How The Build-Measure-Learn Cycle Really Works
Every business wants to succeed; who doesn’t? Unfortunately, not everyone makes it past the one-year mark. Others even do not manage to survive for a period shorter than that. The failure of most startups can be pinned on a number of reasons: lack of funding, poor management, or even a poor business model to begin with. Much of the success of any business, however, would rely on how the owner or the management acts.
What decisions do they make, and how do they reach these decisions? What strategies do they employ in managing their startup? These are only some of the questions that would bring to light the reasons why the startup succeeded or fell short of expectations.
In this article, we will 1) get a basic understanding of the lean startup method and its advantages, 2) learn about the principles of the lean startup method, 3) overview on the build-measure-learn cycle, and 4) an example of how Zappos used the build-measure-learn cycle.
THE LEAN STARTUP METHOD
Among the several known approaches towards creating and managing startups, one of the most popular ones is the Lean Startup Method. This method offers a scientific approach, introducing a systematic way for business owners to engage in new product development. It provides answers on how to set up their startup, and how to steer and turn it, in order for it to succeed and grow.
In this methodology, startups will test an idea with the potential users and quickly moving it to come up with a product. It will then obtain feedback on the product from users and adjust the product accordingly, depending on the response or feedback obtained. This method is best embodied in the cycle known as “Build Measure Learn”.
Advantages of Using the Lean Startup Method
- This approach provides tools that can be used to test whether a vision works or not. These tools will certainly provide an order to things since it provides a systematic process to ascertain whether to continue pursuing new product development projects or to abandon the idea altogether.
- Application of the Lean Startup Method will instill in entrepreneurs a certain degree of confidence in their business idea turning into products. Owners will definitely have more faith and positive vibes attached to a product that has passed the initial “experiment”.
- Using this feedback-focused development process will enable startups to use their resources – which are already limited, to begin with – in a more effective and efficient manner. Time and labor are considerably reduced, since they are able to put the product to the test and see if it is viable before investing more time and money into it.
- Since the process is systematic, and it requires fast action and quick thinking, the lean method will allow startups to speed up the new product development cycle.
PRINCIPLES OF THE LEAN STARTUP METHOD
The Lean Startup Method follows five principles.
- Entrepreneurs are everywhere. Indeed, anyone can be an entrepreneur, as long as you have a viable idea, the determination to see it through, and the resources to make it happen. You do not have to be in a specific line of work in order to be in a startup.
- Entrepreneurship is management. When we talk of a startup, we are not referring to just a single product or service. It is a business – an institution – and, as such, it also requires management. Of course, not all startups require the same type or approach to management. Depending on the context of the startup, or the line of business or industry it belongs to, it will require a specific kind of management.
- Validated learning. Some would say that entrepreneurs create startups in order to make money. But that is not the “bigger picture”. Sure, they will have their eye on the profits, but there is a bigger goal at hand, and that is building the startup into a sustainable business. Fortunately, achieving this goal is something that entrepreneurs can learn about, and this can be done by studying and learning about the market, and various other aspects that have an impact on the business.
- Innovation accounting. Being able to quantify things is also important in order to monitor and evaluate or assess outcomes. Thus, startups have to be subjected to a new kind of accounting, in order for progress to be measured. As a result, the business will be able to monitor their progress, make the necessary adjustments, set up milestones when necessary, and prioritize projects and work.
- Build-measure-learn. Feedback plays a very important role in every business, and it is especially vital in the case of startups. After turning ideas into products, startups are especially focused on seeing how the customers or the market respond to their products, and to assess whether they should continue or just cut their losses and run. Having a feedback mechanism will definitely help in making this happen.
THE BUILD-MEASURE-LEARN CYCLE
The Build-Measure-Learn cycle is a feedback loop that is said to be one of the core components of the Lean Startup methodology. Its goal is to turn uncertainties, assumptions and risks into knowledge or “sure things” that will eventually guide organizations and business towards progress. Through this process, the key unknowns can actually be transformed into knowledge that the startup can use in its product development – and business operations, as a whole. This whole process can also be called an experiment.
In order to understand how the Build-Measure-Learn cycle works, let us first take a look at its components.
Phases of the Build-Measure-Learn Cycle
There are three phases to this loop: Build, Measure, and Learn. However, it does not have to be strictly in that order. It is, after all, a cycle. In the book entitled “The Lean Startup”, Eric Ries said that, although the startup’s activities happen in the build, measure, and learn order, planning actually works the other way around.
In short, the startup will have to realize what it needs to learn, and then figure out what needs to be measured through the use of innovation accounting. This will eventually reveal whether the startup has gained validated learning or not. Finally, it will then figure out what product must be built.
Let us go through the phases of this loop. Before you can start, however, there is a need to “frame” the experiment. This is where you will identify what problem needs to be solved, and how you will run the whole experiment. This entails gathering data and detailing the background of the experiment, formulating a hypothesis and considering the variables of the environment. From there, you can now start with the feedback loop.
Phase #1. BUILD
In this phase, the startup’s goal is to build or develop its MVP – “minimum viable product”, or the bare minimum product that can be built for the purpose of testing a number of assumptions, or the hypothesis formulated – as quickly as possible. Before it can do that, however, the startup must first figure out what the problem that needs solving is.
- Design the experiment. First, you have to build out the details of the experiment and figure out how everything will fit and mesh together. For this, you must have a solid and reliable method of collecting data, meaning the data gathered must be reliable and actionable.
- Build the experiment. In this stage, think simple and small. Many startups tend to go big and complicated on the get-go, and they end up being overwhelmed and unable to handle it. It would be better to build the smallest possible increment that will still be enough for you to use to validate or reject the hypothesis you have made previously.
