lean startups partial summary

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Lean Startups by Eric Ries General Concepts summarized (partial) by George Howard (@gah650) 1 Partial Summary of Eric Reis' Lean Startups

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A brief introductory summary of the principles found in Eric Ries' book Lean Startups

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Partial Summary of Eric Reis' Lean Startups 1

Lean Startups by Eric Ries

General Concepts summarized (partial) by George Howard (@gah650)

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Intro

This deck provides a basic and partial summary of the book Lean Startups

by Eric Ries. You should buy the book.

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It’s the boring stuff that matters the most

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Entrepreneurship is a kind of management

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Lean Startup

• Builds on– Lean manufacturing– Design thinking– Customer development– Agile development

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Lean Startup

• Characterized by– Extremely fast cycle time– Focus on what customers want without asking

them)– Scientific approach to decision making

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5 principles

• Entrepreneurs are everywhere• Entrepreneurship is management• Validated Learning• Build-Measure-Learn• Innovation Accounting

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Why Startups Fail

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Established business metrics don’t apply

• Startups don’t yet know who their customer is or what their product should be

• Planning and forecasting are only accurate when based on a long, stable operating history, and relatively static environment

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“Just Do it” is a myth

• An “unmanaged” startup will fail• Entrepreneurship is management• Entrepreneurship is a discipline

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Part One

Vision

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Entrepreneurial management

• Problem – many Entrepreneurs eschew traditional management theory as too constraining

• Problem – traditional management not designed to deal with the chaos of startups

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Theory of Entrepreneurship must encompass

• Vision and concept• Product development• Marketing and sales• Scaling up• Partnerships and distribution• Structure and organizational design

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Theory of Entrepreneurship must encompass

• Provide method for measuring progress in the context of extreme uncertainty

• Give Entrepreneurships clear guidance on how to make trade-off decisions:– Whether and when to invest in process– Formulating, planning, and creating infrastructure– When to go it alone/when to partner– When to respond to feedback and when to stick to

vision– How and when to invest in scaling the business

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Theory of Entrepreneurship must (more than anything else)

• Allow Entrepreneurs to make testable predictions

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Lean Startup

• Ask people to start measuring their productivity differently

• Startups accidentally build something nobody wants, it doesn’t matter if they do it on time and on budget

• The goal of the startup is to figure out the right thing to build – the thing customers want and will pay for – as quickly as possible

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Lean Startup

• Emphasizes fast iteration and customer insight a huge vision, and great ambition, all at the same time

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Engine of growth

• Every new version of a product, every new feature, and every new marketing program is an attempt to improve the engine of growth

• Directional planning – more rocket ship than daily commute (i.e. over-adherence to a set-in-stone direction) - is bad– Rigorous and faithful achievement of failure

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Drive a startup

• LS approach: instead of making complex plans that are based on a lot of assumptions, you can make constant adjustments with a steering wheel called the build-measure-learn feedback loop.– Sharp turn = pivot

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True North

• Startups have a True North – a destination – in mind– LS refers to this as its vision– To achieve that vision, startups employ a strategy• Business model• Product road map• Pov about partners and competitors• Ideas about who the customer will be

– The product is the end result of this strategy

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Change/constant

• Products change constantly through the process of optimization (tuning the engine)

• The strategy may have to change (less frequently) = a pivot

• The overarching vision rarely changes– Entrepreneurship’s are committed to seeing the

startup through to that destination– Every setback is an opportunity for learning how

to get where they want to go

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Define

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“Intrapreneurs”

• Convert raw materials of innovation into real-world breakthrough successes

• Entrepreneurs who operate inside an established organization sometimes are called “Intrapreneurs” because of the special circumstances that attend building a startup within a larger company.

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Startup definition

• A startup is a human institution designed to create a new product or service under conditions of extreme uncertainty– Nothing to do with:• Size of the company• Industry• Sector

– A startup is greater than the sum of its parts; it an acutely human enterprise

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Innovator’s dilemma

• Established companies are very good at creating incremental improvements to existing products and serving customers (sustaining innovation), but struggle to create breakthrough new products (disruptive innovation) than can create new sustainable sources of growth

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Importance of LS in established companies

• The amount of time a company can count on holding on to market leadership to exploit its earlier innovations is shrinking, and this creates an imperative for even the most entrepreneurial companies to invest in innovation.

