The Lean StartupHow Today’s Entrepreneurs Use Continuous

Innovation to Create Radically Successful Businessesby Eric Ries

Book review session with Vested for Growth by Ric Pratte

Taking the core concepts developed for lean manufacturing and utilize them for starting and building

a business

@RicPratte

Original Lean ConceptsLean manufacturing taught the world the difference between value-building activities and waste and showed how to build quality into products from the inside out

“Lean thinking is lean because it provides a way to do more and more with less and less – less human effort, less equipment, less time, and less space – while coming closer and closer to providing customers with exactly what the want”

J. Womack & D. Jones, Lean Thinking, 1st Edition

@RicPratte

Lean Manufacturing Lean Manufacturing is a production philosophy

Seeks to supply exactly what the customer wants, when the customer wants it.

Aims at supplying these goods and services with minimum waste. Eliminating waste along entire value streams, creates processes

that need less capital, human resources, less production space, and reduces the time to make products and services.

If implemented effectively, reduce the cost of producing goods and services, reduce the number of defect products and produce and deliver goods quickly to customers

Lean Manufacturing is a production design that can handle both internal and external variability, where variability in production efficiency, product quality and customer orders are sought handled and absorbed through the total design of the system.

@RicPratte

Lean Manufacturing economic Gains

Greater quality of goods

Fewer costs of producing goods and services

Quicker response time- faster delivery of goods and services

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The StartupA human institution designed to create new

products under conditions of extreme uncertainty

The goal of the startup is to figure out the right thing to build, the thing customers want and will pay for, as quickly as possible

The riskiest elements of a startup’s plan, the parts of which everything depends, leap-of-faith assumptions are the value hypothesis and grow hypothesis

Strategy is based upon assumptions

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The GoalStartup productivity is not about cranking out

more widgets or features. It is about aligning our efforts with a business and product that are working to create value and drive growth

If the fundamental goal of entrepreneurship is to engage in organization building under conditions of extreme uncertainty… then it’s most vital function is learning, validated learning Validated learning is backed by empirical data

collected from real customers.

@RicPratte

Startup ManagementMainstream management principles are ill suited

to handle the chaos & uncertainty that startups must face

Prior to lean manufacturing, managers were used to focusing on the utilization rate of each machine.

If a startup builds something that few people want then it doesn’t matter if it’s on time and on budget

@RicPratte

Lean in StartupsThe critical first question for any lean

transformation is: which activities create value and which are a form of waste.

The products a startup builds are really experiments; validated learning.How to build a sustainable business is the outcome

of those experiments

@RicPratte

SnapTax Idea: Automate the process of collecting tax info from W-2

forms

Learned: Few people know how to use scanners

Solution: Mobile phone picture to capture info

Learned from testing: People were interested in completing their return from their phone Created test version that only worked within CA

From a single picture can file a 1040EZ

350,000 downloads in 1st three weeks of going live

SnapTax was developed within Intuit (TurboTax)

Innovation is a bottoms up, decentralized and unpredictible thing, but that doesn’t mean it can’t be managed.

StoryTim

e

@RicPratte

Build – Measure – Learn

Validated learning

Validate strategic assumptions

Learn what customers really find valuable (pull)

Accelerate this feedback loop

Small quick cycles not major gambles

Build

Measure

Learn

The feedback loop at the core of the lean startup model

@RicPratte

Build: Turn ideas into products Minimum viable product

(MVP)

Concierge: start with one customer

Quick product releases/variations/tests

Customer archetype, a brief document that seeks to humanize the proposed target customer. If we don’t know who the customer is, we do not know what quality is

Build

Measure

Learn

Our first pass through the cycle

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Measure: See how customers respond

A systematic approach to figuring out if you’re making progress and actually achieving validated learning

How do customers react compared to goal?

Good design is one that changes customer behavior for the better

Split-test to find cause and effect

Metrics: Actionable; Accessible; & Auditable

Build

Measure

Learn

Our first pass through the cycle

@RicPratte

Learn: Pivot or persevere Which activities create

value?

What activities are waste?

