Lean Startup
Eric Ries
[[TOC]]
Sustainable startup business
::: mermaid graph LR; A[entrepreneurship] --> B[business]; B --> C[Mission]; C--> D[Vision]; :::
Build on a Strategy with
Business models
Ideas about: partners, competitors, consumers
Product (optimized over time)
Basic concepts
effort: Experiments that empirically test predictive hypotheses and validate strategies
Learning: It is the unit of measure of progress, and every effort should be directed to know what consumers want
validated knowledge: can be demonstrated through the indicators
Definitions and workflow
operates under extreme uncertainty
cannot be managed as a consolidated company
need for failure and continuous learning
Much of the time is focused on growing
Remove complex plans
It is better to make constant adjustments based on the feedback loop:
::: mermaid graph LR; A[create] --> B[measure ]; B[measure ] --> C[learning]; C --> A; :::
Create
Hypothesis
value creation
increase
We must discover what questions to ask
Business plan
assume things
strategies that assumes them.
proposal to achieve vision
growth engine
The first efforts should focus to prove this. At first there is not enough data to make solid guesses. The first strategic plans are based on intuitions.
MVP (Minimum viable product)
Test the base hypothesis
First contact with consumers, to see if we understand the customer and his problems.
Create an archetypal consumer
Simply do-it vs analysis paralysis (excess planning). A MVP allows you to recognize the limit between planning and doing
it may seem of poor quality, because we still don't know the needs of the consumer.
It is not the smallest product but the fastest way to enter the feedback circuit with the least effort.
May invalidate the growth model
You should avoid any work beyond that required to learn
Growth Engine
4 Ways Customers Drive Sustainable Growth
Word of Mouth - When people love your product, they’ll tell other people about it. Great word of mouth is often the Holy Grail of advertising. It’s cheap, incredibly effective, but also difficult to build deliberately.
A Side Effect of Using the Product – Many products advertise themselves. iPhones, Coach purses, and Gmail are great examples. Simply by using a product, a customer advertises your product to people around them.
Paid Advertising – This is what most businesses rely on. As long as you’re able to keep the cost of advertising below your marginal revenue from the campaign, you’ll do just fine. Businesses run into problems when they don’t keep advertising costs under control. To help you do this, make sure you’ve built a system that can track the effectiveness of the ads (Google Analytics, coupon codes, etc).
Repeat Use – Many products need to be bought repeatably in order to continue to use them. Magazine subscriptions, supplements, Netflix, and web hosting are all examples of this. When you have a product that requires repeated purchases, you only have to obtain a small number of new customers to keep growing.
3 engines of growth
The Sticky Engine of Growth If you’re focused on retaining customers for the long term, this is the engine you need to focus on. Maintaining a low customer attrition is absolutely critical. You need to do everything you can to keep your customers coming back month after month. Once you have an exceptionally low attrition rate, you only need to acquire a few new customers to keep your business growing. Before focusing on finding new customers, focus on your current ones.
The Viral Engine of Growth This is the domain of word of mouth and having your product advertise itself. Either by telling their friends or simply using your product, your customers will do your advertising for you. The most critical element of this engine is making sure the every customer brings more than one friend to your business. If 10 of your customers bring 11 of their friends to you, your business will grow rapidly. Because those 11 will bring 11 (or 12) of their friends. Every group will be bigger than the last an you’ll get compounding growth. Be careful about relying on this engine of growth, it’s incredibly difficult to build intentionally. For you to rely on viral marketing, your product needs to be absolutely incredible and fit your target market perfectly. If everything isn’t perfect, the viral loop will hit a dead end and you’ll run out of customers without other marketing.
The Paid Engine of Growth This is what most business owners are familiar with and every form of advertising falls into this category. Whether you’re using the yellow pages or Super Bowel ads, you’re buying your customers. When operating on this engine, each customer needs to give you a profit. If you’re spending a $1.00 to acquire a customer, you better be making enough to cover the $1.00, your other expenses, and leave a bit of profit left over. As long as you’re making a profit on each customer, you can invest those profits into more advertising to accelerate growth. Purchasing ads, employing sales teams, and leasing expensive real estate for foot traffic are all examples of the paid engine of growth. Make sure your costs are covered.
Measure
We need a disciplined and systematic approach to know if we are making progress and achieving validated learning. We call it Innovation Accounting.
