Learn to measure what’s truly valuable to business development
Target audience: Businesses, entrepreneurs, startups.
Ries admitted that these Lean Startup maxims are good as buzzwords, but it’s time for the movement to move beyond that. “If you want to improve entrepreneurial outcomes, you have to improve the accounting. Yes, I said accounting. The math of how we hold entrepreneurs accountable,” said Ries, who admits it’s a topic that nobody wants to talk about. But startups need to account for progress differently than their enterprise counterparts.
— Eric Ries
“Unfortunately, most of the accountability and accounting systems used today — which work great for an established enterprise — are denominated in what we call vanity metrics,” he said. Vanity metrics refer to those very visible numbers that you pull out to show your levels of improvement and try to play off as success. Metrics such as pageviews and numbers of users for a fledgling company are often not representative of the true business model. At the beginning of the conference, Ries even joked that we should boo any presenter that presented such metrics. The crowd took him at his word and did (in jest) actually boo a couple of presenters.
Ries explained that you need to take a closer look at these metrics to understand what really matters to growing the business. For example, total number of users is not as valuable to business growth as how much a user would be willing to spend or how important the product is to a customer. If you’re measuring these variables correctly (even with just a few hundred users), you can start to see signs of progress before the vanity metrics come into play.
Validate your development against business goals
“All management revolutions have been led by engineers for a reason. And that’s because management is human systems engineering,” Ries explained. “When we’re thinking about ourselves as developers, we’re not thinking about management, we’re thinking about code. But humans write the code and humans use the code. So there’s no way to escape the human part of development.”
Our decisions are played out in code. As a savvy development group, you may have a whiteboard with stories (planned feature releases) queued up — backlog, in progress, completed — but Ries advised developers to add a fourth column: validated. After a story is done from a code complete point of view, move it into the validated column. Don’t remove it until you have evidence that it was a good idea to have done that story done in the first place, said Ries.
“We want you to start measuring productivity not in terms of how many stories did I crank out code-wise, but how many experiments do I learn from,” said Ries. “And I’ve seen that one simple technique have revolutionary impact in a lot of different software teams.”
This video was produced at the Lean Startup Conference where I was reporting for New Relic. Original post can be found on the New Relic blog.David Spark, a partner in Socialmedia.biz, helps businesses grow by developing thought leadership through storytelling and covering live events. Contact David by email, follow him on Twitter and Google Plus or leave a comment below.