Notes on The Lean Startup
The Lean Startup by Eric Ries
Chapter One: Start
KNOW THIS:
1. Entrepreneurs are typically reluctant to implement traditional management practices early in a startup; they're afraid it'll stifle creativity, but actually leads to more chaos than success.
2. The Lean Startup uses validated learning (VL) as their unit of progress vs manufacturing uses measurement of production of high quality goods. VL = guidance on how to make decisions. (Ie: When to respond to customer feedback vs sticking to their vision).
3. The book's method is designed to teach you how to drive a startup. Instead of complex plans based on mostly assumptions, you can make a lot of adjustments using the Build-Measure-Learn feedback loop to scale and grow your biz at maximum acceleration.
4. The goal of a startup is to figure out the right thing to build as quickly as possible.
DO THIS:
1. Implement from day one: vision and concept, product development, marketing and sales, scaling up, distributions and partnerships, structure and organizational design.
2. Build cross functional teams and hold them accountable to "learning milestones." This gets away from traditional functional departments (ie: marketing, sales, IT and HR) but allows you to measure productivity differently.
3. Start with a vision + a strategy (business model, product road map, point of view about partners and competitors and ideas about who your customer will be). Your product is the end result of the strategy.
Tip: Products change constantly through optimization. Strategies change less frequently and the vision is rare to change.
Resources & Refs
Traction by Gabriel Weinberg and Justin Mares
Start With Why by Simon Sinek
Chapter Two: Define
KNOW THIS:
1. Definition of a startup: A human institution designed to create a new product or service under conditions of extreme uncertainty. What this does not define is the size of the company, the industry or the sector of economy.
2. Entrepreneurs are in every sector of the economy regardless of company size or development stage. Lots of large, established businesses also have entrepreneurs aka "intrapreneurs" on board to help move new ideas forward.
3. A new company that opens based an existing business model is notconsidered a startup because it only relies on execution. Success can be modeled with high accuracy in these cases. Startups are brand spanking new and face that super awesome, extreme uncertainty from #1.
DO THIS:
1. Constantly look for new sources of value for your customers and genuinely care about the impact your products have on them.
2. A product is something that has value for the people that become customers. Anything they interact with in your biz should be considered part of the product (Ie: Brick and mortar stores, e-commerce website, associated organizations, etc).
Resources & Refs
The Snaptax Story- Intuit's entrepreneur Scott Cook and Co-Founder Tom Proulx.
Chapter Three: Learn
KNOW THIS:
1. VL (the Lean Startup model that's reshaping traditional learning) is discovering valuable truths about a startup's present and future business prospects. It's more accurate and faster than classical business planning (yay!).
2. VL is backed up by observations of real customers and is the necessary unit of progress for startups. It's always shown by positive improvements in your metrics.
3. Every model, product, feature and marketing campaign used within a startup is an experiment designed to process validated learning (VL).
DO THIS:
1. You have to find out what customer's REALLY want vs what customers say they want or what you think they want.
2. Everything you do is a grand experiment. The question should NOT be "can this product be built?" but "should this product be built?" and "can we build a sustainable business around a certain set of products/services?"
Resources & Refs
UserTesting- find out what issues your people have
AskNicely.com- get customer feedback
SurveyMonkey- easy survey tool
Typeform- pretty (and also easy) survey tool
Will It Fly by Pat Flynn (how to validate your idea)
Chapter Four: Experiment
KNOW THIS:
1. The goal of every experiment is to determine how to build a continual business around the vision.
2. A value hypothesis tests how a product or service delivers value to a customer.
3. A growth hypothesis tests how new customers will find out aboutthat product or service.
DO THIS:
1. Break your company's vision down into two main components: value hypothesis and growth hypothesis.
2. VL is an ongoing experiment that has an advantage over traditional market research because if the results from an early experiment don't look promising it's an issue with the strategy and you can use the same group of people for the same experiment again and again to come up with the best strategy.
3. The main challenge to overcome is the standard management thinking that puts faith into well-researched plans. Sure it works well in established organizations, but changing this mindset for startups is critical for success.
