The Use of Agile Methods by the Entrepreneur

The Use of Agile Methods by the Entrepreneur Israel Gat Sebastian Hassinger

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

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

The Classical Techno-Economic Paradigm 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

Five Successive Technological Revolutions Source: Carlota Perez, Technological Revolutions and Financial Capital Revolution Name Country Initiation Year First The ‘Industrial Revolution’ Britain Arkwright’s 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

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

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]

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

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

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]

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
Responsiveness To Customers

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 today’s 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

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

Agenda
Part III: Applicability to the entrepreneur, intrepreneur and venture capitalist

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 2 nd dimension to the “risk” axis – “agility”

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
Marginal Business Value $/Time/Iterations/Stories/Features Marginal Dev’t Cost Spec Agile Perception Marginal Business Value $ Spec Marginal Dev’t Cost Biz Perception

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. T&M since the developer is taking on execution risk not present in T&M
Can sneak in change clauses that allow for modifications if both parties agree.

Time and Materials
“ Pay as you go” with no scope boundaries – no execution risk for developer
T&M 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

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

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 won’t be that big
Can be a hard sell for more traditional customers (“story point? No requirements document?”)

Money for Nothing
Sutherland’s 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 supplier’s expected margin in order to ensure indifference to early termination

Varieties of Contractual Experience
Ideal doesn’t just balance risk but actually creates structural incentive to drive Agile collaboration
Entirely new dimension to the ‘shared risk’ scale
Reward rapidity, don’t penalize changes to features
New approaches being experimented with currently
All current generic models are imperfect, however all can be mitigated with modifying clauses
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

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, don’t 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

Agenda
Part III: Applicability to the entrepreneur, intrapreneur and venture capitalists

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

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

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.

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

Thank you

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

Links
The Lean Startup
Alistair Cockburn’s collection of software contract descriptions
Agile Contracts working group

The Use of Agile Methods by the Entrepreneur

by IsraelGat

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