THE LEAN STARTUP – BOOK REVIEW
The current condition of our economy is a good time for startups. However, there is no specific strategy these companies can use to flourish their business. Many managers try strategies at random. This results in more failures than successes. An easy way to guarantee success is identifying and implementing a strategy that fits your business.
The Lean Startup is a book providing ways to start and maintain startups. Using standard business procedures can create unfavorable results for startups. Such procedures come in handy for state-of-the-art enterprises. They come into existence after taking carefully calculated steps.
The book provides startup owners with a calculated approach to make faster decisions in a world that is always changing. Although it may not be the smartest idea to follow every sentence of the book, readers can finish the book with brand new knowledge on how to overcome problems.
The revolutionary lean manufacturing at Toyota motors inspired the name for the book ‘The Lean Startup.’ This revolutionary system consists of:
· Acknowledging the opinion of your employees.
· Producing smaller batches of products.
· Making use of ‘just in time production,’ while also implementing quicker cycle times.
Planning that is long-term and extended comes in handy in a business environment where the future has been predetermined. But, in a changing world like today, the ones who can truly benefit are the ones who possess the capability to rapidly change direction.
While planning a startup, there are many empty holes. The owner possesses a vision but is uncertain of where it will go. In several cases, people do not have a product in the beginning either. Things such as partnerships, business platforms, and markets are things that require immediate attention. No company can survive without learning from past mistakes; it is an essential part of growing. A validated learning system can be beneficial in an environment full of chaos. It demonstrates the overall progress and is fast and simple. It is effective because it involves the use of real data taken from real clients.
Even though the book’s title is, ‘the Lean Startup,’ the advice the author has given applies to large companies as well. Altering the culture of a big company can lead to innovation and can unlock areas of growth as well. Startups may implement changes and grow with innovative already built into their system. But, companies built previously can follow suit.
Ries extracts examples from real-life businesses to explain his principles better. However, most of his examples come from his entrepreneur-centered background. He dives deep into his IMVU experience which is a game company revolving around social media.
Reaching the epilogue, the theme of the book takes a drastic turn. Reis maintains a light yet proper tone throughout the majority of the book. He shows a keen interest in the topic at hand, but when reaching the epilogue; his tone changes into one of urgency. The beginning of the epilogue is when the lessons transform from methodical to a full movement. This sudden change of tone from friendly to urgent can cause discrepancies in the readers.
Similar to other movements in the business world, there is a website for those who read The Lean Startup and wish to gain further knowledge. The website can be found at the www.theleanstartup.com.
FIRST PART OF THE BOOK: VISION
Chapter One – Start.
The current age is perhaps the best for entrepreneurship. The economy is stable, and there are more startups now than there ever were in previous years. The thoughts of constructing management structures can often scare entrepreneurs because of the fear of it resulting in a lack of creativity in their enterprises. These thoughts are acceptable because having traditional methods of management can often put blockages in the way of creativity. However, in the absence of management, businesses can become chaotic. Every business is different and therefore requires a system of management that is unique to it.
Startups consist of structures, specific processes, and engines that promote growth. Every decision taken in a startup from the launch of new products to innovative features targets the engine of growth to help it flourish. Time is also of grave importance for startups. It is important to dedicate a certain amount of time to review and improve their ideas. This is the reason why customer feedback is important. It enables startups to identify and fix problems quickly.
Every great startup makes use of a specific strategy. This strategy ultimately leads them towards their visions. The finishing result of this strategy is the products the startup makes. The vision of a startup can never change, but the product and strategies can.
People have three criteria to define productivity: the number of products they make, the work efficiency, and the hours spent working. In the case of a startup, these criteria are more or less unimportant. Producing goals without any demands cannot be defined as ‘productive.’ The needs of a client go hand in hand with the other criteria.
The Lean Startup pushes a strong emphasis on including client requirements into the criteria of productivity.
While a startup serves pre-existing customers, it should also give importance to forming relations with new customers. Entrepreneurs should also keep a close eye on when it is time to turn the strategy around or change it completely whenever an improvement takes place in a product. This balance should remain constant.
Failure is a part of testing and trying new products in startups. Whereas a business that is doing well does not consider failure a normal part of the process.
A startup required management that has a keen eye for innovation.
As mentioned before, the title of the book came from an innovative idea by Toyota Motors. We will be implementing these ideas into establishing startups.
Chapter Two – Define.
