The Lean Startup (Book Summary)

How today’s entrepreneurs use continuous innovation to create radically successful businesses.

The First Thing Required in Building Or Starting A Bussiness Is Management

For so many years, entrepreneurs have been unserious about the way they approach business management and business disciple. Those who take these practices seriously have approached them from an entirely wrong angle. These erroneous views often lead to chaos and failure.

We have more entrepreneurs now than in the past, and this is as a result of modern management and technology, which many firms have been unable to manage. Also, we do not have an orderly management example for new innovative ventures.

Root Cause is a concept that took its name from the lean manufacturing revolution that Taiichi and Shingo are credited with developing at Toyota. It is aimed towards differentiating between value and creation and waste in terms of resources, time, passion, and skill of people, and how to build quality products from inside out thereby allowing entrepreneurs to make testable predictions.

The lean startup adapts two ideas in the context of entrepreneurship and they are:

• Entrepreneurs judging their progress differently from ventures.
• Products of high-quality physical goods measure growth in manufacturing.

There is also the startup system scientific learning, which is called “validated learning”. With this, they discover and eliminate any source of waste.

Secondly, the lean startup method is designed to teach how to start a startup; it helps entrepreneurs adjust their plans with the build-measure-learn feedback loop. This enabled ou to know when to make a stop or when to move ahead.

Vision is the bedrock of every entrepreneur, after which is the strategy. Where there are setbacks, it is an opportunity to learn what to do to get a better result. All entrepreneurs, whether big or small, have a common trait which is acquiring new costumers and serving the existing ones, but the challenge lies between balancing both.

Who, Exactly, Is An Entrepreneur?

An entrepreneur is a person who works either with a government agency, a profit or non-profit company, or with financial investors who creates a business or new products. They focus on the structure companies need to put in place to form startup teams.

Intrapreneurs are entrepreneurs who operate inside an established organization.

A startup is not just about a product, technological breakthrough, or a brilliant idea. A start-up is an enterprise. It is a human institution designed to either create a new product or service under conditions of extreme uncertainty. A startup used many innovations which include: existing technologies used for different purposes, taking a new product and services to a new location to confront situations of extreme uncertainty.

In A Startup Learning Is Paramount For Entrepreneurial Innovation To Survive

Learn the strategy to help realize your vision, what customers want, not what they think or say they want and evaluate if the path you are on leads to sustainable business.

Validated learning is showing based on experience, that a team has not just present, but also future business prospects that are not just accurate but faster and brilliant.

Lean thinking defines value as providing benefit to the customer, anything else is a waste. this is because, in the manufacturing, business customers do not care how the product is assembled. What they care about is that the product works perfectly.

Learning is an essential unit of progress for a start-up because there is positive improvement when you get feedback from costumers.

Experimentation Is Integram To The Lean Startup Philosophy

The effort in a lean start-up is referred to as an experiment. It is used to test strategy. It followed scientific methods that begin with a hypothesis which is making guesses or predictions. It is guided by the startup’s vision: “Think big, start small.”

Zappos is the world’s largest online shoe store. It’s founder, Nick Swinmurn, out of frustration of not getting a central online site, started an experiment with the hypothesis that customers were willing to buy shoes online. To test this hypothesis, he took pictures of inventory in local shoe stores and came back to buy the shoes at full price if a customer bought them online.

Zappos started a well-designed startup of a business plan. In the course of testing, he made the following assumptions:

First assumption: to sell the shoes he had to interact with customers by taking payment, handling returns, and dealing with customer support. This was different from market research which would have solely asked what customers thought they wanted. His first experiment provided profitable results which were:

1. A large number of customers would either buy the shoes or not.
2. It put the company in a position to observe, interact with, and learn from real customers and partners. This is referred to as qualitative testing. Even though the initial effort was small-scale, it did not hinder the vision of Zappos from being actualized.
3. In 2009, Zappos was acquired by the e-commerce giant Azmzon.com for a reported $1.2 billion.

If this modern is replicated, it affects the startup positively. How? This is possible when we break down the grand vision into its component parts: The value hypothesis and the growth hypothesis.

1. Test whether the product or services really delivers value to costumers once they use it and experiment provides a more accurate gauge.
2. Growth hypothesis tests how new customers will discover a product or service.

An experiment in the lean startup model is not just theoretical inquiry; it is the first product. This is because it allows the manager to start enlisting adopter early, add more employees to further experiment, and start building a product. Once the product is ready, it would already have established customers, thereby solving a problem and offer detailed specifications for what needs to be built will be explored as the crow flies.

The Build-Measure-Learn Feedback Loop Is At The Core Of The Lean Startup Model

A startup transforms ideas into a product. When a consumer comes in a contract with those products they produce feedback and data. This feedback could be qualitative (what they like and don't like) and quantitative (how many people used it and found it valuable). The techniques in this part help to minimize the total time through the Build-Measure-Learn feedback loop.

Mark Zuckerberg, Dustin Moskovitz, and Chris Hughes were able to raise so much money during the early growth of Facebook when the actual usage was very small.

