The Lean Startup: How Constant Innovation Creates Radically Successful Businesses

I'm a second time entrepreneur, but by Eric Ries' analysis I'm actually a third time entrepreneur, because he counts the time I set something up as a consultant for a large corporation. So he had me at hello, even if it was through flattery. In fewer than 300 pages it gave me a good 15 flashbacks. Points where I was shouting out loud "exactly!" Embarrassingly, it also gave me a whole bunch of moments where I said "why did nobody tell me that back then." It's a MUST if you are starting a business. It's not without its faults. It's an advertisement for his consultancy, it could do without the references to Toyota (of which there's tons), it really reads like one of those self-help guides obese people read on airplanes; it's far from perfect. It is regardless AWESOME and it's a very quick read. Look away now if you don't want me to spoil it for you, here come the main points: 1. Entrepreneurship can happen in funny places. 2. Value = providing benefit to the customer. “Success is not delivering a feature; success is learning how to solve a customer’s problem.” 3. Launch! You’re not going to increase the value of the product without real customer input 4. Launch! You could be perfecting a product of no value 5. Launch! You WILL throw a lot of work away; the earlier you launch the less you’ll throw away 6. For all the above reasons, keep going through short cycles of BUILD, MEASURE, LEARN 7. Plan to learn; don’t say “I learned” as an excuse after a failure if you did not have a lesson planned in there. 8. There is a problem with launching: Once you’ve launched you give up on the “audacity of zero.” In plain English, you start collecting micro amounts. Vis a vis the naysayers, you were better off collecting zero and talking billions. Nobody said it would be easy… 9. Every venture has a value hypothesis and a growth hypothesis 10. Value hypothesis: your guess about why people will want this product a. Do consumers recognize they have a need you are trying to address? b. Would they pay money for it? c. Would they buy it from you? d. Can you build it? 11. Growth hypothesis: your guess about how you will add customers / sales 12. Design proper experiments to test the two hypotheses. A/B experiments, whatever 13. The Lean Startup recipe is a. Get a Minimum Viable Product out b. Go through Build, Measure, Learn loops / experiments to test the two hypotheses and keep improving the product c. Be happy to reject a few MVPs until you hit upon a good one 14. The MVP won’t be perfect, by definition, but a. Early adopters won’t mind b. Let customers decide it’s bad; they might love it (like IMVU’s jumping avatars) c. You can be creative about showing how it works: e.g. do a video d. You could do it mechanically, without the tech (concierge) for just a few users 15. Innovation Accounting consists of a. Establish a baseline: test your riskiest assumption via an MVP or an experiment or even a poll of your customers b. Tune the Engine: With the baseline secured, make the product better by picking good metrics that are relevant to your value hypothesis and your growth hypothesis and running Build, Measure, Learn loops to get the metrics to improve c. Pivot or Persevere: Every once in a while, decide if you’re doing well or if you need to Pivot 16. Vanity Metrics won’t get you anywhere. Be careful what you measure. Don’t look at aggregates, look at cohorts or split tests, for example. Use metrics that are relevant to your model. So if the model is viral, measure how many customers every customer brings. Not how your overall number of customers is growing (just because you paid for advertising, for example) 17. The three A’s of Metrics are Actionable, Accessible and Auditable. That’s how you get everybody on board. Don’t bother measuring if others can’t verify your work, if it will be very onerous to measure and if you have not agreed upfront what to do with the numbers. Additionally, “metrics are people too.” If they’re not, make it that way. Make them relevant to the customer. 18. Your engineers need to work as a team. They must work toward testing and delivering product for the customer. Not toward completing projects that get stuck because there is a bottleneck in testing, for example. 19. A startup’s runway is the number of pivots it can make. Money buys you the opportunity to make a fundamental change (or two) in your business strategy, but saving money without executing a pivot will just mean you die late. 20. Schedule a regular “pivot or persevere” meeting where both product development and business leadership teams attend. Maybe even outside advisors. 21. A catalog of pivots: a. Zoom-in Pivot b. Zoom-out Pivot c. Customer Segment Pivot d. Customer Need Pivot (e.g. bookings vs. cheap deals) e. Platform Pivot (e.g. client vs. hosted) f. Business Architecture Pivot (e.g. B2C to B2B, high-margin to high-volume) g. Value Capture Pivot h. Engine of Growth Pivot i. Channel Pivot j. Technology Pivot 22. Small Batches are individually more costly, but if you account for everything Large Batches can have very large costs too and you don’t find about them until it’s too late. 23. Small Batches allow the market to pull you in the right direction. 24. New Customers come from old customers in 4 ways a. Word of mouth b. As a side effect of product usage (can I Paypal you the money?) c. Through funded advertising (take proceeds from custy X, buy ads to attract custy y) d. Through repeat purchase or use (cable TV, not wedding planning) 25. There are three Engines of Growth. Find which one your business depends on and measure how it’s doing. And yes, more than one could be at work, but focus on the more important one. a. The Sticky Engine of Growth: measure customer acquisition rate + measure churn rate; measure them separately, or you might not see anything! b. The Viral Engine of Growth: measure if each customer brings > 1 customer through the door. Don’t despair if it’s 0.9, you’re close, experiment your way to pushing it above 1, but if it’s 0.3 you don’t have that growth model. c. The Paid Engine of Growth: measure what each customer will spend and measure your acquisition costs. 26. A time comes when you run out of early adopters. Don’t wait until then to make the product that the public at large wants. Moving to a higher quality product will slow you down, but you have no choice. And it will in the long term actually speed you up. The earlier you can afford to go high-quality the better. 27. Use the Five Whys as a guide to improving your quality. Get to the bottom of every complaint / problem by behaving like a 4 year old and responding to the answer to your question “why” with another “why” four more times. You will find that in the end you always end up with a person! Not with a process, not with an inanimate object. 28. Have everybody in the meeting when you do the Five Whys. Otherwise those absent will be blamed. 29. When you find the culprit, take the blame yourself for having designed the wrong process. Save your wrath for when the mistake is repeated. 30. Don’t send your baggage through the Five Whys project. Only use them for problems that arose after you instituted the policy. 31. If you are innovating inside a corporation, it is your job to protect the corporation. Otherwise others will make it their job to thwart you.

