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
@RicPratte
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
@RicPratte
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
@RicPratte
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
Janu
ary
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March
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Novem
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80
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New Signups
Janu
ary
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Octob
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Decem
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0
100
200
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400
500
600
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900
Total Current Users
“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
0.2
0.25
0.3
0.35
0.4
0.45
0.5
0.55
Stayed after 5mos
0.7
0.75
0.8
0.85
0.9
0.95
1
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
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