Lean Startup
The Lean Startup helps manage innovation: if you have a lot of unpredictable market or industry and you want to really prove your solution before you implement it.
Book: The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses by Eric Ries
‘A startup is a human institution designed to create new product and services under conditions of extreme uncertainty’, — Eric Ries, The Lean Startup
Many software development models mostly focus on the delivery of the software. Lean Startup model focuses on fast learning of real user needs. The basic idea behind this approach is, how can you learn faster about your market or your user need?
Lean Startup is also applicable to the enterprise, whether it is small or large, profit or non-profit, commercial or government organization, as long as it is applicable to Lean Startup ecosystem (meaning you are trying to create new products and services under conditions of extreme uncertainty).
Cycle
Four Principles of Lean Startup
These principles help find out if users need your idea:
- Entrepreneurship is management
Startups need management, but a different kind of management that supports extreme uncertainty. - Validated learning (validate assumptions through data)
- Scientifically validate each element of startup vision by running series of experiments.
- ‘We must learn what customers really want, not what they say they want or what we think they should want. We must discover whether we are on a path that will lead to growing a sustainable business’, — Eric Ries
- Quick cycles - Innovative accounting
Startups need accounting, but a different kind of accounting that helps make the right decision at the right time. - Entrepreneurs are everywhere
Intrapreneurs are entrepreneurs that are trying to build a startup inside an established organization.
Experiments
Build an experiment — Measure metric — Learn — Repeat
Whenever you have an idea to build something new, you have assumptions about when you may consider the new product successful. Think about the metric, that can indicate if the new product is successful, and about the experiment to get that metric.
Do the experiment to get the metric and validate or invalidate your assumptions, and then think about the next steps.
Make the cycles as fast as possible, so that you don’t spend years learning about the metric. As soon as you see that something is not going to work, you can drop this idea and start with another idea.
Example #1. Zappos.com — is a website that sells shoes online.
Assumption: People will buy shoes online.
Experiment: Create a website with shoe photos and see if people buy them.
Metric: Number of shoes sold.
Example #2. Dropbox.com — is a service that synchronizes files on multiple platforms.
Assumption: People would want to sync files on multiple platforms.
Experiment: Create a video that will show how it will work.
Metric: Number of people signed up to use the service.
Example #3. Buffer.com
Round 1
Assumption: People would want the functionality to schedule posting content on social media.
Experiment: Create a page for people to show interest.
Metric: Number of people to click on the link to show intent to use.
Round 2
Assumption: People would pay for the functionality to schedule posting content on social media.
Experiment: Create a page for people to show interest.
Metric: Number of people to click on price plan to show the intent to buy.
Example #4.
Assumption: There is a need to see old invoices.
Experiment: Create a dummy link to show old invoices.
Metric: Number of people that clicked on the link to see old invoices.
Approach
The Lean Startup has a vision, which is backed by strategy, which is backed by a product.
Product changes frequently based on build-measure-learn cycle.
Strategy changes less frequently, once in a while you decide whether to pivot or persevere.
Vision changes rarely.
Innovative Accounting
Startups need accounting, but a different kind of accounting that helps make the right decision at the right time.
Three learning milestones
Milestone 1. Develop a baseline
Establish real data to understand the current state of a company.
- Create a prototype
- Test multiple assumptions at a time
- If you test one assumption at a time, try the riskiest assumption first (leap-of-faith assumption) - Smoke test. Validates if customers are interested in the product.
- No real product — customers can pre-order the product that is not built yet
Milestone 2. Tune the engine
- Experiment to move from the current state to the ideal state.
- It involves all the activities targeted towards improving the drivers of growth model. For example, product development, marketing or other initiatives.
Milestone 3. Pivot or persevere
If you are making the desired progress, persevere. If not, pivot.
- Startup’s runway
- It is the amount of time remaining to either lift-off or failure.
- It is calculated as the amount of money remaining or monthly burn rate. For example, you have $20 million remaining, and your burn rate is $2 million per month, then you have 10 months remaining.
- Extended by getting more money or cutting costs. - Startup’s runway (definition by Eric Ries)
- The number of pivots you can make before you run out of money.
- Increase the runway by reducing time for each pivot. - People are pivoting not as fast as they should. Reasons:
- Pivots require courage.
- Vanity metrics.
- Incorrect hypothesis.
- Desire to do right, and then prove the idea. - Schedule pivot or persevere meeting in advance.
Types of pivots:
- Zoom in, when one of the features of your product becomes your product.
- Zoom out, when your product becomes one of the features of a new product.
- Platform. An application becomes a platform, a platform becomes a product.
- By customer segment
- By customer need
- Channel of delivery
- Technology
Three A’s of Metrics
Actionable
- Must demonstrate the cause and effect.
- Should not be a vanity metric. Vanity metrics are metrics that make you look good to others but do not help you understand your own performance in a way that informs future strategies. Vanity metrics can lead to a false conclusion and can mask the failure. About vanity metrics: https://www.tableau.com/learn/articles/vanity-metrics
Accessible
- Easy understandable by the team and stakeholders.
- Easy to access to the report and data. For easy access make metrics a part of your application.
Auditable
- Data is credible
- Manually testable
Pirate Metrics (AARRR)
It is not a part of Lean Startup, however, AARRR is a useful classification of metrics to measure the success of a product.
Characteristics of Lean Startup
- Incremental
- Iterative
- Very short development cycle
- Very adaptive
Pros:
- Helps to learn faster and build the right product
- Speed to market
Cons:
- May result in rework
- Requires you to experiment iteratively with clients and actual users
When to use:
- Doubtful business case or user need
- Lots of high probability risks.
