The Lean Startup
“The grim reality is that most startups fail. Most new products are not successful. Mot new ventures do not live up to their potential.”
“Startup success is not a consequence of good genes or being in the right place at the right time. Startup success can be engineered by following the right process, which means it can be learned, which means it can be taught.”
“Startup success is not a consequence of good genes or being in the right place at the right time. Startup success can be engineered by following the right process, which means it can be learned, which means it can be taught.”
Introduction
“The grim reality is that most startups fail. Most new products are not successful. Mot new ventures do not live up to their potential.”
“Startup success is not a consequence of good genes or being in the right place at the right time. Startup success can be engineered by following the right process, which means it can be learned, which means it can be taught.”
The Lean startup: the application of lean thinking to the process of innovation.
“My experience so flew in the face of conventional thinking that most people, even in the innovation hub of Silicon Valley, could not wrap their minds around it.” My mission: to improve the success rate of new innovative products worldwide.”
Five principles of the Lean Startup:
“Startup success is not a consequence of good genes or being in the right place at the right time. Startup success can be engineered by following the right process, which means it can be learned, which means it can be taught.”
The Lean startup: the application of lean thinking to the process of innovation.
“My experience so flew in the face of conventional thinking that most people, even in the innovation hub of Silicon Valley, could not wrap their minds around it.” My mission: to improve the success rate of new innovative products worldwide.”
Five principles of the Lean Startup:
- Entrepreneurs are everywhere: “My definition of a startup: a human institution designed to create new products and services under conditions of extreme uncertainty.”
- Entrepreneurship is management.
- Validated learning: Startups exists to learn how to build a sustainable business.
- Build-Measure-Learn: “The fundamental activity of a startup is to turn ideas into products, measure how customers respond, and then learn whether to pivot or persevere.”
- Innovation accounting.
Part One: Vision
“Anyone who is creating a new product or business under conditions of extreme uncertainty is an entrepreneur.”
Chapter 1
Start
Entrepreneurial Management
Building a startup involves management.
“What makes these failures particularly painful is not just the economic damage done to individual employees, companies, and investors; they are also a colossal waste of our civilization’s most precious resource: the time, passion, and skill of its people.”
The Roots of the Lean Startup
The lean startup proposes that entrepreneurs should judge their progress differently, by a unit of progress called Validated Learning.
“Whith scientific learning as our yardstick, we can discover and eliminate the sources of waste that are plaguing entrepreneurship.”
A comprehensive theory of entrepreneurship should:
“The goal of a startup is to figure out the right thing to build – the things customers want and will pay for – as quickly as possible. In other words, the Lean Startup is a new way of looking at the development of innovative new products that emphasizes fast iteration and customer insight, a huge vision, and great ambition, all at the same time.”
“Unfortunately, too many startup business plans looks more like they are planning to launch a rocket ship than drive a car. They prescribe the steps to take and the results to expect in excruciating detail, and as in planning to launch a rocket, they are set up in such a way that even tiny errors in assumptions can lead to catastrophic outcomes.”
In the lean startup, instead of making plans based on assumptions, you make constant adjustments, like driving a car, by using the Build-Measure-Learn feedback loop.
Entrepreneurial Management
Building a startup involves management.
“What makes these failures particularly painful is not just the economic damage done to individual employees, companies, and investors; they are also a colossal waste of our civilization’s most precious resource: the time, passion, and skill of its people.”
The Roots of the Lean Startup
The lean startup proposes that entrepreneurs should judge their progress differently, by a unit of progress called Validated Learning.
“Whith scientific learning as our yardstick, we can discover and eliminate the sources of waste that are plaguing entrepreneurship.”
A comprehensive theory of entrepreneurship should:
- Address all the functions of an early-stage venture.
- Provide a method for measure progress in the context of extreme uncertainty.
- Give entrepreneurs clear guidance on how to make decisions.
- Must allow entrepreneurs to make testable predictions.
“The goal of a startup is to figure out the right thing to build – the things customers want and will pay for – as quickly as possible. In other words, the Lean Startup is a new way of looking at the development of innovative new products that emphasizes fast iteration and customer insight, a huge vision, and great ambition, all at the same time.”
