The Lean Startup: How Today's Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses

by Eric Ries

We are adding the principles of The Lean Startup to GE’s long tradition of continuous improvement, and across GE there are many projects where we are learning, iterating, and delivering outcomes in a new way. We call this new process FastWorks.

GE’s founder, Thomas Edison, said he “readily absorbed ideas from every source,” and we’re continuing this tradition.

We do everything wrong: instead of spending years perfecting our technology, we build a minimum viable product, an early product that is terrible, full of bugs and crash-your-computer-yes-really stability problems.

Then we ship it to customers way before it’s ready. And we charge money for it. After securing initial customers, we change the product constantly—much too fast by traditional standards—shipping new versions of our product dozens of times every single day.

We really did have customers in those early days—true visionary early adopters—and we often talked to them and asked for their feedback. But we emphatically did not do what they said. We viewed their input as only one source of information about our product and overall vision. In fact, we were much more ...

It builds on many previous management and product development ideas, including lean manufacturing, design thinking, customer development, and agile development.

five principles of the Lean Startup,

Entrepreneurs are everywhere

my definition of a startup: a human institution designed to create new products and services under conditions of extreme uncertainty.

Entrepreneurship is management

Validated learning

They exist to learn how to build a sustainable business. This learning can be validated scientifically by running frequent experiments that allow entrepreneurs to test each element of their vision.

Build-Measur...

Innovation accounting

To improve entrepreneurial outcomes and hold innovators accountable, we need to focus on the boring stuff: how to measure progress, how to set up milestones, and how to prioritize work. This requires a new kind of accounting designed for startups—and the people who hold them accountable.

Startups do not yet know who their customer is or what their product should be. As the world becomes more uncertain, it gets harder and harder to predict the future. The old management methods are not up to the task. Planning and forecasting are only accurate when based on a long, stable operating history and a relatively static environment. Startups have neither.

This book is divided into three parts: “Vision,” “Steer,” and “

new way for startups to gauge if they are making progress, called validated learning.

“Steer” dives into the Lean Startup method in detail, showing one major turn through the core Build-Measure-Learn feedback loop.

pivot (changing course with one foot anchored to the ground)

In “Accelerate,” we’ll explore techniques that enable Lean Startups to speed through the Build-Measure-Learn feedback loop as quickly as possible, even as they scale.

consider the recommendation that you build cross-functional teams and hold them accountable to what we call learning milestones instead of organizing your company into strict functional departments (marketing, sales, information technology, human resources, etc.) that hold people accountable for performing well in their specialized areas

Instead of making complex plans that are based on a lot of assumptions, you can make constant adjustments with a steering wheel called the Build-Measure-Learn feedback loop. Through this process of steering, we can learn when and if it’s time to make a sharp turn called a pivot or whether we should persevere along our current path.

Products change constantly through the process of optimization, what I call tuning the engine. Less frequently, the strategy may have to change (called a pivot). However, the overarching vision rarely changes.

Entrepreneurs who operate inside an established organization sometimes are called “intrapreneurs” because of the special circumstances that attend building a startup within a larger company. As I have applied Lean Startup ideas in an ever-widening variety of companies and industries, I have come to believe that

intrapreneurs have much more in common with the rest of the community of entrepreneurs than most people believe.

A startup is a human institution designed to create a new product or service under conditions of extreme uncertainty.

cultivating entrepreneurship is the responsibility of senior management. Today, a cutting-edge company such as Intuit can point to success stories like SnapTax because it has recognized the need for a new management paradigm.

Because TurboTax does most of its sales around tax season in the United States, it used to have an extremely conservative culture. Over the course of the year, the marketing and product teams would conceive one major initiative that would be rolled out just in time for tax season. Now they test over five hundred different changes in a two-and-a-half-month tax season. They’re running up to seventy different tests per week. The team can make a change live on its website on Thursday, run it over the weekend, read the results on Monday, and come to conclusions starting Tuesday; then they rebuild new tests on Thursday and launch the next set on Thursday night. As Scott put it, “Boy, the amount of learning they get is just immense now.

