Eric Ries (@ericries)http://StartupLessonsLearned.blogspot.com

The Lean Startup#leanstartup

TechStars Edition

Most Startups Fail

Most Startups Fail

Most Startups Fail

Most Startups Fail

• But it doesn’t have to be that way. • We can do better. • This talk is about how.

What is a startup?

• A startup is a human institution designed to deliver a new product or service under conditions of extreme uncertainty.

• Nothing to do with size of company, sector of the economy, or industry

Product / Market Fit

“Do whatever is required to get to product/market fit. Including:

changing out people, rewriting your product,

moving into a different market, telling customers no when you don’t want to, telling customers yes when you don’t want to,

raising that fourth round of highly dilutive venture capital

—whatever is required.”

— Marc Andreessenhttp://blog.pmarca.com/2007/06/the-pmarca-gu-2.html

The Pivot

• What do successful startups have in common?– They started out as digital cash for PDAs, but

evolved into online payments for eBay. – They started building BASIC interpreters, but

evolved into the world's largest operating systems monopoly.

– They were shocked to discover their online games company was actually a photo-sharing site.

• Pivot: change directions but stay grounded in what we’ve learned.

http://startuplessonslearned.blogspot.com/2009/06/pivot-dont-jump-to-new-vision.html

Speed Wins

if we can reduce the time between major iterations

we can increase our odds of success

A Tale of Two Startups

Startup #1

Stealth Startup Circa 2001

All about the team

A good plan?

• Start a company with a compelling long-term vision.

• Raise plenty of capital.• Hire the absolute best and the brightest.• Hire an experienced management team with tons

of startup experience.• Focus on quality. • Build a world-class technology platform.• Build buzz in the press and blogosphere.

Achieving Failure

• Company failed utterly, $40MM and five years of pain.

• Crippled by “shadow beliefs” that destroyed the effort of all those smart people.

Shadow Belief #1

• We know what customers want.

Shadow Belief #2

• We can accurately predict the future.

Shadow Belief #3

• Advancing the plan is progress.

A good plan?

• Start a company with a compelling long-term vision.

• Raise plenty of capital.• Hire the absolute best and the brightest.• Hire an experienced management team with tons

of startup experience.• Focus on quality. • Build a world-class technology platform.• Build buzz in the press and blogosphere.

Startup #2

IMVU

 

 

IMVU

New plan

• Shipped in six months – a horribly buggy beta product

• Charged from day one• Shipped multiple times a day (by 2008, on

average 50 times a day)• No PR, no launch• Results: 2007 revenues of $10MM

Lean Startups Go Faster

• Commodity technology stack, highly leveraged (free/open source, user-generated content, SEM).

• Customer development – find out what customers want before you build it.

• Agile (lean) product development – but tuned to the startup condition.

Commodity technology stack

• Leverage = for each ounce of effort you invest in your product, you take advantage of the efforts of thousands or millions of others.

• It’s easy to see how high-leverage technology is driving costs down.

• More important is its impact on speed.• Time to bring a new product to market is

falling rapidly.

Customer Development Continuous cycle of customer

interaction Rapid hypothesis

testing about market, pricing, customers, …

Extreme low cost, low burn, tight focus

Measurable gates for investors

http://bit.ly/FourSteps

Agile Product Development(A tale of two startups, revisited)

• Principles drawn from Lean Manufacturing and Toyota Production System

• These examples are drawn from software startups, but increasingly:– All products require software – All companies are operating in a startup-like

environment of extreme uncertainty

Traditional Product DevelopmentUnit of Progress: Advance to Next Stage

Waterfall

Requirements

Specification

Design

Implementation

Verification

Maintenance

Problem: known

Solution: known

Agile Product DevelopmentUnit of Progress: A line of Working Code

Problem: known

Solution: unknown

“Product Owner” or in-house customer

Product Development at Lean StartupUnit of Progress: Validated Learning About Customers ($$$)

Problem: unknown

Solution: unknown

Customer Development

Hypotheses,Experiments,Insights

Data,Feedback,

Insights

Minimize TOTAL time through the loop

LEARN BUILD

MEASURE

IDEAS

CODEDATA

How to build a Lean Startup

• Let’s talk about some specifics.

• Small Batches• Continuous deployment• Split-test (A/B) experimentation• Minimum Viable Product• Five why’s

Build Faster

Continuous Deployment

Small Batches

Continuous Integration

Refactoring

Small Batches

LEARN BUILD

MEASURE

IDEAS

CODEDATA

Learn Faster

Customer Development

Five Whys

Measure Faster

Split Testing

Actionable Metrics

Net Promoter Score

SEM

Benefits of Small Batches

• Faster feedback• Problems are instantly localized• Reduce risk• Reduce overhead

Build Faster

Continuous Deployment

Small Batches

Continuous Integration

Refactoring

Continuous Deployment

LEARN BUILD

MEASURE

IDEAS

CODEDATA

Learn Faster

Customer Development

Five Whys

Measure Faster

Split Testing

Actionable Metrics

Net Promoter Score

SEM

Continuous Deployment• Deploy new software quickly

• At IMVU time from check-in to production = 20 minutes

• Tell a good change from a bad change (quickly)

• Revert a bad change quickly• And “shut down the line”

