Achieving a balanced budget at the Houses of Parliament with lean startup principles.

Last week Daniel Valentine, Chairman of Conservative Postgrads, organised a very well attended debate on achieving a balanced budget at the Houses of Parliament. There was a whole range of topics discussed including Jack Matthews, who won best speaker, discussing extractive industries and Rory White-Andrews, who won best submission, presenting about a flat tax.

I had planned on presenting during the debate myself on “applying lean startup principles to central government”. Sadly however public transport meant that it wasn’t to be, so I’d like to outline here what I would have said. Lean startup thinking was developed by a silicon valley entrepreneur called Eric Reis who noticed that too many startups were beginning with an idea for a product or service they believed that people want.

After this they then spend months, and sometimes even years, perfecting that product without ever allowing any customers to see it, even in a very early form, to the prospective customer. Then when they fail to reach public appeal from customers, it is often because they have not spoken to their prospective customers and decided whether or not the product was interesting. When customers then finally communicate, through their indifference, that they have no interest in the idea, the startup fails.

The methodology of lean startup has the principle of getting entrepreneurs to not ask “can this product be built?” but instead ask questions like “should this product be built?” and “can we build a sustainable business around this set of products and services?”. However these questions aren’t just about research and theoretical inquiry, it’s about making that search the first product.

What this means is that it allows the project manager to get started with the non-product parts of their business from the start including enlisting early adopters, adding employees to each further experiment or iteration and eventually starting to build a product. The result being that by the time the product is ready to be distributed widely it will already have established customers, will have solved real world problems rather than trying to predict what problems may arise and will have a detailed roadmap of what needs to be built to satisfy customers.

The lean startup philosophy is based on lean manufacturing, the streamlined production philosophy developed in the 1980s by Japanese auto manufacturers. The lean manufacturing system considers as waste absolutely any expenditure of resources for any goal other than the creation of value for the end customer, in the case of government – the taxpayer, and therefore to be eliminated.

Eric Reis’s theory is to eliminate wasteful practices and increase value producing practices during the product development phase so that startups can reduce the risk of failure. He also places a large emphasis on customer feedback during the product development stage which has the effect of preventing investment designing features or services that consumers do not want and focusing on those they demand. This can be achieved primarily through two processes using key performance indicators and a continuous deployment process.

Ries maintains that by releasing a minimum viable product that is not yet finalized, the company can then make use of customer feedback to help further tailor their product to the specific needs of its customers. This methodology has already been applied by the United States. When the Whitehouse signed the Dodd-Frank Wall Street Reform and Consumer Protection Act into law it, among other things, mandated the creation of a new federal agency, the Consumer Financial Protection Bureau, which would be tasked with protecting American citizens from predatory lending by financial services companies.

They then consulted Eric Reis to help see how they could apply the lean startup model to a new government agency. By applying lean startup principles from the very beginning the agency developed a website called “Know Before You Owe” which offered a simple gaming dynamic to generate data on what worked and what didn’t. This website launched in May 2011 with two separate designs displayed to different audiences. The public then experimented upon the site and provide feedback. The CFPB built tools to allow it make sense of the feedback and analyse more than 13,000 user comments, refining and changing the website users were presented with each day.

The same lean startup principles were also applied in the development of the http://healthcare.gov/ website which was launched in under ninety days and at a tiny fraction of the cost the federal government usually spends on projects of a similar scope.

Ries said “The first version didn’t have much functionality, but it was enough for the agency to start getting feedback from citizens about how they would use it. After all, if something gets built without anyone ever having seen it or without ever getting any user feedback, then what’s the point? You can build something no one wants and no one uses, and it becomes a complete waste of money and time.”

He also noted a range of other benefits too such as that in during the user testing and feedback stage they discovered that the specific kinds of information people were searching for was quite unexpected which allowed them iterate the product and add new features which were specific to customer demands.

Lean startup methodology is all about figuring out how to make resources available, how to structure the team and what metrics will be used to track progress. This methodology could be applied to new projects launched by central and local governments in the UK to reduce waste and the risk of producing projects where the public has no demand for them. Lean startup theory chimes with times of austerity in that it assessing the specific demands of consumers and how to meet that demand using the least amount of resources possible.