The Lean Startup: Quick Summary

A quick summary of the business classic The Lean Startup, available here. Photo by Ildefonso Polo on Unsplash

5 Key Takeaways

  1. There is a process to entrepreneurship that can be learned.
  2. The goal of a startup is to figure out the right thing to build – the thing customers want and will pay for – as quickly as possible.
  3. Customers do not tell us what they want. They reveal the truth through their action or inaction.
  4. Test and validate your value and growth hypothesis.
  5. Use MVPs to cycle through the Build-Measure-Learn feedback loop as fast as possible

5 Principles of the Lean Startup:

  1. Entrepreneurs are everywhere. A startup is “a human institution designed to create new products and services under conditions of extreme uncertainty.”
  2. Entrepreneurship is management. Adopt a principled approach to manage risks and reduce failure.
  3. Validate Learning. Learn rigorously and scientifically who the customers are and what products should be provided.
  4. Build-Measure-Learn (and repeat). The faster the loop iterates, the more learning and progress will occur.
  5. Innovation accounting. This includes measuring progress and creating action plans.

Part 1: Vision

Chapter 1: Startups Need Managing
  • Startups need a new kind of management catering to high-risk innovation (entrepreneurial management), named the Lean Startup.
      • Startups need to learn what their customers want and will pay for as quickly as possible.
      • Due to the high level of uncertainty of startups, continuous adjustments for the startup plan are needed (Build-Measure-Learn)
Chapter 2: Define
  • A startup is “a human institution designed to create new products and services under conditions of extreme uncertainty.”
  • The Lean Startup is a set of methods for building a successful startup, wherever it is and whoever is working on it.
  • Innovation is a bottoms-up, decentralized, and unpredictable thing, but that doesn’t mean it cannot be managed.
  • Leadership requires creating conditions that enable employees to do the kinds of experimentation that entrepreneurship requires.
Chapter 3: Learn
  • A startup’s most important function is learning (what the customers really want and what will lead to a sustainable business)
      • Approach learning with discipline (validated learning): have testable hypotheses about the world; design experiments to test those hypotheses and analyze the data to evaluate the hypotheses. You have real quantitative data to show what you have learned.
Chapter 4: Experiment
  • Don’t follow the “Just do it” line of thinking. E.g. launch and see what happens. You will not gain validated learning this way. If you cannot fail, you cannot learn.
  • Test a small idea to answer a big question.
      • E.g. Zappos took pictures of another store’s inventory and sold shoes on their website to test the assumption that there was a demand for buying shoes online.
  • Do not find the average customer, but find early adopters: the customers who feel the need for the product most acutely. Those customers tend to be more forgiving of mistakes and are especially eager to give feedback.
  • An experiment is more than just a theoretical inquiry; it is also a first product.
  • Success is not delivering features; success is learning how to solve the customer’s problem.
  • Planning is a tool that only works in the presence of a long and stable operating history.
  • The 2 Most Important Assumption Entrepreneurs Make
  1. Value hypothesis: Does a product or service really deliver value to customers once they are using it? Design experiments that prove this by their actions. Don’t use surveys.
  2. Growth hypothesis: How will new customers discover a product or service?
  • 4 Questions For Product Development (In Order)
  1. Do consumers recognize that they have the problem you are trying to solve?
  2. If there was a solution, would they buy it?
  3. Would they buy it from us?
  4. Can we build a solution for that problem?

