The Lean Startup

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💡 Key Takeaways

• Entrepreneurship is management with extreme uncertainty.
• Startups must build a sustainable business by running frequent experiments.
• In the Vision phase, the grand vision is broken down into its component parts, and innovative new products are developed that emphasize fast iteration and customer insight.
• In the Steer phase, the Build-Measure-Learn feedback loop is at the core of the startup model, and entrepreneurs focus on minimizing the total time through this loop.
• In the Accelerate phase, startups need organizational structures that combat extreme uncertainty, and the ability to learn from customers quickly is the key competitive advantage.
• The Minimum Viable Product (MVP) helps entrepreneurs start the process of learning as quickly as possible, and split-testing experiments are utilized to test clear hypotheses.
• Pivots can occur in various aspects of the business architecture, such as product features, customer segments, business models, growth strategies, distribution channels, and technology.

✏ Top Quotes

The question is not “Can this product be built?” but “Should this product be built?”

The fundamental activity of a startup is to turn ideas into products, measure how customers respond, and then learn whether to pivot or persevere.

Small batches lead to faster learning, and product development is driven by the hypothesis about the customer.

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📝 Summary + Notes

Introduction

The five principles of the Lean Startup, which inform all three parts of the book, are as follows:

1. Entrepreneurs are everywhere and the Lean Startup approach can work in any size company, even a very large enterprise, in any sector or industry.
2. Entrepreneurship is management. A startup is an institution, not just a product, and so it requires a new kind of management specifically geared to its context of extreme uncertainty.
3. Validated learning. Startups exist to learn how to build a sustainable business. This learning can be validated scientifically by running frequent experiments that allow entrepreneurs to test each element of their vision.
4. Build→Measure→Learn. The fundamental activity of a startup is to turn ideas into products, measure how customers respond, and then learn whether to pivot or persevere.
5. Innovation accounting. Focus on the boring stuff: how to measure progress, how to set up milestones, and how to prioritize work.

Part One VISION

• Break down the grand vision into its component parts.
• Develop innovative new products that emphasize fast iteration and customer insight, a huge vision, and great ambition, all at the same time.
• Prioritize speed over perfection. Get feedback fast.
• A startup is a human institution designed to create a new product or service under conditions of extreme uncertainty.
• Validated learning. Create experiments and prototypes to test assumptions and gather feedback from real customers. This feedback can then be used to iterate and improve the product
• The two most important assumptions entrepreneurs make are the value hypothesis and the growth hypothesis:
  • The value hypothesis tests whether a product or service really delivers value to customers once they are using it.
  • The growth hypothesis tests how new customers will discover a product or service.

Part Two STEER

• The Build-Measure-Learn feedback loop is at the core of a startup model.
• Focus our energies on minimizing the total time through this feedback loop.
• Enter the Build phase as quickly as possible with a minimum viable product (MVP).
• It enables a full turn of the Build-Measure-Learn loop with a minimum amount of effort and the least amount of development time.
• When we enter the Measure phase, the biggest challenge will be determining whether the product development efforts are leading to real progress.
• Innovation Accounting: a quantitative approach that allows us to see whether our engine-tuning efforts are bearing fruit.
• Learning milestones, are useful as a way of assessing progress accurately and objectively.
• Upon completing the Build-Measure-Learn loop, we confront the most difficult question any entrepreneur faces: whether to pivot the original strategy or persevere.

• Every business plan begins with a set of assumptions. The goal of a startup’s early efforts should be to test them as quickly as possible.
• Entrepreneurs can fall victim to analysis paralysis, endlessly refining their plans. Talking to customers, reading research reports, and whiteboard strategizing are all equally unhelpful. The answer is the Minimum Viable Product (MVP).
• A minimum viable product (MVP) helps entrepreneurs start the process of learning as quickly as possible. It is not necessarily the smallest product imaginable, though.
• Establish a metric baseline, formulate a hypothesis for improvement, and design experiments to test it.
• Utilize split-testing experiments that involve a simultaneous presentation of various product versions to customers.
• The 3 A’s of Metrics
  • Actionable: Clear cause and effect between experiment and metric.
  • Accessible: Make the reports as simple as possible so everyone understands them.
  • Auditable: You must be able to test the data by hand.
• Optimizing, tuning, and iterating serve to test clear hypotheses in service of the company’s vision.
• Launching a product is necessary for learning and pivoting.
• Pivots
  • Sometimes a single feature can evolve to become the entire product, while other times what has once considered the whole product becomes a mere feature of a larger offering.
  • Although our product addresses a real problem for customers, it may not be the customer segment we initially intended to serve.
  • During the product development process, we may discover that the problem we aimed to solve is not very significant, but we may identify related issues that are important.
  • A shift in business architecture may occur, such as moving from the high margin, low volume to low margin, high volume, or transitioning between B2B and B2C models.
  • Deciding how to make money is a critical aspect of value capture.
  • Pursuing faster, more profitable growth may require a change in strategy to become the engine of growth.
  • Distribution channels may need to be altered to reach target customers.
  • Adopting new technology can enable achieving the same solution in a more efficient manner.

Part Three ACCELERATE

• Startups need organizational structures that combat extreme uncertainty.
• The value in a startup is not the creation of stuff but rather validated learning about how to build a sustainable business.
• Key questions for startups include:
  • What products do customers really want?
  • How will our business grow?
  • Who is our customer?
  • Which customers should we listen to, and which should we ignore?
• Continuous deployment involves the frequent release of small new features, testing them, and having a system to handle issues promptly.
• The ability to learn from customers quickly is the key competitive advantage for startups.
• Small batches lead to faster learning in startups.
• Sustainable growth occurs when new customers are acquired as a result of actions taken by past customers.
• Ways past customers drive sustainable growth:
  • Word of mouth
  • Product usage
  • Funded advertising
  • Repeat purchase/use
• The 3 engines of growth for startups include Sticky, Viral, and Paid.
  • The Sticky Engine involves a natural growth rate that exceeds the churn rate, resulting in overall product growth.
  • The Viral Engine relies on a feedback loop determined by the viral coefficient, which measures the average number of new customers attracted by each new sign-up.
  • The Paid Engine involves allocating a portion of revenue towards advertising, with metrics such as customer lifetime value and cost per acquisition playing a crucial role.
• Incremental improvements require a focus on training to ensure effectiveness.
• Flawed systems are often responsible for most mistakes, rather than individual errors.
• The 3 critical structural attributes that startups need:
  • Resources that are both scarce and secure
  • Authority to independently develop their business
  • A personal investment in the outcome.