Find and fix root causesBuild

Measure

Learn

Our first pass through the cycle

@RicPratte

Build: Minimum viable product In building your MVP, let

this simple rule suffice, remove any feature, process, or effort that does not contribute to directly to the learning you seek

First product targets early adopters, it does not need to be perfect.

Most overestimate feature volume, when in doubt… simplify

Build

Measure

Learn

@RicPratte

MVP at Dropbox Idea: File synchronization was a problem that most

people didn’t know they had (at the time) and the software needed to ‘work like magic’.

VCs weren’t interested since they thought it was a crowded space (not seeing the user experience opportunity)

Significant engineering hurdle to overcome to make the experience seamless.

Breakthrough: 3 Minute video targeted to early adopters demonstrating the concept.

Waiting list of users went from 5,000 to 75,000 overnight

Dropbox is now valued at over $1 Billion

StoryTim

e

@RicPratte

Build: Pull Concept of ‘pull’ in lean

manufacturing does not work the same in startup methodology

Customers do not really know what they want in product development.(i.e. Ford & faster horses)

‘Pull’ is to run an experiment to test underlying customer need hypothesis

Build

Measure

Learn

@RicPratte

Measure: Cohort Analysis Cohort analysis: among

the people who used our product in this period, here’s how many of them exhibited each of the behaviors we care about

Energy invested in success theater (vanity metrics) is energy that could have been used to help build a sustainable business

Build

Measure

Learn

@RicPratte

Traditional Cumulative Metrics

Just because your graphs are going up and to the right, doesn’t mean your business is doing well

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“Vanity Metrics”

@RicPratte

Cohort AnalysisEach conversion rate shows the percentage of customers

who registered in that month who subsequently went on to take the indicated action

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0.25

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0.35

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Stayed after 5mos

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Retainage

@RicPratte

Compare two startupsCompany 1

Sets out with clear baseline metricHypothesis on how to improve that metricSet of experiments designed to improve that

hypothesis

Company 2Debates on what would improve the product Implements several changes at oneCelebrates with any positive increase in any number

Which company is more likely to achieve lasting results?

ThinkTim

e

@RicPratte

Learn: Kanban Validated learning in a

Kanban board is a great way for developers to engage in how useful features work in a customer environment

Include validation planning from the beginning

Kanban: features are in four stages- Product backlog Being built Feature complete Process of validation

Build

Measure

Learn

@RicPratte

Learning at Grockit Idea: Bring peer-to-peer learning to help passing

standardized tests more affordable

Highly efficient engineering team delivering new product features.

Total number of customers were increasing. Not seeing growth in product use by customers Metrics would go up & down seemingly on their own Couldn’t draw clear cause and effect inferences

Changed to make sure improvements mattered to customers Launched each new feature as a true split-test experiment Learned many features had no impact on customer behavior

Learned students preferred having learning choices (styles) and created what customers wanted not what the company thought.

ThinkTim

e

@RicPratte

Learn: Pivot or Persevere Pivot: a structured course

correction designed to test a new fundamental hypothesis about the product, strategy and engine of growth.

Zoom-in pivot Zoom-out pivot Customer segment pivot Customer need pivot Platform pivot Business architecture pivot Value capture pivot Engine growth pivot Channel pivot

Build

Measure

Learn

@RicPratte

Batch Size

A cycle through the Build-Measure-Learn loop is a batch

Biggest advantage of working in small batches is that quality problems can be identified much sooner

Dramatically improve the speed at which startups find validated learning

Build

Measure

Learn

Small batch size of work units is an important lean concept

@RicPratte

B-M-L Summary

Although the feedback loop is Build-Measure-Learn because the activities happen in that order, planning really works in reverse order: Figure out what you need

to learn and then work in the reverse order

How will it be measured What product will work as

an experiment to get that learning

Build

Measure

Learn

@RicPratte

Lean Startup Summary Focus energy on minimizing the total time through the

feedback loop

Dramatically improve the speed at which startups find validated learning

Each time you repeat this simple rhythm: establish the baseline, tune the engine and make a decision to pivot or persevere

Once efforts are aligned with customer wants, experiments are more likely to change behavior for the better

Sustainable growth is characterized by one simple rule: New customers come from the actions of past customers