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The Lean Startup

By: Eric Ries

Reviewed By: Bob Ruffolo

Understanding how the world of business works and the methods you should use in getting to the promised land is the true meaning of going lean. In The Lean Startup, Eric Riles gives us his scientific approach on how to create and manage a startup to grow at lightning speed – successfully.

According to Eric, “Using the Lean Startup approach, companies can create order, not chaos by providing tools to test a vision continuously,” which ultimately means you need to work smarter, not harder regardless of company size.

“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.”

The concept of the book is that anyone can have a successful business when you do the work and apply the formula if they remember the key principles: Entrepreneurs are everywhere; Entrepreneurship is management; Validated learning; Build-measure-learn; and Innovation accounting.

  • Entrepreneurs are everywhere

You can be anywhere at any time and create a startup. The key is in thinking big, starting small and scaling fast.

  • Entrepreneurship is management

As an entrepreneur, you need to be accountable for yourself by exercising effective management skills. You must know the process in order to successfully implement the process. It’s easier to avoid mistakes when you know how to assess value and determine your next steps.

  • Validated Learning

Start-ups exist to learn how to build a viable business. Each component can be scientifically validated by running experiments that demonstrate and test your vision. With validation, you will be able to identify and address the key risks in your product or service and make adjustments to properly position your brand.

  • Build-Measure-Learn

The "Build-Measure-Learn feedback loop is at the core of the Lean Startup model.” This means the main activity of a startup is to transform ideas into products or services, measure your metrics for audience response, and determine whether you need to pivot (change something) or persevere (continue on). Every process within the loop should accelerate feedback.

  • Innovation Accounting

This process holds entrepreneurs accountable for their actions and outcomes through prioritization of work, measurement of progress, and delineation of milestones. All of these elements work together to define entrepreneurship, introducing a new way of how it should be done.

How it’s Done

Delivered in three key sections, this book takes the reader through a number of key principles to reinforce the lean startup mindset.

Section I: VISION

When implementing the vision, entrepreneurs must Start, Define, Learn and Experiment. What does this mean? -- “Leadership requires creating conditions that enable employees to do the kinds of experimentation that entrepreneurship requires.”

Start

Under this concept, the ideology of lean manufacturing takes precedence, adapting accelerated cycle times, inventory management, and small batch sizes to that of a startup. A vision and strategy is defined, with a tangible product driving the progression. The Lean Startup model teaches you how to adjust your vision and strategy through a Build-Measure-Learn feedback loop.

Define

Once your startup is defined, the only way it will remain sustainable is through an “innovation factory” that utilizes lean startup techniques to operate on a continuous basis throughout extreme uncertainty.

Learn

Entrepreneurs must learn which components of their strategy work, and which ones do not. Validated learning demonstrates that a team has realized truths about the present and future of the business, getting rid of the waste and capitalizing on the value.

“We must learn what customers really want, not what they say they want or what we think they should want.”
- Eric Ries

Experiment

A startup is viewed as an experiment that tests the overall strategy to determine whether or not it works. The entrepreneur uses a series of hypothesis (value and growth) to make predictions on what should happen, then tests their validity and value once in place. The value hypothesis determines whether customers are receiving value in their use of the product or service, and the growth hypothesis determines how the product or service is discovered.

“You cannot be sure you really understand any part of any business problem unless you go and see for yourself firsthand. It is unacceptable to take anything for granted or to rely on the reports of others.”
- Eric Ries

Section II: STEER

Once you get past the experimental stage, this information will assist in building a sustainable business to influence or restructure your strategy. The Build-Measure-Learn feedback loop is an important component of the model.

Leap

When starting a business, you are taking a leap of faith and making assumptions. Consider the Build-Measure-Learn feedback loop an engine. The value and growth hypotheses provide information and variables to start the engine of growth. Each recurrence of a startup can be viewed as a revving of the engine to see if it will turn over. Once this engine (startup) is running and in place, the process repeats, shifting into subsequent gears.

Test

When testing your startup, you must be ready to enter the Build phase of your model with a product or service (minimum viable product). This MVP allows the product to have a full turn on the Build-Measure portion of the loop. This also assists an entrepreneur in quickly starting the process of learning.  