And what it does is develop entrepreneurs, because when you have only one test, you don’t have entrepreneurs, you have politicians, because you have to sell. Out of a hundred good ideas, you’ve got to sell your idea. So you build up a society of politicians and salespeople. When you have five hundred tests you’re running, then everybody’s ideas can run. And then you create entrepreneurs who run and learn and can retest and relearn as opposed to a society of politicians. So we’re trying to drive that throughout our organization, using examples which have nothing to do with high tech, like the website example. Every business today has a website. You don’t have to be high tech to use fast-cycle testing.

Brad explained to me how they hold themselves accountable for their new innovation efforts by measuring two things: the number of customers using products that didn’t exist three years ago and the percentage of revenue coming from offerings that did not exist three years ago.

It’s moving leaders from playing Caesar with their thumbs up and down on every idea to—instead—putting in the culture and the systems so that teams can move and innovate at the speed of the experimentation system.

In the Lean Startup model, we are rehabilitating learning with a concept I call validated learning. Validated learning is not after-the-fact rationalization or a good story designed to hide failure. It is a rigorous method for demonstrating progress when one is embedded in the soil of extreme uncertainty in which startups grow.

It is more concrete, more accurate, and faster than market forecasting or classical business planning.

Metcalfe’s law: the value of a network as a whole is proportional to the square of the number of participants.

IM products have high switching costs. To switch from one network to another, customers would have to convince their friends and colleagues to switch with them.

Except our customers still didn’t like the product. They would look at us and say, “Listen, old man, you don’t understand. What is the deal with this crazy business of inviting friends before I know if it’s cool?” It was a total deal breaker.

We had the incorrect preconception that it’s a challenge to learn new software and it’s tricky to move your friends over to a new buddy list. Our customers revealed that this was nonsense. We wanted to draw diagrams on the whiteboard that showed why our strategy was brilliant, but our customers didn’t understand concepts like network effects and switching costs. If we tried to explain why they should behave the way we predicted, they’d just shake their heads at us, bewildered.

our early adopters used many different IM programs simultaneously. Our customers were not intimidated by the idea of having to take their friends with them to a new IM network; it turned out that they enjoyed that challenge. Even more surprising, our assumption that customers would want to use avatar-based IM primarily with their existing friends was also wrong. They wanted to make new friends, an activity that 3D avatars are particularly well suited to facilitating. Bit by bit, customers tore apart our seemingly brilliant initial strategy.

which of our efforts are value-creating and which are wasteful? This question is at the heart of the lean manufacturing revolution;

Lean thinking defines value as providing benefit to the customer; anything else is waste.

But in a startup, who the customer is and what the customer might find valuable are unknown, part of the very uncertainty that is an essential part of the definition of a startup. I realized that as a startup, we needed a new definition of value.

I’ve come to believe that learning is the essential unit of progress for startups. The effort that is not absolutely necessary for learning what customers want can be eliminated. I call this validated learning because it is always demonstrated by positive improvements in the startup’s core metrics.

validated learning is backed up by empirical data collected from real customers.

Positive changes in metrics became the quantitative validation that our learning was real. This was critically important because we could show our stakeholders—employees, investors, and ourselves—that we were making genuine progress, not deluding ourselves. It is also the right way to think about productivity in a startup: not in terms of how much stuff we are building but in terms of how much validated learning we’re getting for our efforts.

All the existing social products online were centered on customers’ real-life identity. IMVU’s avatar technology, however, was uniquely well suited to help people get to know each other online without compromising safety or opening themselves up to identity theft. Once we formed this hypothesis, our experiments became much more likely to produce positive results. Whenever we would change the product to make it easier for people to find and keep new friends, we discovered that customers were more likely to engage.

What we needed to demonstrate was that our product development efforts were leading us toward massive success without giving in to the temptation to fall back on vanity metrics and “success theater”—the work we do to make ourselves look successful.

The Lean Startup is not a collection of individual tactics. It is a principled approach to new product development. The only way to make sense of its recommendations is to understand the underlying principles that make them work.

In the modern economy, almost any product that can be imagined can be built. The more pertinent questions are “Should this product be built?” and “Can we build a sustainable business around this set of products and services?” To answer those questions, we need a method for systematically breaking down a business plan into its component parts and testing each part empirically.

In other words, we need the scientific method.