“Unfortunately, too many startup business plans looks more like they are planning to launch a rocket ship than drive a car. They prescribe the steps to take and the results to expect in excruciating detail, and as in planning to launch a rocket, they are set up in such a way that even tiny errors in assumptions can lead to catastrophic outcomes.”
In the lean startup, instead of making plans based on assumptions, you make constant adjustments, like driving a car, by using the Build-Measure-Learn feedback loop.
- Startups vision: a destination in mind (creating a thriving and world-changing business)
- Strategy: employed to reach that vision. It includes: a business model, a product road map, a point of view about partners and competitors, ideas about the customers.
- Product: the end result of the strategy.
Chapter 2
Define
If I’m an entrepreneur, what’s a startup?
“The Lean Startup is a set of practices for helping entrepreneurs increase their odds of building a successful startup.”
Startup: “a human institution designed to create a new product or service under conditions of extreme uncertainty.”
“Anyone who is creating a new product or business under conditions of extreme uncertainty is an entrepreneur.”
The Snaptax Story
“Innovation is a bottoms-up, decentralized, and unpredictable thing, but that doesn’t mean it cannot be managed. It can, but to do so requires a new management discipline, one that needs to be mastered not just by practicing entrepreneurs seeking to build the next big thing, but also by the people who support them, nurture them, and hold them accountable.”
If I’m an entrepreneur, what’s a startup?
“The Lean Startup is a set of practices for helping entrepreneurs increase their odds of building a successful startup.”
Startup: “a human institution designed to create a new product or service under conditions of extreme uncertainty.”
“Anyone who is creating a new product or business under conditions of extreme uncertainty is an entrepreneur.”
The Snaptax Story
“Innovation is a bottoms-up, decentralized, and unpredictable thing, but that doesn’t mean it cannot be managed. It can, but to do so requires a new management discipline, one that needs to be mastered not just by practicing entrepreneurs seeking to build the next big thing, but also by the people who support them, nurture them, and hold them accountable.”
Chapter 3
Learn
Validated learning: “Is the process of demonstrating empirically that a team has discovered valuable truths about a startup’s present and future business prospects.”
Value vs. Waste
“Lean thinking defines value as providing benefit to the customer; anything else is waste.”
Where do you find Validation?
Their company really started with “the hard work of discovering what customers really wanted and adjusting our product and strategy to meet those desires.”
“We adopted the view that our job was to find a synthesis between our vision and what customers would accept; it wasn’t to capitulate to what customers thought they wanted or to tell customers what they ought to want.”
“As we came to understand our customers better, we were able to improve our products. As we did that, the fundamental metrics of our business changed.”
“True startup productivity: systematically figuring out the right things to build."
Validated learning: “Is the process of demonstrating empirically that a team has discovered valuable truths about a startup’s present and future business prospects.”
Value vs. Waste
“Lean thinking defines value as providing benefit to the customer; anything else is waste.”
Where do you find Validation?
Their company really started with “the hard work of discovering what customers really wanted and adjusting our product and strategy to meet those desires.”
“We adopted the view that our job was to find a synthesis between our vision and what customers would accept; it wasn’t to capitulate to what customers thought they wanted or to tell customers what they ought to want.”
“As we came to understand our customers better, we were able to improve our products. As we did that, the fundamental metrics of our business changed.”
“True startup productivity: systematically figuring out the right things to build."
Chapter 4
Experiment
From Alchemy to Science
“A true experimenter follows the scientific method. It begins with a clear hypothesis that makes prediction about what is supposed to happen. It then tests those predictions empirically.”
“The goal of every startup experiment is to discover how to build a sustainable business around that vision.”
Think Big, Start Small
Zappos, began with a simple product. Using this start as an experiment.
Break It Down
First step: break down the grand vision into its component parts.
The two most important assumptions entrepreneurs make:
When experiments don’t look promising: “That doesn’t mean its time to give up; on the contrary, it means it’s time to get some immediate qualitative feedback about how to improve the program.”
