August Book Club: How Do We Know When We’re Good?
Food For Thought
This week, as you read The Lean Startup think about how we measure or could measure better our success. How do we know when we are adding value? We put out our “product” every day and people come to us and “use” it, but how do we know what works for our readers the best? How do we know what works for our advertising clients best?
Below is an excerpt to spur your thinking. It’s from the very beginning of part 2, in which there are a number of great stories that provide examples for what Eric Ries is after in this book.
From TLS
In 2004, three college sophomores arrived in Silicon Valley with their fledgeling college social network. It was live on a handful of college campuses. It was not the market-leading social network or even the first college social network; other companies had launched sooner and with more features. With 150,000 registered users, it made very little revenue, yet that summer they raised their first $500,000 in venture capital. Less than a year later, they raised an additional $12.7 million.
Of course, by now you’ve guessed that these three college sophomores were Mark Zuckerberg, Dustin Moscowitz, and Chris Hughes of Facebook. Their story is now world famous. Many things about it are remarkable, but I’d like to focus on only one: how Facebook was able to raise so much money when its actual usage was so small.
By all accounts, what impressed investors the most were two facts about Facebook’s early growth. The first fact was the raw amount of time Facebook’s active users spent on the site. More than half of the users came back to the site every single day. This is an example of how a company can validate its value hypothesis – that customers find the product valuable. The second impressive thing about Facebook’s early traction was the rate at which it had taken over its first few college campuses. The rate of growth was staggering: Facebook launched on February 4, 2004, and by the end of that month almost three quarters of Harvard’s undergraduates were using it, without a dollar of marketing or advertising having been spent. In other words, Facebook also had validated its growth hypothesis. These two hypotheses represent two of the most important leap-of-faith questions any new startup faces.
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Many entrepreneurs are attempting to build the next Facebook, yet when they try to apply the lessons of Facebook and other famous startup success stories, they quickly get confused. Is the lesson of Facebook that startups should not charge customers money in the early days? Or is it that startups should never spend money on marketing? These questions cannot be answered in the abstract; there are an almost infinite number of counterexamples for any technique. Instead, as we saw in Part One, startups need to conduct experiments that help determine what techniques will work in their unique circumstances.
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