weeks to build that metric so that you can start collecting that data and then that feature you want us to test that’s going to be another 10 weeks to develop.” I think enterprises want to adopt this stuff, but they are just not ready.

Jade: …but that is lean! It took us a year to do it last time! [laughs]

Three Guys In A Shop

Mike: One of the things I’ve been seeing out there as I go…especially in the larger companies that I’m going ‑‑ the enterprises ‑‑ is I put off this warning that there’s three guys in a shop that I’m calling it, that are just going to get out there and kick your ass. I got this great idea again to just go ahead and start another site, and this one is definitely Lean Startup style.

It’s totally testing the initial hypothesis of “is this even worth it”? If you go to 3guysinashop.com right now, it’s basically very, very Lean Startup style. Let’s get it started and see what happens.

What I want to do with this is start showing the failures, and that failures are good in the Lean Startup world. My hypothesis is there are a lot more failures out there using Lean Startup than there are successes, and I want to use this as showcasing people trying and showing what it’s like to fail and succeed. Don’t know where it’s going to go with that. One of the projects I’m starting out with that, to show is totally non‑software development related.

There’s a company called Leanpub that I’m doing some publishing in it, being pretty well‑used in the agile world too. I know Brian Marick and a couple of other people have got some stuff out there.

I started a children’s book of a kids’ book that I used to, stories that I used to tell my kids. It’s called “The Pirates’ Cavern.” It’s going Lean Startup style to actually show a product being delivered. It’s totally outside of the software delivery world, but I’m going to chronicle what happens along the way with that.

LeanPub Book Process

Roy: For example with that book how are you collecting feedback on that? Could you describe one of the experiments you ran while working on that book?

Mike: I literally have just gotten it up there over the weekend and my first request is to have them, the readers read it to their kids. Read it with their kids and see what their kids’ response is. The feedback that I’m been receiving so far has been ranging from “meh” to “holy cow this is awesome”! Now I’ve got to figure out what the “holy cow this is awesome” and what the “meh” is about. That’s what I’m testing right now.

Derek: How are you going about testing that?

Mike: Right now it’s just feedback via email. Leanpub allows you to collect email addresses of people that download your book. It’s amazing too. I’ve got a sliding scale up there of pricing. I’m giving it away for free. It’s like zero to five bucks. People are actually paying more than five dollars for this book. It doesn’t seem like a huge deal but it’s also good for testing pricing models too along the way.

Roy: Is that your measurement for…there’s an improvement because the average price has gone up? Is that kind of the idea?

Mike: No. Right now I’m actually just seeing, “Take it for free really,” I mean I’m surprised that people are paying for it. One of the next tests I’m going to ask about is, “Why? What made you pay even more than what the suggested price was”? Because Leanpub allows you to basically pay whatever you want.

How Do We Make Money

Derek: One of the other things I’m seeing a ton is that…I teach an entrepreneurship course as well at the university. The other thing that is really missing in these big companies are, they are so far‑removed from actual profit and loss of their products that…meaning they have revenue stream coming in from…They don’t know whether it pays their salary.

There’s no like, “Man, if we don’t do something quick to get more users or get more money that we are going to be out of the job.” That just doesn’t exist in the enterprise world for the most part.

The two key things that most real lean start‑ups start to look at is, “How much does it cost just to acquire a new customer or to keep a customer and what is the lifetime value of that customer”?

If the lifetime value is smaller than what it cost to acquire them we should kill the product or figure out new feature sets to increase the price or to get more customers or do something.

When I start to ask those kinds of questions, these bare simple, like, “How are you acquiring your customers”? “I don’t know.” “How much does it cost”? “I don’t know. Marketing does that.”

“You’ve got customer A that uses your system in x, and you’ve got customer B that uses it in y. Which one is more expensive for you to maintain or do they cost the same to maintain”? “What do you mean”? “I mean does one of them require more of your time and attention than the other one”? “Oh yeah, customer A, they call in to support all of the time.” “Do you charge more than you charge customer”? “No.” That makes no sense to me.

