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

by Eric Ries

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 ar...

Hidden among these mundane details are a handful of assumptions that require more courage to state—in the present tense—with a straight face: 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 true, tremendous opportunity awaits. If they are false, the start...

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. They are used to persuade investors, employees, or partners to sign on.

There is nothing intrinsically wrong with basing strategy on comparisons to other companies and industries.

“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 I go through with this business venture. They are going to make or break my business.

In the iPod business, one of those leaps of faith was that people would pay for music.” Of course that leap of faith turned out to be correct.4

There are any number of famous entrepreneurs who made millions because they seemed to be in the right place at the right time. However, 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.

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.

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

A similar thing is true for growth. As with value, it’s essential that entrepreneurs understand the reasons behind a startup’s 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 ...

At Toyota, this goes by the Japanese term genchi gembutsu, which is one of the most important phrases in the lean manufacturing vocabulary. 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.

It is common to think of selling to consumers as easier than selling to enterprises, because customers lack the complexity of multiple departments and different people playing different roles in the purchasing process.

Numbers tell a compelling story, but I always remind entrepreneurs that metrics are people, too.

Still, the 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.

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 potential customer and what problems they have.

With that understanding, we can craft a customer archetype, a brief document that seeks to humanize the proposed target customer.

Other entrepreneurs can fall victim to analysis paralysis, endlessly refining their plans.

The problem with most entrepreneurs’ plans is generally not that they don’t follow sound strategic principles but that the facts upon which they are based are wrong.

A minimum viable product (MVP) helps entrepreneurs start the process of learning as quickly as possible.

the goal of the MVP is to begin the process of learning, not end it.

Its goal is to test fundamental business hypotheses.

Before new products can be sold successfully to the mass market, they have to be sold to early adopters. These people are a special breed of customer. They accept—in fact prefer—an 80 percent solution; you don’t need a perfect solution to capture their interest.

most entrepreneurs and product development people dramatically overestimate how many features are needed in an MVP. When in doubt, simplify.

Somewhere in the business model, probably buried in a single cell in a spreadsheet, it specifies the “percentage of customers who see the free trial offer who then sign up.”

If you think about it, this is a leap-of-faith question. It really should be represented in giant letters in a bold red font: WE ASSUME 10 PERCENT OF CUSTOMERS WILL SIGN UP.

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 bac...

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.

In particular, Dropbox needed to test its leap-of-faith question: if we can provide a superior customer experience, will people give our product a try?

They believed—rightly, as it turned out—that file synchronization was a problem that most people didn’t know they had.

This is not the kind of entrepreneurial question you can ask or expect an answer to in a focus group.

In this case, 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.

That one early adopter got the concierge treatment. Instead of interacting with the FotT product via impersonal software, she got a personal visit each week from the CEO of the company.

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.

“We self-funded the company and released very cheap prototypes to test. What became Aardvark was the sixth prototype. Each prototype was a two- to four-week effort. We used humans to replicate the back end as much as possible.

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?

At that scale, it allowed Max and Damon to answer these all-important questions: If we can solve the tough technical problems behind this artificial intelligence product, will people use it? Will their use lead to the creation of a product that has real value?

One of the most vexing aspects of the minimum viable product is the challenge it poses to traditional notions of quality.

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.

MVPs require the courage to put one’s assumptions to the test.

the most common objection I have heard over the years to building an MVP is fear of competitors—especially large established companies—stealing a startup’s ideas. If only it were so easy to have a good idea stolen!

most managers in most companies are already overwhelmed with good ideas. Their challenge lies in prioritization and execution, and it is those challenges that give a startup hope of surviving.

A head start is rarely large enough to matter, and time spent in stealth mode—away from customers—is unlikely to provide a head start. The only way to win is to learn faster than anyone else.

Similarly, entrepreneurs in existing organizations often are constrained by the fear of damaging the parent company’s established brand. In either of these cases, there is an easy solution: launch the MVP under a different brand name.