An Experiment Is a Product
A common tendency is to build a solution before confirming that customers have the problem.
A Lean Startup in Government?
“Remember, planning is a tool that only works in t he presence of a long and stable operating history.”
From Alchemy to Science
“A true experimenter follows the scientific method. It begins with a clear hypothesis that makes prediction about what is supposed to happen. It then tests those predictions empirically.”
“The goal of every startup experiment is to discover how to build a sustainable business around that vision.”
Think Big, Start Small
Zappos, began with a simple product. Using this start as an experiment.
Break It Down
First step: break down the grand vision into its component parts.
The two most important assumptions entrepreneurs make:
- Value hypothesis: tests whether a product or service really delivers value to customers once they are using it.
- Growth hypothesis: tests how new customers will discover a product or service.
When experiments don’t look promising: “That doesn’t mean its time to give up; on the contrary, it means it’s time to get some immediate qualitative feedback about how to improve the program.”
An Experiment Is a Product
A common tendency is to build a solution before confirming that customers have the problem.
A Lean Startup in Government?
“Remember, planning is a tool that only works in t he presence of a long and stable operating history.”
Part Two: Steer
How Vision Leads to Steering
“The products a startup build are really experiments; the learning about how to build a sustainable business is the outcome of those experiments.”
So the three step process is : build, measure and learn.
Many practice these separate, but by itself none of these activities are important. “We need to focus our energies on minimizing the total time through this feedback loop.”
“The products a startup build are really experiments; the learning about how to build a sustainable business is the outcome of those experiments.”
So the three step process is : build, measure and learn.
Many practice these separate, but by itself none of these activities are important. “We need to focus our energies on minimizing the total time through this feedback loop.”
Chapter 5
Leap
“For startups, the role of strategy is to help figure out the right questions to ask.”
Strategy is Based on Assumptions
Goal of early startup efforts: to test if the assumptions are true.
Leaps of faith: assumptions which are thought to be 100% true by entrepreneurs, and of which the success of the venture lies on them.
Beyond “The Right Place at the Right Time”
“What differentiates the success stories from the failures is that the successful entrepreneurs had the foresight, the ability, and the tools to discover which parts of their plans were working brilliantly and which were misguided, and adapt their strategies accordingly.”
Value and Growth
“Its essential that entrepreneur understand the reasons behind a startup’s growth.”
Genchi Gembutsu
“You cannot be sure you really understand any business problem unless you go and see for yourself firsthand. It is unacceptable to take anything for granted or to rely on the reports of others.”
Get Out of the Building
“Customers are breathing, thinking, buying individuals. Their behavior is measureable and changeable.”
“Startups need extensive contact with potential customers.” … and this only exists “outside the building.”
Step 1: confirm that your leap of faith questions are based on reality.
Design and the Customer Archetype
Customer archetype: a brief document that seeks to humanize the proposed target customer.
Analysis Paralysis
Two dangers of market research and talking to customers:
“For startups, the role of strategy is to help figure out the right questions to ask.”
Strategy is Based on Assumptions
Goal of early startup efforts: to test if the assumptions are true.
Leaps of faith: assumptions which are thought to be 100% true by entrepreneurs, and of which the success of the venture lies on them.
Beyond “The Right Place at the Right Time”
“What differentiates the success stories from the failures is that the successful entrepreneurs had the foresight, the ability, and the tools to discover which parts of their plans were working brilliantly and which were misguided, and adapt their strategies accordingly.”
Value and Growth
“Its essential that entrepreneur understand the reasons behind a startup’s growth.”
Genchi Gembutsu
“You cannot be sure you really understand any business problem unless you go and see for yourself firsthand. It is unacceptable to take anything for granted or to rely on the reports of others.”
Get Out of the Building
“Customers are breathing, thinking, buying individuals. Their behavior is measureable and changeable.”
“Startups need extensive contact with potential customers.” … and this only exists “outside the building.”
Step 1: confirm that your leap of faith questions are based on reality.
Design and the Customer Archetype
Customer archetype: a brief document that seeks to humanize the proposed target customer.
