When it hit the bookstores in 2011, The Lean Startup tuned into an instant best-seller. It was a road map to success for innovators and entrepreneurs that relied on the principles of the 21st century. Still among the most popular books for startup founders, it encompasses the principles and approaches for efficient management. Let's go over The Lean Startup summary and learn what startups need to succeed.
Disclaimer: This post is not The Lean Startup review. It is also not an attempt to substitute reading the book or The Lean Startup certification. I merely want to introduce you to this efficient approach and its critical principles and help you understand whether it suits your business.
What Is the Lean Startup Method?
The Lean Startup history started in 2011 when Eric Ries began to describe his experience with IMVU. Formalizing his knowledge and findings, Eric Ries developed The Lean Startup as a scientific method of creating and running startups. According to his best-selling book, a startup is a person or a team working on a new product or service in risky or uncertain conditions. In The Lean Startup summary, I'll go over critical concepts that make Eric Ries' approach so beneficial for businesses.
In his words,
We are at the dawn of management's second century. It is our challenge to do something great with the opportunity we have been given. The Lean Startup movement seeks to ensure that those of us who long to build the next big thing will have the tools we need to change the world.
Five Principles of The Lean Startup
The Lean Startup summary would never be complete without the five principles that form the base of the scientific approach to building a successful startup. They introduce the basic concepts of startup management aimed at minimizing time and expenses on getting from idea to product and customer feedback. The five principles are:
Everyone can become an entrepreneur. You need not be a college drop-out or a visionary loner to qualify for a startup founder. Whenever you work on creating new products or services with no clear path in sight, you are an entrepreneur. You can be an entrepreneur, whether you are an office worker, a cog in a corporate machine, a freelancer, or a business owner.
Enterprises need management. A startup is not a product; it is a business that requires planning, strategy, and management geared specifically towards its unique needs. Without proper management, entrepreneurs fail sooner or later.
Startups exist for validated learning. Startup teams should not focus solely on products and customers. They need to learn how to run a sustainable business. Experiments and tests are prime examples of the scientific approach to running a startup.
Better outcomes rely on innovation accounting. Prioritizing processes, setting milestones, and measuring progress are dull, but essential parts of startup growth. Innovation accounting is tailored to startups and helps them evaluate real progress by avoiding vanity metrics.
The feedback cycle of build-measure-learn is the backbone of entrepreneurship success. Shortening the time for building the product, measuring its progress, and making strategic decisions keeps entrepreneurs in business.
Is knowing these principles enough for your business to succeed? According to The Lean Startup statistics, using Eric Ries' scientific approach is not a guarantee for success, but avoiding it is almost guaranteed to fail.
Three Steps of the Lean Startup Loop
Most startups fall into one of two categories.
Some take their sweet time researching, analyzing, and planning. However, for a new product or niche, it's impossible to predict customers' needs, demand, or even market size. They waste months on preliminary work. The results either never make it to the market or come out too late and have to outperform the competition.
Others forego the planning and management altogether, believing structure and strategy hinder the startup's creativity. Their "just do it" approach can produce quick results. Still, few become hits, and most turn out to be tragic misses.
The scope of Lean Startup management tailors traditional approaches to fit the new generation of entrepreneurs and helps them succeed through the BUILD-MEASURE-LEARN cycle.
Build. Create and Test Your Lean Startup Hypothesis
Before you start working on a product, you need to formalize your value and growth hypotheses. Wherever you want to take a startup, the direction you follow should generate value and promote growth. Value-destroying enterprises can find short-term success, but they always fall out of business in the end.
When you develop the idea that generates value and can return profit, it's time to test your hypotheses. A minimum viable product (MVP) is the easiest and fastest way to accomplish this. It does not need to be ideal or a final iteration of the product. Instead, it should give your potential customers an idea of what they will receive in the end. Your ultimate goal here is not to sell the MVP and return your investment, but gain customer feedback to move on with the build-measure-learn cycle.
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.
We've talked a lot about building an MVP before, but it bears repeating in The Lean Startup summary that high quality is not critical at this stage. Most customers, early adopters included, do not care how long it took you to build a product; they care about solving their problems. Focus on delivering value fist, design and quality - second.
Measure. Establish the Baseline and Tune the Performance
Innovation accounting starts with establishing the current state of affairs using the MVP. Once you understand where your startup is now and how far away it is from the ideal, you can create a hypothesis to promote growth. Finally, you will have enough data to analyze and make the strategic decision to persevere with the current approach or pivot.
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.
Before analyzing the results of your efforts, you need to weed out vanity metrics and find actionable ones. The former are usually cumulative sales or user numbers. They make you feel good about your startup, but provide no useful information about your business approach. If you continue to follow vanity metrics, you can one day find yourself out of business with no idea how you got there.
Useful metrics can vary, but they are
Actionable. You can follow every action (cause) to a specific change in metrics (effect). The correlation between cause and effect will help you steer the enterprise from the baseline towards its business-plan ideal. Actionable metrics will also help you award credit where it's due and find the weakest links on your team.
Accessible. Every member of the team should be able to browse and understand the metrics. Integrating the analytics system into the product is one solution to making the numbers available to everyone. Translating stats into people is another way to understand the changes. Losing 5,000 paying customers a month sounds more critical than missing 5,000 hits.
Auditable. You should be able to check all reports, manual and automated, for consistency. Nothing discourages the team more than finding mistakes in metrics reports. You should also have a chance to talk to real customers and compare their feedback with your analysis.
There are many ways to steer your startup towards business plan goals. Split-testing (or A/B testing) is one of the most efficient approaches that originated in direct-mail marketing but is now successfully used by startups. Split testing will help you understand what your customers want and don't want. As a result, you will eliminate the need for costly startup development by removing the features your customers do not appreciate.
Kanban methodology is another example of a simple and effective approach to prioritizing the MVP development tasks. Moving through the four stages, every assignment is validated before the team switches onto the next. This learning and decision-making stage closes The Lean Startup loop.
Learn. Analyze the Data and Pivot (or Preserve)
Small adjustments and course-corrections within the build-measure-learn loop help you steer the startup towards better results. However, The Lean Startup validation stage brings the time to make a strategic decision. If your initial value and growth hypotheses were wrong, and no amount of small changes produces desired outcomes, pivot becomes the logical solution. The pivot is a quintessential course correction that questions your hypotheses about the product and the long-term growth strategy.
The decision to pivot is so difficult that many companies fail to make it.
Following the innovation accounting principles accelerates the build-measure-learn loops. As a result, the interval between pivots shortens. Whenever your startup runs out of cash, you can try to extend your runway by reducing expenses, or you can conduct several pivots to land on a successful strategy.
The standard pivot options include:
Zoom in and zoom out
Customer need or customer segment
Platform or technology
Business model or channel of distribution, and more.
Every new MVP iteration takes less time to build and test, as you rely on knowledge and experience accumulated throughout previous iterations. Even the companies that do not capture market share on their first or second run have a chance to succeed if they use the power of a timely pivot.
Embrace The Lean Startup Superpower
At the end of The Lean Startup summary, I'll share one of my favorite quotes from the book. Eric Ries believes that if the principles of Lean Startup empowered all startup employees
We would not waste time on endless arguments between the defenders of quality and the cowboys of reckless advance; instead, we would recognize that speed and quality are allies in the pursuit of the customer's long-term benefit. We would race to test our vision but not to abandon it. We would look to eliminate waste not to build quality castles in the sky but in the service of agility and breakthrough business results.