The Lean Startup - Deepstash
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Why Do startups fail ??

According to Eric Ries, there are two main reasons for startup failures:

  • Traditional management methods do not work for a highly uncertain startup
  • The second reason may seem completely opposite to the first one 
  •  seeing that traditional management approaches do not work, entrepreneurs let things go by themselves and are guided by the "just do it" principle.

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What is a Lean Startup?

  • Many people share the opinion that entrepreneurial success is a combination of perseverance, intelligence, a good product, and the luck of being in the right place at the right time.
  •  Routine, small things, and boring details do not matter. 
  •  it is nothing more than just a myth, partly imposed by pop culture. 

It's exactly the boring little things that are critical to a startup's success.

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Five Principles of the Lean Startup:

  • Entrepreneurs are everywhere. 
  • Irrespective of the size of the venture if you guys are working on a product that solves a problem in a new and better way then you are entrepreneurs
  • Entrepreneurship is management. Startups need a new type of management that will handle the conditions of extreme uncertainty.
  • Confirmation by facts. A startup needs continuous learning through a scientific approach and empirical hypothesis testing.

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Startups are not rocket science they are like car rides

  • Instead of making complex plans based on many assumptions,
  •  you can make constant adjustments with a steering wheel called the Build-Measure-Learn feedback loop. 
  • Startups are greatly analogous to driving a car to our office as we know the destination but we may change the routes according to our ease  

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How to go into practice?

The feedback that a startup receives in its experiments

 can be qualitative (which product options they like and which they don't) 

or quantitative (how many customers use the product, the number of registered users).

The Lean Startup concept is based on a Build-Measure-Learn feedback loop.

 The most important challenge of startup management is to strive to reduce the feedback cycle time. But all the elements of this cycle deserve equal attention.

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Build #step-1

  • For a startup, you need to start creating a Minimum Viable Product (MVP) as soon as possible. 
  • MVP is a version of a product that allows you to start the Build-Measure-Learn cycle with minimal effort, spending as little development time as possible.
  • Such a crude product may be devoid of the options that will be most appreciated by customers in the future. 
  • Still, at the same time, enough to be usable and understandable by first users.

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Types of MVP

  1. Video MVP {A video that explains your product or solution to measure traction}
  2. The Concierge MVP {idea that when you’re just starting out you don’t need to be able to handle thousands of customers, you just need to make one customer happy} great way to validate your hypothesis
  3. The Wizard of Oz MVP. In a Wizard of Oz MVP customers believe they are interacting with your technology product; however, the reality is that behind the scenes a human is doing the work
  4. Landing Page MVP: make a landing page with an explanation of your solution if people are showing interest and interacting its a good sign 

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Measure #step-2

  • "Measure" means determining whether the efforts to create a product are producing the desired results. 
  • And this is the key difference between Lean Startup valuation and standard methods, where deadlines and budget utilization are assessed, 
  • but it may not be considered that the startup has created a useless product. 
  • The primary assessment method in a Lean startup is innovation accounting.
  • This is a quantitative approach that allows us to find out how successful our attempts to trigger the growth mechanism are. It also helps identify intermediate learning outcomes.

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Learn #step-3

  • It means to figure out whether the chose path lead to success or we need to pivot
  • When an entrepreneur sees that the chosen path does not lead to success, 
  • he must be ready to find a new strategic hypothesis and stop spending money on following the unnecessary direction.

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Do what scares perfectionists

  • It is not uncommon for entrepreneurs to first create a product and then find out consumers' reactions. But the point is to do the opposite.
  • The goal of creating a Minimum Viable Product (MVP) is to start learning and testing in practice as soon as possible. 
  • An MVP is needed to test the hypotheses of entrepreneurs. It should not be perfect. It should be quality enough to attract the first customers, but no more.

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Three stages of innovation accounting:

  1.  Create MVP and get feedback to understand the real state.
  2. Try to bring metrics closer to ideal ones. It can take a lot of trying.
  3. Decide whether to move in the same direction or make a pivot.
  4. If you are close to the ideal metrics, you need to move in the same direction.

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Vanity metrics

  • If nobody uses your product, then optimization or marketing will make no sense. 
  • A startup must be very clear about making clear and well-founded predictions to prove that a good business can be built with the product. 
  • The necessary indicators are often replaced by those that look nicer but are useless ("vanity metrics"). 
  • These metrics usually include ad views, page visits, app installs, and more.
  •  Real metrics should prove the value of your project, that it really solves user problems.

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When should you make a pivot?

  • When it becomes clear that the initially chosen path will not lead to success, 
  • the entrepreneur is required to make a pivot - to radically change the strategy, create and test a new hypothesis about the product.
  • The pivot's essence is to take into account everything that you have learned earlier, but at the same time radically change the strategy to get even more grounded knowledge.
  • It is a combination of the scientific method of hypothesis testing and vision, intuition, and creativity.

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How to get traction?

Small batch approach

The Lean Startup methodology is based on a small batch approach, borrowed from the concept of lean manufacturing.

  • When working in small batches, the finished product is produced every few seconds. 
  • When working in large batches, all the finished goods are produced simultaneously, at the very end. 
  • Imagine what this means when it comes to hours, days, weeks. 
  • What if a customer suddenly decides they don't need a product? 
  • Would we like to know about this earlier? In the small batches approach, this risk is minimized.

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1. The sticky engine of growth

  • The rules that govern sticky growth are pretty simple: if the acquisition rate exceeds the loss rate, then the popularity of the product rises. Therefore, companies need to track consumer losses.

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2. Paid engine of growth.

  • For a company to grow steadily over a long time using a paid-growth tool, it needs a differentiated ability to 'monetize' a particular group of users.
  • For example, at IMVU (Ries' ex-company), this was due to introducing the ability to get off funds from mobile phones, which helped the company attract more customers than competitors who focused only on bank cards.

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KEY TAKEAWAYS:

  • The lean startup is developing a product based on the expressed desires of the market.
  • The lean startup uses validated learning, which is a process by which companies assess consumer interest.
  • Lean startup methods focus heavily on customer-related information such as customer churn rate, lifetime customer value, and product popularity.
  • In lean startup practices, experimentation is favored more than adherence to a rigid plan.
  • Lean startup standards will involve releasing a small form or early concept products to assess the customer reaction to the product.

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CURATED BY

jiunting

I’m a generalist, philosopher, writer, tutor, paralegal, strategist, researcher, Bohemian, bibliophile, an intellectual and an analyst.

CURATOR'S NOTE

This book is a good business bible for new approach to manage a new company known as startups in the post - modern 21st century as the world economy is becoming a knowledge economy where human is at the centre of producing goods and services.

Curious about different takes? Check out our The Lean Startup Summary book page to explore multiple unique summaries written by Deepstash users.

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