The Lean Startup: Summary & Review - 1 | Summaries: Must Read Books for Entrepreneurs - Entrepreneurship PDF Download

Book Review

• Our current economic environment is favorable for innovative startups, but there’s no consensus as to the best strategies these companies should use to find and maintain growth. Some managers randomly try out different solutions to see what will work, creating as many failures as successes. The chances of being successful can be significantly increased simply by taking a rational and systematic approach to finding the best strategy for running the business.
• The Lean Startup is a method to develop and manage startups. Standard business practices can be harmful to startups. These organizations necessitate special policies and procedures for managing innovative enterprises. These policies and procedures aren’t created randomly, of course — they’re the result of scientific techniques and research.
• The book offers a systematic, scientific way for business managers to get the information they need to make fast decisions in today’s changing world. While it may be impractical to follow this method to the letter in every situation, executives should come away from the book with a fresh viewpoint on the problems they face and the decisions they must make.
• The name The Lean Startup was inspired by the lean manufacturing revolution developed at Toyota. This system includes: attending to the ideas and knowledge of the workers; making smaller batch sizes; implementing just-in-time production; and accelerating cycle times. Long-range planning is a useful strategy in an environment where the future is predictable. In a constantly shifting world, however, the advantage goes to those who are light on their feet and can change direction quickly.
• There are many unknowns when it comes to launching a startup. The founder has a vision, but where that vision will lead is uncertain. In the beginning, even the product is unknown. Markets, partnerships, platforms — everything must be sorted out. Learning is essential to the company’s development. Validated learning is a system for demonstrating progress in a chaotic and changing environment. This method has the advantage of being quick and easy, and it’s backed by empirical data culled from real customers. Quick aside, our strategy approach at HowDo expands on this data collection by providing a framework for data collection on the customer and other categories. Check it out here.
• Although the book’s title suggests it is geared toward startups, the principles and tools are just as useful for larger companies. Established organizations can also unlock the growth potential of innovation, but to do so, they’ll have to make some conscious changes in company culture. Startups might benefit by having innovative qualities already built into their cultures, but older companies can catch up.
• Eric Ries uses real case studies from a wide array of different businesses to illustrate the principles he discusses. He draws most of his material, however, from his own background as an entrepreneur, extensively detailing his experience at IMVU, the social media game company. At times, all the examples dominate the discussion at the expense of the subject matter.
• The tenor of the book changes dramatically in the epilogue. Through most of the book, Reis assumes a tone that’s friendly yet professional. He displays enthusiasm for the subject, but the epilogue becomes a rousing call to action. It is there that The Lean Startup morphs from a method into a movement. The move from the rational, sensible tone used in the book to the urgent emotional appeal in the epilogue might induce dissonance in some.

Summary

Part 1: Vision

Chapter 1: Start

• We are living in a golden age for entrepreneurship. There are more entrepreneurs now than ever before, and the economy is suitable for the startup business model. Entrepreneurs often don’t think about establishing management structures for their enterprises, because they fear it might stifle creativity. They aren’t wrong — traditional management practices can be very stifling. Without management, though, enterprises are beset by chaos. Startups need management but of the sort that is tailored to their unique needs.
• Startups have growth engines — processes and structures that help them grow. Every iteration of the product and every new feature is intended to improve the growth engine. Startups also spend a great deal of time tinkering with their ideas and improving them, so feedback is essential. Feedback helps startups catch problems as early as possible.
• Startups use a strategy to achieve their vision, and the product is the end result of the strategy. Products are always improving and changing, so sometimes strategies must change. (The vision, on the other hand, almost never changes.)
• People usually measure their productivity by how many things they produce, how efficiently they work and how long they work. With a startup, though, you could end up building things no one wants, which isn’t very productive. Customer needs are just as important as speed and industriousness, so The Lean Startup incorporates customer requirements and insights into the productivity equation.
• Startups must acquire new customers while existing ones are being served. Because the product is being improved almost continuously, entrepreneurs must be watchful for signs that it is time to pivot and change strategy. Over time, the balance of these activities changes, but the balancing act itself is near constant.
• Finally, startups require a certain amount of failure as various products are tested and improved. In established businesses, failure is typically not appreciated as being part of necessary processes.
• Startups require entrepreneurial management that is sensitive to the special circumstances of innovation. The name The Lean Startup was inspired by the lean manufacturing revolution developed at Toyota. This system includes attending to the ideas and knowledge of the workers, making smaller batch sizes, just-in-time production and accelerated cycle times. We are going to borrow these ideas from Toyota and apply them to startups.

Chapter 2: Define

Innovation isn’t just the concern of startup entrepreneurs. There are managers in large companies whose job it is to head up an initiative for a new product or a whole new venture — sometimes they are called intrapreneurs. Clever, right? Like entrepreneurs, most managers in this context are the visionaries. They are willing to take risks and try out new ideas and solutions to develop the venture. These intrapreneurs have quite a bit in common with entrepreneurs, and for simplicity sake, going forward, we’ll use the term entrepreneur to apply to broadly to these individuals as well.

