bookworm

The Lean Startup – Eric Ries

Review

This is a hugely influential book in the product management community. The Lean Startup codified how to take a scientific approach to create and manage startups. The author also explains why traditional firms have such trouble navigating uncertainty. The Lean Startup emphasizes the importance of learning, and validating assumptions. This book popularized a number of concepts that are now considered foundational in product management (e.g. build-measure-learn, pivot, minimum-viable-product).

It’s a must-read for anyone building digital products.

Key Takeaways

The 20% that gave me 80% of the value.

  • Startups produce a lot of waste, primarily products customers don’t want.
  • The Lean Startup is about the application of lean manufacturing to innovation
  • Entrepreneurship is management of extreme uncertainty
  • Lean manufacturing ideas:
    • Draw on the knowledge and creativity of everyone
    • Reduce batch sizes
    • Just-in-time production
    • Inventory control
    • Acceleration of cycle times
  • We needed a measure of progress that works in extreme uncertainty. Validated learning is that measure.
  • Build cross functional teams, and hold them accountable for hitting learning milestones.
  • The goal of a startup is to figure out the right thing to build as quickly as possible
  • Startups are designed to confront situations of extreme uncertainty.
    • Tools of general management don’t do well in extreme uncertainty.
  • Innovation is bottom-up, decentralized and unpredictable.
  • A Lean Startup: an organization designed to create new products and services under conditions of extreme uncertainty
  • It doesn’t matter if you’re on time, on budget and doing high quality work if you’re building something that nobody wants
  • Key Questions: Which elements of your strategy are working? What do customers really want? Are you on a path to building a sustainable business?
  • Validated learning is a rigorous method for demonstrating progress in extreme uncertainty.
    • Systematically figuring out the right thing to build
    • Demonstrate empirically you have discovered valuable truths about your prospects
    • It’s the antidote to successfully executing a plan that leads nowhere.
  • Learning is the essential unit of progress for startups
    • Eliminate all effort that isn’t necessary for learning what customers want
  • Understand customers better → improve product → improve metrics
  • You need to demonstrate your product development efforts are leading you toward massive success
  • Should this product be built? > Can this product be built?
  • Can we build a sustainable business around this product? > Can this product be built?
  • Systematically break down a business plan into component parts and test each part empirically
  • If you cannot fail, you cannot learn
  • Startups should put their effort into experiments that test their strategy
  • An experiment must have a hypothesis that makes predictions.
  • Break it down. The two most valuable hypothesis entrepreneurs make are what I call the value hypothesis and the growth hypothesis.
    • The value hypothesis: tests if a product (or service) really delivers value to customers once they’re using it.
    • The growth hypothesis: how many customers will discover a product or service.
  • Find the early adopters quickly: customers who feel the need for the product the most
  • Four key questions you should know the answer to:
    • Do consumers recognize that they have the problem you’re trying to solve?
    • If there was a solution, would they buy it?
    • Would they buy it from us?
    • Can we build a solution for that problem?
  • Identify risks and assumptions before you build anything, then test those assumptions with experiments
  • Success is not delivering a feature, success is learning how to solve the customers problem
  • A startup is a catalyst to transform ideas into products
    • As customers interact with those products they generate feedback
  • Ideas → Build → Product → Measure → Data → Learn → 🔁
  • Information is the most important currency in uncertain environments
  • The goal is to minimize the total through the feedback loop
  • Strategy is based on assumptions test them as quickly as possible
  • Important assumptions are leap-of-faith assumptions → the entire venture rests on them
  • The difference between success and failure is having the foresight, ability and tools to discover which parts of you strategy are going to work, and which aren’t and adapt their strategies accordingly.
  • Is your product creating or destroying value?
  • Can you grow without destroying value?
  • Early contact with customers can clarify basic coarse level customer problems.
    • Allows you to craft a customer archetype → a hypothesis, and considered provisional until the strategy has shown via validated learning
  • Two ends of the spectrum: Analysis paralysis vs rushing to build.
  • A minimum viable product (MVP) helps entrepreneurs start the process of learning as quickly as possible.
    • it’s not the smallest possible product
    • it’s just the fastest way to get through the Build-Measure-Learn feedback loop
  • An MVP tests the fundamental business hypotheses
    • It tests Viability, Usability, and Feasibility
  • You have to sell to early adopters before the mainstream market. They’re OK with an 80% product
  • It feels uncomfortable to ship an MVP, a little embarrassing
  • Create a business model, make assumptions about your funnel numbers. Ideally your MVP would test the most important assumptions (E.g. We assume that 10% of customers will sign up)
  • The lesson of the MVP is that any additional work beyond what was required to start learning is waste, no matter how important is might have seemed at the time
  • MVPs can take many forms (Teaser Videos, Concierge, Wizard of Oz)
