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The Lean Startup

by Parker · 193 things on NewTwos

We were doomed from day one because we did not know the process we would need to use to turn our product insights into a great company
Hard work and perseverance don't lead to success
Most startups fail. Most new products are not successful. Most new ventures do not live up to their potential
It's the boring, small decisions, that matters the most
Startup success can be engineered by following the right process, which means it can be learned, which means it can be taught
Entrepreneurship is a kind of management
Lean manufacturing originated in Japan with the Toyota Production
The Lean Startup Method
Entrepreneurs are everywhere
Startup: a human institution designed to create new products and services under conditions of extreme uncertainty
Entrepreneurship is management
A startup is an institution, not just a product, and so it requires a new kind of management specifically geared to its context of extreme uncertainty
Validated learning
Startups exist not just to make stuff, make money, or even serve customers. They exist to learn how to build a sustainable business. This learning can be validated scientifically by running frequent experiments that allow entrepreneurs to test each element of their vision
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. All successful startup processes should be geared to accelerate that feedback loop
Innovation accounting
To improve entrepreneurial outcomes and hold innovators accountable, we need to focus on the boring stuff: how to measure progress, how to set up milestones, and how to prioritize work. This requires a new kind of accounting designed for startups—and the people who hold them accountable
Startups do not yet know who their customer is or what their product should be
Planning and forecasting are only accurate when based on a long, stable operating history and a relatively static environment
The goal of a startup is to figure out the right thing to build—the thing customers want and will pay for—as quickly as possible
Build cross-functional teams and hold them accountable to what we call learning milestones instead of organizing your company into strict functional departments that hold people accountable for performing well in their specialized areas
Every new version of a product, every new feature, and every new marketing program is ann attempt to improve this engine of growth
New product development happens in fits and starts. Much of the time in a startup's life is spent tuning the engine by making improvemennts in product, marketing, or operations
Instead of making complex plans that are based on a lot of assumptions, you can make constant adjustments with a steering wheel called the Build-Measure-Learn feedback loop
Startups have a true north, a destination in mind: creating a thriving and world-changing business. This is the startup's vision
To achieve that vision, startups employ a strategy, which includes a business model, a product road map, a point of view about partners and competitors, and ideas about who the customer will be. The product is the end result of this strategy
The overarching vision rarely changes, the strategy changes less frequently, and the product changes constantly through the process of optimization, or tuning the engine
Every setback is an opportunity for learning how to get where we want to go
Intuit tests over 500 different changes in a 2 and a half month tax season
70 tests per week
"When you have only one test, you don't have entrepreneurs, you have politicians, because you have to sell. Out of a hundred good ideas, you've got to sell your idea. When you have 500 tests running, then everybody's ideas can run. And then you create entrepreneurs who run and learn and can retest and relearn as opposed to a society of politicians" - Scott Cook
"It goes against the grain of what people have been taught in business and what leaders have been taught. The problem isn’t with the teams or the entrepreneurs. They love the chance to quickly get their baby out into the market. They love the chance to have the customer vote instead of the suits voting. The real issue is with the leaders and the middle managers. There are many business leaders who have been successful because of analysis. They think they’re analysts, and their job is to do great planning and analyzing and have a plan" - Scott Cook
The only sustainable path to long-term economic growth is to build an 'innovation factory' that uses Lean Startup techniques to create disruptive innovations on a continuous basis
Intuit invested in systems that increased the speed at which tests could be built, deployed, and analyzed
What if we are building something nobody wants? In this case what does it matter if we do it on time and on budget?
'Learning' is the oldest excuse in the book for a failure of execution
We must learn the truth about which elements of our strategy are working to realize our vision and which are just crazy. We must learn what customers really want, not what they say they want or what we think they should want. We must discover whether we are on a path that will lead to growing a sustainable business
Delay prevents many startups from getting the feedback they need
Set clear revenue targets
Customers kept saying, “I want to use it by myself. I want to try it out first to see if it’s really cool before I invite a friend.”
Can you learn lessons earlier if you aren't focused on making the product "better" by adding features and fixing bugs?
Which of your efforts are value-creating and which are wasteful?
Value-creating
Smoking (sometimes), reading, programming, twos, muse, taking notes (if I share them), exercise, eating healthy, reflecting, meditating, walking, podcasts
Wasteful
Smoking (sometimes), thinking about food, complaining, disbelief, self-hate, hatred or dislike of others, writing things that will never be shared
Lean thinking defines value as providing benefit to the customer; anything else is waste
In a startup, who the customer is and what the customer might find valuable are unknown, part of the very uncertainty that is an essential part of the definition of a startup.
