The lean startup is a 284 pages book written by entrepreneur Eric Ries. Its goal is to launch a movement of entrepreneurs inspired by the lean manufacturing techniques.
From Ries point of view, one of the biggest modern waste is the waste of time. We are asking people to work on products/projects that doesn’t really matter to the end consumer. We are efficients at doing things that are often useless. After years of experiences in different startups and as a consultant, Ries has adapted the lean manufacturing techniques originally invented by Toyota to the management of a sustainable company.
I propose in the following article to quickly summary of the main topics the book is covering.
The book is divided into three main parts :
Part I – Vision
Entrepreneur is a job that requires a new kind of management. Startups does not exists to make stuff or money, their goal is to learn how to build a sustainable business. This knowledge can be scientifically validated, it is called validated learning. The lean startup principles are based on the « Build-Measure-Learn » loop. The main activity of a company is to transforms ideas into products, measure how their customers respond and then choose whether to pivot or persevere. The progress of the company should be measured through a new kind of values : innovation accounting.
For Ries, a startup is a human institution designed to create a product or service under conditions of extreme uncertainty. Startups need to create an agile platform that enable them to experiment quickly in order to learn more about the customers, its needs and how to design new features that will be useful for the user. Validated learning is the process of demonstrating that a team has discovered valuable truth about the present and future business. Every new features should be tested independantly and measured through actionable metrics to check if it should be kept or removed. This tests should be done as quickly as possible through the launch of a minimum viable product, even a rapid unfinished and cheap prototype. This means that you shouldn’t wait to have the perfect product, launch it and then discover that nobody wants it because it does not answer to the user’s needs.
Entrepreneurs need to make two kind of assumptions : the value hypothesis tests whether a product delivers value to the consumer. The second, the growth hypothesis tests how your product will spread to the customers. You need to make experiments to validate your hypothesis in order to choose to pivot or persevere.
Part II – Steer
When your customer interacts with your product they generate feedback that is both qualitative and quantitative.
The feedback loop can be representated through these steps : ideas > BUILD > product > MEASURE > data > LEARN > ideas.
The riskiest elements on which everything depends are called the « leap of faith assumptions », as we saw earlier, the two main are the value and the growth hypothesis. The first step to enter in the loop in order to validate your hypothesis is to build a Minimum Viable Product (MVP). With this MVP, you will gain knowledge that allows you to tune your product according to actionable metrics. You will pay attention to the kind of metrics you are using, too many entrepreneurs base their decisions upon vanity metrics which can lead the company in a very dangerous path. You will also have to be very clear about your leap of faith assumptions, be true, be explicit, don’t try to convince your stakeholders with obscure language, be very clear about what you are trying to achieve.
Your MVP can be everything, from a simple website, a video, a powerpoint presentation, a prototype. You need to test the faster and cheaper as you can to see how your early adopters, your audience, are responding. Quality is not what matters here. You need to test and iterate as fast as possible and build a framework that allows that speed.
Innovation accounting is a three steps process : first, establish real data from an MVP, then tune your engine to the ideal based on your meaures and finally choose wether to pivot or persevere. Your metrics should represent the hypothesis you are testing, they should be clear and reliable.
When you see your stastics are not improving, you are facing one of the biggest challenge an entrepreneur can have : you have to decide if you need to persevere in your hypothesis or to pivot. Pivot means to keep your original vision but to make a new fundamental hypothesis about your product, strategy and engine of growth. Some companies are making just enough money to survive but are not improving their statistics, they are in the land of the living deads, your learning milestones should help you to realize that you need to pivot before being stuck in that kind of situation. The lean startup methodology should help your organisation to be able to make pivots faster and faster if needed.
Part III – Accelerate
One of the most commun failures startups makes is to work with large batches of work and suddently realized they were working on something useless. One of the basic principles of an agile organisation is to work with multidisciplinary teams on small batches that will be tested very quickly.
There are three main engines of growth. The first one is the sticky engine of growth, designed to attract and retain customers on the long term (ex : subscriptions based business…). The second one is the viral engine of growth, it depends on person-to-person transmission (ex: social networks…). The third one is the paid engine of growth, it is based on the revenue you can make from each customer or the cost of acquiring a new customer (ex: commerce, consulting…).
Finally, you need to build a company and a management that is able to adapt quickly to change. Your company should always keep it’s ability to innovate and quicly tests new ideas. Sometimes to understand more deeply the problems you will encounter, you can use the technique of the « Five Whys ». It consists on asking « why » five times to go deeper and see the real foundation of the problems and not the superficial aspect of it. This will enable you to make the proportional investment in time, ressources or finance in order to solve the issue.
A last word on innovation, you need to secure resources for your innovation team, it will need an independant development authority and each persons involved will need a personal stake in the outcome. It can be recognition, stakes, money… but people need to keep motivated and implicated in the projects.
This short resume is just a quick overview of the book. I recommend you to read it in order to go deeper into the different concepts which are really well developed by Eric Ries. I hope this article will gives you some basic knowledge about the lean startup principles. More informations can be found online here : http://theleanstartup.com/principles
Personal view on the book
My personal opinion on this book is that even if I didn’t liked the author’s style I think it is a must read book for every persons who are thinking to launch a new business. It is a little bit too startup/product oriented and I would have appreciated if there was more explanations on how to adapt the lean startup principles to a service based company.