Resources & Refs
"Success is not delivering a feature; success is learning how to solve the customer's problem." -Mark Cook, Kodak Galleries Vice President
Chapter Five: Leap
KNOW THIS:
1. Traditional businesses use a strategy to help managers clearly identify assumptions. Entrepreneurs need to test assumptions systematically as well as perform rigorous testing with keeping the company's overall vision in mind.
2. You need to know if a new product/service is value-creating or value-destroying. You might be very profitable in the beginning but ultimately end up value-destroying (Ex: Ponzi Schemes, fraudulent/mis-guided organizations).
3. You also need to understand your company's growth. A biz that has value-destroying kind of growth is typically perceived as doing well due to continuous fund-raising by investors, etc; however, has not developed a value-creating product.
DO THIS:
1. Test the assumptions of your business plan to see how to achieve your overall vision.
2. Take leaps of faith aka act on assumptions as if they're true. Hint: your success depends on leaps of faith.
3. Startups need tons of contact with potential customers to understand their wants/needs, so get out there to get to know them.
Resources & Refs
Toyota Production System "Genchi Gembutsu" means "go and see for yourself." Jeffrey Liker who documented the "Toyota Way" states "In my Toyota interviews, when I asked what distinguishes the Toyota Way from other management approaches, the most common first response was genchi gembutsu whether I was in manufacturing, product development, sales, distribution, or public affairs. 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."
Chapter Six: Test
KNOW THIS:
1. A minimum viable product (MVP) will help you learn as quickly as possible. Roll it out to early adopters aka visionary early customers who actually prefer an 80% finished solution vs. something totally done. They'll use their imagination to fill in what the product's missing and they're suspicious of something that's too polished.
2. MVPs range in complexity from something as simple as an ad to actual early prototypes that have glitches and missing features.
3. The most common speed bumps in startups are legal issues, fears about competitors and branding risks.
DO THIS:
1. Don't go all out. A product with additional features and polish beyond what early adopters demand are wasted resources. Deciding what an MVP needs can not be done formulaically.
2. Believe in the following quality principle: "If we do not know who the customer is, we do not know what quality is." A low quality MVP can help build a high quality finished product.
3. Seek legal counsel to ensure you fully understand the risks.
Resources & Refs
Will It Fly by Pat Flynn (how to validate your idea)
Traction by Gabriel Weinberg and Justin Mares
Chapter Seven: Measure
KNOW THIS:
1. Use cohort analysis to look at performance of each group of customers that come into contact with your product independentlyvs. looking at cumulative totals or gross numbers.
2. Each pivot reveals new opportunities. You should constantly be establishing a baseline, tuning the engine and making decisions to pivot or persevere.
3. Reports should be actionable, accessible and auditable.
DO THIS:
1. Measure where you are right now even if it means confronting hard truths. Based on results, devise experiments to figure out how to move real numbers closer to the business plan.
2. Use innovation accounting which works in three steps:
Use an MVP to get real data on where the startup is right now.
Attempt to move from baseline toward ideal.
Decide if the current method is working or if the product strategy is flawed and needs to pivot.
3. Make reports as simple as possible so everyone can understand them. The easiest way to do it is to make metrics tangible and concrete.
4. For a report to be actionable it must show a clear cause and effect. If not, it's a vanity metric.
Resources & Refs
How to Run a Cohort Analysis in Google Analytics to Better Segment Your Traffic
Chapter Eight: Pivot (or Persevere)
KNOW THIS:
1. Every entrepreneur faces the challenge: pivot or persevere. Pivot = a structured course correction designed to test a new fundamental hypothesis about the product, strategy and engine of growth.
2. A pivot comes in many forms including: Zoom-in, Zoom-out, Customer Segment, Customer Need, Platform, Business Architecture, Value Capture, Engine Growth, Channel and Technology pivots.
3. Laying a solid foundation for your startup is the first step to the real destination: acceleration.
DO THIS:
1. Don't rely too much on a scientific approach to determining whether to pivot as human judgement may be faulty. Successful pivots will put your biz on a path toward growing a sustainable business.