Most of the time customers don’t know what they want in advance
Conduct an experiment, offering customers the chance to try something and then measuring their behavior
Learning is the essential unit of progress for startups. The effort that is not absolutely necessary for learning what customers want can be eliminated
Validated learning is backed up by empirical data collected from real customers
Proof of learning does not come until you put those theories into practice and built subsequent versions of the product that show superior results with actual customers
Find a synthesis between your vision and what customers will accept; it isn't to capitulate to what customers thought they want or to tell customers what they ought to want
As you understand your customers better, you are able to improve your product
True startup productivity: systematically figuring out the right things to build
Learn to see every startup in any industry as a grand experiment
Should this product be built? Can we build a sustainable business around this set of products and services?
We need a method for systematically breaking down a business plan into its component parts and testing each part empirically
If you cannot fail, you cannot learn
A true experiment follows the scientific method. It begins with a clear hypothesis that makes predictions about what is supposed to happen. It then tests those predictions empirically. Just as scientific experimentation is informed by theory, startup experimentation is guided by the statup's vision. The goal of every startup experiment is to discover how to build a sustainable business around that vision
Run experiments by asking a question and stating your hypothesis, observing real customer behavior with access to more accurate data, interacting with real customers and learning about their needs, and allowing yourself to be surprised when customers behave inn unexpected ways, revealing information you might not have known to ask about
The value hypothesis tests whether a product or service really delivers value to customers once they are using it
Growth hypothesis tests how many new customers will discover a product or service
An experiment is a product
Focus on 4 questions for product development:
Do consumers recognize that they have the problem you are trying to solve?
If there was a solution, would they buy it?
Would they buy it from us?
Can we build a solution for that problem?
"Util we could figure out how to sell and make the product, it wasn't worth spending any engineering time on" - Mark Cook
Where customers complain about missing features, this suggests you are on the right track
"Success is not delivering a feature; success is learning how to solve the customer's problem" - Mark Cook
Treat your startup as an experiment, identify the elements of the plan that are assumptions rather than facts, and figure out ways to test them
A startup is a catalyst that transforms ideas into products. As customers interact with those products, they generate feedback and data. The feedback is both qualitative (such as what they like and don’t like) and quantitative (such as how many people use it and find it valuable). the products a startup builds are really experiments; the learning about how to build a sustainable business is the outcome of those experiments. For startups, that information is much more important than dollars, awards, or mentions in the press, because it can influence and reshape the next set of ideas
Build-Measure-Learn Feedback loop: Build -> Product -> Measure -> Data -> Learn -> Ideas -> Build. Repeat. Minimize the total time through the loop
The riskiest elements of a startup's plan are leap-of-faith assumptions
The two most important assumptions are the value hypothesis and the growth hypothesis
The MVP is that version of the 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
We need to get it in front of potential customers to gauge their reactions
When we enter the Measure phase, the biggest challenge will be determining whether the product development efforts are leading to real progress
Remember, if we’re building something that nobody wants, it doesn’t much matter if we’re doing it on time and on budget
The role of strategy is to help figure out the right questions to ask
Strategy is based on assumptions
Every business plan begins with a set of assumptions. It lays out a strategy that takes those assumptions as a given and proceeds to show how to achieve the company’s vision. Because the assumptions haven’t been proved to be true and in fact are often erroneous, the goal of a startup’s early efforts should be to test them as quickly as possible
Is it really true that there are large numbers of potential customers out there who want our solution right now?
Let's make sure that there really are hungry customers out there eager to embrace our new technology
An example of a value-destroying startup: a business that grows through continuous fund-raising from investors and lots of paid advertising but does not develop a value-creating product
"Get out of the building and start learning" - Steve Blank
Genchi gembutsu - "Go and see for yourself." It is unacceptable to take anything for granted or to rely on the reports of others
Customers are breathing, thinking, buying individuals. Their behavior is measurable and changeable
Understand our potential customer and what problems they have
Analyze your market research strategy
Unlike a prototype or concept test, an MVP is designed not just to answer product design or technical questions. Its goal is to test fundamental business hypotheses
With an MVP, when in doubt, simplify
The lesson of the MVP is that any additional work beyond what was required to start learning is waste, no matter how important it might have seemed at the time
MVPs designed to test a more important question: what would be required to get customers to engage with the product and tell their friends about it?
