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Kindle Notes & Highlights
by
Eric Ries
Successful entrepreneurs do not give up at the first sign of trouble, nor do they persevere the plane right into the ground. Instead, they possess a unique combination of perseverance and flexibility.
There are only two possible explanations: a failure of execution or a failure to plan appropriately.
We all need a disciplined, systematic approach to figuring out if we’re making progress and discovering if we’re actually achieving validated learning.
A startup’s job is to (1) rigorously measure where it is right now, confronting the hard truths that assessment reveals, and then (2) devise experiments to learn how to move the real numbers closer to the ideal reflected in the business plan.
Innovation accounting enables startups to prove objectively that they are learning how to grow a sustainable business.
Sellers want the marketplace with the highest number of potential customers. Buyers want the marketplace with the most competition among sellers, which leads to the greatest availability of products and the lowest prices.
a startup might prefer to build separate MVPs that are aimed at getting feedback on one assumption at a time.
customers are given the opportunity to preorder a product that has not yet been built.
By itself, this is insufficient to validate an entire growth model. Nonetheless, it can be very useful to get feedback on this assumption before committing more money and other resources to the product.
When one is choosing among the many assumptions in a business plan, it makes sense to test the riskiest assumptions first.
Every product development, marketing, or other initiative that a startup undertakes should be targeted at improving one of the drivers of its growth model.
a good design is one that changes customer behavior for the better.
cohort analysis. This is one of the most important tools of startup analytics.
Instead of looking at cumulative totals or gross numbers such as total revenue and total number of customers, one looks at the performance of each group of customers that comes into contact with the product independently. Each group is called a cohort.
pattern: poor quantitative results force us to declare failure and create the motivation, context, and space for more qualitative research.
Each pivot unlocks new opportunities for further experimentation, and the cycle repeats. Each time we repeat this simple rhythm: establish the baseline, tune the engine, and make a decision to pivot or persevere.
Split testing often uncovers surprising things. For example, many features that make the product better in the eyes of engineers and designers have no impact on customer behavior.
the key to student engagement was to offer them a combination of social and solo features. Students preferred having a choice of how to study.
stories could be cataloged as being in one of four states of development: in the product backlog, actively being built, done (feature complete from a technical point of view), or in the process of being validated.
When cause and effect is clearly understood, people are better able to learn from their actions. Human beings are innately talented learners when given a clear and objective assessment.
Each cohort analysis says: among the people who used our product in this period, here’s how many of them exhibited each of the behaviors we care about.
we saw four behaviors: downloading the product, logging into the product from one’s computer, engaging in a chat with other customers, and upgrading to the paid version of the product.
Only 5 percent of entrepreneurship is the big idea, the business model, the whiteboard strategizing, and the splitting up of the spoils. The other 95 percent is the gritty work that is measured by innovation accounting: product prioritization decisions, deciding which customers to target or listen to, and having the courage to subject a grand vision to constant testing and feedback.
that sometimes we see signals that aren’t there.
Startup 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.
Customers would be interested enough in the social network to sign up. (Registration) 2. Votizen would be able to verify them as registered voters. (Activation) 3. Customers who were verified voters would engage with the site’s activism tools over time. (Retention) 4. Engaged customers would tell their friends about the service and recruit them into civic causes. (Referral)
just enough to stay alive—but is not living up to the expectations of its founders and investors. Such companies are a terrible drain of human energy.
identified his leap-of-faith questions explicitly at the outset and, more important, had made quantitative predictions about each of them.
A pivot requires that we keep one foot rooted in what we’ve learned so far, while making a fundamental change in strategy in order to seek even greater validated learning.
When people are forced to change against their better judgment, the process is harder, takes longer, and leads to a less decisive outcome.
when an entrepreneur has an unclear hypothesis, it’s almost impossible to experience complete failure, and without failure there is usually no impetus to embark on the radical change a pivot requires.
entrepreneurs need to face their fears and be willing to fail, often in a public way. In fact, entrepreneurs who have a high profile, either because of personal fame or because they are operating as part of a famous brand, face an extreme version of this problem.
We humbly test our theories and our approach to see what the market thinks. Listen to feedback honestly. And continue to innovate in the directions we think will create meaning in the world.
In my experience, less than a few weeks between meetings is too often and more than a few months is too infrequent.
The game was free to play, but the team hoped that a percentage of the players would realize that they were lousy traders and therefore want to convert to paying customers once Wealthfront started offering real asset management services (the growth hypothesis).
purpose of those activities: testing a clear hypothesis in the service of the company’s vision.
Potbelly Sandwich Shop, which today has over two hundred stores. It began as an antique store in 1977; the owners started to sell sandwiches as a way to bolster traffic to their stores. Pretty soon they had pivoted their way into an entirely different line of business.
The critical first question for any lean transformation is: which activities create value and which are a form of waste?
the one envelope at a time approach is a faster way of getting the job done even though it seems inefficient.
The biggest advantage of working in small batches is that quality problems can be identified much sooner.
in the Lean Startup the goal is not to produce more stuff efficiently. It is to—as quickly as possible—learn how to build a sustainable business.
The ability to learn faster from customers is the essential competitive advantage that startups must possess.
The ideal goal is to achieve small batches all the way down to single-piece flow along the entire supply chain.
The churn rate is defined as the fraction of customers in any period who fail to remain engaged with the company’s product.
if the rate of new customer acquisition exceeds the churn rate, the product will grow.
The viral coefficient measures how many new customers will use a product as a consequence of each new customer who signs up. Put another way, how many friends will each customer bring with him or her?
For a product with a viral coefficient of 0.1, one in every ten customers will recruit one of his or her friends. This is not a sustainable loop.
viral loop with a coefficient that is greater than 1.0 will grow exponentially, because each person who signs up will bring, on average, more than one other person with him or her.
Companies that sell advertising actually serve two different groups of customers—consumers and advertisers—and exchange a different currency of value with each.2
If either company wants to increase its rate of growth, it can do so in one of two ways: increase the revenue from each customer or drive down the cost of acquiring a new customer.
