Carl von Clausewitz was a Prussian general and military theorist in the early 19th century. One of his approaches was that you must identify where your enemy’s heart of operations is, where his main strength lies – such as the high command post – and then concentrate your forces on attacking it. If we can neutralize the enemy’s center, the rest will crumble and succumb to our forces like the arms of an octopus once we attack its head.
For those of us who move in the circles of the startup ecosystem, the name Ash Maurya needs no introduction. He is a serial entrepreneur and the mind behind The Lean Canvas tool, which has become one of the leading techniques for entrepreneurs to formulate abstract and complicated ideas in their nascent stage into clearly articulated concepts that can then be validated with The Lean Startup methodology.
Ash’s book "Scaling Lean: Mastering the Key Metrics for Startup Growth" published in 2016, takes on the daunting task of actually dealing with reality as the rubber meets the road and budding startups attempt to scale their ideas which they assume have achieved product/market fit. For those of you unfamiliar with the lean startup terminology, achieving problem/solution fit means that we have been able to ascertain that the problem we are trying to solve actually exists for the customer segment that we are targeting and that it is painful enough for that segment to invest time/effort/money in adopting it. When we reach product/market fit, that means we believe that the solution we created for the validated problem is indeed what potential customers will buy. Usually, when young ventures reach this point, a decision has to be made regarding the point at which they should scale. Once such a decision is reached, however, too many, even today count on “launch and hope for the best,” which is not a good strategy. Ash’s brilliant approach to the topic borrows a page from Elyahu Goldratt’s brilliant work.
Goldratt, whose seminal works were published in the 80's and 90's (“The Goal”, and “Critical Chains” to name a couple), focused his attention on manufacturing processes and his theory posited that in every manufacturing process there’s always a single point which is the bottleneck. The job of a manufacturing floor manager, according to Goldratt, is essential to constantly identify where the current bottleneck is, eliminate it and then look for the new bottleneck which inevitably will appear somewhere else in the process. This iterative and constant improvement of the process efficiency has made Goldratt’s work one of the most significant in the world of management over the last 40 years.
Ash’s observation was that ventures that are in the scaling stage are essentially equivalent to a manufacturing floor, only instead of converting raw materials into finished goods, what these so-called “manufacturing lines” are doing is converting a target audience into happy, repeat customers. Think about the conversion pipeline as starting with people who reach a company’s website and see an offered product. A certain percentage of this click to learn more. A certain portion of those actually try the product for 30 days. Out of those, a certain portion pays to continue using the product, and so on until we reach those who return for more products and recommend them to their friends and colleagues. The main idea in the book is that when scaling, our job is to constantly survey the pipeline for the bottleneck and focus our full attention on eliminating it before searching for the next one. For example, if only 5% of those who reach a product page are actually choosing to try it but out of those that do, 80% continue beyond 30 days and pay for it then this is where our bottleneck is. If we have $100 then we should spend $80 on checking whether this is due to marketing aimed at the wrong crowd, a badly formulated product page, or some other technical issue in the signup page. Too often, you will see startup and corporate ventures spending time on more features or on customer care instead of on the bottleneck which is stifling the venture’s ability to scale.
The significance of this is that scaling ventures are on a very limited runway. Be it a startup or a venture being funded by corporations, there’s an expectation for results and this means that time is of the essence. The key here is that instead of running full speed just to show action, Ash’s clearly articulated approach teaches you where your attention should be focused. Without revealing all the details, I will mention that his perception of the conversion pipeline isn’t as simplistic as described above so the book is highly recommended. In addition, once this approach is in place, it opens up the opportunity to actually make a much better decision on whether to scale and when.
How do we know whether to scale? The question now isn’t about whether the market will receive our product because achieving product-market fit is supposed to answer that. The question now becomes whether we, as a startup, can turn this product into a repeatable, profitable, scalable business. The simplicity and elegance of this approach is very refreshing. Instead of endless slides and reports, Ash guides the reader through a few straightforward questions, and, similarly to the documented assumptions of the lean canvas, we now have a set of assumptions about how we expect our new business to function. For every stage of the pipeline, we assume a certain throughput and a certain conversion rate to the next stage. For example, if we assume that out of every 100 customers who reach our website, only a single customer will pay us an average sum of $50, which means that in order to make $50K in revenues, we need to generate 100,000 relevant visitors to our site. Now, there’s no right or wrong answer here. It is simply what we expect. In order to test such hypotheses, we can send a marketing email to 2,000 people, see how many reach the product page, and measure the actual conversion. The complex problem of scaling has now become an almost scientific challenge very similar to the way a lean startup handles a newly formulated idea’s underlying assumptions as a set of experiments.
Adding my years of experience running the innovation program of HP Software, I can attest to the fact that almost everything discussed in this book applies to corporations trying to scale new products and services. There’s a lot that corporate innovators can learn from the startup world and a single message that I’d like to convey is that you must never assume that the value delivery chain function of an established organization will know how to scale a new product or service. It is your responsibility, as an innovation manager or someone championing the new venture, to make sure that learnings such as the ones shared in this excellent book are applied within an established organization as well.
To summarize, this book is highly recommended for innovation managers, innovation practitioners, and in particular, executives who are involved in the challenging task of scaling a new venture. Just like the Von Clausewitz doctrine, Ash Maurya’s approach advises us to constantly attack the bottleneck in the process of customer acquisition. Eliminating the bottleneck and focusing our efforts in such a concerted way is the most effective way of achieving rapid progress and making higher-quality decisions.
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