Ries pitches the lean startup as a principled based approach to product development. At one level what is being advocated is nothing more than a modified Deming's PDCA cycle and the exploitation of the feedback loop, as outlining in Deming's page 4 diagram from Out of the Crisis, via small batch sizes. The book is much more than this as he has operationalise these approaches. The modified Deming cycle of build-measure-learn is supported by validated learning and the use of actionable metrics to support decision making. Validated learning reflects Senge idea of organisational learning and actionable metrics are not vanity metrics, such as utilisation, but ones that have implications for the bottom line. Validated learning makes use of quick iterations to support learning. The learning comes from use using A/B testing to validate hypothesis based on a customer archetypical. This means that idea can be tried out very quickly to see of the original ideas have any value. uSwitch are using this method in the UK and have been very successful with test being run daily. Accountable metrics ensure that you are focusing on the right metrics and tuning the engine of growth. If you are not then this may lead to pivoting which he refers as repurposing. This has an echo of purposeful systems and Ackoff in which both means and the ends can be chosen. We do this by establish a baseline and measure progress towards the ideal. Periodically we need to validate the progress that we are making and either pivot or preserve. The baseline is based on minimum viable product (there is a section on what constitutes a minimum viable product in the book but it is similar in to Denne's Minimum Marketable Feature). The ideal is the numbers in the business case which may be conversion rate, the total number of customer or revenue. Too often people plan the plan and then execute the plan only to find when the funds or time run out that premise was flawed. The use of small batches and the ability to get customer feed promptly means that we can make good decisions and have the time to take action. What I also like are counter intuitive statements and there are a few in this book. I particularly like the points that he makes about the organisation needing to be protected from the start-up groups. Normally people talk about the group undertaking innovation being protected from the organisation but Ries points out that this does lead to repeatable innovation and gives IBM's creation of the PC as an example. I also like that he recognised that the approach is declarative in nature as it a framework and not prescriptive or a blueprint. There is a lot to recommend this book and I'm sure you will get something out of the time invested in reading it

Eric Ries is an extraordinary entrepreneur. The innovative way in which he has launched The Lean Startup itself is testament to his incredible creativity and energy. Anyone, whether they are in technology or any other sector, who is involved in product development, should read this book, make sure that everyone in their team has read this book and then argued over a beer about whether it applies to them. Not everyone will agree with everything he says, no doubt some people will think they know better, good luck to them. Some people will rail against the use of terms like, 'Pivot', that Eric uses to describe the (entirely rational) process of discovering the market for a startup. Pivot runs the risk of being the most misunderstood and overused term in startup land as it has become a euphemisim for all sorts of things including, 'failed', 'given up' or 'lost interest'. It is hardly Eric's fault however that he has created and popularised a concept that powerful. Having been involved in successful and unsuccessful startups, and unsuccessful projects in large corporations, Eric has invested an obscene amount of his time and effort into working out why there is so much wasted effort in product development. More importantly, he has come up with a very plausible hypothesis for a better way of doing things better. Measurably better. I do have a big problem with this book and some of the language in it. To quote Eric Ries, "So here's my definition of a startup. A human institution designed to create something new under conditions of extreme uncertainity. And, of course, the importance of disruptive innovation in creating something that is truly different than what came before." For my money, that is not the definition of a startup. That is the definition of an inventor, an innovator, a startup, any business unit, product management team or organisation in the world. Why not apply that definition to another entity? "So here's my definition of Apple. A human institution designed to create something new under conditions of extreme uncertainity. And, of course, the importance of disruptive innovation in creating something that is truly different than what came before." Apple is the largest corporation in the world. Doesn't the definition apply equally well? And that is the essence of my problem with this book. It is keeping some extraordinary insights into how you can make things that people love in the world of startups. Grownups need to read this. They might sneer at the concept of a pivot, it is an overused term. I can't think of a single organisation that wouldn't benefit from the concept of minimum viable product though. The world would be a better place if big corporations understood this. They will waste less money making stuff people don't want. Kindle version: The Lean Startup: How Today's Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses Hard cover version: The Lean Startup: How Today's Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses

The Lean Startup is one of the core business books that revolutionised the business startup environment. Eric Ries stripped everything down to the core basic principles of being lean, and agile in response to customer feedback. This is not new but is collated and distilled in a very dynamic, yet clear structured manner. It must also be said that the Lean Startup is heavily biased towards the software industry and while also coming from that industry I may be unaware of how effective this approach is in other sectors, especially those that are heavily regulated and limited to the opportunity to, in reality, deliver prototypes to customers. I really appreciated the book’s celebration that you don’t have all the answers and you shouldn’t if you’re a startup with an innovative solution. The major point, however, is that you shouldn’t pretend or act like you do but embrace the uncertainty and develop an experimental approach to delivering a Minimum Viable Product – build, measure, learn. I found The Lean Startup not only great for advice, techniques and the analogous stories to help reinforce the approach, but it is an inspirational book that dares you to challenge everything and rationalise with customer validation that your vision is viable and scalable. When a book affects me it starts a chain reaction in my thought process so that I either gain a better understanding of where I need to go or may enable me to articulate what has been sitting just out of reach in my mind. This is one of those books. Other books that reinforce this new startup environment and are worth reading include: • Business Model Generation – Alexander Osterwalder • Four Steps to the Epiphany – Steve Blank • The Startup Owner’s Manual – Steve Blank • Running Lean – Ash Maurya

I have read the book’s two first chapters in a few days, couldn’t stop reading, made a lot of notes and action points, had a discussion with my business strategist and had her read the book as well. It suggests a framework for startups to use controllable experiments while building a new product until we come up with the product that is actually needed. A fresh look on entrepreneurship that removes elements of luck and promotes hypothesis testing approach, and also promotes saving a lot of time and resources by avoiding building something that no one needs. I can totally recommend.

For those seasoned product/service developers this book talks about some interesting case studies but much of it is mass market app/web style. There's some discussion around b2b but even that is large market. The book talks about fairly standard marketing principles and trying to focus on learning and adapting with decent metrics used to reflect what is happening rather than vanity metrics. It all makes sense and if you haven't already spotted the need to obtain customer feedback as early as possible then you need to read this book or rethink your career. Sad as it is, I do see organisations innovating behind a desk, running some validation as a token gesture and then building products for 9 months to find zero customer interest. I do feel though that the management of such organisations could read 20 books like this and still get it wrong. Without good sense behind it, any management initiative is going to struggle. An interesting point I've been left pondering is how to deal with the accusations of a MVP being merely slideware or vaperware. Eric Reiss may respond that markets which respond like that clearly need a more substantial MVP but in a technical b2b market where trust and technical competence is key, one can end up having to build a significant proportion of a product, undermining the whole point of an MVP. I suppose the 5 whys would probably lead us down some path to asking why it takes so long to build anything.... As you can see, the principles in this book aren't new but even as I typed this I'm thinking it's a worthy read even if it just gets you thinking rather than learning anything new

I come from an direct mail and affiliate marketing background, our normal MO is to sell other peoples products, usually those products have gotten to market and have already established they work from a product to customer fit point of view. We continually test new products and marketing strategies to see what works, and as a direct response marketer we build our fortunes (or lack of) on testing what sells and what does not, otherwise known as what people want to buy. For a better understanding of how to do this if you're not a tech start up in silicone valley try scientific advertising as a great starting point. If you are a tech startup you'll love this book, it's probably aimed at you primarily. If you have a regular business get this book the ideas that are presented are good and tried and tested by thousands of direct response marketers that tread this path every day. It is (like this review) full of waffle, but the waffle gives it context and context aids understanding so that's alright. So overall yes get the book, but, this is a poor imitation of a good book on this subject, start with the greats of direct response marketing and you'll truly get the idea. Neil Asher Roarlocal

I read this book years ago but never got around to reviewing it. I've recently read it two more times in the last year. It is that good. I see it as an essential book for start-up entrepreneurs because it is packed with important truths. Most important is the idea that you must prove your product or service innovation out in the market quickly. There is so much uncertainty involved with developing an original product idea that traditional management techniques evolved in established businesses are inadequate in start-ups. Instead, develop a minimum viable product (MVP) to test key elements of your business idea and get it out to potential customers. See what their response rates are compared with your expectations. Keep learning and innovating until you have a product that is proven and a marketing method that works effectively. While I've spent more than 30 years studying marketing, I'm an accountant by training. I found the section on innovation accounting and cohort analysis to be an eye-opener. This is an outstanding book. While its origins lie in software application development, the concepts have been proven in a vast range of different industries. In some ways, it echoes ideas in Michael Masterson excellent book "Ready, Fire, Aim" that also emphases the vital importance of early validation of a business idea in the market. This is very highly recommended. Paul Simister is a business coach who helps business owners who are stuck, get unstuck.