Creating the Lean Startup

How Eric Ries developed a scientific method for launching profitable companies

By Eric Ries |  From the October 2011 issue of Inc. magazine

 Mr. Lean  Eric Ries says entrepreneurs should treat start-ups like experiments.Emily Shur

Mr. Lean Eric Ries says entrepreneurs should treat start-ups like experiments.

Courtesy Publisher

Eric Ries, co-founder IMVU, Inc. Magazine October 2011 Subscribe Now

Squandered capital, wasted efforts, shattered dreams. Eric Ries, author of The Lean Startup, is on a mission to save entrepreneurs from such a fate. Ries, a serial entrepreneur, co-founded IMVU, an online social network that made the Inc. 500 last year. Through trial and error at IMVU, Ries developed a methodical approach to launching companies that goes beyond bootstrapping. Now he’s creating a movement.

Stop me if you’ve heard this one before. Brilliant college kids sitting in a dorm are inventing the future. Heedless of boundaries, possessed of new technology and youthful enthusiasm, they build a company from scratch. Their early success allows them to raise money and bring an amazing new product to market. They hire their friends, assemble a superstar team, and dare the world to stop them.

More than a decade and several start-ups ago, that was me, launching my first company. It was 1999, and we were building a way for college kids to create online profiles for the purpose of sharing…with employers. Oops. I vividly remember the moment I realized my company was going to fail. My co-founder and I were at our wits’ end. By 2001, the dot-com bubble had burst, and we had spent all our money. We tried desperately to raise more capital, and we could not. It was like a breakup scene from a Hollywood movie: It was raining, and we were arguing in the street. We couldn’t agree even on where to walk next, and so we parted in anger, heading in opposite directions. As a metaphor for our company’s failure, this image of the two of us, lost in the rain and drifting apart, is perfect.

If you’ve never experienced a failure like this, it is hard to describe the feeling. It’s as if the world were falling out from under you. You feel you’ve been duped. The stories in the magazines are lies: Hard work and perseverance don’t lead to success. Even worse, the many, many promises you’ve made to employees, friends, and family are not going to come true. Everyone who thought you were foolish for stepping out on your own was right.

The grim reality is that most start-ups fail. Most new products are not successful. Yet the story of perseverance, creative genius, and hard work persists. Why is it so popular? I think there is something deeply appealing about this modern-day rags-to-riches story. It makes success seem inevitable if you just have the right stuff. If we build it, they will come. When we fail, as so many of us do, we have a ready-made excuse: We weren’t in the right place at the right time—we didn’t have the right stuff.

After more than 10 years as an entrepreneur, I have come to reject that line of thinking. Start-up success is not a consequence of good genes or being in the right place at the right time. Success can be engineered by following the right process, which means it can be learned, which means it can be taught.

Let me tell you a second start-up story. It’s now 2004, and a group of founders have just started a company. They have a huge vision: to change the way people communicate online by using a new technology called avatars.

I’m in this second story, too. I’m a co-founder and chief technology officer of this company, IMVU. Although my co-founders and I were determined to do things differently, we ended up making a lot of mistakes. Despite various setbacks, the methods we developed over time at IMVU have become the basis for a movement of entrepreneurs around the world. It represents a new approach to creating continuous innovation. I call it the Lean Startup.

Our “Brilliant” Business Plan
The five of us involved in the founding of IMVU aspired to be serious strategic thinkers. Each of us had participated in previous ventures that had failed, and we were loath to repeat that experience. Our main concerns in the early days dealt with the following questions: What should we build and for whom? What market could we enter and dominate?

We decided on the instant messaging market. In 2004, that market had hundreds of millions of customers, the majority of whom were not paying for the privilege. Large companies such as AOL, Microsoft, and Yahoo ran their IM networks as a loss leader for other services while making modest amounts of money through advertising. The common wisdom was that it was more or less impossible to bring a new IM network to market without spending an extraordinary amount of money on marketing.

The grim reality is that most start-ups fail. Most new products are not successful.

At IMVU, our strategy was to build a product that would combine the mass appeal of traditional IM with the high revenue per customer of video games. Because of the near impossibility of bringing a new IM network to market, we decided to make our product compatible with existing IM networks. Customers would be able to chat online using their IMVU avatars without having to switch IM providers or learn a new user interface. They wouldn’t have to persuade their friends to switch, either.

We thought the third point was essential. Every IM communication would come embedded with an invitation to join IMVU. Our product would be inherently viral, spreading throughout the existing IM networks like an epidemic. To spur rapid growth, it was important that our product be compatible with as many IM networks as possible.

With this strategy in place, my co-founders and I began a period of intense work. As the CTO, it was my responsibility to, among other things, write the software that would support the various IM networks. Because we had limited funding, we gave ourselves a hard deadline of six months to launch the product and attract our first paying customers. It was a grueling schedule, but we were determined to launch on time.

The project was so large and complex and had so many moving parts that we had to cut a lot of corners to get it done on schedule. I won’t mince words: The first version was terrible. We spent endless hours arguing about which bugs to fix and which we could live with, which features to cut and which to cram in. It was a wonderful and terrifying time. We were full of hope about the possibilities for success and full of fear about the consequences of shipping a bad product.

I was worried that the low quality of the product would tarnish my reputation as an engineer. People would think I didn’t know how to build a quality product. We envisioned the damning newspaper headlines: Inept Entrepreneurs Build Dreadful Product.

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