Entrepreneurs are not only concerned about innovation when it comes to startups. Larger companies have what they call, ‘intrapreneurs.’ The job of these intrapreneurs is to think of new and innovative products or in some cases, an entirely new venture. These people play the role of being the ‘visionaries’ of a company. They make risky decisions to build new ventures. In one way or another, intrapreneurs are quite similar to entrepreneurs, and for the sake of keeping things simple and understandable; we will continue to broadly use the term entrepreneurs.
While we are on the subject of defining terms, what is the definition of a startup? The author provides a definition, which says:
‘An institution that deals with developing innovative products during times of doubt is called a startup.’
To further break this term down: An institution can be anything from various organizations to government-owned agencies, firms backed up by venture, non-profit, profit, and family businesses as well. Much like other companies, a startup is founded by entrepreneurs who hire workers and provide instructions to them. While building innovative products is the main goal in a startup – it also involves being an organization.
As mentioned previously, a startup aims to be innovative with its products. The use of the term ‘product’ is done so in a broad sense. Product means something that is of value to a client and can include services including goods as well.
The term ‘innovation’ also has a broad meaning and can mean any discovery that has a spark of innovation in it. This does not require the invention to be completely new. An example of this is migrating a product to another geographical location or inventing a new use for a product that is old.
The final term that requires a definition is ‘Uncertainty.’ Numerous companies both new and old lack the presence of context that is uncertain. For a startup, average business practices can cause more harm than good. Instead, startups require practices geared to deal with such uncertainties.
In the year 2009, Snaptax became the brand new startup launched by Intuit. It climbed the ladder of success because the managers working at Intuit realized the need to make sure that Snaptax fit Intuit’s system. In this case, the management had to take the necessary steps to ensure that ‘disruptive innovation’ had its space to do things.
The term ‘disruptive innovation’ came from Clayton Christensen’s, ‘In the Innovator’s Dilemma.’ In this book, he not only introduced disruptive innovation but also the term, ‘sustaining innovation’ and the primary difference between the two.
Chapter Three – Learn.
The three things people consider while measuring progress are: sticking to the plan, performing well, and never exceeding the set budget. However, these things do not guarantee whether or not a customer will spend money on your product.
Learning from one’s mistakes is also an obvious, yet important practice. People often use this the wrong way. They use the term to get their way out of a bad situation guilt-free by saying, ‘I failed, but it taught me a lesson.’ This is nothing more than an excuse. The correct thing to do is to learn from failures. However, this process of learning requires time, and such a thing, for business people is time wasted.
An easy solution to dealing with sales problems is raising prices. Having fewer sales pushes people to question why the numbers are low as they view this as a sign of incompetence. Whereas, when there an absence of both revenue and sales, they might imagine the possibility of improvement. This imagination is what prevents people from working on increasing their numbers. This is a big mistake. To drive revenue and sales, it is necessary to constantly see what improvements work and what don’t. The sooner a startup identifies and works on this, the less time they waste.
However, this approach should not mean that you go on releasing random products. You have to analyze what the client wants in a product and work on developing that before trying once again. This is an effective way to lessen the loss resulting from learning from failures. This is an effective path to success.
Startups consist of many unknown things. The development of a startup depends upon measuring a brand new type of value that is more than only giving customers benefits. This involves the implementation of a system called, ‘validated learning,’ which was described above.
Some of the tactics that worked for Ries and IMVU involved:
· Releasing an early prototype of low quality.
· Getting customers to pay from the very first day.
· Setting low targets of revenue to increase accountability.
Although these techniques are good, their implementation can be difficult in every situation. What is essential is to understand the need of the clients. A sure way to do this is the collection of empirical data. Once identified, it is time to experiment constantly to see what meets those needs.
Chapter Four – Experiment.
Viewing a new product as performing a scientific experiment has its benefits. Similar to an experiment, the launch of a brand new product should take place with the utmost care. Come up with a hypothesis and guess the prediction.
When we conduct tests based on our assumptions, we get exposed to a lot of new information. The book mentions two very important assumptions. These are:
· Value Hypothesis – This hypothesis raises the question of, ‘Is the product of any value to the customer?’ The smart approach to this question is via experiments.
· The growth hypothesis, on the other hand, requires only a simple test to determine how clients come across the new product.
Always make sure to test the behavior to identify whether or not your assumptions were right.
A great advantage of experimenting with actual products is that, in the case of its success, it will have provided one with a head start. Through this method, when the time comes for wider distribution of the product, customers will already know about it. Having customers means more feedback and feedback ultimately helps you launch new products. It all revolves around experimenting.
Before you go and start producing products non-stop, there are certain things to remember and ponder over. When customers do not prefer or feel the need to use your product, they will not purchase it. This can happen even if your product may solve one or more of their problems – there I still a chance of them choosing your competitor’s product. If you are sure customers will purchase your products, then you need to be sure of your capability to manufacture them. A number of times, people will rush into manufacturing products without acknowledging whether or not someone will buy it.