Recognizing the starting point. Getting data using the MVP and trying the riskiest first
Optimize the growth engine, even if it requires many attempts
Decide whether to persevere or Pivot (change course)
Suitable indicators (Vicious vs. actionable)
We must avoid optimizing the wrong thing.
What matters most is what impacts the consumer
The indicators should be
actionable. must demonstrate a clear cause-effect relationship
accessible
Make reports as simple as possible so that everyone understands them.
use concrete and tangible units.
auditable
You should be able to test the data by hand.
Reports should be obtained from key data instead of complex systems.
a good practice would be that the reports could be extracted directly from the MVP databases.
The indicators should
validate hypothesis
validate the growth engine
Pivot or Persevere
Usually
the initial hypotheses are adjusted or changed
Strategies must be adapted
The growth engine usually moves
Supported by measurements, it must be decided whether to perceive or pivot
The Persevere approach is where we keep trying to prove our old (existing) hypothesis. We design new experiments or improve old experiments and see if those work
The Pivot is where we change our old hypothesis to create a new one. We find a new Minimum Viable Product and try to prove that this new hypothesis is true
Pivot
A structured course correction designed to test a new hypothesis about the product and business model
Zoom-in pivot. This pivot can be useful when you see that one feature in your product gets far more traction and interest than the other features in your product. You can then "pivot" by offering a new product that offers only that one feature. Obviously, by doing so you can dedicate more resources to perfecting this one feature (and really making sure the customer's job-to-be-done is well-catered to). You can also get to market more quickly and build an MVP more efficiently. For example, imagine you have a project management tool that offers a group chat functionality, bug tracking, agile board management, and time management. Pivoting your product to only offer the specialized time management solution could be more successful.
Zoom-out pivot. This is the above pivot in reverse. You broaden your product to include more features. Now what was considered the whole product becomes one (or several) features of a larger product.
Customer segment pivot. Your product may prove popular but not with the user segment that you had initially targeted. Therefore your product positioning may need to change and the value proposition, pricing, and channels would all need to be reviewed.
Customer need pivot. Life is too short to build products that nobody wants. Imagine you use the Lean Startup framework to identify early on that the problem you are trying to solve with your product is not very important to customers. Then you must understand more deeply the job that they are trying to do and find a problem they are willing to pay you to solve. You may need to point your existing product at a different customer "job" or you may need a completely new product.
Platform pivot. This talks about a change from an application to a platform or vice versa. Examples of platforms are eBay, AirBnb, Uber, Android store etc.
Business architecture pivot. Geoffrey Moore, author of Crossing the Chasm, tells us there are two types of business: high-margin, low-volume businesses and low-margin, high-volume businesses. You cannot be both but sometimes you can pivot from one to the other.
Value capture pivot. This pivot refers to changes to how you monetize or earn revenue. This is how the business captures value, typically by charging customers money. When you change how you make money, this impacts the product, business, sales, marketing and operational sides of the business model.
Engine of growth pivot. Most startups these days use one of three primary growth engines: the viral, sticky, and paid growth models. Viral growth is when current users recommend other users. Paid growth is when you spend marketing money on acquiring new customers. Sticky growth is when you manage to retain most of your users and churn rate is low. You can pivot from one of these growth engines to another. Note: The churn rate of a product or service the percentage of subscribers that stop subscribing in a given period.
Channel pivot. Here you change how and where you sell your products and services (in stores, online, through partners, in-app). Channel pivots therefore often require adjustments to many elements of the business model.
Technology pivot. This pivot is when a new technology can be used to achieve the same outcome. This can be beneficial if the new solution has lower cost and/or better performance.
Personal summary
a startup consist of two parts
a product
a production engine (systems, methodologies and human resources)
The Lean Startup method "creation> Measurement> learning" must be applied to both sides
The product
create a MVP
create the continues development system.
automate the development process to production
Robust to human errors
create the feedback system
Create an automatic measurement system
Understand the user's needs and their perception of the product
Perceverate or pivot
Analyze the growth engine
split-test. Product comparative versions.
The production engine
Improve the continuous development and feedback system
more robust to human errors
more accurate in your measurements
Design a training system
Reduce the time for a person to produce under the product
Discover and improve all parts of our product and production system
The 5 reasons
Find the origin of each problem, errors in its origin
Find automatic solutions to problems
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