The Lean Startup - Eric Ries

Genchi Gembutsu

"Go and see for yourself." Most important part of lean manufacturing vocabulary, critical part of the Toyota Way. Do not rely on anything other than what you see firsthand.

Minimum Viable Product Design Principle

"Remove any feature, process or effort that does not contribute directly to the learning you seek."

4 Questions for Product Development

1) Do customers recognize they have the problem you are trying to solve? 2) If there was a solution, would they buy it? 3) Would they buy it from us? 4) Can we build a solution for that problem?

2 Dangers of Market Research and the Solution

1) Just-do-it types who start building after only cursory customer conversations; 2) Analysis paralysis types. Answer is to keep researching until you can conceive of a Minimum Viable Product to test, but to stop researching at that point and test the MVP.

3 Steps of Innovation Accounting

1) Minimum Viable Product establishes real data to set baseline; 2) Attempt to tune engine from baseline to ideal; 3) If no more experiments can move closer to the ideal decision point: pivot or persevere.

3 Advantages of Validation

1) More accurate data about customer demand (real customer behavior vs. hypothetical; 2) Interaction with real customers to learn about needs; 3) Allows you to be surprised when customer acts unexpectedly

7 Sandbox Rules

1. Any team can create a split tests that only effects "sandboxes" parts of product or service; 2. One team must see experiment through to end; 3. Experiment must have specified end; 4. Experiment can only impact certain number of customers; 5. Experiment evaluated based on standard report of 5-10 actionable metrics; 6. Every team that works inside sandbox and every product built must use same metrics; 7. Team must monitor metrics and customer reactions while experiment is in progress, or end experiment if there is major problem.

2 Rules for Root Cause Analysis

1. Be tolerant of all mistakes the first time; 2. Never allow the same mistake twice.

5 Principles of Lean Startup

1. Entrepreneurs are everywhere 2. Entrepreneurship is management 3. Validated learning 4. Build-Measure-Learn 5. Innovation Accounting

4 Phases of Business

1. Scale (building product or service, getting into hands of customers); 2. Product Focus (product becomes public face, attracts competitors and copycats); 3. Operational Excellence (focus on increase margins, lower costs, differentiation, optimization); 4. Legacy (focus on reducing operating costs, maintaining market for product as long as possible).

3 Engines of Growth

1. Sticky engine of growth - focus on attracting and retaining customers over long term (rate of acquiring customers must exceed churn rate); 2. Viral engine of growth - customers do majority of marketing like Tupperware, network marketing (viral coefficient must be greater than 1 to succeed); 3. Paid engine of growth - each customer brings in enough revenue to advertise and bring in additional customers (lifetime value of customer must exceed cost per acquisition).

4 Tips for Using 5 Whys

1. Use a 5 Why's Master to facilitate; 2. Only apply to new problems that arise; 3. Everyone involved in issue must be involved in the meeting; 4. Remind everyone the purpose of 5 Why's each time you use it.

9 Pivots

1. Zoom In Pivot - Single feature becomes whole product or service. 2. Zoom Out Pivot - Whole product becomes single feature of bigger product. 3. Customer Segment Pivot - Product solves problem for different customers than originally thought. 4. Customer Need Pivot - Customers have different problem than originally thought. 5. Platform Pivot - Change from platform to application or vice versa. 6. Business Architecture Pivot - Switch from high margin/low volume to high volume/low margin or vice versa. 7. Value Capture Pivot - Change to the way the company captures value (monetization, revenue model, subscription, etc.) 8. Channel Pivot - Change in way product or service is delivered to customer (direct sale, network, affiliate, etc.) 9. Technology Pivot - Use of different technology to deliver same product or service.

Validated Learning

3rd principle of Lean Startups. Startups exist to LEARN how to build a SUSTAINABLE business which can be validated scientifically by running frequent experiments. Unit of progress for a business.

Build-Measure-Learn

4th principle of Lean Startups. The fundamental activity of startups is to 1) turn ideas into products, 2) measure customer response, 3) then pivot or persevere. All successful startup processes exist to accelerate feedback.

Vision

Goal of lean startup is to find a synthesis between the vision and what customers will accept.

