Lean Startup

Notes taken from “The lean startup” book by Eric Ries:


Core: Core concepts behind lean startups

OS: Orphan statements = Standalone excerpts that conveys important point

Definition: “A startup is a human institution designed to create a new product or service under condition of extreme uncertainty”

Core1: Validated learning: Validated learning is not after-the-fact rationalization or a good story designed to hide failures. It is a rigorous method for demonstrating progress when one is embedded in the soil of extreme uncertainty in which startups grow. Validated learning is the process of demonstrating empirically that a team has discovered valuable truths about a startups present and future business prospects. It is more concrete, more accurate, and faster than market forecasting or classical business planning. It is the principal antidote to the lethal problem of achieving failure: successfully executing a plan that leads nowhere.

  • Validated learning is always backed up by empirical data collected from real customers.

Core2: Value vs. waste

  • Lean thinking defines value as providing benefits to the customer; anything else is waste

  • Its hard in define what’s valuable due to uncertain nature of a startup environment. Validated learning can help distinguish between what’s valuable and what’s waste.

Core3: Value hypothesis: value hypothesis tests whether a product or service really delivers value to customers once they are using it

Core4: Growth hypothesis:Growth hypothesis tests how new customers will discover a product or service.

Core5: Build-Measure-Learn feedback loop is core of every startup

Build [products] -> Measure [data] -> Learn [ideas]

Core6: Minimum Viable Product [MVP] - 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.

  • MVP lacks many features that may prove essential later on. However in some ways creating MVP requires extra work: we must be able to measure its impact.

  • Goal of MVP is to test fundamental business hypotheses.

Core7: Innovation accounting: A quantitative approach that allows us to see whether our engine-tuning efforts are bearing fruit.

  • Innovative accounting allows us to create learning milestones.

  • Innovation accounting works in 3 steps:

1) Use MVP to establish real data on where the company is right now. Without clear a clear-eyed picture of your current status-no matter how far from the goal you may be-you cannot begin to track your progress.

2) Startups must attempt to tune the engine from the baseline towards ideal

3) Pivot or persevere.

Core8: Learning milestones: They are useful way of assessing product/startup progress accurately and objectively. It is also invaluable to hold people accountable.

Core9: Leaps of faith: Few core assumptions/hypothesis about a product/startup that an entrepreneur assumes to be true are called leaps of faith. If they are true then tremendous opportunity awaits. If they are false, the startup risks total failure.

Core10: Customer archetype: A brief document that seeks to humanize the proposed target customer.

  • Customer archetype is essential guide for product development and ensures that the daily prioritization decisions that every product team must make are aligned with the customer to whom the company aims to appeal.

  • The goal of early contact with customers is not to gain definitive answers. Instead, it is to clarify at a basic, coarse level that we understand our potential customers and what problems they have. With this understanding we can draft customer archetype document.

Core11: Cohort Analysis: It is one of the most important tools of startup analytics

  • 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 “Cohort”

Core12: Split-tests:A split test experiment is one in which different versions of a product are offered to customers at the same time. By observing the changes in the behavior between the two groups, one can make inferences about the impact of the different variations.

Core13: Three A’s of metrics

Actionable: For a metric to be considered actionable, it must demonstrate clear cause and effect. Otherwise it is a vanity metric

Accessible: Make reports as simple as possible so that everyone can understand them and make it one-pager.

Cohort based reports are the gold standard of learning metrics: they turn complex actions into people-based reports.

Each cohort analysis says: Among the people who used our products in this period, here’s how many of them exhibited each of the behaviors we care about.

Auditable: Data should be credible.

Core14: Pivot:

Signs of the need to pivot: The decreasing effectiveness of product experiments and the general feeling that product development should be more productive. Whenever one sees these symptoms, consider a pivot.

  • The word pivot sometimes is used incorrectly as a synonym for change.

  • A pivot is a special kind of change designed to test a new fundamental hypothesis about the product, business model, and engine of growth.

Orphan Statements (OS):

OS:Lean startup has its roots in “Lean manufacturing”

OS: If we don’t know who the customer is, we do not know what quality is

OS: “How do you know that the prioritization decision that team is making actually makes sense”?

“How confident are you that you are making the right decisions in terms of establishing priorities?”

OS: A solid process lays the foundation for a healthy culture, one where ideas are evaluated by merit and not by job title.

OS: Vanity metric wreaks havoc because they prey on a weakness of the human mind.

OS: Companies that cannot bring themselves to pivot to a new direction on the basis of feedback from the marketplace can get stuck in land of the living dead neither growing enough nor dying but consuming resources and commitment from employees and other stakeholders but not moving ahead.

OS: W Edwards Deming’s famous dictum: The customer is the most important part of the production process. This means that we must focus our energies exclusively on producing outcomes that the customer perceives as valuable.

OS: Metcalfe’s law = the value of network as a whole is proportional to the square of the number of participants

OS: If we can understand our customers better then we can improve our products

OS: The most important lessons of the scientific method: if you cannot fail, you cannot learn

Scientific method: It begins with a clear hypothesis that makes predictions about what is supposed to happen. It then tests those predictions empirically. Just as experimentation is informed by theory, startup experimentation is guided by the startups vision. The goal of every startup experiment is to discover how to build a sustainable business around that vision

OS: In lean startup model an experiment is more than just a theoretical inquiry, it is also a first product.

All Product managers should ask/answer following four questions:

1) Do consumers recognize that they have the problem that we are trying to solve?

2) If there were a solution, would they buy it?

3) Would they buy it from us?

4) Can we build a solution for that problem?

OS: Building startup is an exercise in institution building, thus it necessary involves management

OS: Many entrepreneurs take a “just do it” attitude, avoiding all forms of management, process and discipline. Unfortunately, this approach leads to chaos more often than it does success. Avoiding this approach should be the very first step.

OS: A comprehensive theory of entrepreneurship should address all the functions of an early-stage venture: vision and concept, ships and distribution, and structure and organizational design. It has to provide a method for measuring progress in the context of extreme uncertainty.

OS: The goal of startup is to figure out the right things to build - the things customers want and will pay for - as quickly as possible. In other words, the Lean startup is a new way of looking at the development of innovative new products that emphasizes fast iteration and customer insight, a huge vision, and great ambition, all at the same time.

OS: The lean startup methods are designed to teach how to drive a startup. Instead of making complex plans that are based on lot of assumptions, one can make constant adjustments with a steering wheel called as “Build-Measure-Learn” feedback loop. Through this process of steering, we can learn when and if its time to make a sharp turn called as “pivot” or whether we should “persevere” along our current path.

Once we have an engine that’s revved up, the lean startup offers methods to scale and grow business with maximum acceleration.

OS: Products change constantly though the process of optimization, this process is called as “engine tuning”

Less frequently strategy behind the product needs to change. This change is knows as “pivot”

OS: Every setback is an opportunity for learning how to get where we want to go

OS: Learning is a vital function within a startup. We must learn the truth about which elements of our strategy are working to realize our vision and which are just crazy. We must learn what customers really want, not what they say they want or what we thing they should want. We must discover whether we are on a path that will lead to growing a sustainable business.