📚 Eric Ries – The Lean Startup Book Review

📚 Eric Ries – The Lean Startup Book Review

📚 Eric Ries – The Lean Startup Book Review

📚 Eric Ries – The Lean Startup Book Review

📚 Eric Ries – The Lean Startup Book Review

Eric Ries The Lean Startup Book Review cover

Eric Ries — The Lean Startup Book Review


Today, I review a renowned book titled The Lean Startup by Eric Ries which is a method to develop and manage startups.

It’s fair to say that The Lean Startup by Eric Ries transformed the world as we know it.

A New York Times bestseller, The Lean Startup model is a global phenomenon, faithfully used by individual entrepreneurs and huge companies around the world — to astonishing results.

Standard business practices can be harmful to startups.

The book offers a systematic, scientific way for business managers to get the information they need to make fast decisions in today’s changing world.

There are many unknowns when it comes to launching a startup.

The founder has a vision, but where that vision will lead is uncertain. In the beginning, even the product is unknown.

This book has changed the entrepreneurial world.

ImportantIt teaches you not only how to start a tech company, but most importantly it teaches you how to think.

The Lean Startup is not just about starting a new business.

It’s about developing new products or services successfully under conditions of great uncertainty, reducing wastage, and building an adaptive organization that can thrive in a rapidly changing world.

A must read for any entrepreneur, tech or not.

In this book review, I’ll give a synopsis of the lean startup concept and its key principles/processes.

Start

the lean startup start

We are living in a golden age for entrepreneurship. Entrepreneurs often don’t think about establishing management structures for their enterprises, because they fear it might stifle creativity.

Without management, though, enterprises are beset by chaos. 

ImportantStartups need management but of the sort that is tailored to their unique needs. Startups require entrepreneurial management that is sensitive to the special circumstances of innovation.

Eric Ries firmly believes that startup success is not necessarily about having a great idea but following the right processes.

Thus, the Lean Startup business model is a novel approach to the development and innovation of new products which focuses on speedy iteration, customer insight, creative vision and sizable ambition, simultaneously.

The goal of a startup is to learn what their customers want and will pay for, as quickly as possible.

WarningBecause startups face so much uncertainty, they have to make continuous adjustments to their startup plan, based on the information they get back.

Essentially, don’t trust customers to know what they want ahead of time. Instead, trust the way they behave with a tangible version of the product and use this data to inform decisions going forward.

Validated learning is about measuring the results of each applied insight, so you can measure real progress from learning.

ImportantThe key is to determine which efforts are value-creating, which ones are wasteful, then systematically eliminate the wasteful ones.

In order to measure progress towards goals and prioritize their work, startups need a different type of accounting.

Innovation accounting quantifies if our efforts are generating results, and allows us to create learning milestones to access our progress accurately and objectively.

This stands in stark contrast to the typical “launch and we’ll see” approach.

You’re forced to question what your assumptions about your business are, and you’re encouraged to test those assumptions as quickly and cheaply as possible.

Build

the lean startup build

With your startup, your goal is to learn as quickly as you can with disciplined experiments. From the perspective of the Lean Startup, an experiment isn’t just a line of theoretical enquiry — it’s the first version of the product.

Central to The Lean Startup is the Build-Measure-Learn feedback loop.

ImportantEric Ries emphasizes the importance of getting customers to interact with a product as quickly as possible as it is the results of this experimentation that determine the direction of the product.

Once assumptions have been tested, it’s important to get to the Build phase right away.

Do this by creating a minimum viable product (MVP) — in other words, the most basic version of the product that can kick start the Build-Measure-Learn feedback loop.

1. An experiment starts with a hypothesis.
A value hypothesis tests whether the product/service will deliver the value to its users. A growth hypothesis tests whether new customers will be able to discover the service.
2. To test the hypothesis, find some customers to experiment.
Don’t go for an average customer but find an early adopter, whose needs are most accurately served by the product.
3. Build a concierge minimum viable product.
Early adopters are more forgiving of the quality of the product, and their feedback is useful to know whether the product fulfilled their needs or not.
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After building the MVP, the goal is to rapidly learn and iterate upon the product based on the user’s feedback.

ImportantYou can “steer” your startup via the Build-Measure-Learn feedback loop, and use validated learning and innovation accounting to help you decide when to “pivot” or persevere.

If you’ve discovered that one of your hypotheses is false, it is time to make a major change to a new strategic hypothesis.

The Lean Startup method builds capital-efficient companies because it allows startups to recognize that it’s time to pivot sooner, creating less waste of time and money.

The question is not, “Can this product be built?” Almost anything is possible. The better questions are, “Should this product be built?” and “Can we build a sustainable business around this set of products and services?”

Most entrepreneurs regret delaying the pivot.

WarningVanity metrics, not having a clear success hypothesis, and being afraid of the failure, are the usual causes of delaying the pivot.

The true measure of a runway is how many pivots a startup has left: the number of opportunities it has to make a fundamental change to its strategy.

When an entrepreneur has an unclear hypothesis, it’s almost impossible to experience complete failure, and without that failure, there is usually no impetus to embark on the radical change a pivot requires.

Accelerate

The aim of the Build-Measure-Learn feedback loop is to step through it — or iterate — as quickly as you can.

To increase your rate of learning, try to decrease your batch size.

WarningDon’t overinvest in huge feature releases. Release less and more often, and you’ll learn faster. There’s another benefit to small batches — you figure out problems much earlier.

Sustainable growth is characterized by one simple rule: New customers come from the actions of past customers.

