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Lean

avc.com

48 pointscwan16 comments

Is it just me, or does the timing sound like the tech boom/bust cycle which could be expected to affect the results of all VCs, fat or lean?

"In the first two or three years of Flatiron, it was basically just me and Jerry. We were deeply engaged in all of our investments and we had one or two employees other than ourselves. We did very well in that period. In mid 1999, we went on a binge, raised a huge fund ($350mm), moved into a massive office, hired a staff of 25, made investments we weren't engaged in, and got fat. We did poorly in that period. We shuttered Flatiron in 2001 and I took over the entire portfolio with the help of Jerry and Bob. It was basically back to the early model. We did very well in that period."

Exactly. But even if that weren't the case business is about risk taking. They did poorly because the market tanked and/or they made bad bets. Had neither of those two things occurred the offices and the people would have been fine. (A rising tide and all of that.)

What he is really saying is that there is less risk with less people since he can more carefully manage the risk when he doesn't have a hand in so many pots. And that works in that type of a business. It's certainly not what the investors of groupon want.

That being said if Fred didn't spend time writing a blog he would have more time to manage more investments. I'm sure he devotes many hours per day to that blog. But he has decided he is happy with the amount of deals and activity he is doing right now and the other benefits he gets from blogging (attracting better deals and potential celebrity).

Something amused me about this post - its a bit like a diet guru flying to Somalia and extolling the virtues of a low-carb diet.

Innovation is born from constraint. Entrepreneurs are relentlessly resourceful because they have to be - not because they can be.

When a VC firm runs on a minimal team, its because it is the preferred model out of many choices. When a startup runs on minimal resources, its because they have no other choice.

The point of lean startup is to focus on learning about customers, and use every conceivable resource to evolve the product team's understanding of how to deliver a great user experience. Things change when the organization becomes well resourced - its not about saving up your pennies anymore to figure out how to learn - its about allocating the resources you have most efficiently to achieve a goal (Occam's razor).

Fred writes awesome posts, but being lean out of necessity will always create a different culture than being lean as a choice and the article did not make this very meaningful distinction.

I think being lean out of choice is substantially superior. If you're lean only out of necessity, then you're in deep trouble when necessity vanishes.

Even in a startup where you're lean by necessity, there are plenty of opportunities to be more efficient still. That's especially true when you're talking about long-term efficiencies. Being lean in a considered way means you're more able to avoid the sort of penny-wise, pound-foolish decisions that a low bank balance can encourage.

I didn't mean constraint in the sense of not having capital - more in the sense of not having enough resources (people, connections, knowledge, skills, time, capital, etc) to overcome the external obstacles your perceive on the way to accomplishing the goal of the company.

You can have plenty of money in the bank and still be in a business where you need to capture a huge market that is cost prohibitive before the company is sustainable. Or perhaps fend off a competitor with more resources at their disposal. That is constraint, that is necessity vs choice - this kind of lean culture requires throwing everything you have at the problem plus getting clever to make up for the resources you lack.

I don't quiet agree with that. I believe "lean" definitely is a "state of mind" and the truly lean entrepreneurs are lean irrespective of constraints and I have seen this first hand on several occasions. I know more than a handful founders who have made their money with multiple exits and yet they are lean across the board in every way.

For fellow developers worried that "Lean" is just a buzzword, I've got two books to recommend:

"Lean Software Development" by Mary Poppendieck. Talks about what Lean Manufacturing principles look like when applied to software development: http://www.amazon.com/dp/0321150783

"Toyota Kata" by Mike Rother. Nominally about Toyota's personnel management. Actually about the philosophy behind Lean, and how most American companies trying Lean are missing the deeper point. http://www.amazon.com/dp/0071635238

To me, Lean is what you get when engineers think sufficiently hard about the nature of business. It is deeply different than the MBA dogma that passes for business thinking in the US.

Thanks, I will check those out.

To add: I highly recommend Principles of Product Development Flow (http://www.amazon.com/Principles-Product-Development-Flow-Ge...) - incredibly difficult book to read (i.e. lots of good but dense information) but it explains well the underlying principles - and thus goes beyond the buzzwords.

Why are a couple of books any kind of evidence that "Lean" is more than a buzzword?

Airport book stores have many buzzword books for sale :-)

This may come as a surprise, but if you open a book you will find it has contents. You can even read them if you want. It is the contents of those books I was referring people to.

Perhaps you find the idea of clarifying your comment surprising and that's why you respond with sarcasm.

Why do you think - fellow developers worried that "Lean" is just a buzzword - would be willing to invest their time reading books about something they are already worried is just a buzzword?

Because some people know the difference between leaping to a conclusion and learning a little something before they make up their mind. And because many developers would sincerely like to improve the way they work, giving the motivation to seek out new approaches.

We have limited time. There are more new approaches than we have time to evaluate. Should choose which approaches to evaluate based on whether someone's selling a book and a training course?

Great post and something that is necessary to make sure that the "lean movement" is not perceived as something brand new that was not known to any of us earlier. Eric and Steve have done a stellar stellar job of "teaching lean" and making it easy to understand. But lean has existed in product development, engineering, operations and other functional areas for a long time and the successful people have done these exact things for a long time. But it was never before as well defined and given a name - which Steve and Eric done so brilliantly.

I feel like you can substitute the word "better" for all occurrences of "lean" in the article and no meaning is lost.

Lean versus fat is not the question. The question is smart versus foolish.

Just how to write software and how to do an information technology (IT) startup have evolved over the past 10-20 years due to (1) much more capable computers for much less money, (2) great progress in 'infrastructure' software, (3) the Internet, and (4) the broad idea of the 'social Web'.

So, it's possible to have a rough, maybe 'social', 'business idea', write some prototype code, see how well users like it, revise, iterate, etc.

However the old approach can remain an opportunity: Pick a big problem where a much better solution would be very valuable; find a good solution, even if implemented in software, possibly based mostly not just on routine software, wrap the solution in whatever user interface is needed, and present the result to the people who wanted the problem solved. Here are not really 'in search of a problem users would like to have solved or a business model' and, instead, did pick a good problem to begin with. Here 'lean' with lots of 'pivots' and 'iterations' is not very appropriate, and the 'lean' movement doesn't bring much that is new and good.

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