Analysis Paralysis
Two dangers of market research and talking to customers:
- Just-do-it school of entrepreneurship start building only after a few conversations.
- Analysis paralysis, endlessly refining their plans.
Chapter 6
Test
Minimum Viable Product (MVP) is he fastest way to get through the Build-Measure-Learn feedback loops with the minimum amount of effort.
Why First Products Aren’t Meant to be Perfect
“Before new products can be sold successfully to the mass market, they have to be sold to early adopters.”
The Role of Quality and Design in an MVP
“If we do not know who the customer is, we do not know what quality is.”
“Customers don't care how much time something takes to build. They care only if it serves their needs.”
“As you consider building your own minimum viable product, let this simple rule suffice: remove any feature, process or effort that does not contribute directly to the learning you seek.”
Speed Bumps in Building an MVP
From the MVP to Innovation Accounting
“You have to commit a locked-in agreement – ahead of time – that no matter what comes of testing the MVP, you will not give up hope."
Minimum Viable Product (MVP) is he fastest way to get through the Build-Measure-Learn feedback loops with the minimum amount of effort.
Why First Products Aren’t Meant to be Perfect
“Before new products can be sold successfully to the mass market, they have to be sold to early adopters.”
The Role of Quality and Design in an MVP
“If we do not know who the customer is, we do not know what quality is.”
“Customers don't care how much time something takes to build. They care only if it serves their needs.”
“As you consider building your own minimum viable product, let this simple rule suffice: remove any feature, process or effort that does not contribute directly to the learning you seek.”
Speed Bumps in Building an MVP
- Patents
- Sooner, or later, a successful start up will face competition from fast followers. (the only way to win is to learn faster than anyone else)
From the MVP to Innovation Accounting
“You have to commit a locked-in agreement – ahead of time – that no matter what comes of testing the MVP, you will not give up hope."
Chapter 7
MeasureAt the beginning of a startup, the financials in the business plan include:
A startup’s job:
“We don't hear stories about the countless nameless others who persevered too long, leading their companies to failure.”
Why Something As Seemingly Dull As Accounting Will Change Your Life
Innovation accounting: accounting geared specifically to disruptive innovation.
An Accountability Framework That Woks Across Industries
The rate of growth depends on:
How Innovation Accounting Works –Three Learning Milestones
Innovation accounting works in three steps:
1. Use a minimum viable product to establish were your company is.
2. Move from the baseline towards the ideal
3. Pivot or persevere
Establish the baseline
“An MVP allows a startup to fill in real baseline data in its growth model – conversion rates, sign-up and trial rates, customer lifetime value, and so on – and this is valuable as the foundation about customers and their reactions to a product even if that foundation begins with extremely bad news.”
Turning the Engine
“Every product development, marketing, or other initiative that a startup undertakes should be targeted at improving one of the drivers of its growth model.”
Optimization versus Learning
Vanity metrics: the traditional numbers used to judge startups
Actionable Mertics Versus Vanity Metrics
“Over time, Farb concluded that the traditional lecture model of education, with its one-to-many instructional approach was inadequate for his students. He set out to develop a superior approach, using a combination of teacher-led lectures, individual homework and group study. In particular Farb was fascinated by how effective the student-to-student peer-driven learning method was for his students.”
“A disciplined team may apply the wrong methodology but can shift gears quickly once it discovers its error. Most important, a disciplined team can experiment with its own working style and draw meaningful conclusions.”
Split-test experiment: one in which different versions of a product are offered to customers at the same time.
The value of the three a’s
The three a’s of metrics: actionable, accessible and auditable.
- Projections of how many customers the company expects to attract
- How much it will spend
- How much revenue and profit it will lead to
A startup’s job:
- Measure where it is right now, confronting the hard truths that assessment reveals
- Devise experiments to learn how to move the real numbers closer to the ideal reflected in the business plan
“We don't hear stories about the countless nameless others who persevered too long, leading their companies to failure.”
Why Something As Seemingly Dull As Accounting Will Change Your Life
Innovation accounting: accounting geared specifically to disruptive innovation.
