Chapter 13: Eric Ries’s Epilogue to the Lean Startup

What different research programs can we engage in to discover how to work more effectively? We have little knowledge of what triggers productivity under extreme uncertain situations. Therefore, Eric Ries has suggested that we should create testing labs at our startups that could put all manner of product development methodologies to test. We could bring in small cross-functional teams, maybe starting with the product and engineering teams, and make them work to solve problems using different development methodologies. We could start with problems with clear answers drawn from many international programming competitions that have developed databases of apparent problems with clear solutions. These competitions also provide a clear baseline of how long it should take for various problems to be solved for us to establish the individual problem-solving skills of the experiment subjects.

By using this type of setup for calibration, we could start differing the conditions of the experiments. The challenge will be to increase the level of uncertainty about the correct answer while objectively measuring the quality of the result. We could either use real customer problems and then have real customers test the result of the teams’ work, or we could build an MVP for solving the same set of problems repeatedly to quantify which produces the best customer conversion rates. We could also differ the all-important cycle time by selecting more or less complicated development platforms and distribution channels to test the impact of those factors on the team’s real productivity.

Importantly, we must develop clear ways of holding teams responsible for validated learning. For this purpose, Eric Ries has suggested innovation accounting. However, we cannot assume that this is the best way as more companies develop new ways, and thus we need to examine which is the best way to hold teams accountable.

13.0 The Long-Term Stock Exchange

More than simple research, Eric Ries believes that the goal should be to change the whole entrepreneurship ecosystem. Too much of the startup industry has led to a feeder system for giant media companies and investment banks. Part of the reason why established companies struggle to invest continuously in innovation accounting is due to too much pressure from public markets to hit short-term profitability and growth targets. This results from the accounting methods developed for evaluating managers, focusing on the gross vanity metrics we explored in chapter 7. What’s required is a Long Term Stock Exchange designed to trade in the stocks of companies that are made to sustain long-term thinking.

Companies on the LTSE would report using innovation accounting in their internal entrepreneurship efforts. Just like Intuit, they would report on the revenue they were generating from products that did not exist a few years ago. Trading on the LTSE would have higher transaction costs and fees to reduce day trading and substantial price swings. In exchange, LTSE companies would be permitted to structure their corporate governance to ease more freedom for management to pursue long-term investments. Moreover, to support long-term thinking, the LTSE’s transparency will provide valuable data on how to nurture innovation in the real world. As a result, the LTSE would increase the creation of the next generation of successful companies built from the ground up for consistent innovation.