There are four ways in which past customers foster sustainable growth:

1. Word of mouth
Embedded in most products is a natural level of growth that is caused by satisfied customers’ enthusiasm for the product.
2. As a side effect of product usage
Fashion or status, such as luxury goods products, drive awareness of themselves whenever they are used. When you see someone dressed in the latest clothes or driving a certain car, youmay be influenced to buy that product.
3. Through funded advertising
Most businesses employ advertising to entice new customers to use their products. For this to be a source of sustainable growth, the advertising must be paid for out of revenue, not one-time sources such as investment capital.
4. Through repeat purchase or use
Some products are designed to be purchased repeatedly either through a subscription plan or through voluntary repurchases. By contrast, many products and services are intentionally designed as oneime events, such as wedding planning.
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All of these forms of sustainable growth feed into different types of feedback loop which Eric Ries refers to as “engines of growth.” 

The Sticky engine relies on retention of customers to grow. When you acquire the user, you want the user to stick around as much as possible.

The viral engine relies on your existing users to bring in more users directly.

Picture exponential growth — one user brings on two users. Each of those users brings on two more users. Like nuclear fission, this leads to explosive growth.

The Paid Engine growth features traditional methods such as advertising.

It’s important that the cost of acquiring a new customer is less than the potential profit to be harvested from them. The important thing is that these methods increase revenue from customers and/or reduce the cost of acquiring new customers.

Large batches create all sorts of problems. If anything slows down the process, delays and interruptions affect everyone down the line. Some companies go into death spirals, pursuing larger and larger batches that ultimately fail.

You need a natural feedback loop to tell you when you’re moving too slowly or too quickly by identifying the root cause of problems.

ImportantWhen you face a new problem, root cause analysis tells you precisely why the problem happened, and suggests how to fix it. This prevents overdesign and prevents the problem from happening again.

As a startup grows, it has to adapt to the changing customer base. The Five whys help one to diagnose the problems.

This method prompts you to ask “why?” five times, and with each iteration, you burrow deeper into the root of a problem. The Five Whys also encourages validated learning as it promotes asking questions more thoroughly to get to a better understanding of the reality of a problem.

The Five Principles

Startups face unique challenges, which call for not just “ordinary” management, but entrepreneurial management.

There are 5 important principles that underlie The Lean Startup method.

Entrepreneurs are everywhere.

ImportantThe key piece of the definition that makes a startup unique is the condition of “extreme uncertainty.” Huge companies can (and should) have entrepreneurs as well.

Entrepreneurship is management.

WarningMany people think that management is dull and boring, while entrepreneurship is exciting and cool. The Lean Startup integrates ideas from lean manufacturing (e.g. just-in-time inventory management, small batch sizes, accelerated cycle times), to the specific challenges of entrepreneurship and startups.

Learning is essential to startups.

They must find out if customers want what they have to offer, and how to market, sell, and operate effectively. Validated learning is about measuring the results of each applied insight, so you can measure real progress from learning.

To improve entrepreneurial outcomes and hold innovators accountable, you need to focus on the boring stuff: be sure on how to measure progress, how to set up milestones and how to prioritize work.

Innovation Accounting.

Innovation accounting quantifies if your efforts are generating results, and allows you to create learning milestones to access your progress accurately and objectively.

The Build-Measure-Learn loop.

WarningSince startups’ products or services are new, they don’t know who their clients are. They can’t predict which approach works best until they put them to the test.

My Key Takeaways

five whys lean startup

At its heart, the Lean Startup method believes that waste is nearly always preventable once its real underlying cause has come to light.

The scientific method is the gold standard of learning through research, and The Lean Startup movement uses science to develop better organizations.

WarningThe age-old, flawed adage that employees should simply work harder to increase overall productivity is precisely part of the problem as it finds us often pouring all of our efforts into all of the wrong things.

The entrepreneur must set their vision and their hypothesis for success must be continuously validated through experiments and against KPIs, avoid vanity metrics!

ImportantIn order to prevent failure, Eric Ries proposes you ensure your metrics meet the “3 A’s test”, in other words they must be:

1. Actionable
Demonstrate a clear cause and effect relationship so that you can take definitive action in response to it.
2. Accessible
Be easily understood and available widely to people in the company.
3. Auditable
Be able to go back to the source of data to prove that the metrics were telling the true (and entire) story.
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The manager is a systems’ engineer where the system is composed of humans.

WarningSometimes people get so focused on the system that they lose sight of the human side of the equation. People are the source of innovation.

A company that hides its innovation team is asking for negative politics.

Secrecy breeds distrust. A better solution is to create a sandbox where innovators can try out new ideas. Startup teams in established companies should have scarce, but secure, resources.

Final Thoughts

Eric Ries The Lean Startup Book Review Final Thoughts
Entrepreneurs are everywhere. You don’t have to work in a garage to be in a startup. The concept of entrepreneurship includes anyone who works within my definition of a startup: a human institution designed to create new products and services under conditions of extreme uncertainty. That means entrepreneurs are everywhere and the Lean Startup approach can work in any size company, even a very large enterprise, in any sector or industry.Eric Ries

The Lean Startup is a framework for figuring out the right things to build. It answers the innovation question: how can we build a sustainable organization around a new product or service?

The future is bright, the future is lean.

ImportantWith the Lean Startup method, organizations can stop wasting so much time and start bravely testing their hypotheses out there in the real world at speed.

There is surely nothing quite so useless as doing with great efficiency what should not be done at all. 

The scientific method is the gold standard of learning through research, and The Lean Startup movement uses science to develop better organizations.

Beware of pseudoscience, buzzword, and fads. Stick to the method, and approach innovation scientifically.

IMO, it’s just the start of what could be done by applying the scientific method to innovation management.

I hope you enjoyed this book review and let me know in the comments section below how you plan to put this new found knowledge to the test!

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📚 Eric Ries – The Lean Startup Book Review

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