Startup Defined

Human institution designed to create a new product or service under conditions of extreme uncertainty.

Quality Principle

If we do not know who the customer is, we do not know what quality is.

Scientific Method Lesson

If you cannot fail, you cannot learn

Actionable Metric (3 A's)

Measuring based on cohorts, split tests, and reaction to MVP tests. Each metric must be Actionable, Accessible, and Auditable.

Kanban

Method of limiting work until it is validated, which forces priority on validation throughout the work process. 4 buckets (backlog, in progress, built, validated) with rule limiting each bucket to set number of items (i.e. Only 4 things can be in the progress bucket at one time - to begin work on something new it must either be validated or abandoned).

4 Methods of Sustainable Growth

New customers come from the actions of past customers. Happens 4 ways: 1. Word of mouth; 2. Side effect of product usage (other see it being used and want it); 3. Self-Funded advertising (ads paid for completely out of revenue); 4. Repeat purchase or use.

Sandbox

Part of existing product or service that teams are allowed to experiment on (while remainder of product or service is "off limits" for experimentation). Primarily for established businesses and products.

The 5 Whys

Process of asking "why" 5 times to discover root cause of an identified problem. Tends to uncover human managerial or system issues versus surface issues.

Value

Providing benefit to the customer; anything else is waste.

Leap of Faith Questions

Questions that can validate either your Value Hypothesis or your Growth Hypothesis.

Growth Hypothesis

Tests how new customers will discover a product or service.

Value Hypothesis

Tests whether product or service really delivers value to customers once they use it.

Engine of Growth

The profit making engine of the business; every new version or feature of product, every new marketing innovation, all experiments are designed to tune the engine of growth.

Goal of Startups

To figure out the right thing to build - the thing customers want and will pay for - as quickly as possible. Emphasis is 1) fast iteration, 2) customer insight, and 3) huge vision/ambition

Runway

True measure of startup's runway is how many pivots they can make prior to running out of money. Pivoting faster can extend the runway.

Concierge MVP

Type of Minimum Viable Product. One-on-one product or service you can offer to first customers (often delivered by entrepreneur personally) to get real-time feedback on experiments before scaling.

Smoke Test MVP

Type of Minimum Viable Product. Signup page for "wait list" but no product. Could be a video describing product (Dropbox example).

Prototype MVP

Type of Minimum Viable Product. This is an actual prototype of the product or service with minimum number of features to conduct one turn of the Build-Measure-Learn loop.

Minimum Viable Product

Version of the product that allows a full turn of the Build-Measure-Learn loop with minimum effort and least development time.

Vision-Strategy-Product Triangle

Vision at base, followed by Strategy, with Product at the top. Products change constantly. Strategy changes sometimes (called a Pivot). Vision rarely changes.

Continuous Deployment / Andon Cord

When system detects a problem everything stops (like Andon Cord in Toyota Production System) until: 1. The defective change is removed immediately and automatically; 2. Everyone on team is notified of problem; 3. Team is blocked from introducing any other changes until... 4. The root cause of the problem is found and fixed.

Lean Startup

Application of lean thinking to the process of innovation

Customer Archetype

Brief document describing the proposed target customer.

Pivot

Change in strategy when tests prove that Growth or Value Engine cannot maintain a viable business under current strategy.

Vanity Metric

Common metrics used to evaluate startups (gross revenue, number of customers, etc.) These do not prove Value or Growth Engines are working.

W. Edwards Deming View of Customer

Customer is the most important part of the production process - should focus all energy on producing outcomes the customer finds valuable.

Early Adopters

Customers who feel the need for the product most acutely, tend to forgive mistakes and eager to give feedback.

Learning Milestone

Data collected from MVP experiments that provide baseline data on customer reaction to product or service. Examples include conversion rate, sign-up or trial rate, customer lifetime value, etc.

Taiichi Ohno and Shigeo Shingo

Developed Lean Manufacturing revolution at Toyota

Entrepreneurship

Entrepreneurs are everywhere (anyone creating product or service under extreme uncertainty). "Entrepreneur" should be a job title in all companies. (Principles 1 and 2 of Lean Startup).