• The only sustainable path to long-term economic growth is to build an “innovation factory” to create disruptive innovations on a continuous basis

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Learn

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Fundamental goal

• Engage in organization building under conditions of extreme uncertainty

• Most vital function is learning– Learn the truth bat which elements of our strategy

are working to realize our vision and which are just crazy

– Learn what customers really want, not what they say they want or what we think they should want

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Validated Learning

• Not after-the-fact rationalization or a good story designed to hide failure

• Is a rigorous method for demonstrating progress when one is embedded in the soil of extreme uncertainty

• Is the process of demonstrating empirically that a team has discovered valuable truths about a startup’s present and future business prospects

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Validated Learning

• Is more concrete, more accurate, and faster than market forecasting or classical business planning

• Is the principal antidote to the lethal problem of achieving failure: successfully executing a plan that leads nowhere

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Quantitative Targets

• Create the motivation to engage in qualitative inquiry and guides questions

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Value v waste

• Lean thinking defines value as providing benefit to the customer; anything else is waste– Remember, this is different from asking customers

what they want; most customers don’t know what they want in advance.

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Avoidance of waste

• Shipping faster allows you to see what the customer values, and thus you can avoid debating what features the customer wants, etc.

• Learning is the essential unit of progress for startups– Effort that is not absolutely necessary for learning

what customers want can be eliminated• This is VALIDATED learning – always demonstrated by

positive improvement in the startup’s core metrics.

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Key points

Effort that is not absolutely necessary for learning what customers want can be eliminated• This is VALIDATED learning – always demonstrated by

positive improvement in the startup’s core metrics.

• Look for synthesis b/w vision and what customers would accept

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The audacity of zero

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Zero invites imagination

• At the start – when the number is zero – people can imagine success

• Once you launch, and the numbers are small, it pours cold water over the project– Therefore, people delay launch, delay initiatives

until they are CERTAIN of success.• However, these delays cause waste, and decrease

feedback, and thus increase risk that a startup builds something nobody wants

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paradox

• Releasing a product – w/o planning – and hoping for the best is not a good plan either

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tension

• Backers, etc want hockey-stick growth• If you lack the language of validated learning,

people will focus on the wrong metrics– Must look beyond small gross numbers to see real

progress (assuming there is real progress being made)

– Must show that product dev are leading towards success w/o giving in to the temptation to fall back on “success theater.” Things you can do to look successful

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Success theater examples

• Marketing gimmicks• Super bowl ads• Flamboyant pr– All meant to juice gross numbers – = illusion of traction• Eventually the fundamentals of the biz win out and the

PR bump passes.

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Key questions

• Should this product be built?• Can we build a sustainable biz around this set

of products?– To answer, we need a method for systematically

breaking down a biz plan into its component parts and testing each part empirically

– In the LS model every product, feature, marketing campaign – everything a startup does – is understood to be an experiment designed to achieve validated learning.

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Ch 4

Experiment

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paradox

• If the plan is to see what happens, a team is guaranteed to succeed – at seeing what happens – but won’t necessarily gain validated learning– If you cannot fail, you cannot learn

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LS method

• Reconceives a startup’s efforts as experiments that test its strategy to see which parts are brilliant and which are crazy

• Begins with a clear hypothesis that makes predictions about what is supposed to happen– Then tests those predictions empirically– Just as scientific experimentation is informed by

theory, startup exp is guided by the startup’s vision

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goal

• The goal of every startup is to discover how to build a sustainable biz around that vision

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Think big, start small

• Zappos approach– Small-scale efforts did not prevent a huge vision

from being realized

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For long-term change, experiment immediately

• Have to deal with untested assumptions and a lot of vision– Break it down – vision into component parts (TWO

MOST IMPORTANT ASSUMPTIONS ENTREPRENEURS MAKE):• Value hypothesis – test whether a product or services

really delivers value to customers once they’re using it• Growth hypothesis – tests how new customers will

discover a product or service

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An experiment is a product

• That is, an experiment must be more than just a theoretical inquiry; it is also a first product – Allows managers to get started with the campaign• Get early adopters

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Key questions

• Do customers recognize that they have the problem you’re trying to solve?

• If there was a solution, would they buy it?• Would they buy it from you (company)?• Can we build a solution for that problem?

• Typically, companies go to step 4 prior to confirming customers have the problem

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Success is not delivering a feature

• Success is learning how to solve the customer’s problem

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Key approach

• Treat the new venture as an experiment• Id the elements of the plans that are

assumptions rather than facts• Figure out ways to test them• Using these insights, build a min viable

product and have something up and running before the official plan was set in motion

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remember

• Planning is a tool that only works in the presence of a long and stable operating history

Partial Summary of Eric Reis' Lean Startups