While we’re on definitions, what is a startup? Ries gives the following definition: “A startup is an institution that creates new products or services in an atmosphere of uncertainty.” Breaking it down further:

• Institution can mean different kinds of organizations: government agencies, venture-backed firms, nonprofits, for-profits, exchange listed or mom-and-pop businesses. Startups are institutions built by entrepreneurs who hire employees and direct their activities. As much as it is about creating a great product, it is also an organization.
• A startup’s product is something new, something innovative. “Product” is used in the broadest sense, meaning any source of value for the client, including goods and services. “Innovation” is also used broadly, including new inventions and discoveries. There are many ways things can be innovative without being wholly new, for example bringing a product to a new location or discovering a new use (and so a new market) for an existing product.
• Uncertainty is the final element in the definition. There are lots of companies, both old and new, and most of them don’t qualify as having uncertain context. Standard business practices aren’t helpful and can be harmful to startups; they need management practices geared to this uncertainty.

In 2009, Intuit launched the startup Snaptax. Snaptax was ultimately successful because the managers at Intuit understood that trying to shoehorn the startup to fit within the larger company’s normal way of doing things would be effective. Management had to adapt in order for disruptive innovation to have the space to do its thing. (In The Innovator’s Dilemma, Clayton Christensen introduced the terms sustaining innovation and disruptive innovation to explain the structural differences between the two types of growth. These terms shall be used here.)

Chapter 3: Learn

• Stick with the plan, do quality work and stay on budget. These are practices by which people measure progress, but following these strictures does not guarantee that customers will buy your product. Another key practice is to learn from mistakes. Often, people say they learn from mistakes as a cop out: “At least I learned something.” Maybe it’s a way to salvage what one can from a situation; maybe it saves face. It’s likely just a big excuse. So really, learn from mistakes. Study error systematically and critically — and learn. But learning from mistakes takes time, which, in the business world, is perceived as waste.
• Sometimes it’s easier to raise money when you have no sales or revenue. When you have just a small amount of sales, people can ask why there aren’t more. They may see the puny numbers as a sign of failure. On the other hand, when you have no sales and no revenue, people can imagine the potential. They can imagine overnight success. This reality can drive people to delay getting any hard numbers, but that’s a huge mistake. The sooner you can get data on what your customers think, the sooner you can improve your product and the less waste you’ll have in the development process.
• Of course, you can’t just go releasing products willy-nilly either. You have to be able to capture the consumer metrics, analyze them, learn from them, change the product in response and try again. This is how you minimize any loss that results from learning from mistakes. This is a surer path to success than any marketing push could ever be.
• With startups, there are many unknowns. Learning is essential to their development, so startups need to measure a different kind of value than that of simply providing a benefit to the customer. Validated learning is a system for demonstrating progress in a chaotic and changing environment. It’s quick and easy. It’s also backed up by empirical data culled from real customers.
• Here are some of the tactics that Ries and IMVU used: launched a low-quality early prototype; charged customers from day one; and used low-volume revenue targets to drive accountability. These are all good techniques, but every situation is different and will necessitate different strategies. The important thing is to learn what the customer wants. Anything that doesn’t give value to the customer is waste. Don’t bother with surveys. Get empirical data. Do experiments — lots of experiments.

Chapter 4: Experiment

• Launching a new product should be viewed much like conducting a scientific experiment. Like any good experiment, a product launch should be carefully designed. Frame a hypothesis; test the prediction.
• Directly testing our assumptions gives us a great deal of information. The two most important assumptions are the value hypothesis and the growth hypothesis. Value hypothesis asks: Does the product deliver value to the customer? The best way to answer this question is through experimentation. Test the growth hypothesis to see how customers discover the new product. (Hope your product goes viral.) Test behavior to see if your assumptions are correct.
• Experiment with actual products so that you’ll have a head start if the experiment is successful. By the time the product is ready for broader distribution, it will already have a core of established customers. And customers generate feedback, so producers can learn from this for the next iteration of the product. Everything is an experiment.
• However, before going off half-cocked, developing products right and left, there are a few things you really need to consider. If consumers don’t think they need your product, they won’t buy it. Even if they think they need something to solve a problem, they might prefer your competitor’s product to yours. And even if you think they’d buy your product, you need to be capable of building it. Sometimes developers want to go straight to their great idea, without checking first to see if anyone would buy it.
• The Build-Measure-Learn feedback loop is crucial. You have to start somewhere, so start with the Minimal Viable Product (MVP). This is the most basic version that can go through the build-measure-learn loop. Then, it’s time to evaluate the strategy and probably pivot. Planning is a useful strategy only insofar as the future is predictable. In an unstable and changing world, the advantage goes to those who can pivot as the occasion requires.
• Ries uses a number of case studies in this chapter to illustrate how experimenting and iterating has helped developers improve their products: Zappos, Hewlett Packard, Kodak Gallery, Village Laundry Services and even the Consumer Federal Protection Bureau. He touches on some important ideas that will be developed throughout the book.