An Accountability Framework That Woks Across Industries
The rate of growth depends on:
- The profitability of each customer
- The cost of acquiring new customers
- The repeat purchase rate of existing customers
How Innovation Accounting Works –Three Learning Milestones
Innovation accounting works in three steps:
1. Use a minimum viable product to establish were your company is.
2. Move from the baseline towards the ideal
3. Pivot or persevere
Establish the baseline
“An MVP allows a startup to fill in real baseline data in its growth model – conversion rates, sign-up and trial rates, customer lifetime value, and so on – and this is valuable as the foundation about customers and their reactions to a product even if that foundation begins with extremely bad news.”
Turning the Engine
“Every product development, marketing, or other initiative that a startup undertakes should be targeted at improving one of the drivers of its growth model.”
Optimization versus Learning
Vanity metrics: the traditional numbers used to judge startups
Actionable Mertics Versus Vanity Metrics
“Over time, Farb concluded that the traditional lecture model of education, with its one-to-many instructional approach was inadequate for his students. He set out to develop a superior approach, using a combination of teacher-led lectures, individual homework and group study. In particular Farb was fascinated by how effective the student-to-student peer-driven learning method was for his students.”
“A disciplined team may apply the wrong methodology but can shift gears quickly once it discovers its error. Most important, a disciplined team can experiment with its own working style and draw meaningful conclusions.”
Split-test experiment: one in which different versions of a product are offered to customers at the same time.
The value of the three a’s
The three a’s of metrics: actionable, accessible and auditable.
- Actionable: for a report to be considered actionable, it must demonstrate clear cause and effect.
- Accessible: make reports simple, so that everyone can understand them; and make the reports have widespread access.
- Auditable: ensure that the data is credible to employees.
Chapter 8
Pivot (or Persevere)
Pivot: a structured course correction designed to test a new fundamental hypothesis about the product, strategy, and engine of growth.
“The heart of the scientific method is the realization that although human judgment may be faulty, we can improve our judgment by subjecting our theories to repeated testing.”
Successful pivots guide us toward growing a sustainable business.
Innovation Accounting Leads to Faster Pivots
“A pivot requires that we keep one foot rooted in what we’ve learned so far, while making a fundamental change in strategy in order to seek even greater validated learning.”
Pivots Require Courage
Three reasons why pivots don’t happen sooner:
1. Vanity metrics allow entrepreneurs to form false conclusions, making them think that no change is necessary.
2. There is no complete failure, and without failure there is no impetus to embark on the radical change a pivot requires.
3. Entrepreneurs are afraid their vision will prove wrong.
The Pivot or Persevere Meeting
Symptoms that should make you consider a pivot:
Failure to Pivot
Pivoting is a hard decision, and many companies fail to make it.
A Catalog of Pivots
Pivot: a structured course correction designed to test a new fundamental hypothesis about the product, strategy, and engine of growth.
“The heart of the scientific method is the realization that although human judgment may be faulty, we can improve our judgment by subjecting our theories to repeated testing.”
Successful pivots guide us toward growing a sustainable business.
Innovation Accounting Leads to Faster Pivots
“A pivot requires that we keep one foot rooted in what we’ve learned so far, while making a fundamental change in strategy in order to seek even greater validated learning.”
Pivots Require Courage
Three reasons why pivots don’t happen sooner:
1. Vanity metrics allow entrepreneurs to form false conclusions, making them think that no change is necessary.
2. There is no complete failure, and without failure there is no impetus to embark on the radical change a pivot requires.
3. Entrepreneurs are afraid their vision will prove wrong.
The Pivot or Persevere Meeting
Symptoms that should make you consider a pivot:
- The decreasing effectiveness of product experiments.
- The general feeling that product development should be more productive.
Failure to Pivot
Pivoting is a hard decision, and many companies fail to make it.
A Catalog of Pivots
- Pivot: a special kind of change designed to test a fundamental hypothesis about a product, business model or engine of growth.
- Zoom-in Pivot: a feature of the product becomes the whole product.
