Lean Analytics

Foreword

For some reason, the Lean Startup movement has proven excellent at producing bumper stickers. Odds are, if you’re reading this, you know some of our most popular additions to the business lexicon: pivot, minimum viable product, Build-Measure-Learn, continuous deployment, or Steve Blank’s famous “get out of the building.” Some of these you can already buy on a t-shirt.

Given that the past few years of my life have been dedicated to promoting these concepts, I am not now trying to diminish their importance. We are living through a transformation in the way work is done, and these concepts are key elements of that change. The Lean Series is dedicated to bringing this transformation to life by moving beyond the bumper stickers and diving deep into the details.

Lean Analytics takes this mission to a whole new level.

On the surface, this new world seems exciting and bold. Innovation, new sources of growth, the glory of product/market fit and the agony of failures and pivots all make for riveting drama. But all of this work rests on a foundation made of far more boring stuff: accounting, math, and metrics. And the traditional accounting metrics—when applied to the uncertainties of innovation—are surprisingly dangerous. We call them vanity metrics, the numbers that make you feel good but seriously mislead. Avoiding them requires a whole new accounting discipline, which I call “innovation accounting.”

Trust me, as an entrepreneur, I had no interest in accounting as a subject. To be honest, in far too many of my companies, the accounting was incredibly simple anyway: revenue, margins, free cash flows—they were all zero.

But accounting is at the heart of our modern management techniques. Since the days of Frederick Winslow Taylor, we have assessed the skill of managers by comparing their results to the forecast. Beat the plan, get a promotion. Miss the plan, and your stock price declines. And for some kinds of products, this works just fine. Accurate forecasting requires a long and stable operating history from which to make the forecast. The longer and more stable, the more accurate.

And yet who really feels like the world is getting more and more stable every day? Whenever conditions change, or we attempt to change them by introducing a truly new product, accurate forecasting becomes nearly impossible. And without that yardstick, how do we evaluate if we’re making progress? If we’re busy building the wrong product, why should we be proud to be doing it on time and on budget? This is the reason we need a new understanding of how to measure progress, both for ourselves as entrepreneurs and managers, as investors in the companies we fund, and the teams under our purview.

That is why an accounting revolution is required if we’re to succeed in this new era of work. And Ben and Alistair have done the incredibly hard work of surveying the best thinking on the metrics and analytics, gathering in-depth examples, and breaking new ground in presenting their own frameworks for figuring out which metrics matter, and when. Their work collecting industry-wide benchmarks to use for a variety of key metrics is worth the price of admission all by itself.

This is not a theoretical work, but a guide for all practitioners who seek new sources of growth. I wish you happy hunting.

Eric Ries

San Francisco

February 4, 2013