The Lean Startup: Key Takeaways
The Lean Startup
Below are my key takeaways from Eric Ries' book 'The Lean Startup', personalised for future reference. I will update this blog as I progress through the chapters.
-----
Entrepreneurial Management
Even for a start-up, the system must involve management. The words 'start-up' and 'management' are so diametrically opposed that it shocks aspiring entrepreneurs - as they are afraid of stifling creativity and inviting bureaucracy. There are more entrepreneurs now in today's society than ever recorded, due to dramatic changes in the global economy.
We're experiencing a global surge in entrepreneurship like never before, but it comes with risks.
-----
The Roots of the Learn Startup
The Learn Startup strives to implement an engine in the core of the business. Every move is crucial and every set-back is another opportunity to learn how to get where they want to go.
A good theory of entrepreneurship needs to cover all the key parts of starting a business: vision and concept, product development, marketing and sales, scaling up, partnerships and distribution, and structure and organisational design.
Start-ups should also prioritise learning in sacrifice of some revenue, to potentially increase revenue in the long-run. However, start-ups are not too keen on this idea as they feel that a good, productive day is one which they did their job well that day, i.e. coding for eight straight hours every shift, and being annoyed with interruptions of questions, meetings, etc. People love tangibility.
"Learning, by contrast, is frustratingly intangible."
The goal of a start-up is to discover ideas that customers want and are willing to buy - as quickly as possible.
-----
Engine of Growth
Surprisingly, a toy company, a consulting firm, and a manufacturing plant all share something in common. Each new product version, feature, and marketing program is an effort to improve this engine of growth. However, not all of these changes turn out to be improvements. In the early stages of a start-up, most of the time is typically devoted to refining the engine of growth by improving the product, marketing strategies, or operations.
The second most important feedback loop between the car and driver of a business is the steering wheel. This feedback is immediate.
On the other hand, a rocket ship needs this sort of precise calibration beforehand. It must be launched with precise instructions on every step: every thrust, every firing of a booster etc. The tiniest error at launch could yield catastrophic results in the long-run.
Many start-up business plans integrate 'rocket ship' planning rather than driving a car. They describe every step of the business to a T before launch, and as in planning to launch a rocket, they are set up in such a way that even tiny errors in assumptions can lead to catastrophic results.
Learn how to operate your business from the steering wheel.
-----
Validated Learning
Validated learning is the process of demonstrating empirically that a team has discovered valuable truths about a startup's present and future business prospects.
Validated learning is about systematically testing assumptions and hypotheses through small-scale experiments to gather real-world data and insights, to show positive proof of improvement to employees, investors, employees and ourselves.
Entrepreneurs begin by formulating hypotheses about their target market, product features, and business model. They then design experiments to test these hypotheses and collect data on key metrics. By analysing the results, entrepreneurs can determine whether their assumptions are valid or need adjustment (pivot).
This iterative process of experimentation, measurement, and learning allows startups to reduce risk, make informed decisions, and continuously adapt their approach to better meet the needs of their customers and market.
-----
The Audacity of Zero
"The Audacity of Zero" is a concept that challenges conventional thinking with the mindset of starting from ground zero, or "zero-based thinking," when approaching problems or opportunities. It encourages to question existing assumptions, habits, and constraints, and to envision possibilities without being limited by past experiences or preconceptions.
This mindset needs guts to challenge the usual way of doing things and be open to starting fresh with a clean slate. By embracing the audacity of zero, individuals and organisations can unleash creativity, innovation, and transformative change, leading to breakthrough solutions and opportunities that may not have been apparent within the confines of traditional thinking.
This phenomenon creates a brutal incentive: postpone getting any data until success is certain.
However, releasing a product and hoping for the best is not a good plan either, because this incentive is real. We can mitigate the waste that happens because of the audacity of zero with validated learning.
What you need to demonstrate is that your product development efforts are leading you towards massive success without giving in to the temptation to fall back on vanity metrics and "success theatre" -- the work you do to make yourselves look successful, i.e. writing code for eight hours straight.
Marketing gimmicks such as a Super Bowl ad or public relations (PR) only give investors a temporary illusion of traction.
-----
Experimenting
A genuine experiment follows the scientific method. It starts with a clear hypothesis predicting what should happen, then tests it out. Just like how scientific experiments rely on theories, startup experiments are guided by the startup's vision. Every startup aims to figure out how to build a sustainable business around that vision.
Zappos, the largest online shoe retailer, started with innovative experimenting. If Zappos had gone off existing market research (there were no competition at the time), or conducted a customer survey, it could've asked what customers thought wanted.
However, by building a simple product instead, they learned much more:
- More accurate data about customer demand as they observed real customer behaviour and not asking hypothetical questions.
- Allowed itself to be surprised with unexpected customer behaviour. Revealing information Zappos might not have known to ask about, i.e. returning shoes.
Value Hypothesis: Predicts if a product or service solves a real customer problem and delivers value - i.e. customer retention.
Growth Hypothesis: Tests how new customers will discover a product or service - i.e. how will it spread among employees, from initial early adopters to mass adoption throughout the company?
In the Lean Startup model, an experiment serves as both a practical inquiry and a preliminary product. This specification will run on feedback on what is working today rather in anticipation of what might work tomorrow. Before developing a product, ask these 4 quick questions:
1. Do consumers recognise that they have the problem that you are attempting to solve with the product?
2. If there was a solution, would they be willing to buy it?
3. Would they buy it from you?
4. Can you build a solution for that problem in the first place?
Planning is a tool that only works in the presence of a long and stable operating history, yet the world around us is getting less and less stable everyday.
