Systems thinking for startups

Peter Senge has been called the most influential business strategists of the century and in my view Senge is the successor of Peter Drucker, the management visionary. Senge published a book in 1990 called The Fifth Discipline which I think every manager, founder and CEO should read.

Great companies transcend their great products. Not defined by one product, these companies adapt, innovate and reinvent. They learn continuously to succeed as their environment changes. Senge’s book teases apart the five essential components to building a learning organization.

At the time the book was published, the first four principles had been well covered: team learning, shared vision, mental models, and personal skills mastery. But the fifth one, the one the book is named after, was Senge’s stroke of genius. The fifth discipline is systems thinking.

Systems thinking sounds like an esoteric concept but it’s not. Systems thinking means understanding actions/reactions and feedback loops for a company. In other words, how the actions of a company or features of a product change consumer behavior. Infed has a good description of the idea with a concrete example:

‘[In every company] whatever movement occurs is amplified, producing more movement in the same direction. A small action snowballs, with more and more and still more of the same, resembling compound interest’ (Senge 1990: 81).

Thus, we may cut our advertising budgets, see the benefits in terms of cost savings, and in turn further trim spending in this area. In the short run there may be little impact on people’s demands for our goods and services, but longer term the decline in visibility may have severe penalties. An appreciation of systems will lead to recognition of the use of, and problems with, such reinforcing feedback, and also an understanding of the place of balancing (or stabilizing) feedback. Peter Senge

These feedback loops are ubiquitous in web software. And they are found in the most important parts of product development. Whether it’s on-boarding a user, driving the user to engage with a product, or building mastery with a product, each of these phases of product engagement relies on feedback loops to succeed (I’m borrowing heavily from a conversation with Amy Jo Kim with this paragraph).

Systems thinking requires lots of deep thought. It requires taking a step back and understanding the way a company fits into an ecosystem at the highest level. I’m not sure any organization has been able to successfully engender systems thinking at every level of an organization or has been able to maintain the discipline over time. But it’s a wonderful aspiration because it can drive tremendous, compounding long term gains for a company.

The systems viewpoint is generally oriented toward the long-term view. That’s why delays and feedback loops are so important. In the short term, you can often ignore them; they’re inconsequential. They only come back to haunt you in the long term.

Published 2012-10-31 in Best Practices 

I'm a partner at Redpoint. I invest in Series A and B SaaS companies. I write daily, data-driven blog posts about key questions facing startups. I co-authored the book, Winning with Data. Join more than 18,000 others receiving these blog posts by email.

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