Vanity Metrics

Clayton: That’s interesting that you brought that up, in Lean Startup they make a big deal about vanity metrics, and there’s all these startups that go around promoting these metrics that are not especially meaningful. Even in the enterprise they don’t even have the vanity metrics.

Roy: Can you give an example of a vanity metric?

Clayton: Like if you say revenue or something.

Jade: Or number of users.

Clayton: Yeah, number of users.

Derek: Like, “We had 100 new sign ups.” It’s like, “OK.”

Jade: “We lost a hundred million dollars on a million users.”

Derek: “We have the three biggest NBA stars using our product. We pay them each a million dollars a year to use it.”

Clayton: Yeah, I mean if you have amazing revenue, but if you make $100 of revenue for every customer and it costs you $99 to get that customer, you can have a big number but it is not super‑impressive.

Playing Telephone Game With The Customer

Roy: Something you had mentioned, the marketing people are in charge of talking to the users. That seems to be a really common threat too, that the people that are in charge of doing the work and the people doing the work and all of the improvement stuff are really, really far‑removed from the actual users of the system, and most of the time from the customers of the system as well.

Where you have to play this entire game of telephone where somebody over here…like there is a whole body of people here who don’t like something and it goes up through the channels or it goes up to the marketing people. The marketing people bring it around to the CEO and it makes its way back down and trickles back down into eventually the product owner and the developers.

Derek: I think we separate the people doing the work from the outcomes of the work. If the product owner can’t tell you how much it costs to acquire a customer, and they can’t tell you how much revenue they make off a particular customer, and they can’t tell you who’s a good customer versus a bad customer financially, how on earth do you expect the developer or the UI person or whoever on the team to be able to tell you that?

What starts to happen is even at the marketing level, they don’t really know those answers. All they are looking at is their revenue stream. Are our revenues going up? If we do this kind of marketing…or this is all the vanity metrics.

We’ve got 10,000 customers in our system currently. Our quarter four goal is that we have 15,000 customers. If we market and we spend $1,000 per customer to acquire a customer and our product only has $10 ever that we get out of this customer, but if it makes our number go to 15,000 we are totally happy with that as the marketing department because we met our quarterly goal. We got more customers.

So many teams and so many products are not looking holistically at their product. They are looking at one…we want to stop churn, we want to increase revenue, we want to increase numbers of users, we want to get into market X. That’s only one part of the formula.

Big Company As A Lot Of Little Companies

Clayton: If you talk to a lot of product people, they have a ton of ideas, and then they can’t pick which one or they can’t execute on them. Do you think it would be better served rather than have these big economies of scale where you have these big departments that are all supposed to be doing one main goal?

Would you be better off plugging one person from marketing, one person from sales, one person from this, one person from that, and creating little Lean Startup teams that could work on one idea at a time and just burn through those things?

Mike: Sounds familiar.

Roy: A bunch of little “three guys in a shop.”

Jade: What’s that called, cross‑functional teams?

Derek: I think what’s happening is we are seeing it on the development side, so let’s take a QA person, let’s take a designer, let’s take a whatever and create them as a team. But if you look at the startups that are scaling well, they are the ones who say we are creating products, and our products end up being encapsulated by we have one of everybody on the team, and we don’t have necessarily the global marketing department.

We don’t have the global whatever, each product sort of stands on its own at some level. Any final parting thoughts, Mike, before we let you go back to writing your book?

Mike: Yeah, everybody laughs about it, but they also laughed about that little cartoon site that I run too [laughs] . No, just go ahead and follow along. This is public accountability on my part too for 3guysinashop, let’s see where it goes. Get out to leanpub.com/piratescavern and get me some feedback on that. I appreciate you guys taking the time to have me on here tonight.

Roy: Thanks Mike.

Mike: Cool, thank you.

Derek: For those following along, we’ve got a prior episode where we actually had the founder of Leanpub on, and we had another episode with “Lean Startup in the enterprise”, with David J Bland as well. Go back and brush up on those and we’ll see you next time.