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

by Eric Ries

Previous technology X was used to win market Y because of attribute Z. We have a new technology X2 that will enable us to win market Y2 because we too have attribute Z.

The problem with analogies like this is that they obscure the true leap of faith. That is their goal: to make the business seem less risky.

There are several things to notice in this revised statement. First, it’s important to identify the facts clearly. Is it really true that progressive image loading caused the adoption of the World Wide Web, or was this just one factor among many? More important, is it really true that there are large numbers of potential customers out there who want our solution right now?

what is needed is to do some empirical testing first: let’s make sure that there really are hungry customers out there eager to embrace our new technology.

Analogs and Antilogs

He explains the analog-antilog

antilog concept by using the iPod as an example. “If you were looking for analogs, you would have to look at the Walkman,” he says. “It solved a critical question that Steve Jobs never had to ask himself: Will people listen to music in a public place using earphones? We think of that as a nonsense question today, but it is fundamental. When Sony asked the question, they did not have the answer. Steve Jobs had [the answer] in the analog [version]”

Jobs then had to face the fact that although people were willing to download music, they were not willing to pay ...

“Out of these analogs and antilogs come a series of unique, unanswered questions. Those are leaps of faith that I, as an entrepreneur, am taking if...

In the iPod business, one of those leaps of faith was that people would pay for music.” Of course that leap of...

Beyond “The Right Place at the Right Time”

for every successful entrepreneur who was in the right place in the right time, there are many more who were there, too, in that right place at the right time but still managed to fail.

We saw the same phenomenon with Facebook, which faced early competition from other college-based social networks whose head start proved irrelevant.

What differentiates the success stories from the failures is that the successful entrepreneurs had the foresight, the ability, and the tools to discover which parts of their plans were working brilliantly and which were misguided, and adapt their strategies accordingly.

Value and...

The first step in understanding a new product or service is to figure out if it is fundamentally value-creating or value-destroying.

there are many organizations that are wildly profitable in the short term but ultimately value-destroying, such as the organizers of Ponzi schemes, and fraudulent or misguided companies

A similar thing is true for growth.

There are many value-destroying kinds of growth that should be avoided. An example would be a business that grows through continuous fund-raising from investors and lots of paid advertising but does not develop a value-creating product. Such businesses are engaged in what I call success theater, using the appearance of growth to make it seem that they are successful.

innovation accounting requires that a startup have and maintain a quantitative financial model that can be used to evaluate progress rigorously. However, in a startup’s earliest days, there is not enough data to make an informed guess about what this model might look like. A startup’s earliest strategic plans are likely to be hunch- or intuition-guided, and that is a good thing.

GENCHI GEMBUTSU

In English, it is usually translated as a directive to “go and see for yourself” so that business decisions can be based on deep firsthand knowledge.

You cannot be sure you really understand any part of any business problem unless you go and see for yourself firsthand.

The 2004 Sienna was assigned to Yuji Yokoya, who had very little experience in North America, which was the Sienna’s primary market. To figure out how to improve the minivan, he proposed an audacious entrepreneurial undertaking: a road trip spanning all fifty U.S. states, all thirteen provinces and territories of Canada, and all parts of Mexico.

Yokoya discovered

“The parents and grandparents may own the minivan. But it’s the kids who rule it. It’s the kids who occupy the rear two-thirds of the vehicle. And it’s the kids who are the most critical—and the most appreciative

The results were impressive, boosting the Sienna’s market share dramatically. The 2004 model’s sales were 60 percent higher than those in 2003.

GET OUT OF THE BUILDING

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

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.

conversations yielded a fundamental insight: if Intuit could find a way to solve this problem, there could be a large mainstream audience on which it could build a significant business.

Design and the Customer Archetype

The goal of such early contact with customers is not to gain definitive answers. Instead, it is to clarify at a basic, coarse level that we understand our pot...

ANALYSIS PARALYSIS

6 TEST

We took a WordPress Blog and we skinned it to say Groupon and then every day we would do a new post. We would sell T-shirts on the first version of Groupon. We’d say in the write-up, “This T-shirt will come in the color red, size large. If you want a different color or size, e-mail that to us.”

A minimum viable product (MVP) helps entrepreneurs start the process of learning as quickly as possible.3 It is not necessarily the smallest product imaginable, though; it is simply the fastest way to get through the Build-Measure-Learn feedback loop with the minimum amount of effort.

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.

WHY FIRST PRODUCTS AREN’T MEANT T...

those early results were extremely significant in predicting IMVU’s future path. As you’ll see in Chapter 7, we were able to validate two of our leap-of-faith assumptions: IMVU was providing value for customers, and we had a working engine of growth. The gross numbers were small because we were selling the product to visionary early customers called early adopters

Early adopters use their imagination to fill in what a product is missing. They prefer that state of affairs, because what they care about above all is being the first to use or adopt a new product or technology.

Early adopters are suspicious of something that is too polished: if it’s ready for everyone to adopt, how much advantage can one get by being early? As a result, additional features or polish beyond what early adopters demand is a form of wasted resources and time.

This is a hard truth for many entrepreneurs to accept. After all, the vision entrepreneurs keep in their heads is of a high-quality mainstream product that will change the world, not one used by a small niche of people who are willing to give it a shot before it’s ready.

Deciding exactly how complex an MVP needs to be cannot be done formulaically. It requires judgment.

consider a service sold with a one-month free trial. Before a customer can use the service, he or she has to sign up for the trial. One obvious assumption, then, of the business model is that customers will sign up for a free trial once they have a certain amount of information about the service.

A critical question to consider is whether customers will in fact sign up for the free trial given a certain number of promised features

Somewhere in the busin...

specifies the “percentage of customers who see the free trial offer who then sign up.” Maybe in our projections we say that this number should be 10 percent. If you think about it, this is a leap-of-faith question. It really should be represented in giant lette...

Most entrepreneurs approach a question like this by building the product and then checking to see how customers react to it. I consider this to be exactly backward because it can lead to a lot of waste. First, if it turns out that we’re building something nobody wa...