The Lean Startup

I recently had the opportunity to read the book ‘The Lean Startup‘ by Eric Ries.

It was a really interesting read. The author is a very seasoned entrepreneur and leverages his experiences to define a set of guidelines which have collectively come to be known as ‘The Lean Methodology’ which can helps startups of all shapes and size achieve their goal of success.

Eric’s blog ‘Startup Lessons Learned‘ is very famous among entrepreneurial circles.

Eric defines a startup as – A startup is a human institution designed to deliver a new product or service under conditions of extreme uncertainty. Eric starts by explaining how startups can make sure they are progressing – validated learning. Many times, startups spend developing features that do not add value to the consumer. At times, they spend much time adding lots of features before launching. This can lead to a lot of wastage – in terms of time & human potential. The worst part is that startups sometimes fail to identify whether the features they have added are impacting their growth in any way.

The key here is to measure progress in a more real sense – in terms of customer-centric lessons learned rather than vanity metrics that might be false indicators. Startups make a lot of assumptions about the market, its value & growth hypothesis etc. According to Eric, every startup decision needs to be considered as an experiment. These leap-of-faith assumptions need to be rigorously tested. The best way is to build an MVP (Minimum Viable Product) that helps us  get consumer feedback. The idea here is to go through the Build-Measure-Learn feedback loop as fast as possible. Any feature does not help learn about consumer insight in measurable terms is a waste. The main 2 things a startup needs to validate are its value hypothesis and its growth hypothesis.

This involves the concept of Continuous Deployment where you build & deploy fast, get consumer feedback and improve. Eric also suggests a method called Innovation Accounting to keep track of your progress. This involves using cohort analysis – using tests that can help us objectively measure whether a feature has impacted customer behavior positively – split-user tests, user-activity tests etc. All the tests need to satisfy the 3 A’s – Actionable, Accessible & Auditable. For eg., instead of looking at the gross growth rate, Eric suggests studying the compounded growth rate which is  the Natural growth rate – churn rate (attrition rate). Here churn rate – fraction of customers who fail to remain engaged with company’s product.

Eric heavily draws from his own startup experience as a CTO of IMVU as well as the lean & just-in-time (JIT) manufacturing methods (like Kanban) followed by Toyota & other successful industrial companies. He mentions the use of the ‘Five Whys‘ to drill down to the basic (mostly human) cause behind every seemingly technical problem. Another major insight is regarding the question of whether to pivot or preserve. Most startups face this question at some point of their life. Successful startups usually have success stories which highlight the persistence of their founders as the reason of their success – which can be misleading at times. Eric suggest that founders should be open to change and take decision based on measurable data that suggest whether they are failing or not to gain traction. He defines the startup runway (time till take off) as the number of successful pivots that can be performed without running out of cash reserves. He gives the example of the startup Wealthfront as a classic lean startup which has had a number of timely pivots before hitting  the gold pot. Eric has categorized and methodically analysed most types of pivots that we see in the industry as well.

In the last chapters, Eric talks about how to ensure sustainable innovation in large corporations as well. Some good reads suggested at the end of the book (in my to-read list) are The Four Steps to The Epiphany  by Steven Blank and The Innovator’s Dilemma by Clayton M. Christensen.

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