Book Notes: The Lean Startup

The Lean Startup, by Eric Ries, is a book about running your startup using the scientific method. Learn your target market’s demands thoroughly first, then build the first iteration of your product. Run an experiment to see how the market reacts, measure the specific results, and learn from these findings. Refine your product and repeat the process.

I love this approach to starting a business and found the insights and suggestions in this book to be extremely valuable.

Experiment and Measure

• Apply the scientific method to your startup. Hypothesize, test, observe, and conclude. Then repeat the cycle.
• The Lean Startup cycle involves building your product (your hypothesis), measuring the outcomes of what you’ve built (observing), then learning based on you the outcomes of your experiment (form a conclusion AKA a new hypothesis). Continue to repeat this cycle to refine your idea to better and better meet the demands of your market.
• Before building anything, as you plan your startup, you will perform these steps in the reverse order: define what you want to learn, define how you will measure what you want to learn, then build something for testing.
• Validated Learning is a key pillar of the Lean Startup. Learning is the primary activity that must occur during the startup phase of a business. At this stage, you know little about what your target market wants or needs and must seek to learn more about your market.
• All learning must be based on clear empirical evidence with a measured cause and effect. This is called “Innovation Accounting”. These measurements must also be auditable and accessible to the rest of the organization. These measurements will enable you to learn what the next iteration of your product should be for further experimentation.
• Your tests should be conducted with your customers (ideally, early adopters) within a “Cohort Analysis”. This is a cohort of customers that are part of a specific experiment. This allows you to satisfy the requirements of innovation accounting, as you can draw specific results from the reactions of a defined population of customers.
  

Know Your Market

• A Product-Market Fit is when a product is satisfying the demands of its target market.
• Before building anything, you need to know your target market. You can’t assume what their problems are. You need to learn as much as you can about your market before you build a complete product.
• Learn more about your target market by building incomplete products and run tests with early adopters. “Get out of the building” and actively engage with your market to learn as much as you can in real-time.
• All assumptions about how your customers experience your product are all hypotheses. They are not facts and must be tested.
• Answer the following questions before implementing any direction for your product:
  
  1. Do your customers acknowledge this as a problem?
  2. Would they buy it?
  3. Would they buy it from you?
  4. Can you build a solution to the problem they have?
• If any of these questions is a “no”, you either shouldn’t build it or look to test further.
• A Minimum Viable Product (MVP) is an incomplete product (a hypothesis) that you can field test to determine potential product-market fit. An MVP can be extremely simple, and can even be a service that masquerades as a product. Make it simple enough so that you can run testing as quickly as possible for validation.
• Early adopters are the best audience for startups and MVPs because they are apt to tolerate bugs and mistakes. Early adopters see new products as their competitive edge that their competition hasn’t adopted yet.
  

Learn and Be Agile

• Whenever you implement a change in product direction (as a result of experimenting), you are pivoting. Pivoting is critical in the startup process.
• A startup’s lifespan is based on the number of pivots it has left, as they can be costly. You minimize the cost of pivots by speeding up each pivot.
• Good entrepreneurs know to be persistent in their vision, but flexible in how to get there.
• An effective method for deconstructing a problem is a process called The Five Whys. The technique involves asking, “Why did this happen?” When answered, ask “Why?” again. Do this a total of five times, and you’ll gain better insights into why something occurred.
• The root cause of most technical problems lies a human or systemic problem that needs to be addressed.
• If manufacturing, small batches are more compatible with the lean startup philosophy. Small batches allow you to quickly pivot to gain a better product-market fit without too much sunk cost in inventory. Large batches do not allow for this and can result in costly quality issues as well.
• In larger organizations, it is challenging to start new ventures and to gather support for the right resources or investment to take an idea further. Applying the Lean Startup methodology in a large organization is an effective way to overcome political and financial obstacles. It is difficult to debate with validated learning through innovation accounting. The results of an experiment will demonstrate a valid business case.