## Metadata - Author: [[Eric Ries]] - Full Title: The Lean Startup - Topics: [[Business development]], [[Strategy]], [[Prioritization]] - Category: #books ## Most important takeaways * Lean thinking defines value as providing benefit to the customer. Anything else is waste. * The most vital function of a startup is learning. Validated learning is the unit of progress: discover empirically what creates value through improvements in core metrics. * The learning feedback loop: Build (→ MVP), Measure (→ data), Learn (→ ideas). Learn and run through the feedback loop with maximum iteration velocity. * Use split-testing to identify cause and effect and make collected data actionable. * Pivot or preserve. Pivot sooner than later. ## Summary * The Lean Startup provides a scientific approach to creating and managing startups and get a desired product to customers' hands faster. The Lean Startup method teaches you how to drive a startup-how to steer, when to turn, and when to persevere-and grow a business with maximum acceleration. It is a principled approach to new product development. * Eric Ries is an entrepreneur and author of [Startup Lessons Learned](http://www.startuplessonslearned.com/). He cofounded and served as CTO of IMVU. * A **startup** is a human institution designed to create a new product or service under conditions of **extreme uncertainty**. * **Lean thinking**: * Lean thinking defines value as providing benefit to the customer, anything else is waste. * Lean thinking is drawing on the knowledge and creativity of individual workers, shrinking batch sizes, just-in-time production and inventory control, acceleration of cycle times. * The most vital function of a startup is learning. Validated learning is the unit of progress. * **Principles** of the Lean Startup: * **Entrepreneurs are everywhere**: * Regardless of industry, company size or your role, entrepreneurs are everywhere. You don’t necessarily have to be the founder to apply entrepreneurship. * See every startup in any industry as a grand experiment. * **Entrepreneurship is management**: * A startup is an institution that needs to be managed. * **Validated learning**: * Startups exist, not just to make a product and make money, but to learn how to create a sustainable business. This is done using frequent experiments and testing to reach a vision. * Validated learning is the process of demonstrating empirically—backed by data from real customers—that a team has discovered valuable truths about a startup’s present and future business prospects → what activities create value? * Validated learning shows in improvements in the core metrics. * True startup productivity: systematically figuring out the right things to build. Success is about learning how to solve the customer’s problem. * The effort that is not absolutely necessary for learning what customers want can be eliminated. * **Innovation accounting (measuring)**: * Startups need to focus on measuring progress towards goals and prioritise work. This requires a new kind of accounting designed for startups. Three steps: * 1. Use an MVP to establish real data on where the company is right now. First learning milestone. * 2. Tune the engine from the baseline toward the ideal. Second learning milestone. * 3. Pivot or preserve. If we are not moving the drivers of our business model, we are not making progress. That becomes a sure sign that it is time to pivot. When a company pivots, it starts the process all over again, reestablishing a new baseline and then tuning the engine from there. * **Cohort analysis**: Instead of looking at cumulative totals or gross numbers such as total revenue and total number of customers, one looks at the performance of each group of customers that comes into contact with the product independently. Each group is called a cohort. * **User stories**: Write a story that described the feature from the point of view of the customer. * **Actionable metrics**: For a report to be considered actionable, it must demonstrate clear cause and effect. * **Accessible metrics**: understand what the data tells you. * **Auditable metrics**: ensure that the data is credible. * **Build-Measure-Learn (experimenting)**: * The fundamental activity of a startup is to turn ideas into products, measure how customers respond and then learn whether to pivot or persevere. * Feedback loop: Ideas → **Build** → Product → **Measure** → Data → **Learn** → Ideas → … * **Iteration velocity**: minimize the total time to complete the feedback loop * Build: * **Minimum viable product**: The MVP is that version of the product that enables a full turn of the build-measure-learn loop with a minimum amount of effort and the least amount of development time. * **Concierge customer**: start with one customer * Simulate with people * Measure: * Define **learning milestones** * Experiment to move numbers closer to plan * **Go and see yourself** – test assumptions with real customers * **Split-test** to find cause and effect * Learn: * Pivot or preserve. * Which activities create value, and which are wasteful? * Find and fix root causes. * The startup pyramid: * Vision: the foundation (stays constant) * Strategy: pivot if necessary (changes) * Product: optimization (changes) * Experimentation and testing: * Startup experimentation is guided by the startup’s vision. The goal of every startup experiment is to discover how to build a sustainable business around that vision. * MVP rule: When building your MVP, remove any feature, process or effort that does not contribute directly to the learning you seek. * Begin with a clear hypothesis that makes predictions about what is supposed to happen. * The **value hypothesis** tests 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. * Then test those predictions empirically by iterating your product or service and testing key metrics to determine if your hypothesis is true or false. * Constant feedback: continually bring in people to test your products. * Early adopters: They accept—in fact prefer—an 80 percent solution, because what they care about above all is being the first to use or adopt a new product or technology. * Startup strategy: * The role of strategy is to help figure out the right questions to ask. * Leap-of-faith assumptions: will make or break the business * **Pivot**: A structured course correction designed to test a new fundamental hypothesis about the product, strategy and engine of growth. A pivot requires that we keep one foot rooted in what we have learned so far, while making a fundamental change in strategy in order to seek even greater validated learning. * Pivot sooner than later. * Types of pivots: * **Zoom-in** **pivot**: What preciously was considered a single feature in a product becomes the whole product. * **Zoom-out** **pivot**: What was considered as the whole product becomes a single feature of a much larger product. * **Customer segment** **pivot**: The product hypothesis is partially confirmed, solving the right problem, but for a different customer than originally anticipated. * **Customer need pivot**: The product hypothesis is partially confirmed: the target customer has a problem worth solving, just not the one that was originally anticipated. * **Platform pivot**: Refers to a change from an application to a platform or vice versa. * **Business architecture pivot**: For example when a startup goes from high margin/low volume to mass market or vice versa. * **Value capture pivot**: how do companies capture value? * **Engine of growth pivot**: A company changes its growth strategy to seek faster or more profitable growth. * **Channel pivot**: Is the recognition that the same basic solution could be delivered through a different channel with greater effectiveness. * **Technology pivot**: When discovering a technology to achieve the same solution by using a completely different technology. * The land of the living dead: Happens when a company has achieved a modicum of success just enough to stay alive but is not living up to the expectations of its founders and investors. Companies that cannot bring themselves to pivot to a new direction on the basis of feedback from the marketplace can get stuck in the land of the living dead. * Batch: * **Small batches**: identify problems and find out the truth faster. By reducing batch size, we can get through the build-measure-learn feedback loop more quickly than our competitors can. * Grow: * New customers come from the actions of past customers. * **Engines of growth**: The sources of sustainable growth power feedback loops that are called engines of growth. Successful startups usually focus on just one engine of growth, specializing in everything that is required to make it work. Engines of growth are designed to give startups a relatively small set of metrics on which to focus their energies. * **Sticky engine of growth**: If the rate of new customer acquisition exceeds the churn rate, the product will grow. * **Viral engine of growth**: Growth happens automatically as a side effect of customers using the product. Customers are not intentionally acting as evangelists; they are not necessarily trying to spread the words about the product. * **Paid engine of growth**: If the product has a customer lifetime value (CLV) that’s greater than the cost per acquisition, the product will grow. * **Product/market fit**: Describes the moment when a startup finds a widespread set of customers that resonate with its product.