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

by Eric Ries

if the plan is to see what happens, a team is guaranteed to succeed—at seeing what happens—but won’t necessarily gain validated learning.

This is one of the most important lessons of the scientific method: if you cannot fail, you cannot learn.

A true experiment follows the scientific method. It begins with a clear hypothesis that makes predictions about what is supposed to happen.

Just as scientific experimentation is informed by theory, startup experimentation is guided by the startup’s vision.

Zappos

started by running an experiment. His hypothesis was that customers were ready and willing to buy shoes online. To test it, he began by asking local shoe stores if he could take pictures of their inventory. In exchange for permission to take the pictures, he would post the pictures online and come

back to buy the shoes at full price if a customer bought them online.

If Zappos had relied on existing market research or conducted a survey, it could have asked what customers thought they wanted. By building a product instead, albeit a simple one, the company learned much more:

It had more accurate data about customer demand because it was observing real customer behavior, not asking hypothetical questions.

It put itself in a position to interact with real customers and lea...

It allowed itself to be surprised when customers behaved in unexpected ways,

This qualitative learning is a necessary companion to quantitative testing. Although

Hewlett-Packard (HP),

Caroline, who leads global community involvement, is a social entrepreneur working to get more of HP’s employees to take advantage of the company’s policy on volunteering.

most employees do not know that this volunteering policy exists, and only a tiny fraction take advantage of it.

In accordance with traditional management practices, Barlerin is spending time planning, getting buy-in from various departments and other managers, and preparing a road map of initiatives for the first eighteen months of her project. She also has a strong accountability framework with metrics for the impact her project should have on the company over the next four years. Like many entrepreneurs, she has a business plan that lays out her intentions nicely. Yet despite all that work, she is—so far—creating one-off wins and no closer to knowing if her vision will be able to scale.

Perhaps longtime employees would feel a desire to reaffirm their values of giving back to the community by volunteering. A second assumption could be that they would find it more satisfying and therefore more sustainable to use their actual workplace skills in a volunteer capacity, which would have a greater impact on behalf of the organizations to which they donated their time. Also lurking within Caroline’s plans are many practical assumptions about employees’ willingness to take the time to volunteer, their level of commitment and desire, and the way to best reach them

The Lean Startup model offers a way to test these hypotheses rigorously, immediately, and thoroughly. Strategic planning takes months to complete; these experiments could begin immediately.

The first step would be to break down the grand vision into its component parts. The two most important assumptions entrepreneurs make are what I call the value hypothesis and the growth hypothesis.

The value hypothesis tests whether a product or service really delivers value to customers once they are using it.

What could we see in real time that would serve as a proxy for the value participants were gaining from volunteering? We could find opportunities for a small number of employees to volunteer and then look at the retention rate of those employees. How many of them sign up to volunteer again? When

For the growth hypothesis, which tests how new customers will discover a product or service, we can do a similar analysis. Once the program is up and running, how will it spread among the employees, from initial early adopters to mass adoption throughout the company?

would the early participants actively spread the word to other employees?

The point is not to find the average customer but to find early adopters: the customers who feel the need for the product most acutely. Those customers tend to be more forgiving of mistakes and are especially eager to give feedback.

Next, using a technique I call the concierge minimum viable product (described in detail in Chapter 6), Caroline could make sure the first few participants had an experience that was as

good as she could...

Unlike in a focus group, her goal would be to measure what the customers actually did. For example, how many of the first volunteers actually complete their volunteer assignments? How many volunteer a second time? How many are willing to recru...

Additional experiments can expand on this early feedback and learning. For example, if the growth model requires that a certain percentage of participants share their experiences with colleagues and encourage their participation, the degree to which that takes place can be tested even with a very small sample of people. If ten people complete the first experiment, how many do we expect to volunteer again? If they are asked to recruit a colleague, how many do we exp...

If the numbers from such early experiments don’t look promising, there is clearly a problem with the strategy. That doesn’t mean it’s time to give up; on the contrary, it means it’s time to get some immediate qualitative feedback about how to improve the program. Here’s where this kind of experimentation has an advantage over traditional market research. We don’t have to commission a survey or find new

people to interview. We already have a cohort of people to talk to as well as knowledge about their actual behavior: the participants in the initial experiment.

This entire experiment could be conducted in a matter of weeks, less than one-tenth the time of the traditional strategic planning process. Also, it can happen in parallel with strategic...

In the Lean Startup model, an experiment is more than just a theoretical inquiry; it is also a first product. If this or any other experiment is successful, it allows the manager to get started with his or her campaign: enlisting early adopters, adding employees to each further experiment or iteration, and eventually starting to build a product. By the time that product is ready to be distributed widely, it will already have established customers.

Mark explained, “Traditionally, the product manager says, ‘I just want this.’ In response, the engineer says, ‘I’m going to build it.’ Instead, I try to push my team to first answer four questions: 1. Do consumers recognize that 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?” The common tendency of product development is to skip straight to the fourth question and build a solution before confirming that customers have the problem.

As we’ve seen, even the seasoned managers and executives at the world’s best-run companies struggle to consistently develop and launch innovative new products. Their challenge is to overcome the prevailing management thinking that puts its faith in well-researched plans. Remember, planning is a tool that only works in the presence of a long and stable operating history. And yet, do any of us feel that the world around us is getting more and more stable every day?

Build-Measure-Learn feedback loop is at the core of the Lean Startup model.

we need to focus our energies on minimizing the total time through this feedback loop. This is the essence of steering a startup

I call the riskiest elements of a startup’s plan, the parts on which everything depends, leap-of-faith assumptions. The two most important assumptions are the value hypothesis and the growth hypothesis.

Once clear on these leap-of-faith assumptions, the first step is to enter the Build phase as quickly as possible with a minimum viable product (MVP).

Although we write the feedback loop as Build-Measure-Learn because the activities happen in that order, our planning really works in the reverse order: we figure out what we need to learn, use innovation accounting to figure out what we need to measure to know if we are gaining validated learning, and then figure out what product we need to build to run that experiment and get that measurement.

Because the assumptions haven’t been proved to be true (they are assumptions, after all) and in fact are often erroneous, the goal of a startup’s early efforts should be to test them as quickly as possible.

All successful sales models depend on breaking down the monolithic view of organizations into the disparate people that make them up.

The first step in this process is to confirm that your leap-of-faith questions are based in reality, that the customer has a significant problem worth solving.

we can craft a customer archetype, a brief document that seeks to humanize the proposed target customer. This archetype is an essential guide for product development and ensures that the daily prioritization decisions that every product team must make are aligned with the customer to whom the company aims to appeal.

Contrary to traditional product development, which usually involves a long, thoughtful incubation period and strives for product perfection, the goal of the MVP is to begin the process of learning, not end it. Unlike a prototype or concept test, an MVP is designed not just to answer product design or technical questions. Its goal is to test fundamental business hypotheses.

The lesson of the MVP is that any additional work beyond what was required to start learning is waste, no matter how important it might have seemed at the time.

the video was the minimum viable product. The MVP validated Drew’s leap-of-faith assumption that customers wanted the product he was developing not because they said so in a focus group or because of a hopeful analogy to another business, but because they actually signed up.

In a concierge MVP, this personalized service is not the product but a learning activity designed to test the leap-of-faith assumptions in the company’s growth model.

You have to commit to a locked-in agreement—ahead of time—that no matter what comes of testing the MVP, you will not give up hope.

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

startups have a strong need for a new kind of accounting geared specifically to disruptive innovation. That’s what innovation accounting is.