First, they were able to attract investors through a raw amount of time Facebook users spent on the site.

Secondly, the rate at which it had taken over its first few college campuses attracted the attention of investors. Facebook was launched on February 4, 2004, and by the end of that month, almost three-quarters of Harvard’s undergraduate student body was using it without advert. This implies that Facebook also had a growth hypothesis.

For startups, the strategy helps to figure out the right questions to ask. The strategy is based on assumptions. Every business plan starts with a set of assumptions that show us how to achieve the company’s vision.

There is nothing wrong with basing your strategy on comparisons to other companies and industries, this will help you discover assumptions that are leaps of faith.

So many famous entrepreneurs made millions because they were in the right place at the right time. Some are at the right place at the right time but they still fail. Take Henry Ford as an example: he was not the only entrepreneur trained in the early twenties. In fact, he was joined by nearly five funded other entrepreneurs. What differentiated his success from failure is foresight, the ability, and tools to discover which part of his plan worked brilliantly and which did not.

This is the ultimate stand above others; the value creation hypothesis and the growth hypothesis. The step in understanding a new product or service is to figure out if it is fundamentally value-creating or value-destroying. As Steve Blank has been teaching entrepreneurs for years, the facts that we need to gather about customers, markets, suppliers, and channels exist only “ outside the building.” Startups need extensive contact with potential customers to understand them, so get out of your chair and get to know them. This process confirms your leap of faith questions based on reality.

There are many techniques for building an accurate customer archetype that has been developed over long years of practice in the design community. Traditional approaches such as interaction design or design thinking are greatly helpful.

First Products Are Not Meant To Be Perfect

A minimum viable product (MVP) helps entrepreneurs start the process of learning as quickly as possible. It is not necessarily the smallest product imaginable, though; it is simply the fastest way to get through the Build-Measure-Learn feedback loop with the minimum amount of effort. Therefore, the Lean Startup method is not opposed to building high-quality products, but only in the service of the goal of winning over customers.

Contrary to traditional product development, which usually involves a long, thoughtful incubation period and strives for product perfection, the goal of the MVP is to begin the process of learning, not end it. 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.

MVP is just the first step on a journey of learning. We all need a disciplined, systematic approach to figuring out if you're making progress and discovering if you’re actually achieving validated learning. This is referred to as system innovation accounting, an alternative to traditional accounting designed specifically for startups.

Startups Need A New Kind Of Accounting Geared Especially Toward Disruptive Innovation

That’s what innovation accounting is.

Innovation accounting works in three steps:

1. Use a minimum viable product to establish real data on where the company is right now.
2. Startups must attempt to tune the engine from the baseline toward the ideal. This may take many attempts. After the startup has made all the micro changes and product optimizations it can move its baseline toward the idea, the company reaches a decision point.
3. That is the third step: pivot or persevere. If the company is making good progress toward the ideal, that means it’s earning appropriately and using that learning effectively, in which case it makes sense to continue. If not, the management team eventually must conclude that its current product strategy is flawed and needs a serious change.

Every Entrepreneur Eventually Faces An Overriding Challenge in Developing A Successful Product: Deciding When To Pivot And When To Persevere

Pivots are a permanent fact of life for any growing business. Even after a company achieves initial success, it must continue to pivot. Pivots come in different flavors. The words pivot sometimes is used incorrectly as a synonym for change. A pivot is a special type of change that is designed to test a new fundamental hypothesis about the product, business model, and engine of growth. Some pivots include:

• Zoom-in pivot
• Zoom-out pivot
• Customer Segment pivot
• Customer Need pivot
• Platform pivot
• Busienss Architecture pivot
• Value Capture Pivot
• The Engine of Growth pivot
• Channel pivot
• Technological pivot

Innovation accounting leads to a faster pivot. What is the acceleration? It is tempting to credit it to the product development work that had been going on. A startup’s runway will determine the number of pivots it can make and it requires courage.

Learning to steer requires slowing down. The startup must now learn how to accelerate.

Lean Startups Take Advantage Of The Counterintuitive Power Of Small Batches

Waiting too long to release new products exposes you to the risk of making something that nobody wants. At the same time, releasing a product too early makes you dece marked leadership to a fast follower. Startups need organizational structures that combat the extreme uncertainty that is a startup’s chief enemy. With the proper foundation, lean startups can grow to become lean enterprises that maintain their agility, learning orientation, and culture of innovation even as they scale.

Just as lean manufacturing has pursued a just-in-time approach to building products, reducing the need for in-process inventory, Lean Startups practice just-in-time scalability, conducting product experiments without making a massive up-front investment in planning and design.

When we do work that proceeds in stages, the “batch size” refers to how much work moves from one stage to the next at a time. When the batch size is one, it is called “single-piece flow.” I t is easier to spot problematic areas when the batch size is smaller than when we have a large batch size.

Shigeo Shingo created the concept of SMED (Single-Minute Exchange of Die) in order to enable a smaller batch size of work in early Toyota factories. He was so relentless in the rethinking the way machines were operated that he was able to reduce changeover times that previously took hours to less than ten minutes. Every investment in better tools and processes had a corresponding benefit in terms of shrinking the batch size of work.

