Book Review : The Lean Startup
The Lean Startup is a fabulous book by Eric Ries, a serial entrepreneur and author of many best-sellers. In The Lean Startup, he demonstrates a great way to apply lean manufacturing to startups. He defines startup as “An organization designed to create new products and services under conditions of extreme uncertainty.” The word uncertainty is the most important aspect of this definition.
Eric gave example of Toyota, how Toyota’s manager for Sienna minivan Yuji Yokoya went on a 53,000 miles trip around North America to understand firsthand what consumers wanted in a minivan. Such experiences allow one to test critical “leap-of-faith” assumptions about what customers like and dislike.
Here are some of the key ideas in The Lean Startup
Customer Development = Agile Development
In a lean environment, you need to ensure that your customer development (ie understanding of customer needs) is closely aligned to the agile development approach in creating new products and services. In other words, you want to minimise waste in your product development process.
The lesson here is to tie iterative learning of customer preferences to improvements in your products and services. Not doing so may result in your business building wasteful innovations and features that your customers do not want.
Validated learning should be the goal of all entrepreneurs. Validated learning is defined as a process in which one learns by trying out an initial idea and then measuring it to validate the effect.
The central core of a Lean Startup is represented by the Build-Measure-Learn feedback loop. What you should do here is to adopt the following steps:
- Build a Minimum Viable Product (MVP) as an early adopter;
- Roll it out in the market;
- Measure performance outcomes via innovation accounting;
- Learn what works (and what doesn’t); and
- Determine if you should stick to your hypothesis or switch course, ie pivot or persevere.
As highlighted above, innovation accounting is a way of measuring progress through actionable metrics that help to tie in cause and effect.
Unlike vanity metrics often found in standard accounting practices, innovation accounting allows you to use your Minimum Viable Product (MVP) to obtain real market data. Through such information, you can create value adding improvements to your product or service.
Pivot or Persevere?
After you have learned what works (and what doesn’t), you need to decide if you should pivot or persevere. This moment of truth should be viewed objectively (think scientific experiments).
Pivots can be tiny, small, medium or large. They may take the form of singular product feature changes, shifts in customer segments, modifying of platforms, redesign of business architecture, changes in growth engines, technology migrations and more.
Small Batches > Large Batches
In a lean start-up, small batches inherently work better than large ones. Changes are more easily made to any step of the process and the costs of rework are far lower.
Three Engines of Growth
As a startup owner, you need to consider three principally engines of growth:
- The sticky engine of growth entails retaining customers through minimising attrition while growing slowly;
- The viral engine of growth comprises exponential growth through word-of-mouth means; and
- The paid engine of growth looks at advertising and other costs (sales staff, marketing and PR staff) to drive growth.
A Great Growth Hacking Guide
In summary, The Lean Startup is an invaluable resource for anybody charged with starting a new business venture.
By embracing the philosophy of thinking big and starting small coupled with a meticulous step-by-step analysis of what went right or wrong, startups can improve their chances of success. A must read for every entrepreneur.