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The science and profit model behind Lean analytics

Lean analytics takes a bow, Airbnb experiments, and troubled grocery stores prove the importance of Agile practices: The Data Mill reports.

Close readers of SearchCIO will have heard of the book Lean Startup by Eric Ries. His idea is that startups that quickly produce a prototype, get it out the door and let their potential marketplace weigh in are way ahead of the crowd. Instead of spending time honing the perfect product, these startups march through an iterative cycle of hypothesis, test, learn and adjust and voila!, outdo the competition. As you can imagine, the concept is now catching on big time with the big guys.

Nicole LaskowskiNicole Laskowski

Any data scientist (or reasonably observant person) also knows, however, that for hypothesis and experimentation to work, you need good data. Enter Lean Analytics: Use Data to Build a Better Startup Faster, one of the newest installments in the Lean series. One area that authors Alistair Croll and Ben Yoskovitz focus heavily on is the importance of good metrics. Not the vanity kind, they say -- those cherry-picked numbers that dress up a product's viability and are beloved by marketing -- but metrics that are core to growing the business (or an IT department, for that matter).

"You have to be able to show quantitatively that customer behavior that matters to the business case you're working on is being improved as you go from iteration to iteration," explains Ries, who curates the Lean series. In other words, iteration for iteration's sake doesn't cut it.

Airbnb experiments

That kind of science-y, Lean analytics approach helped Airbnb Inc. increase its business five-fold, according to Joe Zadeh, head of product and innovation. The San Francisco-based company provides an online platform that connects individuals who have space to rent for short-term stays with travelers in need of lodging. When listing an available apartment, room or even house to rent, "hosts" can also provide images. That got the company to thinking, Zadeh said at this year's The Lean Startup SXSW in Austin, Texas: What if Airbnb started offering professional photographers to hosts? Would it improve how often a piece of property was listed?

The testing phase started small; a year and a half later, the experiment turned into hiring 20 photographers who produced hundreds of shoots a month. The trend caught on and grew so steadily, the company had to build new tools and establish new image standards for the site.

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In three years, the number of nights booked through Airbnb went from less than one million to almost five million. And sure, Zadeh said, professional photography can't take all of the credit, but it certainly helped.

Data-driven vs. intuition

Turning startup success into a scientific experiment takes the guesswork out of the equation. It's another example of the "data over intuition" model that's making its way across today's businesses -- from retail to banking and beyond. Yet becoming too data-driven without intuition isn't an automatic recipe for success. The truth is, you need both, said Ries during a recent webinar on Lean analytics.

Here's how he put it, invoking the greatest scientist who ever lived: "When you ask, 'Was Einstein data-driven or intuition-driven?' you immediately see what a dumb question this is, because there's no science without a good hypothesis, and there's no substitute for the fact that people who have creative genius [and can] make that intuitive leap are critical to any kind of discovery," he said.

The good news for all of us non-geniuses: Business intuition is a learned behavior; it is a skill developed using the data that comes out of successes and failures, Ries said. Live and learn.

The Agile life

We recently reported on a surprising turn of events for a New England grocery chain that decided to dump its customer loyalty program in an effort to provide lower prices across the board. But now we're hearing that Shaw's will be dumping more than just that. Its parent company, Cerberus Capital Management, is closing six stores in New Hampshire. They're not alone; another New England-based chain, Stop & Shop, will be closing six of its stores in that state as well.

One theory as to why? According to New Hampshire's The Union Leader, both chains clung to customer loyalty programs and failed to adjust that business model when the economy tanked. That gave competitors known for their always-low prices, such as Market Basket, the upper hand. Sounds like another argument for Agile to me.

This is The Data Mill, a weekly column devoted to all things data. Heard something newsy (or gossipy)? Email me or find me on Twitter at @TT_Nicole.

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