The Use of Agile Methods by the Entrepreneur

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The Use of Agile Methods by the Entrepreneur

• Israel Gat
• Sebastian Hassinger

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A Different Kind of Presentation

• Aspires to foster discussion of new topics and
  draw in new constituencies to Agile Austin
• Entrepreneurs, Intrapreneurs, Venture capitalists
• This presentation is a 'think-piece,' the
  spelling out of an interpretation, with enough
  illustrations to strengthen the case and
  stimulate interaction.
• Paraphrased after Carlota Perez
• Agile is becoming more business-relevant amidst
  the current macro-economic crisis
• Focused on the What of Agile rather than the
  How
• Applies Agile principles end-to-end, and then
  some
• Primarily with respect to contractual aspects
• Secondarily with respect to customer development
  aspects

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Agenda

• Part I A New Paradigm
• Part II The Agile Contract Problem
• Part III Applicability to the entrepreneur,
  intrapreneur and the venture capitalist

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The Classical Techno-EconomicParadigm a la Perez

• A sequence of events characterizes each of the
  techno-economic cycles
• Major technological innovation introduces new
  infrastructure
• The new infrastructure disrupts both industry and
  commerce (and very possibly society)
• In good time the new infrastructure becomes a
  stabilizing force
• The technology gets understood and harnessed
• Confidence builds in the new order that evolves
  around the technology
• Inertia becomes the legacy of successful
  innovation

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Five Successive Technological Revolutions
Revolution Name Country Initiation Year
First The Industrial Revolution Britain Arkwrights mill 1771
Second Age of Steam and Railway Britain The Liverpool-Manchester railway 1829
Third Age of Steel, Electricity and Heavy Engineering USA and Germany The Carnegie Bessmer steel plant 1875
Fourth Age of Oil, the Automobile and Mass Production USA Ford Model-T 1908
Fifth Information/ Tele-communication USA The Intel Microprocessor 1971
Source Carlota Perez, Technological Revolutions
and Financial Capital
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Revisionist Techno-Economic Theory a la Hagel,
Brown and Davison

• The historical pattern itself has been disrupted
• Disruption followed by stabilization is no more
  the case
• The pace of change in Information and
  Telecommunication is exponential
• Uncertainty and instability are pervasive
• Sustained periods of prolonged equilibrium are
  unlikely
• Both business and social systems need to adapt on
  an on-going basis to turbulent changes
• But, the entrepreneur can now punch above his
  weight class through the global digital
  infrastructure
• () Hagel, Brown and Davison, Shaping Strategy in
  a World of Constant Disruption, Harvard Business
  Review, October 2008

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Implications for Strategy

• This is not the time to be passive and wait out
  the storm. Christine Davis Cutter Consortium
• Two schools of thoughts to choose from
• Adaptive Winners are those that can move faster
  than their competition ? Sense change and respond
  quickly
• Shaping Winners use technology changes to create
  new business eco-systems ? Alter the
  industry/market fast
• Both strategies critically depend on Agility
• Agility is the ability to act quickly and with
  economy of effort in accurate response to change
  and also to initiate change for business
  advantage Paul Allen Cutter Consortium

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Role of Software in Your Strategy

• As software is malleable, it can respond
  exceptionally well to the exponential pace/change
  in the new paradigm
• As an end to itself
• As embedded software
• As part of a business process/initiative
• The higher the embedded software content in a
  product is, the more malleable the whole product
  becomes
• Example cellular phones
• Chunking through Agile methods facilitates quick
  changes on a granular level at any phase of the
  product life cycle

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Relentless Innovation

• Geoffrey Moore Many kinds of innovation
• Disruptive innovation
• Product innovation
• Platform innovation
• Value engineering innovation
• Process innovation
• Business model innovation
• Line extension innovation
• Enhancement innovation
• Various others

• Jim Highsmith Innovation through experimentation
• Learning what does not work is as important as
  learning what works
• The low cost of experimentation enables finding
  by trying
• For Agile, the bi-weekly Agile iterations
  provides a firewall that caps investment