2. A pivot requires you to stay partially in what's been learned so far but while making a change in strategy to get greater results of validated learning (VL).
3. With each pivot you should learn to achieve the same amount of VL as the last pivot with lower cost and shorter time.
Resources & Refs
Traction by Gabriel Weinberg and Justin Mares
Chapter Nine: Batch
KNOW THIS:
1. You should use a small batch approach to making a product vs a large batch approach. Small batch = issues become apparent much quicker with less impact.
2. Managers used to traditional methods believe that functional specialization is more efficient for workers, but it's not the right methodology for startups... it can be uber costly.
3. Startups often struggle to see their work-in-progress inventory (WIP) because their work is intangible and harder to see than physical inventory.
Ex: incomplete designs, invalidated assumptions and business plans = WIP.
DO THIS:
1. As soon as you formulate a hypothesis to test, the product development team should design and run the project as quickly as possible using the smallest batch size to get the job done.
2. Choose the small batch approach so you can produce a finished product every few seconds vs a large-batch approach that delivers all the products at once.
Tip: This would have a really large impact if the measurement went from seconds to hours, days or weeks.
Resources & Refs
Toyota's "Andon Cord" method vs other car companies using mass production techniques. This is what allowed Toyota to keep their quality they are still known for today.
Chapter 10: Grow
KNOW THIS:
1. New customers come for the actions/feedback of previous customers.
Tip: This is sustainable growth.
2. Viral coefficient = when a customer signs up for a product how many friends will that person bring to the product.
3. The margin between the long term value and cost per acquisition determines how fast the paid engine of growth will turn.
DO THIS:
1. Don't rely on one-time activities that generate a surge of customers to determine sustainable growth. Ex: a single ad or publicity stunt.
2. Use the following methods to get past customers to drive sustainable growth: word of mouth, as a side effect of product use, through paid advertising or through repeat purchases.
3. Manage a portfolio of activities, tuning your engine of growth while at the same time developing new sources of growth. This is called an adaptive organization.
Resources & Refs
Six ways to get more word of mouth referrals
Six referral program examples you can get ideas from
Chapter 11: Adapt
KNOW THIS:
1. An adaptive organization automatically adjusts its processes and performances to the current conditions.
2. At the root of every technical problem is a human problem. Using the five whys allows you to determine what the human problem is.
3. Being tolerant of all mistakes the first time encourages people to be understanding. Never allowing a mistake to be made twice gets teams invested in prevention.
DO THIS:
1. Invest in a training program for new employees. Make sure it includes standardized work processes and a curriculum of the tasks they should learn so they're productive on day one.
2. When confronted with a problem stop and ask your five why's. Tip: it gets easier with practice.
3. Be tolerant of all mistakes the first time and then never allow them to happen again.
Chapter 12: Innovate
KNOW THIS:
1. As your biz grows you can learn to a) balance the needs of existing customers while finding new customers and b) manage current lines of business while exploring new models.
2. Structure is essential but does not guarantee success.
3. A common issue: employees often follow a product they develop as it moves between phases which leaves creative managers stuck working on one project as opposed to creating new products.
DO THIS:
1. Employ these three structures:
scarce but secure resources
independent authority to develop business
a personal stake in the outcome
2. Focus on setting ground rules on how your teams operate:
how to protect the parent organization
how to hold entrepreneurial managers accountable
how to reintegrate innovation back into the parent organization
3. Build strong cross-functional teams to develop products as they move from phase to phase to allow for more innovation of new products/services.
Chapter 13: Epilogue: Waste Note
KNOW THIS:
1. The Lean Startup avoids doctrines and strict ideology.
2. Applying the Lean Startup organizational superpowers allows your biz to recognize that speed and quality are allies in discovering a customer's long-term benefit.
3. Your company should dedicate itself to the creation of new products/service with a mission to build sustainable value and change the world for better.
DO THIS:
1. Apply science to entrepreneurship to unlock greater potential in humans.
2. Respond to failures and setbacks with honesty and learning, not with blame.
3. Do away with the impulses to slow down, increase batch size and indulge in the curse of prevention.
