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

by Eric Ries

My goal in advocating a scientific approach to the creation of startups is to channel human creativity into its most productive form, and there is no bigger destroyer of creative potential than the misguided decision to persevere.

The heart of the scientific method is the realization that although human judgment may be faulty, we can improve our judgment by subjecting our theories to repeated testing.

It is about aligning our efforts with a business and product that are working to create value and drive growth.

The goal of creating learning milestones is not to make the decision easy; it is to make sure that there is relevant data in the room when it comes time to decide.

The problem with the notion of shipping a product and then seeing what happens is that you are guaranteed to succeed—at seeing what happens. But then what?

a zoom-in pivot, refocusing the product on what previously had been considered just one feature of a larger whole.

David did what I call a customer segment pivot, keeping the functionality of the product the same but changing the audience focus.

David had built the functionality he had promised, based on those early letters of intent. But when he went back to companies to collect his checks, he discovered more problems. Company after company procrastinated, delayed, and ultimately passed up the opportunity.

closing a real sale was much more difficult. It turned out that those companies were not early adopters.

certain thing. If he had been able to raise money, he could have kept the company going but would have been pouring money into a value-destroying engine of growth. He would be in a high-pressure situation:

what I call a platform pivot.

Instead of selling an application to one customer at a time,

He built a self-serve sales platform where anyone could become a customer w...

Votizen’s story exhibits some common patterns. One of the most important to note is the acceleration of MVPs. The first MVP took eight months, the next four months, then three, then

Votizen accelerated its MVP process because it was learning critical things about its customers, market, and strategy.

The true measure of runway is how many pivots a startup has left: the number of opportunities it has to make a fundamental change to its business strategy.

another way to extend that runway: get to each pivot faster.

Each pivot or persevere meeting requires the participation of both the product development and business leadership teams.

Any student of disruptive innovation would have looked on approvingly: they were following that system perfectly by initially serving customers who were unable to participate in the mainstream market. Over time, they believed, the product would become more and more sophisticated, eventually allowing users to serve (and disrupt) existing professional fund managers.

two leap-of-faith assumptions:

(the value hypothesis).

(the growth hypothesis).

investigate alternative possibilities. In this case, Wealthfront had pursued two important lines of inquiry.

The first was a series of conversations with professional money managers,

Wealthfront’s strategy was premised on the assumption that professional money managers would be reluctant to join the system because the increased transparency would threaten their sense of authority. Powers had no such concerns.

series of conversations

with other professional investment managers and brought the results...

Once you have found success with early adopters, you want to sell to mainstream customers. Mainstream customers have different requirements and are much more demanding. The kind of pivot we needed is called a customer segment pivot. In this pivot, the company realizes that the product it’s building solves a real problem for real customers but that they are not the customers it originally planned to serve.

Another example, LinkedIn shifting from its “lions” to a product for mainstream customers, ignoring the value the early adopters saw in the product and shifting its functionality to mainstream value at the cost of early adotpers

We needed to reacquaint ourselves with our new mainstream customers. Our interaction designers led the way by developing a clear customer archetype that was based on extensive in-person conversations and observation.

Those familiar with the technology life cycle ideas of theorists such as Geoffrey Moore know certain later-stage pivots by the names he has given them: the Chasm, the Tornado, the Bowling Alley.

Clayton Christensen will be familiar with established companies that fail to pivot when they should.

The critical skill for managers today is to match those theories to their present situation so that they apply th...

The critical first question for any lean transformation is: which activities create value and which are a form of waste?

What products do customers really want? How will our business grow? Who is our customer? Which customers should we listen to and which should we ignore? These are the questions that need answering as quickly as possible to maximize a startup’s chances of success. That is what creates value for a startup.

Sustainable growth follows one of three engines of growth: paid, viral, or sticky.

It seems more efficient to repeat the same task over and over, in part because we expect that we will get better at this simple task the more we do it.

Efficient processes depend on identifying the bottleneck in the process. Here, having to organize and relocate the piles of folded papers and stacked envelopes is the limiting step in the efficiency of the batch-step process. For one at a time approach, it’s the individual user efficiency, which is also a constraint in the batch-step process. However, all the organizing is done at the beginning, eliminating the impact of the limiting step and making the process more efficient. Ask, “what is the limiting step?” And, visualize or sample the process to figure it out.

the small batch production approach still would be superior, and for even more counterintuitive reasons.

With the large-batch approach, we wouldn’t find that out until nearly the end.

Seems more like a specs/planning issue where you would have done a single or several envelopes to get these right before scaling to large batch processing

The small-batch approach produces a finished product every few seconds, whereas the large-batch approach must deliver all the products at once, at the end.

What if it turns out that the customers have decided they don’t want the product? Which process would allow a company to find this out sooner?

Small batch. Much faster to produce and testing

used smaller general-purpose machines that could produce a wide variety of parts in small batches. This required figuring out ways to reconfigure each machine rapidly to make the right part at the right time. By focusing on this “changeover time,” Toyota was able to produce entire automobiles by using small batches throughout the process.

existing systems and tools often need to be reinvented to support working in smaller batches.

He was so relentless in rethinking the way machines were operated that he was able to reduce changeover times that previously took hours to less than ten minutes.

Every investment in better tools and process had a corresponding benefit in terms of shrinking the batch size of work.

Because of its smaller batch size, Toyota was able to produce a much greater diversity of products.

Toyota could serve its smaller, more fragmented markets and still compete with the mass producers.

The essential lesson is not that everyone should be shipping fifty times per day but that by reducing batch size, we can get through the Build-Measure-Learn feedback loop more quickly than our competitors can. The ability to learn faster from customers is the essential competitive advantage that startups must possess.

Lean Startup is that it is responding to pull requests in the form of experiments that need to be run.

As soon as we formulate a hypothesis that we want to test, the product development team should be engineered to design and run this experiment as quickly as possible, using the smallest batch size that will get the job done. Remember that 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 and then work backwards to see what product will work as an experiment to get that learning. Thus, it is not the customer, but rather our hypothesis about the customer, that pulls work from product development and other functions.

Process is only the foundation upon which a great company culture can develop.