THE LEAN STARTUP
There is nothing worse than building an extremely awesome product that NOBODY WANTS. Through The Lean Startup book, Eric Ries discusses the lean framework and a series of related stories on how to use LEAN to make sure you are building products people want.
“Startup success is not a consequence of good genes or being in the right place at the right time. Startup success can be engineered by following the right process, which means it can be learned, which means it can be taught.” ~ Eric Ries
The Lean Startup method includes five key ideas.
- Entrepreneurs are everywhere.
- Entrepreneurship is management.
- Validated Learning
- Build – Measure – Learn (Feedback Loop)
- Innovation Accounting
“Startup success is not a consequence of good genes or being in the right place at the right time. Startup success can be engineered by following the right process, which means it can be learned, which means it can be taught.”
“My hope all along was to find ways to eliminate the tremendous waste I saw all around me: startups that built products nobody wanted, new products pulled from the shelves, countless dreams unrealized.”
Part One VISION
In the early days of entrepreneurship, there was a lack of an entrepreneurial management framework. Founders relied on general management frameworks and this led to chaos. To solve this problem the Lean Startup framework was built which has deep ties to the Japanese lean manufacturing concepts or elimination of waste.
“The goal of a startup is to figure out the right thing to build — the thing customers want and will pay for — as quickly as possible. In other words, the Lean Startup is a new way of looking at the development of innovative new products that emphasizes fast iteration and customer insight, a huge vision, and great ambition, all at the same time.”
Most don’t think there can be an entrepreneurial spirit inside a Fortune 500 company. Eric Ries dispels that myth and argues that entrepreneurship is a management framework that is particularly helpful at managing projects with high uncertainty. Through this chapter we explore what an entrepreneur is, what a startup is and how entrepreneurship can work ANYWHERE.
“A startup is a human institution designed to create a new product or service under conditions of extreme uncertainty.”
This chapter is all about validated learning. Historically learning has been given a bad name because it is intangible. Eric argues in this chapter that demonstrated and validated learning is a clear path to the elimination of waste and the shortest path to adding value to your customers. It’s the concept of working smarter not harder.
“I’ve come to believe that learning is the essential unit of progress for startups. The effort that is not absolutely necessary for learning what customers want can be eliminated. I call this validated learning because it is always demonstrated by positive improvements in the startups core metrics.”
“The question is not “Can this product be built? In the modern economy, almost any product that can be imagined can be built. The more pertinent questions are “Should this product be built?” and “Can we build a sustainable business around this set of products and services?”
Validated learning requires testing a hypothesis through an experiment. In this chapter Eric introduces the two most important hypotheses for the Lean Startup. The Value Creation Hypothesis and the Growth Hypothesis.
“Success is not delivering a feature; success is learning how to solve the customer’s problem.”
“Their challenge is to overcome the prevailing management thinking that puts its faith in well researched plans. Remember, planning is a tool that only works in the presence of a long and stable operating history.”
Part Two STEER
It is important to test and validate leap of faith assumptions as soon as possible because they are vital to a venture’s success. Ries encourages a Genchi Gembutsu or “go and see for yourself” mentality to test assumptions. Just take the leap.
“What differentiates the success stories from the failures is that the successful entrepreneurs had the foresight, the ability, and the tools to discover which parts of their plans were working brilliantly and which were misguided, and adapt their strategies accordingly.”
The Build-Measure-Learn Feedback loop is the core of the Lean Startup model. It allows for startups to scientifically test and validate their assumptions. Using a minimum viable product (MVP) will minimize the total time spent in the feedback loop. The MVP does not need all the features of the final product, it just needs enough to test the assumptions. However, the Lean Startup framework is not opposed to high quality products, it is opposed to high investment before knowing exactly what the customer wants.
“A minimum viable product (MVP) helps entrepreneurs start the process of learning as quickly as possible. It is not necessarily the smallest product imaginable, though; it is simply the fastest way to get through the BUILD-MEASURE-LEARN feedback loop with the minimum amount of effort.”
