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

The Lean Startup#leanstartup

Entrepreneurship = Awesome

• It is the best time in the history of the world to be an entrepreneur

Costs are falling in all industriesBarriers are being destroyed

Disruption and chaos are everywhere

Why build a startup?

• Only entrepreneurship combines these three elements

Change the worldBuild an organization of lasting value

Make customers’ lives better

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

Entrepreneurship is management

• Our goal is to create an institution, not just a product

• Traditional management practices fail– “general management” as taught to MBAs

• Need practices and principles geared to the startup context of extreme uncertainty

• Not just for “two guys in a garage”

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* – $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 2009: profitable, revenue > $20MM

Making Progress

• In a lean transformation, question #1 is – which activities are value-creating and which are waste?

• In traditional business, value is created by delivering products or services to customers

• In a startup, the product and customer are unknowns

• We need a new definition of value for startups

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.

• Continuous deployment• Five why’s

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

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.com/– In print: http://bit.ly/SLLbookbeta & at the Webstock booth

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

• Lean Startup Wellington Meetup http://www.meetup.com/Lean-Startup-Wellington/@davemosk @joshuavial @maximonos @andrewfantastic

• Lean Startup Wikihttp://leanstartup.pbworks.com/

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