• Work in small batches• At IMVU, a large batch = 3 days worth of work

• Break large projects down into small batches

Cluster Immune SystemWhat it looks like to ship one piece of code to production:

• Run tests locally (SimpleTest, Selenium)o Everyone has a complete sandbox

• Continuous Integration Server (BuildBot)o All tests must pass or “shut down the line”o Automatic feedback if the team is going too fast

• Incremental deployo Monitor cluster and business metrics in real-timeo Reject changes that move metrics out-of-bounds

• Alerting & Predictive monitoring (Nagios)o Monitor all metrics that stakeholders care abouto If any metric goes out-of-bounds, wake somebody upo Use historical trends to predict acceptable bounds

When customers see a failure:o Fix the problem for customerso Improve your defenses at each level

Rapid Split Tests

IDEAS

CODEDATA

BUILDLEARN

MEASURE

Code FasterContinuous

Deployment

Measure FasterRapid Split Tests

Learn FasterFive Whys RootCause Analysis

Split-testing all the time

• A/B testing is key to validating your hypotheses

• Has to be simple enough for everyone to use and understand it

• Make creating a split-test no more than one line of code:

if( setup_experiment(...) == "control" ) { // do it the old way} else { // do it the new way}

The AAA’s of Metrics

• Actionable• Accessible• Auditable

Measure the Macro

• Always look at cohort-based metrics over time• Split-test the small, measure the large

Control Group (A) Experiment (B)

# Registered 1025 1099

Downloads 755 (73%) 733 (67%)

Active days 0-1 600 (58%) 650 (59%)

Active days 1-3 500 (48%) 545 (49%)

Active days 3-10 300 (29%) 330 (30%)

Active days 10-30 250 (24%) 290 (26%)

Total Revenue $3210.50 $3450.10

RPU $3.13 $3.14

Minimum Viable Product

IDEAS

CODEDATA

BUILDLEARN

MEASURE

Code FasterContinuous

Deployment

Measure FasterRapid Split Tests

Learn FasterMinimum Viable Product

Why do we build products?

• Delight customers• Attract lots of them• Make a lot of money• Big vision: change the world

Possible Approaches

• “Maximize chances of success”– Build a great product with many features that

increase the odds that customers will want it– Problem: no feedback until the end, might be too

late to adjust• “Release early, release often”

– Get as much feedback as possible, as soon as possible

– Problem: run around in circles, chasing what customers think they want

Minimum Viable Product

• The minimum set of features needed to learn from earlyvangelists – visionary early adopters– Avoid building products that nobody wants– Maximize the learning per dollar spent– Get the facts before it’s too late

• Probably much more minimum than you think!

Minimum Viable Product

• Visionary customers can “fill in the gaps” on missing features, if the product solves a real problem

• Allows us to achieve a big vision in small increments without going in circles

• Requires a commitment to iteration

Examples

• Building IMVU in six months• 2004 “Kerry vs. Bush avatar debate”

Techniques

• Smoke testing with landing pages, AdWords• SEM on five dollars a day• In-product split testing• Paper prototypes• Customer discovery/validation• Removing features (“cut and paste”)

Fears

• False negative: “customers would have liked the full product, but the MVP sucks, so we abandoned the vision”

• Visionary complex: “but customers don’t know what they want!”

• Too busy to learn: “it would be faster to just build it right, all this measuring distracts from delighting customers”

Five Whys

IDEAS

CODEDATA

BUILDLEARN

MEASURE

Code FasterContinuous

Deployment

Measure FasterRapid Split Tests

Learn FasterFive Whys RootCause Analysis

Five Whys Root Cause Analysis

• A technique for continuous improvement of company process.

• Ask “why” five times when something unexpected happens.

• Make proportional investments in prevention at all five levels of the hierarchy.

• Behind every supposed technical problem is usually a human problem. Fix the cause, not just the symptom.

There’s much more…

IDEAS

CODEDATA

BUILDLEARN

MEASURE

Code FasterUnit Tests

Usability TestsContinuous Integration

Incremental DeploymentFree & Open-Source Components

Cloud ComputingCluster Immune System

Just-in-time ScalabilityRefactoring

Developer SandboxMinimum Viable Product

Measure FasterSplit TestsClear Product OwnerContinuous DeploymentUsability TestsReal-time MonitoringCustomer Liaison

Learn FasterSplit TestsCustomer InterviewsCustomer DevelopmentFive Whys Root Cause AnalysisCustomer Advisory BoardFalsifiable HypothesesProduct Owner AccountabilityCustomer ArchetypesCross-functional TeamsSemi-autonomous TeamsSmoke Tests

Funnel AnalysisCohort Analysis

Net Promoter ScoreSearch Engine Marketing

Real-Time AlertingPredictive Monitoring

Get Started Today

• You are ready to do this, no matter – who you are– what job you have– what stage of company you’re in

• Get started now, today.

Thanks!

• Startup Lessons Learned Blog– http://StartupLessonsLearned.blogspot.com/

• Getting in touch (#leanstartup)– http://twitter.com/ericries– eric@theleanstartup.com

• Workshop Tomorrow, Aug 20– http://bit.ly/boulder-workshop– 9am-1pm at TechStars