The book mentions the importance of the ‘Build, Measure, and Learn Feedback Loop.’ What is important is knowing where to start. And the best way to start is through the ‘Minimal Viable Product,’ or MVP. The MVP is the easiest version that can make it through the feedback loop. After this is done, next comes framing a strategy and be ready for any form of change.
Author, Ries makes use of several case studies in Chapter 4. He does so to put pressure on the fact that through experimenting is how most developers have manufactured better products. A few names are; Zappos, Kodak Gallery, etc.
In the end, Ries highlights important ideas in the next few pages.
SECOND PART OF THE BOOK: STEER
Chapter Five – Leap
When a startup manufactures a product, the customers interact with the product. While doing so, customers make sense of the product while also providing feedback and important data. These things come in handy when repeating the manufacturing process of the product, which is of greater importance than the profit. The essence of the loop mentioned above lies in this entire process.
People experience different components of this loop. Connecting with some phases is easier than the other phases. What matters most is getting the feedback loops done and over within a short amount of time.
Every startup is different and flourishes under various conditions. There is no concept of copying the steps others took and finding success in doing so. Instead, you should try their level best to frame a strategy tailor-made to fit your circumstances. While the best path to take is for an entrepreneur to experiment with his or her assumptions – this can sometimes be difficult as there is no data. Having no data means calculated conclusions cannot be made. This is the point where one must trust faith and make the leap.
After the testing of assumptions is done, the next phase to transition into is the ‘build’ phase. This is also, where the MVP comes into play. This involves creating the simplest version of the product possible as this helps start the feedback loop.
To review whether or not there is any progress in product development, measurements are necessary. This is necessary to confirm whether the people will like the product. A measurement method that works is, ‘innovation accounting.’ This involves planning and setting milestones to keep up with the progress. As soon as we receive feedback, we review it to be sure we are on the right track. In case we are not, it may be time to turn things around. If even a single of our assumptions turns out to be wrong, the framing of a brand new strategy must take place.
The Lean Startup Method is necessary to help startups realize the importance of changing to save money as well as valuable time.
This all takes a turn and returns to the value and the growth hypothesis. It is essential to understand how a product can both create or destroy value and even bring about or falter the growth. This process is difficult. Some decisions lead to profit, but can destroy value.
Chapter Six – Test
Without worrying about it not being ready, it is time to put your MVP out there. This will start the feedback loop and ultimately help you experiment with your hypothesis.
Guide the MVP more towards customers who understand that things are not in place yet aka. The early adopters. Early Adopters care more about being first rather than the actual product. In this case, keeping the MVP simple is necessary. Therefore, it would be smart to remove any features that are of no interest to early adopters.
To make this easy, some people make use of the ‘Concierge MVP’ technique. This technique allows you to include only those features in your product that will make it enjoyable for the customer. The important point is knowing what the customer needs. Keep that phrase in mind when designing your MVP.
For example, before actually producing an entire social network, Aardvark first developed an MVP (a prototype) to test how it would do.
Producing a MVP is not merely about giving your all to manufacture a product of high quality. A standard of quality cannot be set until you know what your customer expects. Adding features and creating a product of high quality might not even be what your customer wants. But, this should not motivate you to do a bad job and produce unsatisfactory products. Do what attracts the customer. Do not waste your time and expensive resources.
Patent issues produce a risk when launching a MVP and giving competitors a peek into your innovations. I such a risk exists; an entrepreneur might need to take calculated steps. However, in the case of a startup, the possibility of someone stealing his or her innovation might be very low or non-existent.
What matters is never quitting. Investors want results quickly and have no patience to wait through experiments. This is also the reason why any experiment being conducted should have specific metrics to provide information.
Chapter Seven – Measure
In the end, the main goal is to show the potential of a startup becoming a successful business. To provide evidence, an evaluation of progress should take place. However, accounting practices that are standard do not fit evaluating a startups’ progress. What works instead is, ‘Innovative Accounting.’
Innovative Accounting works in the following ways:
1. Make baseline data using a MVP.
2. Make improvements to the product.
3. If the product shows continuous improvement, change, and form a brand new baseline. Restart the process.
It is necessary to test the worst-case scenario by designing the MVP.
An example of this is a media company wishing to sell advertising. Before jumping straight into it, they should conduct a test to ensure that they can catch the attention of the consumers.
Once the establishment of a baseline takes place, it is time to move on to improving the results. The product’s new cycle should constantly provide you more knowledge about your customer’s needs.