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Sustainable Innovation

• All known compound objects decay and become more
  complex with the passage of time unless effort is
  exerted to keep them repaired and updated.
  Software is no exception
• Indeed, the economic value of lagging
  applications is questionable after about three to
  five years
• The degradation of initial structure and the
  increasing difficulty of making updates without
  bad fixes tends towards negative returns on
  investment (ROI) within a few years.
• Capers Jones, Estimating Software Costs

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Software Decay

• Once on far right of curve, all choices are hard
• If nothing is done, it just gets worse
• In applications with high technical debt,
  estimating is nearly impossible
• Only 3 strategies
• Do nothing, it gets worse
• Incremental refactoring, commitment to invest
• Replace, high cost/risk
• Source Jim Highsmith

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Avoiding the Shiny New Toy Syndrome

• Four considerations to keep in mind while
  relentlessly pursuing innovation
• Software developed today might indeed be sold as
  a shiny new toy tomorrow
• However, unless the underlying software process
  is improved, a little down the road the new
  software will have maintenance problems similar
  to todays software
• The corrosive effect of technical debt on the
  shiny new software will become more and more
  severe as a function of time
• Whatever strategy you follow, sustainability is
  critical
• Cut costs by cutting costs strategies will
  accelerate your technical debt

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The Agile Process Platform

• Sustainable value creation can transform Agile
  into a process platform customer and vendor share
• Requirements for a successful Agile process
  platform
• Agile principles considered indivisible
• Customer as partner in a distributed innovation
  modus ? Share customer own learning and plans
• Joint infrastructure between vendor and customer
• Ease of use of both process and practices of
  Agile through the software life cycle ? Reduced
  risk
• Shared benefits
• Passing on the benefits of Agile from vendor to
  customer ? Agile contracts

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Agenda

• Part I A New Paradigm
• Part II The Agile Contract Problem
• Part III Applicability to the entrepreneur,
  intrepreneur and venture capitalist

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The Agile Contract Problem

• Internally or externally, relationship between
  supplier and customer defined by mutual
  risk/reward sharing pattern implicit or
  explicit contract
• Defines parameters of relationship
• Contract language assumes zero trust
• Developed expressly to eliminate the wiggle
  room we seek to create with Agile
• Challenging to build trust a priori between
  parties so that you can create the context for
  meaningful collaboration
• Requires creation of 2nd dimension to the risk
  axis agility

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Business / Technology Culture Gap

• Not product of simple misunderstanding
• Difficult to defuse anxiety with Agile rhetoric
  like fail fast and walk away with working
  code
• Risk all tied to accuracy of estimates
• Downside for customer is very significant

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Fixed Price, Fixed Scope

• The classic software contract, and emblematic of
  the pitfalls of development that spurred the
  creation of Agile
• Estimating will remain a black art
• Have to assume a lot about the problem and the
  solution
• However, might still be necessary with
  conservative customer
• Applying Agile to go as fast as possible can
  produce outsized margins
• Legitimate to earn more margin vs. TM since the
  developer is taking on execution risk not present
  in TM
• Can sneak in change clauses that allow for
  modifications if both parties agree.

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Time and Materials

• Pay as you go with no scope boundaries no
  execution risk for developer
• TM allows no risk mitigation for customer
  fully exposed project
• Plenty of room for Agile methodologies to be used
  (or not)
• Enforce self-discipline
• deliver working code, tight sprint management,
  etc to avoid unintentionally taking advantage

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Incremental Payment for Incremental Delivery

• Define multiple small fixed price projects
• Deliver per schedule, invoice on acceptance
• This is an approximation of typical sprints but
  with a fixed scope up front
• Agility introduced through flexibility of
  definition from one iteration to another at the
  acceptance stage
• Can be useful to ease customers into Agile
• Still difficult to preserve reprioritization of
  backlog based on experience, introduction of new
  or changed story points

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Fixed Price per Function or Story Point

• Closely related to incremental delivery, but more
  Agile face up front
• Forces use of Agile have to agree on sprint
  length and create a backlog of sprints to even
  get started
• Make sure to build flexibility into the
  estimating process to take advantage of learning
  as you go
• Still at mercy of black art of estimating size of
  effort, however the small scale of stories
  ensures any error wont be that big
• Can be a hard sell for more traditional customers
  (story point? No requirements document?)