- Zoom-out Pivot: the whole product becomes a feature of a larger product.
- Customer Segment Pivot: keeping the function of the product but changing the audience focus.
- Consumer Need Pivot: the target customer has a problem worth solving but it is not the one that was originally anticipated.
- Platform Pivot: a change from an application to a platform or vice versa.
- Business Architecture Pivot: the business switches architecture (high margin, low volume, high volume, B2B, cycles, etc.)
- Value Capture Pivot: a change in the way that a company captures the value it creates, as in monetization or revenue models.
- Engine Growth Pivot: a company changes its growth strategy to reach a faster or more profitable growth.
- Channel Pivot: a change in the sales or distribution channel.
- Technology Pivot: changing the way to achieve a solution by using different technology
Part Three: Accelerate
“Process is
only the foundation upon which a great company culture can develop. But without
this foundation, efforts to encourage learning, creativity, and innovation will
fall flat. “
“The Lean Startup works only if we are able to build and organization as adaptable and fast as the challenges it faces.”
“The Lean Startup works only if we are able to build and organization as adaptable and fast as the challenges it faces.”
Start Your Engines
“Startups need organizational structures that combat extreme uncertainty that is a startup’s chief enemy.”
First critical question for any lean transformation: which activities create value and which form waste.
“Startups need organizational structures that combat extreme uncertainty that is a startup’s chief enemy.”
First critical question for any lean transformation: which activities create value and which form waste.
Chapter 9
Batch
Batch size: how much work moves from one stage to the next at a time.
Single-piece flow: its batch size is one.
“Lean manufacturers discovered the benefits of small batches decades ago.”
Small Batches in Entrepreneurship
“The Lean Startup goal is not to produce more stuff efficiently. It is to – as quickly as possible – learn how to build a sustainable business.”
Working with small batches ensures that a startup can minimize expenditure of time, money, and effort that ultimately turns out to have been wasted.
With small batches one can get through the Build-Measure-Learn feedback loop more quickly.
Small Batches in Action
“Not every type of product – as exists today – allows for design change in small batches . but that is no excuse for sticking to outdated methods.”
Pull, Don’t Push
“The ideal goal is to achieve small batches all the way down to single-piece flow along the entire supply chain. Each step in the line pulls the parts it needs from the previous step.”
In manufacturing:
Batch size: how much work moves from one stage to the next at a time.
Single-piece flow: its batch size is one.
- It saves you the time of having to move have complete batches from one place to another.
- It lets you test the approach since the beginning.
- It lets you fix any mistakes.
“Lean manufacturers discovered the benefits of small batches decades ago.”
Small Batches in Entrepreneurship
“The Lean Startup goal is not to produce more stuff efficiently. It is to – as quickly as possible – learn how to build a sustainable business.”
Working with small batches ensures that a startup can minimize expenditure of time, money, and effort that ultimately turns out to have been wasted.
With small batches one can get through the Build-Measure-Learn feedback loop more quickly.
Small Batches in Action
“Not every type of product – as exists today – allows for design change in small batches . but that is no excuse for sticking to outdated methods.”
Pull, Don’t Push
“The ideal goal is to achieve small batches all the way down to single-piece flow along the entire supply chain. Each step in the line pulls the parts it needs from the previous step.”
In manufacturing:
- Pulling – is used to make sure production processes are tuned to levels of customer demand.
Chapter 10
Grow
Engine of growth is the mechanism that startups use to achieve sustainable growth.
The one simple rule of SUSTAINABLE GROWTH: new customers come from the actions of past customers.
Ways in which past customers drive sustainable growth:
1. Word of mouth: satisfied customers’ enthusiasm for the product.
2. As a side effect of product usage: awareness of the product when used.
3. Through funded advertising
4. Through repeat purchase or use: in order to used you need to renew.
The Three Engines of Growth
Engines of growth are designed to give startups a relatively small set of metrics on which to focus their energies.
The viral engine is powered by a feedback loop that can be quantified, called the Viral Loop. Its speed is determined by the mathematical term Viral Coefficient, which measures how many new customers will use a product as a consequence of each new customer who signs up.