Working in small batches ensures that a startup can minimize the expenditure of time, money, and effort that ultimately turns out to have been wasted.

There Are Metrics Startups Should Use To Understand Their Growth As They Add New Customers And Discover New Markets

Sustainable growth obeys a simple rule: New customers come from the actions of past customers. Past customers drive sustainable growth through four primary ways:

• Word of mouth
• As a side effect of product usage
• Through funded advertising
• Through repeat purchase or usage

These sources of sustainable growth power feedback loops called engines of growth. The faster the loop turns, the faster the company will grow.

Sustainable growth follows one of three engines of growth: paid, viral, or sticky. The engine of growth is the mechanism that startups use to achieve sustainable growth. By identifying which engine of growth a startup is using, it can then direct energy where it will be most effective in growing the business. Each engine requires a focus on unique metrics to evaluate the success of new products and prioritize new experiments.

The sticky engine of growth has been proven to have a 61% retention rate of old customers and a 39% growth rate of new customers. The rule of the sticky engine of growth is a simple one. It says if the rate of new customer acquisition exceeds the churn rate, the product will grow. The churn rate is the fraction of customers in any period who fail to remain engaged with the company’s product.

In the viral engine of growth, the use of the product by a feedback loop. Each customer pays a certain amount of money for a product over his or her “lifetime” as a customer. This is called the lifetime value (LTV) of the customer.

Combining the innovation mentioned earlier in this book with these metrics, a startup will be able to figure out where the weak link is with respect to their growth and fortify the weak sports.

Investing In The Right Amount Of Process To Keep Teams Nimble As They Grow Helps To Build An Adaptive Organization

Certain techniques from the tool kit of lean manufacturing, such as the Five Whys, help startup teams grow without becoming bureaucratic of dysfunctional. The core idea of Five Whys is to tie investments directly to the prevention of the most problematic symptoms. The system takes its name from the investigative method of asking the question “Why?” five times to understand what had happened (the root cause). Lean disciplines set the stage for a startup to transition into an established company driven by operational excellence.

Here’s how to use Five Whys analysis to build an adaptive organization: consistently make a proportional investment at each of the five levels of the hierarchy. In other words, the investment should be smaller when the symptom is minor and larger when the symptom is more painful. We don’t make large investments in prevention unless we’re coping with large problems.

The adaptive process forces you to slow down and invest in preventing the kinds of problems that are currently wasting time. As those preventive efforts pay off, you naturally speed up again. The Five Whys approach acts as a natural speed regulator. The more problems you have, the more you invest in solutions to those problems. As the investments in infrastructure or process pay off, the severity and number of crises are reduced and the team speeds up again. The Five Whys ties the rate of progress to learning, not just execution. Startup teams should go through the Five Whys whenever they encounter any kind of failure, including technical faults, failures to achieve business results, or unexpected changes in customer behavior.

As Startups Grow into Established Companies, They Face Pressures That Make It Necessary To Invest In Disruptive Innovation

Innovation, creativity, and growth usually lose to conventional wisdom when a company becomes larger. An advantage of a successful startup’s rapid growth is that the company can keep its entrepreneurial DNA even as it matures. Startups are constantly under the pressure of balancing the needs of exciting customers with challenges of finding new costumers to serve.

Portfolio thinking is the way out of complacency and lethargy. Today’s companies must learn to master a management portfolio of sustainable and disruptive innovation. It is an obsolete view that sees startups as going through discrete phases that leave earlier kinds of work — such as innovation — behind. Rather, modern companies must excel at doing multiple kinds of work in parallel.

As A Movement, The Lean Startup Must Avoid Doctrines And Rigid Ideology

What would an organization look like if all of its employees were armed with Lean Startup organizational superpowers? For one thing, everyone would 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. 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 or 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.

We would respond to failures and setbacks with honestly and learning, not with recriminations and blame. More than that, we would shun the impulse to slow down, increase batch size, and indulge in the curse of prevention. instead, we would achieve speed by bypassing the excess work that does not lead to bearing. We would be dedicated ourselves to the creation of new institutions with a long-term mission to build sustainable value and change the world for the better. Most of all, we would stop wasting people’s time.

Conclusion

The Lean Startup movement has become a global phenomenon. Chances are there is a Lean Startup meeting group near you. There is an online group founded by Rich Collins that you can join. Startups and established companies need to adapt to the realities of today’s business world if they want to do more than just keeping their heads above water and certainly if they don’t want to drown.

Try this:
There are several links provided in this book than can help you try out the lean startup model. Explore any one of these websites and be on your way to greatness.

Writer’s notes:
This is a summary of the book The Lean Startup by Eric Ries. — These are not his words but rather a re-write of what was taken away from reading the book. Reading this summary will not give you the same feel and impact as reading the full book, so if you liked what you’ve read here, it is recommended to acquire the kindle, audio, or hardcover. This will not only support the author that inspired this post but also allow you to dive into this perspective a bit more.