Becoming a Lean Startup Practitioner
Over the past few days I’ve been able to listen to The Lean Startup again. I’m finally able to understand the power of this management style, but only if you become a true practitioner. The Lean Startup is designed to limit wasted work and save entrepreneurs from the worst fate of all: successfully executing on a failed idea.
Every venture starts with a set of assumptions that will make-or-break the entrepreneur’s business. The Lean Startup challenges these assumptions with what is called the Build-Measure-Learn feedback loop. A business should start the most critical assumptions first: the value assumption and the growth assumption. The value assumption is the entrepreneur’s reason WHY his or her product should be built. “Do people need this? Will it be read? Will it solve a problem?” The growth assumption is how the entrepreneur believes his business will attract new customers. These two critical assumptions most first be proven before moving on to otherwise superfluous aspects of the business. To test these, the team should build a minimum viable product.
A Minimum Viable Product (MVP) is your product in its more bare form. It’s not designed to attract mass audience. Instead it should be built as quickly and efficiently as possible. Its only job is to test our most critical assumptions. For example, the MVP of an ecommerce platform may be a barebones site where people can choose from a small number of products to buy. Here, we are testing two things: are we providing the right value (value assumption) and is the business able to grow (growth assumption).
Perhaps the value assumption is that customers want as many options as possible. Instead of building an ecommerce platform with distribution chains and a large inventory, a company could build a simple marketplace on the front-end but fulfill all orders on the back-end through already-established retailers. The company is getting the information it needs (Do people like a lot of options?) without the waste of building infrastructure.
To test the same concept’s growth assumption (say they rely on a subscription service — a sticky growth model) the team could use an email-subscription signup widget to capture email addresses. This will tell the company whether or not their customers are will to subscribe.
In order to truly know if our MVPs are validating our assumptions, we move to the next stop on the feedback loop: Measure. Anyone can measure statistics about their product, but more important is measuring the right statistics. Gross numbers — the percentage of growth per month — can be deceiving and misleading. It is hard to determine which features were affective and which weren’t. It is important to apply the scientific method to our iteration and test one variable at a time.
To avoid the trap or large, glamorous gross numbers, entrepreneurs should look at their statistics in smaller sections, or cohorts. Instead of looking only at month-to-month growth, focus on each month as its own cohort and study the behavior of customers within it. This leads to another effective measure, a funnel analysis. Funnel analyses tell you how far into your sales funnel potential customers are moving. This is far more insightful than looking at gross signups or gross conversions. This will tell you where potential customers are dropping out of your funnel, which will give you insight as to where to focus your next pivot.
To test the effectiveness of individual features, split-testing gives entrepreneurs insight into what works and what doesn’t. Easily applied to marketing — but also product design and content-writing — split-testing creates two different versions of the same product to test on different halves of the market. Each iteration should undergo split-testing to ensure it’s indeed adding value to the product.
Your units of measure also depend on what type of growth your company is trying to achieve. For example, if you intend to utilize subscription-style services, it’s important to not just look at the number of new signups, but the level of churn (customers leaving your service) as well. If the number of new acquisitions is higher than churn, then the company will grow. In a company utilizing viral growth, the viral coefficient is the most important number to measure. This coefficient tells company how many new customers they will earn from one customer. So if a product has a viral coefficient of 0.1, then that means for every 10 customers you acquire, those customers will attract one more. But if your coefficient is higher that 1.0, your growth will be exponential.
By measuring the right statistics, entrepreneurs hope to learn the right questions to ask of their customers. The goal is to get to the bottom of their root assumptions and either prove or disprove them. If disproven, we hope to gain insight on a truer assumption to then build, measure, and then learn some more.
The goal of the Lean Startup is to cycle through the Build-Measure-Learn feedback loop as quickly as possible. The faster companies can learn, the fast they can innovate, and the faster they can bring a successful product to market.
This is a very brief summary of what I got out of the book, The Lean Startup. I plan to buy this book as a hardback and keep it in my office (or my car, depending on my situation.) This will be my gameplan to building a great company. What will be yours?
