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

by Eric Ries

This entire experiment could be conducted in a matter of weeks,

Also, it can happen in parallel with strategic planning while the plan is still being formulated.

AN EXPERIMENT IS A PRODUCT

an experiment is more than just a theoretical inquiry; it is also a first product.

By the time that product is ready to be distributed widely, it will already have established customers. It will have solved real problems and offer detailed specifications for what needs to be built.

“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.

There were two main hypotheses underlying the proposed event album: 1. The team assumed that customers would want to create the albums in the first place. 2. It assumed that event participants would upload photos to event albums created by friends or colleagues.

The Kodak Gallery team built a simple prototype of the event album.

even at that early stage, allowing customers to use the prototype helped the team refute their hypotheses. First, creating an album was not as easy as the team had predicted; none of the early customers were able to create one. Further, customers complained that the early product version lacked essential features. Those negative results demoralized the team. The usability problems frustrated them, as did customer complaints about missing features, many of which matched the original road map.

The initial product—flaws and all—confirmed that users did have the desire to create event albums, which was extremely valuable information. Where customers complained about missing features, this suggested that the team was on the right track. The team now had early evidence that those features were in fact important.

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

A LEAN STARTUP IN GOVERNMENT?

My suggestion was drawn straight from the principles of this chapter: treat the CFPB as an experiment, identify the elements of the plan that are assumptions rather than facts, and figure out ways to test them. Using these insights, we could build a minimum viable product and have the agency up and running—on a micro scale—long before the official plan was set in motion.

The number one assumption underlying the current plan is that once Americans know they can call the CFPB for help with financial fraud and abuse, there will be a significant volume of citizens who do that. This sounds reasonable, as it is based on market research

If the actual call volume differs markedly from that in the plan, it will require significant revision.

Once the agency is up and running with a $500 million budget and a correspondingly large staff, altering the plan will be expensive and time-consuming, but why wait to get feedback? To start experimenting immediately, the agency could start with the creation of a simple hotline number,

With a few hours’ work, they could add simple voice prompts, offering callers a menu of financial problems to choose from. In the first version, the prompts could be drawn straight from the existing research.

Instead of marketing this hotline to the whole country, the agency could run the experiment in a much more limited way: start with a small geographic area, perhaps as small as a few city blocks, and instead of paying for expensive television or radio advertising to let people know about the service,

What we would learn from this experiment would be invaluable. On the basis of the selections of those first callers, the agency could immediately start to get a sense of what kinds of problems Americans believe they have, not just what they “should” have.

Most important, this product would serve as a seed that could germinate into a much more elaborate service. With this beginning, the agency could engage in a continuous process of improvement, slowly but surely adding more and better solutions.

Part Two STEER

How Vision Leads to Steering

At its heart, a startup is a catalyst that transforms ideas into products. As customers interact with those products, they generate feedback and data. The feedback is both qualitative (such as what they like and don’t like) and quantitative (such as how many people use it and find it valuable).

the products a startup builds are really experiments; the learning about how to build a sustainable business is t...

We can visualize this three-step process with this simple diagram:

Plenty of entrepreneurs focus their energies on the individual nouns: having the best product idea or the best-designed initial product or obsessing over data and metrics.

Instead, we need to focus our energies on minimizing the total time through this feedback loop.

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). The MVP is that version of the product that enables a full turn of the Build-Measure-Learn loop with a minimum amount of effort and the least amount of development time.

When we enter the Measure phase, the biggest challenge will be determining whether the product development efforts are leading to real progress. Remember, if we’re building something that nobody wants, it doesn’t much matter if we’re doing it on time and on budget.

innovation accounting, a quantitative approach that allows us to see whether our engine-tuning efforts are bearing fruit.

learning milestones, which are an alternative to traditional business a...

If we’ve discovered that one of our hypotheses is false, it is time to make a major change to a new strategic hypothesis.

5 LEAP

how Facebook was able to raise so much money when its actual usage was so small.

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

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

In other words, Facebook also had validated its g...

Facebook was different, because it employed a different engine of growth. It paid nothing for customer acquisition, and its high engagement meant that it was accumulating massive amounts of customer attention every day.

startups need to conduct experiments that help determine what techniques will work in their unique circumstances. For startups, the role of strategy is to help figure out the right questions to ask.

STRATEGY IS BASED ON ASSUMPTIONS

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 ...

The first challenge for an entrepreneur is to build an organization that can test these assumptions systematically. The second challenge, as in all entrepreneurial situations, is to perform that rigorous testing without losing sight of the company’s overall vision.

Many assumptions in a typical business plan are unexceptional.

In Facebook’s case, it was clear that advertisers would pay for customers’ attention.

Hidden among these mundane details are a handful of assumptions that require more courage to state—in

we assume that customers have a significant desire to use a product like ours, or we assume that supermarkets will carry our product. 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 tru...

Most leaps of faith take the form of an argum...