  • The MVP challenges traditional notions of quality. If we do not know who the customer is, we do not know what quality is. Don’t speculate about what customers find valuable, build an MVP and find out.
  • Customers don’t care how long something takes to build → they only care that it serves their needs
  • The MVP rule: remove any feature, process, or effort that does not contribute directly to the learning you seek.
  • MVPs often result in bad news.
  • Reduce brand risk by operating under a different brand
  • In the beginning a startup is just a model. Measure the gap to expected/needed results and device experiments to close the gap.
  • Are you making your product better? How do you know?
  • Innovation accounting: a new type of accounting geared toward disruptive innovation
    • Can prove you’re learning to grow a sustainable business
    • Step 0: Turn your leap-of-faith assumptions into a quantitative financial model
    • Step 1: Establish a baseline. Use a MVP to establish real data on where the company is now. This is the first learning milestone.
    • Step 2: Tune the engine. Making changes to improve results towards the ideal scenario
    • Step 3: Pivot or Persevere. Assess how quickly you’re closing the gap. If you’re not making progress fast enough it might be that the strategy is flawed and you need to pivot. If you pivot check if the fundamentals are improving faster than before.
  • You can use cohort analysis to check the movement of key metrics over time
  • Optimization vs Learning: If you’re building the wrong thing, optimizing the product or its marketing will not yield significant results
  • Actionable vs vanity metrics :
    • Cohort metrics > gross metrics
    • Split tests > ubiquitous changes
  • Vanity metrics amplify attribution bias. When things go up we think it’s because of what we did.
  • Metrics should be actionable, auditable and accessible
  • Are we making sufficient progress to believe our product strategy is correct? Or do we need to pivot?
  • Innovation accounting leads to faster pivots
  • Time between pivots and MVPs will decrease as you get better at measuring the right things and making decisions
  • Think of your startups runway as the number of pivots you can make. The number of of opportunities you have to make a fundamental change to your business strategy.
  • Pivots require courage. Often founders say that wish they’d have pivoted sooner:
  • Have a regular pivot or persevere meeting. Find your own cadence. Try monthly?
  • Using small batch sizes is more efficient (less sorting, stacking, moving unfinished things)
    • Individual performance isn’t as important as the system as a whole
    • Using small batches enables you to find defects faster
    • The lean startup approach enables you to work out if you’re building the right thing faster → which minimises waste
  • Work in a cross functional team, get one thing done at a time
  • Just-in-time-production: Pull work. Have each part of the production line pull new parts from the step before. Avoid ‘getting ahead’ and producing more inventory.
  • Don’t apply ‘pull’ to customer wants. Remember customers can’t tell us what to build. Instead apply it to our hypothesis about the customer.
  • Engine of growth: the mechanism that startups use to achieve sustainable growth
  • Sustainable growth: when new customers come from the actions of past customers
  • 4 Primary ways past customers drive sustainable growth:
    • Word of mouth
    • As a side effect of product usage
    • Through funded advertising
    • Through repeat purchase or use
  • Startups have to stay focused on big experiments that lead to validated learning
  • Types of growth engine:
Sticky Engine· Retention → attracting and retaining customers for the long term
· Tactics: Become the destination, vendor lock-in / switching costs
· Product Growth = Natural growth rate – churn rate
· Sometimes the way to find growth is to focus on existing customers.
· Vanity metrics obscure these effects
Viral Engine· Awareness spreads from person to person.
· Growth is a side effect of product usage ‘P.s. get your free e-mail at Hotmail’
· Called the viral loop or viral coefficient.
· Viral coefficient: How many friends will each customer bring with them? You’re viral above 1
· Tiny changes in the viral coefficient will cause huge changes
Paid Engine· How much is a customer worth over their lifetime? LTV (Lifetime value)
· How much do they cost to acquire? CPA (cost per acquisition)
  • Have you achieved product/market fit? If you’re asking, you probably haven’t
  • Evaluate how close you are to product/market fit by reviewing and tuning your growth engine
  • Every engine of growth will run out of gas
  • Shortcuts taken in quality, design or infrastructure today can slow you down tomorrow
    • Defects cause: rework, low morale and customer complaints
  • Low-quality products can inhibit learning, defects can prevent customers from experiencing the products benefits
  • The 5-Whys technique provides a natural feedback loop.
    • Forces you to slow down and invest in preventing the problems that are currently wasting time
  • When is something worth the effort of fixing?
    • Make incremental investments and evolve your process gradually
  • Ask why 5 times to get to the human problem at the bottom of every technical problem
    • Move from technical fault to human error
  • Consistently make proportional investments at each of the 5 levels of hierarchy
    • Don’t make large investments in prevention unless we’re coping with large problems
  • Make incremental improvements to processes constantly, to get incremental benefits.
  • Over time, impact will compound (saving time, energy, money)
  • Culture is important:
    • Be blameless
    • Foster an environment of trust and empowerment
    • Take ownership. A mistake happened? We made it easy to happen!
  • Adopt these rules:
    • Be tolerant of all mistakes the first time
    • Never allow the same mistake to be made twice

Bojan

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