If we do not know who the customer is, we do not know what quality is
Even a “low-quality” MVP can act in service of building a great high-quality product
Customers don’t care how much time something takes to build. They care only if it serves their needs
MVPs require the courage to put one’s assumptions to the test. If customers react the way we expect, we can take that as confirmation that our assumptions are correct. If we release a poorly designed product and customers cannot figure out how to use it, that will confirm our need to invest in superior design. But we must always ask: what if they don’t care about design in the same way we do?
Remove any feature, process, or effort that does not contribute directly to the learning you seek
The only way to win is to learn faster than anyone else
Have a commitment to iteration
You have to commit to a locked-in agreement—ahead of time—that no matter what comes of testing the MVP, you will not give up hope. Successful entrepreneurs do not give up at the first sign of trouble, nor do they persevere the plane right into the ground. Instead, they possess a unique combination of perseverance and flexibility. The MVP is just the first step on a journey of learning. Down that road you may learn that some element of your product or strategy is flawed and decide it is time to make a change, which I call a pivot, to a different method for achieving your vision
Startups are especially at risk when outside stakeholders and investors have a crisis of confidence. When the project was authorized or the investment made, the entrepreneur promised that the new product would be world-changing. Customers were supposed to flock to it in record numbers. Why are so few actually doing so?
Innovation accounting works in three steps:
Use a minimum viable product to establish real data on where the company is right now
Startups must attempt to tune the engine from the baseline toward the ideal
Pivot or persevere
Try smoke tests to see whether customers are interested in trying your product. Check out conversion rates, sign-up and trial rates, customer lifetime value. This is valuable as the foundation for learning about customers and their reactions to a product
Can it capture the attention of a defined customer segment on an ongoing basis? and can it sell that attention to advertisers?
The first experiments should involve content production rather than advertising sales
A good design is one that changes customer behavior for the better
Set out with a clear baseline metric, a hypothesis about what will improve that metric, and a set of experiments designed to test that hypothesis
We allocated a budget of five dollars per day: enough to buy clicks on the then-new Google AdWords system
Talk to customers
Once our efforts were aligned with what customers really wanted, our experiments were much more likely to change their behavior for the better
Poor quantitative results force us to declare failure and create the motivation, context, and space for more qualitative research
Establish the baseline, tune the engine, and make a decision to pivot or persevere
If you are building the wrong thing, optimizing the product or its marketing will not yield significant results
Agile development involves prioritizing work to be done with a series of user stories
These stories help keep the engineers focused on the customer's perspective throughout the development process
In agile development, engineers agree to adapt the product to the business's constantly changing requirements but are not responsible for the quality of those business decisions
A disciplined team may apply the wrong methodology but can shift gears quickly once it discovers its error. They also experiment with its own working style and draw meaningful conclusions
If you include the validation step of features in the beginning, the whole team is more productive
Without a clear hypothesis, how can a story ever be validated?
A solid process lays the foundation for a healthy culture, one where ideas are evaluated by merit and not by job title
Teams should measure their productivity according to validated learning, not in terms of the production of new features
The more classes of users there are (unregistered guests, registered guests, and paying customers), the more work is required to keep track of them, and the more marketing effort is required to create the right incentives to entice customers to upgrade to the next class
The Three A's of metrics: actionable, accessible, and auditable
Actionable: it must demonstrate clear cause and effect
Accessible: make reports as simple as possible so that everyone understands them
Cohort analysis: among the people who used our product in this period, here's how many of them exhibited each of the behaviors we care about
Auditable: constant feedback and testing
Pivot: a structured course correction designed to test a new fundamental hypothesis about the product, strategy, and engine of growth
There is no bigger destroyer of creative potential than the misguided decision to persevere
Startup productivity is not about cranking out more widgets or features. It is about aligning our efforts with a business and product that are working to create value and drive growth. In other words, successful pivots put us on a path toward growing a sustainable business
The more money, time, and creative energy that has been sunk into an idea, the harder it is to pivot
Failure is a prerequisite to learning
When people are forces to change against their better judgment, the process is harder, takes longer, and leads to a less decisive outcome
When an entrepreneur has an unclear hypothesis, it’s almost impossible to experience complete failure, and without failure there is usually no impetus to embark on the radical change a pivot requires
Entrepreneurs need to face their fears and be willing to fail, often in a public way
Get your product and vision out into the market broadly in order to get feedback and to begin iteration
Have a pivot or persevere meeting once a month