Part 2: Steer

Chapter 5: Leap
  • Central to Lean startup is the Build-Measure-Learn feedback loop.
  • Many entrepreneurs were in the “right place at the right time” but still failed. What differentiates the success stores 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 adapted their strategies accordingly.
  • Customer archetype describes the target customer. It guides product development and aligns the team to make decisions based on whom you aim to appeal.
Chapter 6: Test
  • Minimum Viable Product (MVP) is the product that is the bare minimum to test your hypothesis.
  • The aim is to start learning as soon as possible.)
  • Every extra feature you add before testing means wasted time.
  • Types of MVPs
  • Video MVP: Explain the concept and ask people to sign up.
  • Concierge MVP: Do everything yourself to create an awesome personalized experience. Caution – you need to have a growth model, otherwise, you might become satisfied with a small profitable business when a pivot may have led to more significant growth.
  • Wizard of Oz MVP: Simulate the technology you would need to develop by doing it yourself behind the scenes while you test your assumptions.
Chapter 7: Measure
  • Build an MVP to measure where it is now
  • Experiment to improve the metrics
  • Decide whether to continue in the same direction or pivot in a new direction
  • Avoid vanity metrics
      • Metrics that have no choice but to keep increasing over time) (e.g., total number of anything- users, sales, action in product)
      • Metrics that track results that aren’t actually critical to business function (e.g., number of employees hired; money raised from investors; press articles written about your company; email written, meeting scheduled, number of features added to your product)
  • Cohort analysis: more accurate analysis is to separate users into groups based on the time they joined, then measure your metric for each group independently.
  • The 3 A’s of Metrics
    1. Actionable: Clear cause and effect between experiment and metric.
    2. Accessible: Make the reports as simple as possible so everyone understands them.
    3. Auditable: You must be able to test the data by hand.
Chapter 8: Pivot
  • There are 2 signs of the need to pivot:
      • your metrics are not good enough to meet your goals for your startup
      • your experiments are leading to less progress 9a sign that you’re out of good idea)
  • 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.

Part 3: Accelerate

Chapter 9: Batch
  • Small batches: Every Lean startup technique works its magic in two ways: (1) by converting push methods to pull and (2) by reducing batch sizes. The biggest advantage of working in small batches is that quality problems can be identified much sooner.
  • Small batches = faster learning.
  • Continuous deployment releases small new features all the time. Testing them and having a system in place that can pull the and on cord if something breaks.
  • The ability to learn faster from customers is the essential competitive advantage that startups must possess.
  • It is not the customer, but rather our hypothesis about the customer, that pulls work from product development and other functions.
Chapter 10: Grow
  • The engine of growth is the mechanism that startups use to achieve sustainable growth.
  • Sustainable growth = when new customers come from the actions of past customers.
  • A startup can evaluate whether it is getting closer to product/market fit by measuring the direction and degree of progress.
  • 4 Ways Past Customers Drive Sustainable Growth
  1. Word of mouth
  2. As a side effect of product usage
  3. Through funded advertising
  4. Through repeat purchase or use
  • 3 Engines of Growth
  1. Sticky Engine: If the rate of new customer acquisition exceeds the churn rate, the product will grow. Growth rate = natural growth rate – churn rate.
  2. Viral Engine: Feedback loop is determined by the viral coefficient. How many new customers will use a product as a consequence of each new customer who signs up? Viral coefficient >1 means that each person who signs up will bring, on average, more than one other person with them.
  3. Paid Engine: A portion of revenue is spent on advertisement. Customer lifetime value and cost per acquisition are important metrics.
Chapter 11: Adapt
  • Training is important to focus on with incremental improvements.
  • Use the “Five Whys” to work through any kind of failure.
  • Most mistakes are caused by flawed systems, not bad people.
  • Whenever something goes wrong, ask yourself: How could I prevent myself from being in this situation ever again?
  • The 5 Whys
  • Use it whenever new problems come up.
  • Everyone who is connected to the problem needs to be at the meeting.
  • Explain what it is and why the team will benefit from it.
Chapter 12: Innovate
  • You want teams to work cross-functionally to achieve validated learning.
  • The Lean Startup is a framework, not a blueprint of steps to follow.
  • Startups Need 3 Structural Attributes

  1. Scarce but secure resources
  2. Independent authority to develop their business
  3. A personal stake in the outcome
Chapter 13: Epilogue
  • Waste comes not from the inefficient organization of work but rather from working on the wrong things.
  • “There is surely nothing quite so useless as doing with great efficiency what should not be done at all.” – Peter Drucker
  • We must avoid the caricature that science means formula or a lack of humanity in work.

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