The Lean Startup

Table of contents

1. five principles of the lean startup
2. vision
   1. learn
   2. experiment
3. steer
   1. test
   2. measure
   3. pivot or persevere
4. accelerate
   1. growth

five principles of the lean startup

1. entrepreneurs are everywhere – you don’t need to work at a startup to have a startup mentality
2. entrepreneurship is management – the new startup mentality requires a different type of management
3. validated learning – startups exist to learn things and validate this learning through the scientific method
4. build-measure-learn – the fundamental role of a startup is to turn ideas into products, and success is about speeding up that feedback loop
5. innovation accounting – to improve entrepeneurial outcomes, need to find a way to measure progress, set up milestones, and prioritize work

vision

building a startup is an exercise in institution building; thus it necessarily involves management.

Lean thinking is radically altering the way supply chains and production systems are run. Among the tenets are drawing on the knowledge and creativity of individual works, the shrinking of batch sizes, just-in-time product and inventory control, and an acceleration of cycle times.

The goal of a startup is to figure out the right thing to build […] as quickly as possible.

• Build-Measure-Learn - a feedback loop to steer product judgments – drives whether to persevere or pivot

learn

“learning” is the oldest excuse in the book for a failure of execution.

• validated learning – the process of demonstrating empirically that a team has discovered valuable truths about a startup’s present and future business prospects
• Metcalfe’s Law - the value of a network as a whole is proportional to the square of the number of participants, i.e., the more people in a network, the more valuable it is

learning is the essential unit of progress for a startup

• vanity metrics and “success theater” – the work we do to make ourselves look successful

experiment

• the value hypothesis is whether a product or service really delivers value to customers once they are using it
• the growth hypothesis tests how new customers will discover a product or service

an experiment is more than just a theoretical inquiry; it is also the first product (63)

• try to answer four questions before jumping into product build
  1. Do consumers recognize that they have the problem you are trying to solve
  2. If there was a solution, would they buy it
  3. Would they buy it from us
  4. Can we build a solution for that problem

steer

• focus our energies on minimizing the total time through this feedback loop
• genchi gembutsu - “go and see for yourself” – one of most important phrases in lean manufacturing
• customer archetype - a brief document that seeks to humanize the proposed target customer and is an essential guide to for daily prioritization decisions

test

• minimum viable product (MVP) - helps entrepreneurs start the process of learning ASAP – start of the process of learning, not end of it
• wizard of oz test – customers believe they are interacting with the actual product but behind the scenes humans are doing the work

Customers don’t care how much time something takes to build. They care only if it serves their needs. (109)

As you consider building your own minimum viable product, let this simple rule suffice: remove any feature, process, or effort that does not contribute directly to the learning you seek. (110)

measure

A startup’s job is to (1) rigorously measure where it is right now, confronting the hard truths that assessment reveals, and then (2) devise experiments to learn how to move the real numbers closer to the ideal reflected in the business plan. (114)

• innovation accounting - a way to measure progress in three steps:
  1. use an MVP to establish real data on where the company is right now
  2. tune the engine from baseline toward ideal
  3. pivot or persevere
• cohort analysis - instead of looking at cumulative totals or gross numbers, look at the performance of customers that come into contact with the product independently
• 3 As of metrics
  1. actionable - must demonstrate clear cause and effect, otherwise it is a vanity metric
  2. accessible - make the reports as simple as possible so everyone understands them, widespread access
  3. auditable - data is credible to employees

pivot or persevere

[T]here is no bigger destroyer of creative potential than the misguided decision to persevere. (149)

• runway - amount of time a startup must achieve lift-off or fail - remaining cash in the bank divided by monthly expenses
• can reframe runway as many pivots a startup has left
• pivots take courage but are essential
• a pivot is best understood as a new strategic hypothesis that will require a new MVP to test

types of pivots

• zoom-in - single feature in a product becomes the whole product
• zoom-out - whole product becomes a single feature of a much larger product
• customer segment - product solve a real problem for customers, but not the originally thought of customers
• customer need - you discover other related problems a customer has
• platform pivot - change from an application to a platform or vice versa
• business architecture - going from high margin low volume to low volume, high margin, or vice versa
• value capture - changes in the way a company monetizes a product
• engine of growth - three engines of growth: viral, sticky, and paid
• channel - change the way you sell to customers
• technology - change the way you deliver value by using a completely new tech

accelerate

• work in small batches so quality problems can be identified much sooner
• andon cord - at toyota plants, its the cord that is pulled when quality problems are discovered

Almost every Lean Startup technique […] works its magic in two ways: by converting push methods to pull and reducing batch size. Both have the net effect of reducing WIP. (201)

growth

Where does growth come from?

1. word of mouth
2. as a side effect of product usage
3. through funded advertising
4. through repeat purchases or use

growth engines

1. sticky engine – attract and retain customers for a long time – churn rate or attrition rate very important
2. viral engine – depend upon person-to-person transmission and the viral loop or viral coefficient - how many customers will use the product as a result of each new customer
3. paid engine - each customer pays a certain amount for product (lifetime value) over their time as customer

• product/market fit - moment when a startup finds widespread set of customers that resonate with its product