If you are doing fine – your metrics will show improvement.
If the metrics seem to falter – it is time to make a change.
One way to confirm any real growth is to conduct a ‘cohort analysis.’ This involves creating cohort groups and observing the performance of various customer groups. This method can confirm whether your metrics are improving or not.
One thing to be cautious about are, ‘vanity metrics.’ It is easy for us to choose the numbers that make us look successful when measuring business. Do not fall for vanity metrics.
To avoid this issue, split tests are an option. In these tests, the distribution of different versions of the same product to a variety of customers takes place. This helps you identify what customers want and do not want. Customer behavior can tell you a lot about what your product is missing or has too much of.
When measuring business, metrics should fall into three categories:
Actionable: It shows the true reason and result. It does not involve vanity metrics.
Accessible: An easy way to understand data is by using a cohort analysis. The reports of this analysis give the numbers a more human feel. It can help understands customer behavior as well.
Auditable: Every employee in the company should have hope when it comes to the metrics. The system of reporting should be as transparent as possible. What is extremely beneficial is for managers to communicate and get reviews from real customers.
Chapter Eight – Pivot or Perverse
In the case of an idea bearing no results, your strategy needs a do-over. However, if there is no hope then persevering is useless.
The art of knowing when pivoting is necessary can be beneficial. To pivot something means to work on what knowledge you have gained so far. It is something that requires exponential amounts of bravery. People often stay away from it as they consider it to be a sign of failure and failure is not something people like. However, failing to pivot often leads to the downfall of a company.
Meetings to decide between pivoting and persevering should take place regularly in companies. Product development teams should attend these meetings. In such meetings, the product development team should highlight current metrics in comparison to past metrics. Having people who understand the customers can be beneficial in such meetings as well.
The author has given a ‘catalog of pivots,’ in the book. These are lists of a variety of ways to bring change. However, these do not have a perfect formula to follow.
One method involves a ‘zoom in.’ this means concentrating on a tiny share of the strategy from previous years or one an individual element of the product. Then, these two should be what makes the entire product.
In contrast to this, ‘zooming out’ means to expand the scope this creating a better product.
The last method is the customer segment pivoting. It comes in handy when the product is just right, but the wrong people have been testing it.
In addition to these, the other types are:
· Value capture pivot
· The engine of growth pivot
· Platform pivot
· Technology pivot
· Business architect pivot
· Channel pivot
As you can observe, there are various ways of pivoting. But what matters is not the pivot, but the strategy behind it. No hard and fast rules exist when finding the right type of strategy to implement. No matter which strategy fits, the pivot needs to be carefully planned out.
In some cases, more than one type of pivot may come in handy.
PART THREE OF THE BOOK: ACCELERATE
Chapter Nine – Batch.
It is never easy to find and identify which activities possess value and which ones are nothing but useless. It is of grave importance to understand what your customers’ needs are, who they are as people, how you can listen to them, and lastly, your business expanding goals. The quicker you answer these questions, the better it is for you.
Having batches that are smaller are a better option for startups. They not only lower the overall cost and workload but can also remove the risk of failure. Companies that are developed and successful can take advantage of such batches. But for a startup to do the same, it would be a huge risk. The advantage of small size batches is that they make spotting problems easier.
What is more important than the other benefits of small batches is that they provide knowledge quicker. For a startup, learning more can provide the company with a head start. Mass production has an impact on everything, even education. Large batches can even cause more problems. Some companies plunge themselves to failure by producing gigantic batches.
As compared to successful companies where the need is the cause behind the production, startups have no such demands. For startups, production only happens if there is a hypothesis to put to the test. Soon after you plan a hypothesis, your team should work on manufacturing a product for testing. This process is called ‘Build, Measure, and Learn.’ But it is followed in the opposite direction.
Chapter Ten – Growth.
The way startups gain long-term growth is through the growth engine. Thankfully, there are numerous ways to do this.
An example is making use of old customers who aid sustainable growth through WOM (Word of Mouth).
It can also be the product of someone seeing another person using the product.
Advertising through newspapers can also be beneficial to promote growth.
Most importantly, growth can happen through the process of ‘repeat purchasing.’ This involved manufacturing everyday items such as toilet paper etc.
All of these methods can aid the growth of a startup. Engines of growth exist in several types. They are:
· Sticky Engines of growth – These engines depend on the process of repeat business. In this situation, startups need to pay close attention to the number of customers who do not give attention to the product. If a startup can gain customers rapidly then it is a sign of success.
