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

by Eric Ries

The fundamental activity of a startup is to turn ideas into products, measure how customers respond, and then learn whether to pivot or persevere. All successful startup processes should be geared to accelerate that feedback loop.

The goal of a startup is to figure out the right thing to build—the thing customers want and will pay for—as quickly as possible.

Innovation is a bottoms-up, decentralized, and unpredictable thing, but that doesn’t mean it cannot be managed.

a company’s only sustainable path to long-term economic growth is to build an “innovation factory” that uses Lean Startup techniques to create disruptive innovations on a continuous basis.

Leadership requires creating conditions that enable employees to do the kinds of experimentation that entrepreneurship requires.

Unfortunately, “learning” is the oldest excuse in the book for a failure of execution. It’s what managers fall back on when they fail to achieve the results we promised. Entrepreneurs, under pressure to succeed, are wildly creative when it comes to demonstrating what we have learned. We can all tell a good story when our job, career, or reputation depends on it.

Our failure to move the numbers prodded us to accelerate our efforts to bring customers into our office for in-person interviews and usability tests. The quantitative targets created the motivation to engage in qualitative inquiry and guided us in the questions we asked;

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

We adopted the view that our job was to find a synthesis between our vision and what customers would accept; it wasn’t to capitulate to what customers thought they wanted or to tell customers what they ought to want.

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.

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

For Long-Term Change, Experiment Immediately

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.

growth hypothesis, which tests how new customers will discover a product or service,

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.

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?”

“Until we could figure out how to sell and make the product, it wasn’t worth spending any engineering time on.”

“Success is not delivering a feature; success is learning how to solve the customer’s problem.”

By all accounts, what impressed investors the most were two facts about Facebook’s early growth. The first fact was the raw amount of time Facebook’s active users spent on the site. More than half of the users came back to the site every single day.2 This is an example of how a company can validate its value hypothesis—that customers find the product valuable. The second impressive thing about Facebook’s early traction was the rate at which it had taken over its first few college campuses. The rate of growth was staggering: Facebook launched on February 4, 2004, and by the end of that month almost three-quarters of Harvard’s undergraduates were using it, without a dollar of marketing or advertising having been spent. In other words, Facebook also had validated its growth hypothesis.

Every business plan begins with a set of assumptions. It lays out a strategy that takes those assumptions as a given and proceeds to show how to achieve the company’s vision. 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.

Acting as if these assumptions are true is a classic entrepreneur superpower. They are called leaps of faith precisely because the success of the entire venture rests on them. If they are true, tremendous opportunity awaits. If they are false, the startup risks total failure.

entrepreneurs must, in Steve Blank’s famous phrase, “get out of the building” and start learning.

In my Toyota interviews, when I asked what distinguishes the Toyota Way from other management approaches, the most common first response was genchi gembutsu—whether I was in manufacturing, product development, sales, distribution, or public affairs. You cannot be sure you really understand any part of any business problem unless you go and see for yourself firsthand. It is unacceptable to take anything for granted or to rely on the reports of others.6

the facts that we need to gather about customers, markets, suppliers, and channels exist only “outside the building.”

Startups need extensive contact with potential customers to understand them, so get out of your chair and get to know them. 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.8

Followers of the just-do-it school of entrepreneurship are impatient to get started and don’t want to spend time analyzing their strategy. They’d rather start building immediately, often after just a few cursory customer conversations.

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.

Because of the short time line, none of the prototypes involved advanced technology. Instead, they were MVPs designed to test a more important question: what would be required to get customers to engage with the product and tell their friends about it?

If we do not know who the customer is, we do not know what quality is.

Customers don’t care how much time something takes to build. They care only if it serves their needs.

As you consider building your own minimum viable product, let this simple rule suffice: remove any feature, process, or effort that does not contribute directly to the learning you seek.

The only way to win is to learn faster than anyone else.

Every product development, marketing, or other initiative that a startup undertakes should be targeted at improving one of the drivers of its growth model. For example, a company might spend time improving the design of its product to make it easier for new customers to use. This presupposes that the activation rate of new customers is a driver of growth and that its baseline is lower than the company would like. To demonstrate validated learning, the design changes must improve the activation rate of new customers. If they do not, the new design should be judged a failure.