It works by each person who signs up , recruits more friends, who recruit more friends, etc.
“In the viral engine of growth monetary exchange does not drive new growth; it is useful only as an indicator that customer value the product to pay enough for it.”
Engines of Growth Determine Product/Market Fit
Product/market fit: the moment when a startup finally finds a widespread set of customers that resonate with its product.
Once you reach the product/market fit it doesn't mean that you cant pivot anymore.
When Engines Run Out
The truth is that every engine of growth eventually runs out of gas. The customers get exhausted of habits, preferences, advertising channels and interconnections.
Engine of growth is the mechanism that startups use to achieve sustainable growth.
The one simple rule of SUSTAINABLE GROWTH: new customers come from the actions of past customers.
Ways in which past customers drive sustainable growth:
1. Word of mouth: satisfied customers’ enthusiasm for the product.
2. As a side effect of product usage: awareness of the product when used.
3. Through funded advertising
4. Through repeat purchase or use: in order to used you need to renew.
The Three Engines of Growth
Engines of growth are designed to give startups a relatively small set of metrics on which to focus their energies.
- The Sticky Engine of Growth: to companies using this engine of growth, they have to track their churn rate or the fraction of customers in any period who fail to remain engaged with the company’s product.
- The Viral Engine of Growth
The viral engine is powered by a feedback loop that can be quantified, called the Viral Loop. Its speed is determined by the mathematical term Viral Coefficient, which measures how many new customers will use a product as a consequence of each new customer who signs up.
It works by each person who signs up , recruits more friends, who recruit more friends, etc.
“In the viral engine of growth monetary exchange does not drive new growth; it is useful only as an indicator that customer value the product to pay enough for it.”
- The paid Engine of Growth
Engines of Growth Determine Product/Market Fit
Product/market fit: the moment when a startup finally finds a widespread set of customers that resonate with its product.
Once you reach the product/market fit it doesn't mean that you cant pivot anymore.
When Engines Run Out
The truth is that every engine of growth eventually runs out of gas. The customers get exhausted of habits, preferences, advertising channels and interconnections.
Chapter 11
Adapt
Building An Adaptive Organization
Adaptive organization: one that automatically adjusts its process and performance to current conditions.
Part of a startup is speed. But one must always keep in mind that you cant trade quality for time. The higher quality the playbook is the easier it is to evolve over time.
“Shortcuts taken in product quality, design, or infrastructure today may wind up slowing a company down tomorrow.
The Wisdom of the Five Whys
“Lean Statups need a process that provides a natural feedback loop.”
The Five Whys system makes incremental investments and evolves a startup’s processes gradually. Five Whys is an opportunity to discover what the human problem that causes a technical problem is.
By asking the reason of a problem five times, one can get to the real cause of the problem.
How to use Five Whys: make an investment that is smaller when the symptom os minor and larger hen the symptom is more painful.
Five Whys acts as a natural speed regulator. It prevents startups to work too fats and cause sloppy mistakes, and it allows teams to find their optimal pace.
The Curse of the Five Blames
When the Five Whys approach goes awry, it is the Five Blames. Instead of asking why’s to figure out what went wrong, people start blaming people for the fault.
Tactics to escape the Five Blames:
Conditions to use Five Whys:
Building An Adaptive Organization
Adaptive organization: one that automatically adjusts its process and performance to current conditions.
Part of a startup is speed. But one must always keep in mind that you cant trade quality for time. The higher quality the playbook is the easier it is to evolve over time.
“Shortcuts taken in product quality, design, or infrastructure today may wind up slowing a company down tomorrow.
The Wisdom of the Five Whys
“Lean Statups need a process that provides a natural feedback loop.”
The Five Whys system makes incremental investments and evolves a startup’s processes gradually. Five Whys is an opportunity to discover what the human problem that causes a technical problem is.
By asking the reason of a problem five times, one can get to the real cause of the problem.
How to use Five Whys: make an investment that is smaller when the symptom os minor and larger hen the symptom is more painful.