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Money for Nothing

• Sutherlands experimental approach works for
  developers with strong established brand or
  business with existing faith in Agile
• Interesting reconfiguration of relationship
  between business and software supplier
• Great for modifying a fixed cost contract to
  reward Agile efficiencies
• Overrun risks still owned by developer set
  discounted rate in advance
• The split of remaining contract should be
  determined by suppliers expected margin in order
  to ensure indifference to early termination

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Varieties of Contractual Experience
Contract Style Trust required Agile compatibility
Fixed everything Little Little
Fixed price per function or story point Medium Good
Incremental delivery with payment on acceptance Medium Medium
Time Materials Lots Medium
Money for Nothing Medium Lots

• Ideal doesnt just balance risk but actually
  creates structural incentive to drive Agile
  collaboration
• Entirely new dimension to the shared risk scale
• Reward rapidity, dont penalize changes to
  features
• New approaches being experimented with currently
• All current generic models are imperfect, however
  all can be mitigated with modifying clauses

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Current Best Principles

• It depends.
• Do more free work up front with the business,
  assess
• Where they are with Agile and Waterfall and
  development in general
• Where they are with their business model and plan
• Appetite for risk and experimentation
• Push for the maximum trust and novelty they will
  tolerate.
• Generally inversely proportional to their
  business maturity
• Common problem customers see fixed cost
  estimate for entire project as canonical, dont
  accept that 80 of the total scope might deliver
  100 of function
• Ensure your rates are matched to the level of
  risk you are assuming

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Agenda

• Part I A New Paradigm
• Part II The Agile Contract Problem
• Part III Applicability to the entrepreneur,
  intrapreneur and venture capitalists

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Agile lessons for business innovation

• Both Shapers and Adapters driven by need for
  continuous innovation
• Neither internal nor external innovation begin
  with understanding of customer
• Start with stories design goals, not an
  elaborate business plan

• Take advantage of lowered barriers to entry in
  digital marketplaces
• Iteratively discover the customer and define the
  product in tandem
• Variable engineering costs
• Contained cost of experimentation

The Lean Startup Steve Blank and Eric Ries
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Process API for Highest Caliber Developers

• Agile as a set of methodologies allows
  non-technical innovators to access the way
  techies build stuff
• Formalizing what tiny startup development teams
  do naturally
• creates an interface through which non-technical
  people can take advantage of the same approach
• Requirements-driven processes were created to
  fill the culture gap between business and
  development
• Agile is a better translation

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Post-Internet Startups

• Classic model 2 propeller heads with a neat new
  toy approach VC for money and business maturity
• New model business person has entrepreneurial
  idea that happens to be expressed via a Web
  application
• The new tech entrepreneur is less likely to be
  able to build their own technology
• Agile is the only development methodology that
  can fulfill the needs of the early stage
  innovator.

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A New Venture Model

• Most innovative and successful businesses are
  holistic recombinations of proven patterns in a
  novel way
• Starting with a cool widget makes the outcome
  essentially random
• Discontinuous innovation puts fund at risk
• Instead
• Start with an idea to create value in a market
  a business founder
• Start with business design conversations
• Marry to development resources, bring them into
  the conversation
• Iterate through the process of building the parts
  of the business and figuring out how they fit
  together.
• Repeat at portfolio level build an
  self-reinforcing ecosystem, not a one-off firm

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Thank you
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Part I

• The Classical techno-economic paradigm a la Perez
• Reshaping paradigms a la Hagel, Brown and Davison
• Implications for Software
• Relentless innovation
• The myth of the shiny new toy
• The myth of separating contracts from operations

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Links

• The Lean Startup
• Alistair Cockburns collection of software
  contract descriptions
• Agile Contracts working group