Webstock: Start out with a ridiculous idea

A startup should create 'a human institution, designed to deliver a new product or service under conditions of extreme uncertainty,' says Eric Ries.

Do you have a great technology business idea? At Webstock 2010 Eric Ries explained how to take even a ridiculous idea and turn it into a money-earner.

In 2007, BusinessWeek named Ries one of the Best Young Entrepreneurs of Tech. He has been an advisor and consultant to a number of technology startups and software companies, so he's seen what can go wrong.

Ries said the first reason people build startups is to change the world. Startups also want to build an organisation of lasting value and to improve the lives of customers.

Most startups fail though, and for bad reasons. Ries sees these failures as a waste of human potential. He wants startups to succeed.

According to Ries the goal should be to create not just a product or service but "a human institution, designed to deliver a new product or service under conditions of extreme uncertainty".

He pointed out that most successful startups begin with a ridiculous idea. As things go along they find their product is different from what they imagined it would be. If they adapt to these changed perceptions they are more likely to be successful.

His experience shows that these 'pivot points' are crucial. A startup increases its chance of success by "reducing the time between pivot points". A startup needs to adapt quickly.

Ries gave the example of one unnamed company that followed all the traditional rules for startups. Their plan was a huge success, but the product itself was a failure - "no-one would buy or use it".

On the other hand Ries was involved with a successful product called iMVU, a social network and 3D virtual world. He used 'agile' development to actually ship the product quickly, even though it was initially very buggy.

The iMVU team responded extremely quickly to whatever happened. They released updates an average of 50 times per day, noting and adapting to customer feedback.

The whole time the team's focus was not on meeting targets in the plan but on making actual real-life progress with the product.

They constantly made careful note of which activities created value and which created waste. Then they moved to eliminate the waste.

When something unexpected happened they used the 5 Whys technique to analyse what had gone wrong. This technique involves asking 'Why' 5 times:

1. Q: Why was the website down? A: CPU usage spiked.

2. Q: Why did CPU usage spike? A: Some new code had a problem.

3. Q: Why did that code have a problem? A: One employee made a mistake.

4. Q: Why did the mistake go on the site? A: The employee didn't follow the right procedure.

5. Q: Why didn't he follow procedure? A: He's new, and didn't get the right training.

So, what seemed like a hardware problem at first actually turned out to be a problem with organisational process.

This responsive development technique, starting with an actual, if buggy, product that was shipped early on, eventually produced a profit for Ries and his team.

That's a stark contrast to the company that followed all the startup rules and yet failed.

As Ries explained, there is a big difference between simply being busy and spending money according to a plan, and actually making progress on a product with profit as the outcome. Clearly he favours making profit with a product over being busy with a plan.

- Miraz Jordan of knowit.co.nz attended Eric Ries' presentation 'The Lean Startup' when he was in Wellington to speak at the Webstock conference.