- Run the experiment. This is where you will collect the data. The most common methods include conducting interviews or distributing questionnaires. In some instances, others may come out with prototypes for testing.
Among the activities that Eric Ries identified as part of the Build phase includes conducting unit tests, usability tests, refactoring, and cloud computing.
Phase #2: MEASURE
In this second phase, the startup must then determine whether real progress is being made or not, and this involves measuring the results obtained from the experiment performed during the BUILD phase.
- Data analysis. Analyze the data obtained from the experiment. What happened? What are the implications of the data to your hypothesis? Make a comparison on what you hypothesized to what actually happene
- Data organization. Organize your data in a way that will make it easily understood, and for the whole scenario to be easily comprehended by whoever listens to it.
- Data Presentation. Make your presentation of the data as compelling as possible. You want the members of the organization or the company to be engaged, so make sure you present it in a way that will truly grab their attention and hook them.
Phase #3: LEARN
This is where the startup will have to make a decision based on the measurements accumulated: should it “persevere”, or should it “pivot”? Persevere, in this context, means carrying on with the same goals, while pivot entails changing or shifting some, or all, of the aspects of the product strategy. Afterward, you would have to document your findings and share them.
The questions that are to be asked in this phase include looking into the knowledge that has been obtained. How should that knowledge be preserved?
More importantly, what are the next steps that should be taken by the startup?
Ries cited several activities for this phase including, but not limited to, conducting customer interviews, split tests, customer deployment, and smoke tests.
The 3 phases of the cycle can be simplified in the following activities.
- Ask whether the new idea of the startup actually solves a problem for the users.
- Quickly come up with an action or a program that will test the idea with the users. Perform reassessment or reevaluation if needed.
- Obtain feedback from your us Focus on getting information that is relevant and will be useful in helping you create the product / service that is wanted or needed by the users.
- Consider the sustainability of the product or service. Will you be able to maintain the current level of engagement or service?
Illustrative Example of the Application of the Build-Measure-Learn Cycle
For purposes of discussion, let us take a look at a mobile app startup and how it should employ the Build-Measure-Learn feedback loop.
Some mobile app startups would follow this process: they have an idea for an app, and they immediately write everything down on their business plan. Next, they design the app on paper, and they would then start writing the code and finish the development of the app. Once it has been finished, they will begin talking to customers and selling the app.
That is not how the Build-Measure-Learn approach works.
Application of this cycle would follow entail the following steps.
- The mobile app startup comes up with an idea.
- The startup comes up with a business model canvas, presented in a short business plan. (BUILD)
- They start talking with customers and ask them what features they are looking for in an app. (MEASURE)
- They will obtain the feedback of customers. (LEARN)
- Using the feedback obtained, they will have to repeat Step 2 and make revisions on the business plan until they get it right.
- Once they got the business plan right, they would proceed to the implementation of a prototype, or the MVP (minimum viable product) for testing. (BUILD)
- The prototype is then shown to the customers. (MEASURE)
- Feedback from customers is obtained and learned. (LEARN)
- Step 6 is repeated, making improvements on the prototype until they got the app right.
THE ZAPPOS STORY
Zappos.com has been cited by many analysts as a great example of a company that made use of the Lean Startup Method, particularly the Build-Measure-Learn cycle.
Now considered to be one of the biggest online shoe and clothing shops in the world, Zappos was founded in 1999 as a startup. It was originally just a site where customers can order shoes. It is not a manufacturer or a retailer since it does not have any shoe inventory. This was the Build phase.
When the first orders started coming in, the founders of the startup went to a local store to purchase the shoes that have been ordered and subsequently shipped them to the customers who placed the order. This was where they implemented the Measure phase of the cycle.
The Learn phase came in as the founders tried to gauge the interest of the customers in their idea and even obtained their thoughts and reactions to it. Using the lessons learned from the first orders, they made the necessary adjustments and iterations, applied improvements, and continued the cycle.
Some could say that this has an element of “trial and error”, and they wouldn’t be wrong.
A crucial element in the whole Build-Measure-Learn cycle is the reliance on customer feedback and reactions. It can be said that much of the success of the application of this cycle in the case of Zappos was the fact that the online shoe store makes use of a loyalty business model and utilized relationship marketing heavily.
Zappos could have gone another route entirely. It could have started its shoe inventory and simple resold them. However, by using the Build-Measure-Learn approach, it was able to test the waters first, so to speak. Instead of spending a lot of time building its inventory and hiring personnel to handle operations, it stuck to just the founders doing all the work, and getting orders first before procuring the shoes. Their first attempt worked, and it was only then that the founders decided to continue (“persevere”) with it. Today, Zappos is no longer limited to the sale of shoes, but is also selling other items as well, and that could be attributed to them “learning” that customers are also interested in buying merchandise other than shoes or footwear.
That is not to say that Zappos would have failed if it did not use the Build-Measure-Learn feedback loop. It would probably still have succeeded, but they may have taken more time to achieve the results they wanted. What this feedback loop did for Zappos, however, was to make sure that the process was accomplished quicker. Otherwise, Zappos might have taken longer to become established as the successful marketplace and retail giant that it is today.
To summarize, the Build-Measure-Learn loop pertains to the cyclical process of turning ideas into products, measuring the reactions, response, and behaviors of the customers against the products that have been built, and learning whether to persevere or pivot the idea.
Dear fellow entrepreneurs and readers of Entrepreneurial Insights / Cleverism! In autumn of 2014 …