The Lean Startup by Eric Ries- Book Summary

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Introduction

The Books Lean Start-up culture is adopted from the Japanese culture and the author Eric Ries in the book The lean Startup book summarize us how the principal can be adopted in the start-up culture that would reduce the resource wastage and in turn increase the success for the start-ups

In this Lean Startup summary we have captured three core principals– Build, Measure, Learn and then digs deep in each of the headlines technically and with examples for the easy understanding, so let us start right away with the lean Startup book summary.

Start Stage of Lean Startup

The author mentions those entrepreneurs are rightly wary of implementing traditional management practices early on in the startup afraid that they will invite the bureaucracy or stifle creativity. Ries recommends building cross-functional teams and hold them accountable for learning milestones instead of organizing the company into a strict functional department (marketing, sales, technology, and human resources).  The goal of the startup is to figure out the right thing to build- the thing customer wants and will pay for a quickly as possible.

Lean start method, in contrast, designed, to teach how to drive a startup, instead of making complex plans based on lots of assumptions, we can make the constant adjustment with a steering wheel called the Build-Measure-Learn feedback loop.

Ries mentions that start-ups build cross-functional teams and hold them accountable for learning milestones instead of organizing the company into strict functional departments. The goal of start should be figuring the right thing to build – the customers want and will pay as quickly as possible. The reason that general management, a failure to deliver results is due to either a failure to plan adequately or a failure to execute properly.Next in the Lean startup summary is Define

Define Stage

A Startup is a human institution designed to create new products or services under conditions of extreme uncertainty. The only sustainable path of long term economic growth is to build an innovation factory using lean start techniques.

The author mentions that leadership requires creating conditions that enable employees to do the kind of experimentation that an entrepreneur requires.

Learn Stage of Lean Startup

Startups must learn what customer wants and not what they say they want or what we think they should want. Ries mentions that a lean startup model, rehabilitating learning with the concept of validating learning. Validated learning is backed up by empirical data collected from real customer

Lean thinking defines value as providing benefits to the customers and rest else is waste. Ries says that startup should look to find the synthesis between its vision & what customers would accept and should not tell the customer what they ought to want. The primary question asked is “can this product be built?” rather it should be “Should this product be built? “And “Can a sustainable business be built around it?”

Experiment Stage

This chapter says that businesses should start with a clear hypothesis and make predictions about what is supposed to happen. The data should accurate based on customer behavior and not rather based on hypothesis questions.

Lean Startup core principal Model
Lean Startup core principal Model

The advantage of having an experiment carried out is that the customer base for the fully developed product already exists. The challenge is to overcome the prevailing management thinking that puts its faith in well-researched plans, and remember that the planning is the tool that only works in the presence of long and stable operating history. 

Ries in this chapter mentions that start-up should first build a minimum viable product, then measure then further development which leads to further growth, while also validating the hypothesis testing and if the hypothesis turns out to be false then deciding on the major change in strategy, Author mentions that if we are gaining the validated learning and then figure out what product we need to build to run that experiment and get that measurement.

Leap Stage of Lean Startup

Start-ups should revolve around the task firstly building organization, test assumption then secondly, rigorously testing without losing sight of the company’s vision.

Ries says that largely the star-ups are built on the assumptions that are the leap of faith and the entire venture rest on that assumption, and if the hypothesis is true then the start-up thrives. The differentiating factor for success is the foresight tools which help to identify which parts work in the venture and which do not provide growth. The start-up which depends on the paid growth like paid advertisements is not sustainable growth. Ries says that to get the best of the learning one should get off the building and start learning about the customers 

Test Stage

Reis has mentioned that the product is accepted in the market if the product is nearly 80 percent solution and you don’t need a perfect solution to capture the market interest. A startup should build & work what is need by the customer and anything beyond is a waste of resources in the testing stage. The Example of DropBox Company is taken which just released a video about the product to test the customer interest before working on the product concept.

MVP (minimum viable product) requires putting the assumption to testing and if the customer reacts to the product as the desired result then the assumption holds true or else it is false thus it requires courage to test this kind of the hypothesis. If any other start-up can execute your idea then your idea of a start-up is already doomed. 

Measure Stage of Lean Startup

The growth rate for the business depends upon profit from each customer, cost of acquiring new customers, repeat purchase rate of the existing customer which should be measure. Ries mentions that innovation accounting should be used in measuring the results collected from real-time data from MVP and further the growth should be tuned to baseline towards ideal. Then further deciding upon to pivot or pursue.

The Book also mentions that managers are generally trained in the traditional model of drawing logical conclusion that “Our team is not working hard or not working efficiently” when the measurement metrics are wrong.

Ries says that the measure should follow the 3A’s

Actionable – The measure should be able to show the cause and effect clearly so that people are better able to learn from their actions.

Accessible – The reports should in the simplest form possible so that everyone understands them.

