summary of the lean startup (eric ries)
TRANSCRIPT
AGENDA What is Lean Startup?
Principles
The Lean Pyramid
Leaps of Faith
Antilogs and Analogs
Genchi Genbutsu
Minimum Viable Product
Innovation Accounting
Engines of Growth
Innovation Sandbox
WHAT IS A LEAN STARTUP ?
LEAN STARTUP is an approach to business development that is based on
the application of LEAN PRODUCTION to innovation.
Guide to how drive a Start-up, build and maintain products.
ROOTS OF THE LEAN STARTUP
Lean manufacturing revolution in the Toyota production system.
Lean manufacturing/Production involves the following:
Know your customer
Eliminate waste
Shrink batch size
Just-in-time production
Acceleration of cycle times
DEFINING KEYWORDS
Startup – A human institution to create a new product or service under
conditions of extreme uncertainty.
Entrepreneur – Everyone from young visionaries with little backing to
seasoned visionaries with larger companies.
Product – Anything that a customer experiences as a part of interaction
with the company.
PRINCIPLES OF LEAN STARTUP
Entrepreneurs are everywhere
Entrepreneurship is management
Validate Learning
Build – Measure – Learn
Innovative Accounting
THE LEAN PYRAMID
Vision – Where you thrive to reach once you begin
Strategy – Business model , road map , point of view etc.
Product – End result of the strategyProduct
Strategy
Vision
A STARTUP’S VISION
Destination in mind – Creating a thriving business.
The First Question – “Should this product be build?”
Measure progress
Evaluate performance locally
Always drive a new project and avoid complex plans
Break down the larger vision and start with small experiments to gather
customer responses
EXPERIMENTATION
An EXPERIMENT is the first product
How to Experiment ?
Define a clear hypothesis using the Leap of faith assumptions
Use ‘Genchi Genbutsu’ approach for better understanding
Look for Antilogs and Analogs
Start by building an MVP
Identify and eliminate waste
Example : Zappos , VLS
LEAPS OF FAITH
Act of believing or attempting something, the outcome or existence of which cannot
be proven or known beforehand.
Hypothesis
Value Hypothesis
Growth Hypothesis
GENCHI GENBUTSU
Key principle in the Toyota production system
Go and look out for yourself
Facilitates early contact with potential customers
Increases the chance that actual issues and unplanned events will be
observed first hand
Example : Toyota’s Minivan
ANALOGS AND ANTILOGS
Analog : Proof that something has been tried and works well in the market
Antilog : Proof that something doesn’t work in the market
Look for Antilogs and Analogs, if possible
Try to come up with alternatives to Antilogs
Address high risk assumptions first
Example :
Analog for iPod : Sony’s Walkman
Antilog for iPod : Napster
MINIMUM VIABLE PRODUCT
Version of product that enables a full turn of the Build – Measure – Learn
loop with a minimum amount of effort and the least amount of development
time.
Has core features which allow the product to be deployed.
Helps in avoiding building a product that the customers do not want.
Can be deployed to Early Adopters that are thought to be more likely to
provide feedback.
THE QUALITY PRINCIPLE (MVP)
If we do not know who the customer is, we do not know what quality is.
Try not to presuppose what attribute of the product will the customer
consider as worthwhile
Learn what the customers care about
Remove any feature, process or effort that does not contribute directly to
the learning that you seek
Example : 3D Avatars in IMVU
PROBLEMS IN BUILDING AN MVP
Legal issues
Fear of competition
Branding Risks
Fear of failure
WHAT IS WASTE ?
The major wastes as per the Lean Methodology are :
Waiting
Defects
Overproduction
Improper use of skills
The effort that is not absolutely necessary for learning what your customer
wants can be eliminated.
Work Smart, not just hard
Identify value creating efforts
Identify and eliminate waste
VALUE VS WASTE
STEERING A STARTUP
BUILD
MEASURELEARN
To Steer a Startup , minimize
the total time through the
Feedback Loop
Enter the build phase with an
MVP in mind
Evaluate progress using
Innovation accounting
INNOVATION ACCOUNTING
To evaluate and improve outcomes, focus on how to measure progress, how to
set up milestones and prioritize work.