Five Whys acts as a natural speed regulator. It prevents startups to work too fats and cause sloppy mistakes, and it allows teams to find their optimal pace.
The Curse of the Five Blames
When the Five Whys approach goes awry, it is the Five Blames. Instead of asking why’s to figure out what went wrong, people start blaming people for the fault.
Tactics to escape the Five Blames:
- Make sure everyone affected by the problem is in the room when analyzing the root cause.
Conditions to use Five Whys:
- An environment of mutual trust and empowerment.
- Be tolerant of all mistakes the first time.
- Never allow the same mistake to be made twice.
Chapter 12
Innovate
How to Nurture Disruptive Innovation
Startup teams require three structural attributes:
Creating a Platform for Experimentation
It is important to focus on establishing ground rules under which autonomous startup teams operate.
Without the ability to experiment companies ultimately suffer The Innovator’s Dilemma: ever higher profits and margins year after year until the business suddenly collapses.
In order to create a mechanism for empowering innovation one could create a sandbox for innovation, that will contain the impart of the new innovation but not restrain the methods of the startup team.
How a sandbox for innovation works:
Cultivating the Management Portfolio
“Working in the innovation sandbox is like developing startup muscles. At first, the team will be able to take on only modest experiments…. Over time, those teams are almost guaranteed to improve as long as they get the constant feedback of small-batch development and actionable metrics and are help accountable to learning milestones.
How to Nurture Disruptive Innovation
Startup teams require three structural attributes:
- Scarce but secure resources: startups require much less capital overall, but that capital must be secure from tampering.
- Independent authority to develop their business: autonomy to develop and market new products within their limited mandate. It has to be able to execute experiments without much approval.
- A personal stake in the outcome: this stake need not be financial, it can be credit or sense of ownership.
Creating a Platform for Experimentation
It is important to focus on establishing ground rules under which autonomous startup teams operate.
Without the ability to experiment companies ultimately suffer The Innovator’s Dilemma: ever higher profits and margins year after year until the business suddenly collapses.
In order to create a mechanism for empowering innovation one could create a sandbox for innovation, that will contain the impart of the new innovation but not restrain the methods of the startup team.
How a sandbox for innovation works:
- Any team can create a split-test experiment that affects only the sandboxed parts of the product of service.
- One team must see the whole experiment from end to end.
- No experiment can run longer than a specified amount of time.
- No experiment can affect more than a specified number of customer.
- Every experiment has to be evaluated on the basis of a single standard metric.
- Every team and product must use the same metrics.
- Teams that create experiments must monitor the metrics and customer reactions.
Cultivating the Management Portfolio
“Working in the innovation sandbox is like developing startup muscles. At first, the team will be able to take on only modest experiments…. Over time, those teams are almost guaranteed to improve as long as they get the constant feedback of small-batch development and actionable metrics and are help accountable to learning milestones.
Chapter 13
Epilogue: Waste Not
Frederick Winslow Taylor effectively invented what we now consider simply management:
In Conclusion
As a movement, the Lean Startup must avoid doctrines and rigid ideology. Avoid that science means a formula.
If all employees in an organization were armed with Lean Startup’s organizational powers:
Frederick Winslow Taylor effectively invented what we now consider simply management:
- Improving the efficiency of the individual workers
- Management by exception
- Standardizing work into tasks
- The task-plus-bonus system of compensation
- The idea that work can de studied and improved through conscious effort.
In Conclusion
As a movement, the Lean Startup must avoid doctrines and rigid ideology. Avoid that science means a formula.
If all employees in an organization were armed with Lean Startup’s organizational powers:
- Everyone would insist that assumptions be stated explicitly and tested rigorously.
- We would recognize that speed and quality are allies in the pursuit of the customers’ long-term benefit.
- We would race to test our vision but not to abandon it.
- We would look to eliminate waste.
- We would respond to failures and setbacks with honesty and learning.
- We would shun the impulse to slow down, increase batch size and indulge in the curse of prevention.
- We would dedicate ourselves to the creation of new institutions with a long-term mission to build sustainable value and change the world for the better