Measure

The ultimate goal of a startup is to measure its standing and take a hard look at what the metrics reveal, then implement experiments to shift outcomes more in line with the vision. Startups must ask the hard questions like, How are you making your product or service better? Or, Are the changes we’ve implemented made a difference?

Startups must implement new types of accounting methods to disrupt innovation. This means a baseline must be established to determine how your product or service is performing within the vision, and testing your hypotheses (tune the engine). Then, you must pivot or persevere.

You must either continue on with the product or service based on the metrics you have, or pivot and test the next assumption for growth and value. Take the time to evaluate the performance based on customer feedback and measure actionable metrics, which must be actionable, accessible, and auditable.

Pivot or Persevere

Based on the information gathered, you should be able to make a determination as to whether or not you have made adequate progress based on the original hypotheses, or whether you need to make some changes. These changes are called pivots, which test new hypotheses on strategy, product and engine of growth.

Consider a Startup’s Runway, which measures how many pivots are left in a startup. Essentially, you are measuring the number of opportunities left to make a major change in your strategy.

There are a number of pivots that test these hypotheses:

  • Zoom-in pivot

  • Zoom-out pivot

  • Customer segment pivot

  • Customer need pivot

  • Platform pivot

  • Business architecture pivot

  • Value capture pivot

  • Engine of growth pivot

  • Channel pivot

  • Technology pivot.

Section III: ACCELERATE

Batch

In the Small-Batch Approach, a finished product is produced every couple of seconds, but the Large-Batch Approach waits to deliver until the end. There is an advantage to working in small batches because any issues in quality can be quickly identified, and the process works faster in solidifying a sustainable business.

Grow

Startups use the engine of growth in achieving sustainability, keeping in mind the cardinal rule: New patrons come from the actions of past patrons.

There are four ways these past patrons drive sustainable growth:

  • funded advertising

  • word-of-mouth

  • repeated purchases or usage, and

  • as a side effect of using the product.

These four elements power the feedback loops, or engines of growth. The sticky engine of growth occurs when companies track their attrition. The viral engine of growth occurs when awareness spreads quickly and can be quantified. The paid engine of growth is when money used to acquire customers, as in subscriptions.

Adapt

A company that automatically adjusts to current conditions in processes and performance is an adaptive one. To move the engine, Lean Startups must have a process that will provide a natural feedback loop.

An adaptive process regulates the speed in operations, giving you a chance to prevent time wasters. Once those are addressed, the speed gradually increases once again.

Utilizing the five why’s technique when discovering potential issues helps identify human error. There will always be a “why” to something that is occurring. Formulating questions that assist in getting to the root of the problem is key.

Remember: The work of a startup is never done, and the mindset must always focus on pursuing disruptive innovation and operational excellence.

“When blame inevitably arises, the most senior people in the room should repeat this mantra: if a mistake happens, shame on us for making it so easy to make that mistake.”

Innovate

Successful innovation teams must be structured correctly to succeed. A startup also requires less capital than a large organization, but the capital must be secure.

When leading a startup, there must be complete autonomy to develop and market products without red tape and interference from a layered management.

True entrepreneurs must have a personal stake in what they’ve started, such as equity ownership or other forms of bonus incentives. Lastly, it is important to have a platform where all changes and experiments only affect one set of variables (customers or features) at a time.

Does it Work?

“The big question of our time is not can it be built, but should it be built? This places us in an unusual historical moment: our future prosperity depends on the quality of our collective imaginations.”
- Eric Ries

These fundamentals can work if applied correctly, but every business is different with changing variables.

The analogy of using a car to drive your business – how to steer, when to turn, and when to keep going for fast results is an innovative move into the future.

The Lean Startup definitely challenges the thought process of innovation and entrepreneurship, providing a backdrop to keep risk low and success high.

“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.”

This is definitely a book worth reading for insight into next level entrepreneurship. The use of case studies as the backdrop for explaining these principles is forward-thinking and invites a modern audience into an innovative setting.

By introducing these principles to shift the current mindset, entrepreneurs have the tools to implement startups that can flourish as lean, productive machines. It’s largely contingent on how badly you really want it.

As Eric Ries said, “All innovation begins with vision. It’s what happens next that is critical.”