Power of Compound Growth - for Innovation

Lean is a popular approach followed in manufacturing to drive out waste and improve performance.  Lean got its start with Deming in Japan, as The Toyota Way and Six Sigma proved their worth.  It’s good approach for just about any business or group, not just manufacturing firms and teams.  If you manage a group and don’t know Lean, then learn about it.   Eric Ries took many of the same ideas and applied them to running startup companies, wrote a book and built a consultancy on it, and that’s the hot approach today from the denizens of Stanford and Harvard, much of Silicon Valley, and recently GE with their FastWorks initiative.

Eric’s book The Lean Startup is worth reading if you’re entrepreneurial at any level, but in a nutshell his approach is to embrace an experimental approach to running your startup, devising meaningful but small tests to hone your assumptions, refine your approach, polish technological solutions, and court your customer base.  By using small tests – placing small bets – and learning rapidly, you can make rapid tiny improvements that over time fuels significant growth.  The book Small Bets suggests much the same approach.

The rapid experiment-feedback approach results in a learning organization, and this is a critically important point.  If we think back to effective teams, and consider what great teams do best, you’ll see that they learn and adapt, and find ways to succeed.  Great teams collectively do better than great individuals can do individually, and all a startup really is another team with lofty goals.  What better way to run your great team than to have it think like a startup, with that heady mix of high expectations, significant risk, tight constraints, time pressures, and (hopefully) large rewards? 

The Startup Way and Small Bets both discuss the value of compounded growth, but it’s Hidalgo’s How Information Grows that adds a theoretical context:  when systems iterate with repeated decisions or choice at each cycle (termed preferential attachment), the result is a power-law distribution, with winner-take-all scenarios like Facebook and Google as an outcome.   As you might intuit, companies (or any system) that can either cycle faster, or make more improvements per cycle, will win out over time, even if they start from behind.  If you’re my age you’ll recall using both established heavy-weights Alta-Vista and Yahoo when searching for news about that fledgling start-up called Google.

Next time we’ll shift a bit from talking about teams and companies, and chat a bit about broader interconnected networks of people, and the understated and underappreciated power of such networks.   Until then, here’s a some Cliff’s Notes on the current realm of business books:  Devise purposeful experiments in your market, make small bets with direct customer feedback, fail forward by learning from wins and losses, leverage meaningful metrics to account your progress, iterate quickly, and have fun!