-----
Vison Leads to Steering
This is the BUILD-MEASURE-LEARN feedback loop:
 |
| Minimise TOTAL time through the loop |
For startups, gathering valuable information is more crucial than earning money, winning awards, or getting attention in the media. This information can shape and improve future ideas and strategies. Work on deploying minimum-valuable-products (MVPs) as quickly as possible.
Genchi Genbutsu, in the Lean Startup context, means "go and see for yourself." It emphasises the importance of first-hand observation and direct engagement with customers, products, and processes to gather accurate insights and make informed decisions. It is usually used with companies that have sustaining innovations such as Toyota. However, an entrepreneur faces a different set of problems because they operate at higher uncertainty.
-----
Customer Archetype
Early contact with customers clarifying your product at a basic, coarse level can help craft a customer archetype. It is a brief document that seeks to humanise the proposed target customer.
This archetype serves as a crucial compass for product development, ensuring that the daily decisions made by product teams align with the target customer's needs and preferences, ultimately guiding the company's intended appeal to its intended audience.
Lean User Experience (UX) recognises that a customer archetype is a hypothesis, not a fact. The customer profile should be considered provisional until the strategy has shown via validated learning that we can service this type of customer in a sustainable way.
-----
Customer Archetype
Analysis paralysis refers to entrepreneurs or teams stuck in endless analysis and planning without taking action. It hinders progress and innovation by delaying decision-making and prevents the timely validation of ideas through experimentation.
Talking to customers, reading research reports, and whiteboard strategizing are all equally unhelpful. Not because they don't follow sound strategic principles but the facts upon which they are based are incorrect. Unfortunately, most of these errors cannot be detected at the whiteboard because they depend on the subtle interactions between products and customers.
In contrast, the just-do-it school of entrepreneurship are impatient to get started and are not willing to spend time analysing their strategy. Just a few cursory customer conversations fires them up to start building their product immediately. Unfortunately, customers don't know what they want exactly, so it's easy for these entrepreneurs to delude themselves that they are on the right path.
There is a solution to these ever-present dangers: minimum-viable-products (MVPs).
-----
An Imperfect First Product
Dropbox validated its product idea by creating a simple, banal video demonstration of its core functionality. By gauging customer interest and feedback, Dropbox iteratively developed its product, then scaled based on validated demand. In this case, the video was the MVP, and it validated Drew's (founder of Dropbox) leap-of-faith assumption that customers wanted the product solely due to the fact that they signed up - and NOT because they said so in a focus group.
The "concierge MVP" is another concept outlined in "The Lean Startup" book, which involves manually delivering a service to customers as if it were fully automated, to test demand and gather feedback before investing in automation. Here's a concise explanation:
-----
Concierge MVP
In a concierge MVP approach, instead of building a fully automated product or service, the startup provides the service manually to a small group of users (can also be just one user), simulating the intended experience. This manual intervention allows the startup to test assumptions, gather feedback, and validate demand without investing in complex development upfront.
For example, a startup offering a meal delivery service might initially take orders via phone or email and manually prepare and deliver the meals themselves. This enables them to understand customer preferences, refine their offering, and validate the market before investing in a sophisticated automated ordering and delivery system.
The key idea behind the concierge MVP is to validate demand and gather insights from real customer interactions before scaling and automating processes. This approach helps startups avoid building features or services that customers may not actually want or need, ultimately reducing the risk of failure and maximising resource efficiency.
-----
The Aardvark Case Study
Max Ventilla and Damon Horowitz built Aardvark, which was eventually acquired by Google for $50 million. Aardvark was a social search engine where users could ask subjective questions and receive answers (which Google could not provide) from their extended social network, connecting them with knowledgeable contacts for personalised responses.
Max and Damon, having deep technical knowledge, did not dive in head-first and start programming. Instead, they took six months to figure out what they should be building. In the one year timeframe that they had, they did not spend any time at the whiteboard strategizing or engaging in lengthy market research projects.
Instead, they built a series of functioning products, each designed to test a way of solving this problem for their small group of customers that are being given concierge treatment. Each product was then offered to beta testers, whose behaviour was then used to validate or reject each specific hypothesis.
Below is a list of projects from Aardvark's ideation period:
- Rekkit - A service to collect your ratings from across the web to give more personalised recommendations.
- Ninjapa - A way you could open accounts in various applications through a single website and manage your data across multiple sites.
- The Webb - A central number that you could call and talk toa person who could do anything for you that you could do online.
- Web Macros - A service to record sequences of steps on websites for future reference and guidance, allows for easy repetition across sites, and share 'recipes' for how you accomplished online tasks.
- Internet Button Company - A way to package steps taken on a website and smart form-fill functionality. People could encode buttons and share buttons via social bookmarking.
Throughout their testing period, Max and Damon encountered many difficult technological problems. However, they emphatically refused to fix each problem at that early stage. Instead, they used Wizard of Oz testing to fake it. In a Wizard of Oz tests, customers believe that they are interacting with he actual product, but in reality they are interacting with human beings that are doing the work.
This is only feasible when managing at a micro-scale. It allowed Max and Damon to answer these important questions: If we can solve the technical problems, will people use it? Will their use lead to a creation of a product that has real value?
It was this system that allowed Max and Damon to pivot constantly, rejecting concepts that seemed promising but that would not have been viable. When they were ready to start scaling, they already had a road map of what to build.
If we do not know who the customer is, we do not know what quality is.
As you build your MVP, let this simple rule suffice: remove any feature, process, or effort that does not contribute directly to the learning you seek.