The Lean Startup by Eric Ries has become one of the ”must reading” on entrepreneurship environment. This book shows in a practical way the methodology proposed by Ries to decrease the start-ups failed to rate.
With a fresh style and a lot of examples, the reading could represent a drastic difference for those involved in startups ecosystem.
I’ve made this compressed text to understand what about The Lean Startup is.
«Stop me if you’ve heard this before: brilliant college kids sitting in a dorm are inventing the future. They build a new company from the scratch. The early success allows them to raise money and bring an amazing new product to the market. They hire their friends, assemble a superstar team, and dare the world to stop them» is like the book begins, catching our attention immediately.
Is divided into 3 sections: vision (start, define, learn, experiment), steer (leap, test, measure, pivot) and accelerate (batch, grow, adapt, innovate).
The introduction talks about the how the entrepreneurship is different than the magazine says, especially in the assumption of «hard work and perseverance lead to success» we can see a lot of start-ups failing even the team, the idea and the skills to develop a great project. The book establishes the idea of «startup success can be engineered by following the right process, which means it can be learned, which means it can be taught»
Entrepreneurship is a kind of management, the first looked like cool, innovative and exciting, while the second looked like dull, serious and bland. The new approach lean startup is based on management and product development ideas like lean manufacturing, design thinking, customer development and agile development. Is interesting how Ries get this philosophy been «people who grow up programming computers»
The principal mission of the book is «improve the success rate of new innovative products» based on 5 principles:
- Entrepreneurs are everywhere.
- Entrepreneurship is management.
- Validate learning.
- Build-measure-learn loop
- Innovation accounting
The ”official” definition of startup in the book is a human institution designed to create new products and services under conditions of extreme uncertainty.
We live times where there are more entrepreneurs operating than any previous time in the history. We can see the loss of manufacturing jobs in EU and in the world. People are going to knowledge economy supported by the accelerated technology changes and innovation.
The goal of any startup is to figure out the right thing to build, the thing customers want and will pay for «as quickly as possible» Too many startup business plans look they are planning to launch a rocket ship than driving a car, the point is kept it simple, practical and fast.
The next is the strategy, how do you will go to the end? Here is where you must take the partners opinions about where the customers will be. Here is where you develop a business model and road map.
And at the end, yes, at the end is the product, the result.
This model is iterative around the build-measure-learn loop, where you have the opportunity to validate your idea and the specific aspects of it.
Entrepreneurs are visionary, they can see the future of their industries and are prepared to take bold risks.
Before going to the startup, you must to be prepared, the pre requisites are a proper team structure, good personnel, strong vision of future and appetite for risk taking.
Like institution, a startup must have the common process on it: hire creative employees, coordinate activities, create a company culture and of course, deliver results
Innovation is the heart of a company success and can be in two ways: sustaining or disruptive.
The product is defined like << one that encompasses any source of value for the people who become a customer >>
Learn, is the essential unit of progress in start-up, no more the oldest excuse to failure. Ries defines a concept named validate learning, which means that every assumption of your product, market, or strategy must be validated. This validates learning open the door for “experiments”. Based on the scientific method, the Lean Startup uses experiments to validate everything.
Every experiment is based on a hypothesis (scientific method), and the hypothesis is based on theory. The theory is divided in two: facts proved stuff around your idea, and assumptions, what you think about your idea, but without prove of it.
The most important hypothesis is the «value hypothesis» and «grow hypothesis». The first is about the value of your product for clients, is trying to prove if your prospected customers really want to pay for your product. The second is about how you will go to take e the most of users or clients.
Every experiment is a product or part of it. Here is where our MVP ( Minimum value product ) appears.
The MVP is << that version of the product that enables a full turn of the loop with a minimum amount of effort and the least amount of development time >>
About the learning and MVP definition, there is a mention about the philosophy Genchi Gembutsu: the right place at the right time. Get out of the building and start learning.
The MVP, even be developed with minimum resources, mustn´t forget quality and design, the two most important factors for user eye and experience.
Once, you have the MVP, the focus is on the measure, measure everything, is the only way to validate. For this, Ries introduce a concept named Innovation accounting, establishing 3 milestones:
- MVP to establish real data on where the company is. (Must test every assumption)
- Tune the engine from baseline to ideal. ( improve, growth model, activation rate of new users)
- Pivot or persevere? ( not afraid )
For metrics, the book proposes to avoid the vanity metrics, yes that total numbers that we use to make reports for our own smiles. Instead, you can use de <<cohort analysis>> a kind of chart focus on a group of customers and its conversion rate. The metrics must be actionable, accessible and auditable.
One form to get feedback is the split test, an exercise where you can send one version of the product to the half of your users and another version for the other half. Measure the reactions and validate differences.
Another tool that can be used for team and activities management is the Kanban. Kanban is based on four statuses for every activity: backlog, in progress, built and validated. No more than 3 per bucket.
One of the most important concepts on lean startup is the pivot: << structured cause correction designed to test a new fundamental hypothesis about the product, strategy, and engine of growth>>
When to do it? When <<decreasing the effectiveness of product experiments and the general feeling that the product development should be more productive>> before making a pivot, you must to be caution don´t be using vanity metrics (own reality), have an unclear hypothesis or be afraid.
There is a catalog of what do you can pivot:
- zoom – in
- zoom – out
- customer segment
- customer need
- business architecture
- value capture
- the engine of growth
Once you have something, is common to think the work is done, but no. Is time to <<start the engine>>, how do you will grow. See which activities create value or waste.
The <<grow>> or engine of growth is based on what you have done, << new customers come from actions of past customers>> this can be possible in 4 ways:
- Word of mouth
- As side effect of product usage
- Funded advertising
- Repeat purchase
You have 3 options for an effective engine of growth: be sticky, viral or paid, all this until you find the product/market fit. That point where the people who want you and your product meet each other.
In this part you must consider an adaptive organization, automatically adjusts its process and performance to current conditions. Be open to change, innovate and take a different way. Here the most important are people and how you manage your team. << Most mistakes are caused by bad systems, not bad people>>
The innovation is fundamental, you must think “out of the box”. Are 3 aspects of caring about it: innovation needs secure resources, autonomy and personal stake in the outcome.
The question now is not anymore <<Can it be built?>> the question now is <<Should it be built’>>
All this culture around the entrepreneurship is exciting, is a possibility for many people to get their dreams done, to change the world and to make a better future.
<< ALL INNOVATION BEGIN WITH VISION>>