Scott Cook
Kevin Systrom

Instagram And Intuit Founders Discuss Lean Startups, Pivots, And What Makes A Product Successful

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Today at TechCrunch Disrupt, Founder of Intuit Scott Cook, writer and former CTO at IMVU Eric Ries, and Instagram Co-founder Kevin Systrom gathered to discuss concepts from Ries’ new book, The Lean Startup.

While “lean” is thrown around a lot as modifier for contemporary businesses, Ries said that with his book he hopes to clear up one of the big misconceptions in defining the term; for starters, “lean” does not mean being cheap or frugal, it’s about being efficient and taking a smarter approach to the development of your product.

By way of example, Ries cited his favorite entrepreneurial movie, Ghostbusters, as the classic model for the development stages of startups. Act 1, he said, is all about who the guys are and how they come up with their great idea, whereas Act 3 finds them on the cover of magazines, having hit the big time.

Act 2, which is often short — and takes the form of a quick photo montage on screen — is the most important and often most overlooked part of a business’ development, in which the startup attracts their first customers. Here startups often suffer from the same repeat mistakes, unsure of when and how to pivot and which customers to listen to. By becoming more scientific in their approach to “Act 2″, startups can increase their chances of being successful. (And obviously by buying Ries’ book.)

The Intuit founder joined in to say that this Act 2 had been a particularly difficult stage of growth both for Intuit and the many startups its acquired over the years — particularly interesting to hear from the co-founder of a company that’s currently seeing $3.85 billion in annual revenue. Cook said that time and time again his team was spending Herculean efforts on delivering products that ended up fizzling out without much fanfare or success.

“I got sick of wasting months and years of engineering time on products that just weren’t going anywhere and weren’t changing customers lives”, Cook said. “So, as a result, we’ve recently blown up the way in which we develop products” — a drastic change from the way the company developed products five years ago.

As an example, Cook cited QuickBooks‘ desktop product. Formerly, he said, “we had huge teams” working on QuickBooks, but the company has recently done away with large format development, breaking product development down into teams “no bigger than four”, focusing on rapid development of a prototype and quick testing of the market.

Intuit is now focusing on launching prototypes that customers can test and tinker with over a matter of months, rather than taking what might be years to fine tune a particular product. In the old days, he said, this would happen over a much longer time span. “We’re now focused on how many weeks after hatching the idea it takes to get the product into the hands of the customers, to test and see how it works”.

Ries then joined in to say that he is often asked by founders if there is some kind of magical elixir (or formula) for startup and product success; using Intuit as an example, he said that teams that are most often successful are so because senior management allows them to operate on “an island of freedom”, in which they can report progress only when they actually have something to report — they remain free to iterate, test, and are not beholden to a series of strict deadlines and check points.

The key in pivoting, he said, is not to throw away a product or idea completely but to use what’s already there to better fit customers. Schonfeld, who was moderating the panel, said that he brought on Kevin Systrom of Instagram, because his company of only four people seems to be such a classic example of a “lean startup”. Systrom said that, in the early days of Burbn (which has since become Instagram), the team was operating under the presumption that it is always a startup’s first idea that will take off. As a result, it’s often difficult for founding teams to pivot away from their founding ideas to iterate and try new things.

Systrom said that he and his co-founders had a moment of recoking early on, where they sat down and attempted to define the one thing that made their business unique, and though posting photos was only one feature of Burbn, they decided that photos were what users loved the most and what made their business — at a base level — interesting. To refocus on one particular thing, he said, is extremely difficult for founders and often takes a lot of guts, especially seeing as founders will often have no idea at the time whether that decision will prove to be prescient.

Systrom echoed what Ries had touched on earlier, in that the word “pivot” is often misused today as a process by which entrepreneurs throw out everything that they’re doing and completely refocus on something new. For Instagram, Systrom said, although the team made a pivot early on, the backend that he built for Burbn is still there, and his experience has taught him that it’s important to create something new out of what one has already built.

When to make the decision to pivot is, of course, not so clear. “I’m not sure it’s ever clear when founders should begin working on something new — that decisions isn’t clear, and it’s never really a particular point, it’s a gradient”, he said. If founders don’t see a kind of addictive behavior among early users, having users ask why the site is down (should that happen), then you know you’re onto something good.

Cook then said that, from his experience of coaching more than 50 startups inside Intuit, those that run experiments based on a numeric hypothesis, then run the actual experiment and compare the two to see if the product meets expectations (or how far off it is) is the easiest way to have that “come to Jesus moment”. Startups should look for the surprises in those experiments — “search for and savor those surprises”, he said. He cited the example of Instagram, in Systrom’s (at the time) somewhat surprising and fingers-crossed decision to hone in on and narrow the focus to photos as the beginning of a success story he’s run across many times.

Instead of vanity metrics — a term Ries has coined to denote those eye-grabbing yet ultimately misleading stats startups like to trump to press — Cook said that founders should focus on “love metrics”, meaning how much people love the product, how often they come back, how delighted they are. “If you’re not getting high activity from the users you already have, it’s time to pivot”, the Intuit co-founder said.

Cook also warned entrepreneurs against falling in love with the solution rather than focusing on being delighted by the problem. Often, founders end up finding — after much wasted time and frustration — that it is their original vision of the solution that is flawed. But if founders never lose sight of the problem, how teams attack the solution can remain more flexible, more iterative, and in the end make a product more likely to succeed.

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