“The lesson of the MVP is that any additional work beyond what was required to start learning is waste, no matter how important it might have seemed at the time.”
“Finally, it helps to prepare for the fact that MVP’s often result in bad news.”
After conducting an experiment, startups need to engage in innovation accounting (measuring the results). In this chapter, Eric Ries warns about using vanity metrics instead of actionable metrics. Numbers can go up but it doesn’t mean that the improvement is proving we are adding value or building a path to profitable scale.
“If you are building the wrong thing, optimizing the product or its marketing will not yield significant results. A startup has to measure progress against a high bar: evidence that a sustainable business can be built around its products or services.”
8. Pivot (or Persevere)
Using the measurements made through innovation accounting, startups are faced with the decision to pivot or persevere. According to Eric Ries, a pivot is a structured course correction design to test a new fundamental hypothesis about the product, strategy, and engine of growth. It is important to note that Pivots are still hypothesis until they are validated. Persevere on the other hand means, hold the course on the existing business strategy.
“Successful pivots put us on a path toward growing a sustainable business.”
“Pivots are a permanent fact of life for any growing business. Even after a company achieves initial success, it must continue to pivot.”
Part Three ACCELERATE
The Lean Startup method teaches that the benefits of using small batches outweigh the benefits of large batches. In this chapter, Eric Ries introduces continuous deployment as a framework to handle issues as they come up. He also warns against the sluggish and problematic large-batch death spiral that startups tend to fall into.
“The biggest advantage of working in small batches is that quality problems can be identified much sooner.”
“The essential lesson is not that everyone should be shipping fifty times per day but that by reducing batch size, we can get through the Build-Measure-Learn feedback loop more quickly than our competitors can.”
Engines of growth are mechanisms that startups use to achieve sustainable growth. There are three primary engines of growth: 1. Viral 2. Sticky 3. Paid Growth Models. In this chapter Eric Ries explains what these primary engines of growth are and recommends that a startup initially focuses on just one engine of growth.
“There are always a zillion new ideas about how to make the product better floating around, but the hard truth is that most of those ideas make a difference only at the margins. They are mere optimizations. Startups have to focus on the big experiments that lead to validated learning. The engines of growth framework help them stay focused on the metrics that matter.”
“Companies that attempt to build a dashboard that includes all three engines tend to cause a lot of confusion because the operations expertise required to model all these effects simultaneously is quite complicated. Therefore I recommend that startups focus on one engine at at time.”
In this chapter Eric Ries advocates for an adaptive organization which he defines as organizational structure, culture, and discipline that can handle rapid and unexpected changes. In order to create an adaptive organization, Ries introduces the Five Whys framework where you ask “why” five times when problems arise.
“Startups are in a life-or-death struggle to learn how to build a sustainable business before they run out of resources and die. However, focusing on speed alone would be destructive. To work, startups require built-in speed regulators that help teams find their optimal pace of work.”
“As Lean Startups grow, they can use adaptive techniques to develop more complex processes without giving up their core advantage: speed through the Build-Measure-Learn feedback loop.”
Startup teams need to be given autonomy in order to foster innovation by allowing them to go through the Build-Measure-Learn feedback loop faster. In this chapter, Eric advocates for cross-functional teams, giving innovators a personal stake in the outcome (Shusa), and creating sandboxes to foster innovation and protect the parent company from the startup.
“Startup teams need complete autonomy to develop and market new products within their limited mandate.”
“Switching to validated learning feels worse before it feels better.”
13. Epilogue: Waste Not
The world is changing, so management systems should always be open to changing as well. Management cannot continue the way that it has been going. Science needs to be introduced into the field or else management is just a pseudoscience.
“It is insufficient to exhort workers to try harder. Our current problems are caused by trying too hard—at the wrong things. By focusing on functional efficiency, we lose sight of the real goal of innovation: to learn that which is currently unknown.”