· Viral Engines of growth – The word of your product gets around naturally via consumers. This engine runs on the feedback loop. The productivity of this engine is measure via the ‘viral coefficient.’
· Paid Engine of growth – It uses traditional media as a form of advertising. It is necessary to make sure that more profit is gained from the customers than what is put into the advertising. There are numerous other paid methods to spur the growth engine.
While big companies have the freedom to use multiple growth engines, it is recommended for startups to start with one, just to test the waters first.
Chapter Eleven – Adapt
The possibility of a startup to fail is never zero. It can happen in various ways.
The cause is an entrepreneur disliking the concept of bureaucracy or a company buried deep into a bureaucracy that it fails to function.
Another cause of failure is when teams in a startup accelerate, thus causing a reduction in quality. Most entrepreneurs attempt to cheat the system and rapidly get MVPs out. They compromise on the quality of their product just for a tighter Build, Measure, and Learn Loop. Such shortcuts only cause more harm than good. While early adopters may have the will to ignore minor product flaws, the mainstream market is brutal and highly intolerant.
A way to make sure nothing is fast-paced is to implement the ‘5 Why’s.’
With the 5 why’s, you are forced to question yourself 5 times with every cycle. This helps you reach the root cause of the problem. As soon as the identification of a problem happens, it is time to work on improving it. If it is a minor problem, it should not become your focus. However, in case it is a gigantic issue; then you should put resources into fixing it.
The 5 why’s method should not become a blame game. If an employee made a mistake, it is also the management’s fault as they were in charge. Meetings should take place weekly to analyze and ask the 5 why’s. These can help solve problems as they pop up.
Chapter Twelve – Innovate
Innovation is for every company; whether big or small. However, for larger companies to aim for innovation might require minor cultural changes. The advantage that startups have in this matter is that they may already have these cultural changes built-in.
Facilitating innovation within a company requires structural as well as organizational qualities. These qualities are often absent in bigger companies.
Teams working in startups do not require heaps money. However, they do need a secure source of income and above all, confidence. These teams should also have the freedom to conduct experiments when needed. Such startup teams should contain people from every department of the startup. This is beneficial in the case of urgent matters.
Innovators should have their fair share of benefits in the outcome. Innovators in a startup should have some form of financial income or ownership. Attaching the innovator’s name to his or her product can provide them with a satisfying feeling of ownership.
A lot of discussions revolve around giving protection to startups from the main organizations. However, what is important and needs attention is how startups should be extremely cautious when making experimental price changes. One bad move can harm both the startup and the main organization, as it is the roof over the startup.
In short, the core organization must be given protection at all costs. However, separating the startup from the core is not the brightest of ideas. Hiding the innovative team can build a bad image and an environment of lack of trust.
What is a better option is setting a limited space for experiments and establishing certain rules such as, ‘during experimenting, a single team must observe it from start to finish.’ Products made within these limitations are distributed to a small market area.
As companies grow, they must take into consideration the new customers and the near market as well. As soon as a market is set for the product, improvements can help keep it sustainable.
People working at startups tend to age with their inventions. This harms the production of new inventions as the best employees wish to say with the products that do well. In this case, the teams should take turns to manage different cycles of growth.
Chapter Thirteen – The Epilogue
The greatest efficiency proponent, Frederick W. Taylor was the man who grieved the loss of productivity. He wrote a book in 1911 called, ‘The Principles of Scientific Management,’ in which he mentioned ideas that seemed old but also had a hint of contemporary in them. Although today’s world requires a system that is new and fresh, we must still appreciate and make use of his old approach to managing businesses.
We do countless things the wrong way every day. We leave waste behind because we are inefficient. This is not simply about trying harder; instead, it is about giving time to the right things. Some groups are highly efficient, but for the wrong things and situations. Some people work hard and waste their energy on the wrong things. What we need to do is start experimenting to make sure we work on the right things. Learning through research is the highest standard and this book implements scientific approaches to build greater organizations.
A system engineer is said to be the manager. This system consists of humans and in such a situation, it becomes easy to lose yourself in the system and forget the humans in it. There can be no innovation without humans. Never lose sight of the system because, in such a cause, innovation ceases to exist.
Stay cautious and away from false methods. These bring nothing but harm and failure. Stick to true management systems and scientific approaches. The book, ‘The Lean Startup,’ is an excellent one but is only the starting point of how much can be done by merging scientific method to managing innovation. There is a lot of knowledge to absorb.
And beware of pseudoscience, buzzword, and fads. Follow a method that has a scientific approach to innovation scientifically. This popular method is only the start of the benefits that scientific method to innovation management possesses. There is still a mountain of wisdom to conquer.