Learning milestones :
Establishing the baseline
Tuning the engine
Pivot or Persevere
SPLIT TESTS AND METRICS
Split Tests : Experiment where different versions of the product are offered
to the client simultaneously. Example : Grockit
Choose the right metrics to evaluate progress.
Do not be mislead by VANITY METRICS
A metric should be :
Actionable
Accessible
Auditable
COHORT ANALYSIS Cohort - Group of people who share a common characteristic over a
certain period of time.
Helps understanding the business quantitatively
COHORT ANALYSIS
Studying the spending trends of cohorts from different periods in time can indicate if the quality of the
average customer being acquired is increasing or decreasing in over time.
PIVOT OR PERSEVERE
Pivot is a special kind of structured change designed to test a new
fundamental hypothesis.
When to PIVOT ?
A start-up's runway is the number of pivots it can still make
PIVOTS require courage
The PIVOT or PERSEVERE meeting
Example : Wealthfront
CATALOG OF PIVOTS
Zoom-in Pivot - Flickr
Zoom-out Pivot - Facebook
Customer Segment Pivot - Wealthfront
Customer Need Pivot - Starbucks
ACCELERATE
When accelerating a Startup, it’s important to keep the following in mind :
Keep the batches small
Aim for sustainable growth
The FIVE WHYS
Keep Innovating
BATCHING
Batch size – Work that moves from one stage to the next at a time.
Problems with Large batches :
Detecting and fixing bugs becomes difficult
Efficiency decreases
The Large-Batch Death Spiral problem
ONE ENVELOPE AT A TIME
Adopt the Single-piece Flow strategy
Produces finished products faster
Quality problems can be identified much sooner
Overhead Reduces
Toyota became world’s largest automaker in 2008 using this
approach
CONTINUOUS DEPLOYMENT
Aims at minimizing the time elapsed between writing one new line of code
and this new code being used by live users in production.
Facilitates early feedback
Defects can be detected faster and sooner
Remove Defect
Notify Team
Avoid new changes until fixed
RCA
SUSTAINABLE GROWTH
* New customers come from the actions of past customers
How past customers drive sustainable growth :
Word of Mouth
As a side effect of product usage
Through funded advertising
Through repeated purchase or use
ENGINES OF GROWTH Engine of growth is what drives the underlying Business Model
Helps the business to stay focussed on the metrics that matter
STICKY VIRAL PAID
METRICS New Customer
Acquisition rate,
Churn Rate
Viral Coefficient Cost per Acquisition,
Customer’s Lifetime
Value (CLV)
EXAMPLE Database Solutions Hotmail, Facebook IMVU
THE FIVE WHYS
Iterative question-asking technique used to explore the cause-and-effect
relationships underlying a particular problem.
Benefits of the Five Whys :
Achieving better quality
Automatic Speed regulator
Building a more adaptive organization
One of the simplest tools; easy to complete analysis without statistics
FIVE WHYS IN ACTION
1. A new release disabled a feature for customers. Why? Because a particular
server failed.
2. Why did the server fail? Because an obscure subsystem was used in the wrong
way.
3. Why was it used in the wrong way? The engineer who used it didn’t know how
to use it properly.
4. Why didn’t he know? Because he was never trained.
5. Why wasn’t he trained? Because his manager doesn’t believe in training new
engineers because he and his team are "too busy."
INNOVATION
Innovation teams must be structured correctly in order to succeed.
The Structural attributes for a startup are :
Scarce but Secure Resources
Independent Development Authority
Personal Stake in the Outcome
THE INNOVATION SANDBOX
Any team can Split-Test in a specific segment
One team goes through the whole experiment
Time Limits for experiments
Not affecting more than a certain number of customers
Experiment evaluation to be done on actionable metrics
Use the same metrics throughout the experiment
Monitor customers and metrics during experiment
When changing to lean expect changes.
With LEAN you will have growth, a better product and
happier teams.
THANK YOU!
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