Navigation

Search

Notes from "The Lean Startup"

By Johannes Rebane /

thumb image-post mask

Introduction

Components of the Method

  1. Entrepreneurs are everywhere
  2. Entrepreneurship is management
  3. Validated learning
  4. Build-Measure-Learn
  5. Innovation accounting

Why Startups Fail

  1. Allure of a good plan, solid strategy, and thorough market strategy.
  2. Throwing up your hands and saying, "Just Do It"

Lesson: *Important to manage the process of management properly to ensure that passion, energy, and vision are not put to waste."

Three Primary Points:

Vision

Definition and discipline through validated learning

Steer

Being with leap-of-faith assumptions, build minimum viable product to test assumptions and accounting system to evaluated whether you are making progress or if a pivot is necessary.

Accelerate

Lean manufacturing, org. design, and how to apply those to a startup to accelerate the growth process.

Part I: Vision

  • Lean startup asks people to figure out the right thing to build - the thing customers want and will pay for - as quickly as possible
  • Validated Learning:
    • What causes demonstrable positive improvements in core metrics?
    • What are our core metrics?
    • Effort that does not lead to better learning about what the customer wants can be eliminated (not asking is it just that we can build this product; rather, ask should we?)
  • Experimenting is super important! Make hypotheses and test them.
  • Experiment is more than just a theoretical enquiry, it is also a first product!
    • Test the value hypothesis - does it really add value to the customers once using it?
    • Test the growth hypothesis how will new customers discover a product or service?
  • Useful often to have a concierge customer

Four Questions to Answer

  1. Do consumers recognize that they have the problem you are trying to solve?
  2. If there was a solution, would the buy it?
  3. Would they buy it from us?
  4. Can we build a solution for that problem?

Part II: Steer

Feedback Loop

  • Ideas > Build > Product > Measure > Data > Learn > Ideas > Etc.: Minimize total time through this loop
  • Minimum Viable Product version of the product that enables a full turn of the build-measure-learn loop

Leap!

  • As a part of the org's strategy, need to be able to test assumptions systematically and to test without losing sight of the comapny's overall vision:
    • Core Assumption 1: Value Hypothesis
    • Core Assumptions 2: Grwoth Hypothesis
  • Various ways to leap:
    • "Go see for yourself!" - where do we have deep firsthand knowledge?
    • External customer data
    • Customer archetype - who are our customers? Can we humanize them?
  • Interesting Concept: Wizard of Oz Testing
  • Targeting early adopters as "Testing grounds"
  • Important to ask: "What if the user doesn’t care about the design in the same way we do?"

Measure. Yee.

  • Job of startup in measurement is...
    1. Rigorously measure where it is right now, confronting the hard truths.
    2. Devise experiments to learn how to move the real numbers clsoer to the ideal reflected int he business plan (does this mean we should have a business plan?)
  • Innovation accounting is a system to check if we are making progress and actually achieving validated learning. Turning leap-of-faith assumptions into a quantifeied financial model:
    • Use an MVP to establish real data on where the company is right now
    • Tune the engine from the baseline toward the ideal
    • After all changes it can make, decision has to be made: Pivot, or preserve?
  • Think about cohort analysis vs. pure chronological performance

Metrics:

  • Three types of metrics:
    1. Actionable Metrics: kind we use to judge our business and our learning milestones
      • Important to have demonstrated cause and effect so that they can be learned from (vs. vanity metrics)
    2. Farbs user stories: Stories that describe feature from POV of customer vs. technical numbers
      • Balance time spent getting data and getting genuine feedback and stories to guide future actions. Metrics are people too. Everyone should understand reports.
    3. Split Test Benefits: Saves time in long run by eliminating work that doesn't matter to customers.
  • Metrics should also be auditable; that is, credible to employees.

To Pivot or Preserve?

  • Pivoting = structured course correction to test new hypothesis
  • Better to pivpt sooner than later
  • Learning Milestones force Pivot or Preserve (not meant to make the decision easy)
  • Runway: How many pivots does a startup have left before it has to take off?

Types of Pivots

  • Zoom-in pivot: What preciously was considered a single feature in a product becomes the whole product.
  • Zoom-out pivot: What was considered as the whole product becomes a single feature of a much larger product.
  • Customer segment pivot: The product hypothesis is partially confirmed, solving the right problem, but for a different customer than originally anticipated.
  • Customer need pivot: The product hypothesis is partially confirmed: the target customer has a problem worth solving, just not the one that was originally anticipated.
  • Platform pivot: Refers to a change from an application to a platform or vice versa.
  • Business architecture pivot: For example when a startup goes from high margin/low volume to mass market or vice versa.
  • Value capture pivot: how do companies capture value?
  • Engine of growth pivot: A company changes its growth strategy to seek faster or more profitable growth.
  • Channel pivot: Is the recognition that the same basic solution could be delivered through a different channel with greater effectiveness.
  • Technology pivot: When discovering a technology to achieve the same solution by using a completely different technology.

Part III: Accelerate:

  • Sustainable growth comes from one of three engines of growth:
    • Paid
    • Viral
    • Sticky
  • Depending on the engine of growth that is targeted, there will be different metrics of growth and success and prioritization, etc.

Batch!

  • Small batches help by minimizing expenditure of time, money, and effort that ultimately turn out to have been wasted. Let people discover the truth faster.
  • You can make changes at the individual customer level - using the student of one concept. If the changes work well there, you can expand the change to the rest of the class!

Grow

  • Four primary ways that past customers drive sustainable growth:
    1. Word of mouth
    2. Side effect of products usage
    3. Funded advertising
    4. Repeated purchase or use

Adapt

  • Five whys are useful
  • Startup's work is never done!
  • You cannot trade quality for time
  • Adaptive processes have a natural feedback loop!

Innovate:

  • Three structural attributes to startup:
    • Scarce but secure resources: Too much is just as bad as too little!
    • Independent authority to develop business: autonomy to conceive and experiment without getting too many approvals!
    • Personal stake in the outcome
  • Innovation Sandbox: Contains impact of innovation but doesn't constrain methods of the startup team.
  • Less important how fast we can build - more important is how fast we get through the entire loop
  • Lean startup is a framework and not of a set of defined steps!