My 3rd book of the year was The Lean Startup by Eric Ries. I first got to know about the existence of this book during a keynote video of Gary Vaynerchuk where it was up for display. Finally got the time to read it.
The book focuses on how the lean manufacturing using in Toyota can be used in startups as well. And it makes sense! The case studies to new terms defined all help you shape your mind to run your startup in a lean manner.
Part One : Vision
Traditional management taught in business schools is just not what an entrepreneurial manager need. The uncertain market, the uncertain product requirements all needs to be taken care of. This can’t be done with classic managerial metrics. A startup needs new metrics to track itself.
A startup is human institution designed to create new product or service under extreme uncertainty.
Failure is over hyped in startup world. People are happy to fail and then masquerade it as learning. But are we actually learning in the process?
Validated learning is the metric that startup needs to track its progress that it is making by learning from failures. Validated learning focuses on making use of learning to make tangible progress.
Get into the market as quickly as possible. Bootstrap the product and hit the market. Get the feedback of the customer. Nobody wants to end up building something that nobody wants. Find it as soon as possible.
Part Two : Steer
Eric suggests that startup should continuously run Build-Measure-Learn loops within the organization. Use metrics like innovation accounting and learning milestones to track actionable metrics and not to dwell on vanity metrics.
Leap of Faiths
Leap of faiths are the assumptions you make as an entrepreneur that your business depends upon. Entrepreneurs should have foresight, ability and tools to discover which of their leap of faiths are working and which are not.
There are two major hypothesis a startup depends upon :
- Value Creation Hypothesis : How you are looking to give value to customers?
- Growth Hypothesis : How you think that your product will grow?
Minimum Viable Product : Test It Out
Only way to test your hypothesis and leap of faiths is to hit the market.
Best way to do so is to create an MVP, that consists of your core business features. Make sure that customer actually wants what you are building.
A very good example is Dropbox : Their MVP was a video showing how it will work. It was enough to let them know that there is need for there product in the market.
Concierge MVP : It is testing MVP with selected customers that you take feedback from in exchange of VIP treatment and support.
How do you know that your product is improving? Innovation Accounting is again a metric that allows you to do so. It involves 3 steps.
- Learn – Lean towards working business model
- Pivot or Persevere
Cohort Analysis and Split Testing
How do you know which change in product is steering the change in customer behavior? Cohort analysis and split testing is used to test different versions of products with different customers at the same time. This allows us to test features and do innovation accounting properly.
Kanban or Capacity Constraints
Kanban is an agile development methodology that doesn’t allow new features to be added in backlog until implemented features are validated.
Pivot or Persevere
The most important decision for a startup is to persevere current approach or pivot. Pivot is special kind of change designed to test new business hypothesis about the product.
Eric states 10 types of pivots in the book :
- Zoom in Pivot
- Zoom out Pivot
- Customer Segment Pivot
- Customer Need Pivot
- Platform Pivot
- Business Architecture Pivot
- Value Capture Pivot
- Engine of Growth Pivot
- Channel Pivot
- Technology Pivot
PART THREE : ACCELERATE
Eric focuses on the point that startups should now follow large batch production systems but instead work on small batches. This means shortest possible release cycles and always keeping customer involved.
Startups should focus on sustainable growth. A sustainable growth is when new customers are drive towards the product by the actions of previous customers.
Engine Of Growths
There are three engine of growths that can exist in a startup :
- Sticky Engine of Growth : Customers stick with the product for long term.
- Viral Engine if Growth : Customers spreading the name of the product as side effect of using the product.
- Paid Engine Of Growth : Promotions and stuff.
Paid engine of growth is only profitable when customer lifetime value is greater than cost per acquisition.
Building an Adaptive Organization
Startups should focus on building an adaptive organization. Don’t go too fast nor too slow, don’t get too structures neither lack any structure at all.
The 5 Whys
As used in Toyota. 5 Whys is asking 5 level of whys on every problem. This helps you to get to the root of the problem.
Beware this should not become game of 5 Blames where each team keeps blaming other.
Startups should provide platform for their employees to innovate. Best way to do so is to create an innovation sandbox. New features are added within this sandbox and are tested on early adopters segment of customers. Take validated learning out of it and move forward.
Also key is to hold the internals of the startup accountable for their actions. This will increase sense of belonging-ness among the employees.
It was a great read. All stuff you read about makes perfect sense. All the problems the book states are real world problem and if you are in touch with startups are not new for you.
My next book is Founders At Work : Story of Startups’ Early Days. Excited to read this one.