Book Review: The Lean Startup26 Jan 2013
My first book of the year, The Lean Startup by Eric Ries. I am so glad that I read this book before investing significant amount of time in developing my product. It has saved me from doing some serious mistakes and introduced me to basic concepts which every entrepreneur should be aware of.
Top Amazon review is not so favorable for this book and I had cancelled it from my reading list todo. However Eric’s talk on Evangelizing for the Lean Startup was such an eye opener for me that I instantly decided to read this book. Check out the video if you don’t believe me.
I’ll call the book as the beginner’s guide to startup. It introduces many terminologies which are common in startup world and some very fundamental tactics that are essential for startup’s initial operations. The book gives you a vocabulary to understand discussion on startup and entrepreneurship.
But what makes the book more compelling are the various illustrations given to get the point across. Most of the examples are from Eric’s first hand experience as an entrepreneur or as an consultant.
Below are few key learning for me:
- Validated Learning - If learning is the goal why waste time in doing thing that would not contribute to it? Why delay the learning?
- Early adapters - customers who feel the need for the product most acutely. They are more forgiving and eager to give feedback. They are different from mainstream customers which are lot more demanding and expect high quality.
- Startup is based on two assumptions or leap-of-faith hypothesis.
- Value Hypothesis - Does the product really delivers value to customers once they are using it?
- Growth Hypothesis - How new customers will discover a product or service?
- Development should be carried in Build-Measure-Learn feedback loop. Key is to iterate over this loop as fast as possible to get faster feedback.
- Minimum Viable Product (MVP) - that version of product that enables full cycle of Build-Measure-Learn with minimum time and effort. When in doubt, simplify. Any additional work beyond what was required to start learning is waste, no matter how important it might have seemed.
- Innovation Accounting - A quantitative approach that allows to see whether engine-tuning efforts are bearing fruit.
- Activities happen in order of Build-Measure-Learn but planning is done in reverse order. We plan what we intend to learn, then use innovation accounting to figure out what we need to measure to know if we are gaining validated learning and then figure out what needs to be built.
- Genchi Gembutsu - “go and see for yourself” so that business decisions are based on deep first-hand knowledge.
- Customer Archetype - brief document that seeks to humanize the proposed target customer.
- Dropbox built a video to demonstrate what its product would do instead of actually building the product. This was its MVP.
- Concierge MVP - treat your first customer personally and at times doing all the operations manually (without any actual product). It help to invalidate company’s growth model.
- Wizard of Oz testing - customer believes they are interacting with the actual product but behind the scenes human beings are doing the work.
- Pivot or persevere - The sign of successful pivot is that these engine-tuning activities are more productive after the pivot than before.
- Vanity Metric - Total registers users and total paying customers.
- Actionable Metric - Customer registration, the download of our application, trial, repeat usage and purchase.
- Split test or A/B test - two different versions of a product are offered to customers at the same time and changes in the behavior are observed to infer the impact of the two variations.
- Kanban used in Grockit - User stories were not considered complete until they led to validated learning. Thus, stories could be cataloged as being in one of four states of development: in the product backlog, actively being built, done, or in the process of being validated. Validated was defined as “knowing whether the story was a good idea to have been done in the first place”.
- Lazy registration - Customer do not have to register for the service, instead can immediately being using the service.
- A report should be Actionable (demonstrate clear cause and effect relation), Accessible (deals with customers and their actions than piles of data points. Also it should be easily accessible to the employees - consider analytics as part of the product itself and be owned by the development team), Auditable (data is credible to employees)
- Land of living dead - company has achieved a modicum of success - just enough to stay alive - but is not living up to the expectations of its founders and investors.
- Quote - A startup’s runway is the number of pivots it can still make.
- Signs of need to pivot - decreasing effectiveness of product experiments and the general feeling that product development should be more productive. Have regular “pivot or persevere” meetings.
- Catalog of Pivots:
- 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
- Technology Pivot
- Single-Minute Exchange of Die (SMED) - rapid changeover in the product in order to reduce the batch size.
- Andon cord - Allows any worker to ask for help as soon as they notice any problem, stopping the entire production line if it cannot be corrected immediately.
- Release small, release more often - help immediately assess the impact of their work, evaluate its effect on customers, and decide what to do next.
- This needs extensive automated tests and continuous health monitoring.
- When a problem occurs: automated revocation of defective change, quick notification to relevant team, team blocked in further development until problem is found and fixed.
- Sustainable growth - New customers come from the actions of past customers.
- Churn rate - fraction of customers in any period who fail to remain engaged with the company’s product.
- Engine of growth - Sticky (high customer retention), Viral, Paid.
- Startup should concentrate only on one engine of growth at a time.
- Making transition to mainstream customers will require tremendous additional work.
- Adaptive Organization - one that automatically adjusts its process and performance to current conditions.
- Wisdom of five whys - sequentially asks “Why?” five times to find the root cause of any problem.
- At the root of every seemingly technical problem is a human problem. Five Whys provides an opportunity to discover what that human problem might be.
- Proportional Investment - If outage is a minor glitch, it’s essential that we make only a minor investment in fixing it.
- Organizations have muscle memory and it is hard for people to unlearn old habits.
Every term is well understood in the context of various example given in the book and it is best to read the book than to read them out of context.
If you are already familiar with these terms and are aware of Lean Philosophy than your are good to go. This book is not for how-to-raise-money etc and so you will be disappointed if that’s what you are looking for.