“If you are an entrepreneur, read this book. If you are thinking about becoming an entrepreneur, read this book. If you are just curious about entrepreneurship, read this book” – Randy Komisar, founding director of TiVo
1. Leap-Of-Faith Hypothesis
Every entrepreneur starts with an idea. That idea is usually based on assumptions. One assumption is about the value that one hopes to provide to the customer (value hypothesis), and the other is how to grow that value will grow into a sustainable business (growth hypothesis). The hypothesis is an ‘leap of faith‘ because there is no empirical evidence to suggest it will benefit the customers yet. It maybe based on intuition and market research reports. But it is important to identify and articulate the value and growth hypothesis as it forms the foundation on which the rest of the business is built. Lean Startup talks of a fundamentally different approach to testing whether the hypothesis was correct or not.
2. Validated Learning
Learning from failures is meaningless if it can’t be measured. So the question is then, how do you measure what you have learned from your failures, while executing your startup idea? Lean Startup advocates the use of a feedback loop called Build-Measure-Learn. The idea is to create a MVP (Minimum Viable Product) with just enough features to test your hypothesis by interacting with your early adopters of the product. And to run through this loop as quickly as possible. Validated Learning is the process of using good metrics to measure the progress made with respect to the hypotheses identified earlier. By building rapidly, and testing it quickly with a small section of customers we are able to measure using a rigorous method, the progress made towards achieving our goals
Learning is the essential unit of progress for startups. The effort that is not absolutely necessary for learning what customers want can be eliminated. – Eric Ries
3. Innovation Accounting
Tradtional methods of measuring progress use vanity metrics, which is generally based on cumulative growth (Eg: total number of hits, the total number of customers etc). These type of metrics hide the real progress and therefore give you a false sense that everything is going well. The idea behind innovation accounting is to use metrics that help startups make decision quickly on which direction they need to spend their energies on. That is were actionable metrics come into the picture. Using tools like the cohort analysis, A/B split test and customer interviews one can measure the real progress of the startup.
4. Pivots
When you start to measure using metrics identified under the innovation accounting process and comparing the numbers against the baseline established by your value and growth hypothesis, you might realize that either you’re not moving towards that goal, or have been stagnant. This requires a course correction and restating of your hypothesis taking into account the lessons learned through validated learning. This, in essence, is a “Pivot”. Pivots can be of many types – Zoom-in Pivot, Zoom-out Pivot, Customer Segment Pivot, Customer Need Pivot, Platform Pivot, Business Architecture Pivot, Value Capture Pivot, Engine of Growth Pivot, Channel Pivot & a Technology Pivot.
5. Lean Manufacturing
This book draws heavily from the lean manufacturing techniques invented and perfected at Toyota. For a startup to be able to respond to challenges quickly, it needs to run its operations efficiently. Lean manufacturing works on the concept of just-in-time production that focuses not on individual’s productivity, but looks at the productivity of the system as a whole. By breaking down work into small batches, products can be built and tested quickly. Continuous deployment is an extension of this where releases happen on a daily basis.
6. Growth Engines
Growth is meaningful only if it’s sustainable. And sustainable growth is characterized by this simple rule – New customers come from the actions of past customers. There are four ways in which past customers influence growth – Word of mouth, side effect of using your product, advertising for new customers funded by profits from past customers, and repeat purchase/use. The engines of growth provide the framework that allows startups to focus on metrics that matter. There are three types of growth one can pursue based on your market and product – Sticky engine of growth, Viral engine of growth and Paid Engine of growth.
7. Adaptive Organization
For an organization to be able to execute some of the ideas mentioned above, it needs to be receptive to change. This would allow it to adapt to changing environments automatically and adjust its processes accordingly through experiments and revisions. Training, mostly looked at as a ‘big company’ activity would become an integral part of a lean startup for training new hires and existing employees to the new system of working. The Five-Whys problem solving technique can be adopted throughout the organization to help analyze problems and make quick decisions.
As Eric Ries puts it, the lean startup is a framework, not a blueprint. While it is a fantastic framework to help you think in the right direction, it requires significant effort on one’s part to adapt it to an organization and implement it effectively. Thankfully, the lean startup has spawned a global community with plenty of resources and case studies available on the internet. I hope to dig deeper into them in the coming months.