Auditable – The Measure being auditable is a good metric and manager should be able to spot and check the data with real customers

Pivot Stage

In this chapter the author says that companies that cannot bring themselves to pivot to a new direction based on feedback from the market place can get stuck in the land of living dead neither growing nor dying. The more money, time, resources are sunk into the idea then harder the pivot becomes. 

Pivot requires that we keep on foot rooted in what we have learned so far while making the fundamental changes in the strategy. Pivot doesn’t mean necessary to throw out everything that came before and start over again. Instead it’s about re-purposing what has been built and what has been learned to find a more positive direction. Pivot can be better understood as a new strategic hypothesis that will require a new minimum viable product to test.

To put it together the ideas of a leap of faith of the start-ups are tested with a minimum viable product, using the innovative accounting and actionable metrics to evaluate the result and then making the decision to pivot or persevere.Once the pivot is decided the Lean startup summary moves to the stage of Batch.

Batch Stage of Lean Startup

Ries say that enterprises should have a small batch approach so that the quality issues are found out much sooner as compared to the large batch approach with that it also outweighs the benefits of finding & fixing the problem faster than finding out the problem at the later stage. While using small-batch approach engineers and product designers should work side by side so that they can evaluate the impact of their work and its effect on the customer and decide on the next steps immediately.

The ability of the start-up to learn faster from the customer gives the entity an essential competitive edge in the competition. A small-batch process should be broken down to the simplest process up until the single-piece flow is achieved. The small-batch process helps start-up to pivot faster.

Grow Stage

 In this chapter the author says that sustainable growth can be achieved from one rule that is “ New customer comes from the actions of past customers”. The growth of start-ups can take place from the word of mouth, As a side effect of product usage, through funded advertisement, Repeated purchase or use,

There are generally three types of growth – viral growth, stick growth (repeated usage/ purchases), Paid growth ( advertisements). The growth of the startup takes places when customer acquisition cost is less than the churn rate growth. Growth can happen either by increasing the product cost or driving down the cost of acquiring a new customer. The growth is depended on factors like a set of customers, habits, preferences, advertisement channels and interconnection. Adapt the next level in the lean startup summary

Adapt Stage of Lean Startup

Focusing only on speed can be destructive thus to have the stability the growth engine should have a speed regulator. The adaptive process forces us to stop down and invest in preventing the kinds of problems. Ries mentions that the 5 Why Method should be used it uncovers the problem, solution and helps the startup to adapt better as it needs all the departments working together. The 5 why helps in preventing the mistakes but as a team drive out the superficial waste and develop a new understanding of how to work together.

Ries also says that instead of focusing on new deadlines, a start-up should invest in the process, product and technologies that enable working in small batches.

Innovate Stage

As the start-up grows entrepreneurs can build the organization that learns how to balance the needs of the existing customer with the challenges of finding the customers to serves thus it needs to innovate. Established companies can make this shift to portfolio thinking.

To innovation need three structural attribute – secured resources, independent authority to develop the business, personal stake in the outcome. Established firms should create a platform such as a platform for experimentation so that it protects the start-up from its parent organization. When innovators are stuck with the task of managing the resources this leads to no innovation. The employees should also be given the option to choose to move with the product or to stay back on product development or move on to make the new products.Hence completing all the stages in Lean Startup summary.

Conclusion

This book defines the framework to follow for the start-ups and not a rigid blueprint. The book also highlights problems in the traditional product development methodology and shreds light in the various stages of the start-up and Ries himself being an entrepreneur highlights the roadblocks faced and solutions for it at various stages of entrepreneurship. The lean Startup captures lots of case studies of the start-up and summarizes it technically.

One-Line Take Away

  • Always test your hypothesis with a minimum viable product.
  • Growth depends on the cycle of Built-Measure-Learn.
  • When in doubt for product innovation, listen to consumers.

About the Author

Eric Ries is an entrepreneur & author of the blog startup Lessons learned. He co-founded and served CTO of IMVU, his third start-up. He is a speaker in entrepreneur events and consults large companies and venture capitalists on product and strategy.  Ries began organizing The Long-Term Stock Exchange (LTSE), which is building a new U.S. stock exchange that aims to align the interests of companies and long-term investors and improve the public company experience.

I would recommend this to

This book should be read by an entrepreneur who is about to start with their start-up. The product developer should read this book for further product refinement as well as the CEO, CTO of established companies.Here we end the lean startup summary.

Final Score – 7/10

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Roopesh

Roopesh Bhosle is an author at Hackedwits and writes on summary for books from Business and Finance. A Project Manager at day and content writer at night. Love to learn new things, to connect dots in life. Connect with me on LinkedIn for collaboration on project or Guest Post

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6 Responses

  1. I read a lot of interesting posts here. Probably you spend
    a lot of time writing, Thanks for sharing!
    Best regards,
    Dinesen Henneberg

  2. Avatar Pramod says:

    Mr. Roopesh,

    Very useful insights.

    Must have taken good time to make this.

    Thank you very much.

  3. Avatar Pramod says:

    Mr. Roopesh,

    Nicely packaged summery.

    Quite useful insights.

    Must have taken good time to make this. Thank you very much.

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