Any student of disruptive innovation would have looked on approvingly: they were following that system perfectly by initially serving customers who were unable to participate in the mainstream market. Over time, they believed, the product would become more and more sophisticated, eventually allowing users to serve (and disrupt) existing professional fund managers
Mainstream customers are less forgiving of an early product
Test a clear hypothesis in the service of the company’s vision
Design, develop, and ship our new features one at a time, taking advantage of the power of small batches
Instead of working in separate departments, engineers and designers would work together side by side on one feature at a time
Sustainable growth is characterized by: new customers come from the actions of past customers
Primary ways past comers drive sustainable growth
1. Word of mouth: a natural level of growth that is caused by satisfied customer’s enthusiasm for the product
2. A side effect of product usage: Fashion or status drive awareness of themselves whenever they are used
3. Funded advertising: the advertising much be paid for out of revenue. As long as the cost of acquiring a new customer is less than the revenue that customer generates, the excess can be used to acquire more customers
4. Repeat purchase or use
One of the most expensive forms of potential waste for a startup is spending time arguing about how to prioritize new development once it has a product on the market. At any time, the company could invest its energy in finding new customers, servicing existing customers better, improving overall quality, or driving down costs. In my experience, the discussions about these kinds of priority decisions can consume a substantial fraction of the company’s time
“Startups don’t starve, they drown.” - Shawn Carolan
There are always a zillion new ideas about how to make the product better floating around, but the hard truth is that most of those ideas make a difference only at the margins. They are mere optimizations. Startups have to focus on the big experiments that lead to validated learning
The churn rate is defined as the fraction of customers in any period who fail to remain engaged with the company’s product
If the rate of new customer acquisition exceeds the churn rate, the product will grow
The way to find growth is to focus on existing customers for the product even more engaging to them. For example, the company could focus on getting more and better listings. This would create an incentive for customers to check back often
In a great market, the market pulls product out of the startup
You cannot trade quality for time. If you are causing quality problems now, the resulting defects will slow you down later
Instead of using the Five Whys to find and fix problems, managers and employees can fall into the trap of using the Five Blames as a means for venting their frustrations and calling out colleagues for systemic failures
When blame inevitably arises, the most senior people in the room should repeat this mantra: if a mistake happens, shame on us for making it so easy to make that mistake
Be tolerant of all mistakes the first time
Never allow the same mistake to be made twice
Startup teams need complete autonomy to develop and market new products within their limited mandate. They have to be able to conceive and execute experiments without having to gain an excessive number of approvals
Entrepreneurs need a personal stake in the outcome of their creations
Innovation Sandbox
Any team can create a true split-test experiment that affects only the sandboxed parts of the product or service or only certain customer segments or territories
One team must see the whole experiment through 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 customers
Every experiment has to be evaluated on the basis of a single standard report of five to ten actionable metrics
Every team that works inside the sandbox and every product that is built must use the same metrics to evaluate success
Any team that creates an experiment must monitor the metrics and customer reactions while the experiment is in progress and abort it if something catastrophic happens
Build an ideal model of the desired disruption that is based on customer archetypes, launch a minimum viable product to establish a baseline, and then attempt to tune the engine to get it closer to the ideal
The individual efficiency of these specialists is not the goal in a Lean Startup. Instead, we want to force teams to work cross-functionally to achieve validated learning
It does not matter how fast we can build. It does not matter how fast we can measure. What matters is how fast we can get through the entire loop
For all of our vaunted efficiency in the making of things, our economy is still incredibly wasteful. This waste comes not from the inefficient organization of work but rather from working on the wrong things
“There is surely nothing quite so useless as doing with great efficiency what should not be done at all.” - Peter Drucker
If we just slowed everything down and used a more careful process, we could reduce the failure rate by doing fewer projects of higher quality
It is insufficient to exhort workers to try harder. Our current problems are caused by trying too hard—at the wrong things. By focusing on functional efficiency, we lose sight of the real goal of innovation: to learn that which is currently unknown. As Deming taught, what matters is not setting quantitative goals but fixing the method by which those goals are attained
We routinely green-light new projects more on the basis of intuition than facts
Insist that assumptions be stated explicitly and tested rigorously not as a stalling tactic or a form of make-work but out of a genuine desire to discover the truth that underlies every project’s vision
Recognize that speed and quality are allies in the pursuit of the customer’s long-term benefit
Eliminate waste not to build quality castles in the sky but in the service of agility and breakthrough business results
Respond to failures and setbacks with honesty and learning, not with recriminations and blame
Achieve speed by bypassing the excess work that does not lead to learning
Stop wasting people’s time

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The Lean Startup