The Lean Startup: The Million Copy Bestseller Driving Entrepreneurs to Success

by Eric Ries

David decided to undertake what I call a zoom-in pivot, refocusing the product on what previously had been considered just one feature of a larger whole. Think of the customer comments above: customers like the concept, they like the voter registration technology, but they aren’t getting value out of the social networking part of the product.

First, vanity metrics can allow entrepreneurs to form false conclusions and live in their own private reality.

Second, when an entrepreneur has an unclear hypothesis, it’s almost impossible to experience complete failure, and without failure there is usually no impetus to embark on the radical change a pivot requires.

Third, many entrepreneurs are afraid. Acknowledging failure can lead to dangerously low morale.

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. In other words, the product hypothesis is confirmed only partially. (This chapter described such a pivot in the Votizen story, above.)

cycle over. It felt like the company’s second

testing a clear hypothesis in the service of the company’s vision.

The one envelope at a time approach is called “single-piece flow” in lean manufacturing. It works because of the surprising power of small batches. When we do work that proceeds in stages, the “batch size” refers to how much work moves from one stage to the next at a time. For example, if we were stuffing one hundred envelopes, the intuitive way to do it—folding one hundred letters at a time—would have a batch size of one hundred. Single-piece flow is so named because it has a batch size of one.

Why does stuffing one envelope at a time get the job done faster even though it seems like it would be slower? Because our intuition doesn’t take into account the extra time required to sort, stack, and move around the large piles of half-complete envelopes when it’s done the other way.2 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. Unfortunately, in process-oriented work like this, individual performance is not nearly as important as the overall performance of the system.

The biggest advantage of working in small batches is that quality problems can be identified much sooner. This is the origin of Toyota’s famous andon cord, which allows any worker to ask for help as soon as they notice any problem, such as a defect in a physical part, stopping the entire production line if it cannot be corrected immediately. This is another very counterintuitive practice. An assembly line works best when it is functioning smoothly, rolling car after car off the end of the line. The andon cord can interrupt this careful flow as the line is halted repeatedly. However, the benefits of finding and fixing problems faster outweigh this cost. This process of continuously driving out defects has been a win-win for Toyota and its customers. It is the root cause of Toyota’s historic high quality ratings and low costs.

The ideal goal is to achieve small batches all the way down to single-piece flow along the entire supply chain. Each step in the line pulls the parts it needs from the previous step. This is the famous Toyota just-in-time production method.8

Therefore, companies using the sticky engine of growth track their attrition rate or churn rate very carefully.

The rules that govern the sticky engine of growth are pretty simple: if the rate of new customer acquisition exceeds the churn rate, the product will grow. The speed of growth is determined by what I call the rate of compounding, which is simply the natural growth rate minus the churn rate.

Like the other engines of growth, the viral engine is powered by a feedback loop that can be quantified. It is called the viral loop, and its speed is determined by a single mathematical term called the viral coefficient.

The key to the andon cord is that it brings work to a stop as soon as an uncorrectable quality problem surfaces—which forces it to be investigated.

This is one of the most important discoveries of the lean manufacturing movement: you cannot trade quality for time.

How do you decide if the investment in training is worth the benefit of speed due to reduced interruptions? Figuring this out from a top-down perspective is challenging, because it requires estimating two completely unknown quantities: how much it will cost to build an unknown program against an unknown benefit you might reap. Even worse, the traditional way to make these kinds of decisions is decidedly large-batch thinking.

The core idea of Five Whys is to tie investments directly to the prevention of the most problematic symptoms. The system takes its name from the investigative method of asking the question “Why?” five times to understand what has happened (the root cause).

This technique was developed as a systematic problem-solving tool by Taiichi Ohno, the father of the Toyota Production System.

I recommend several tactics for escaping the Five Blames. The first is to make sure that everyone affected by the problem is in the room during the analysis of the root cause. The meeting should include anyone who discovered or diagnosed the problem, including customer service representatives who fielded the calls, if possible. It should include anyone who tried to fix the symptom as well as anyone who worked on the subsystems or features involved. If the problem was escalated to senior management, the decision makers who were involved in the escalation should be present as well.

This may make for a crowded room, but it’s essential. In my experience, whoever is left out of the discussion ends up being the target for blame. This is just as damaging whether the scapegoat is a junior employee or the CEO. When it’s a junior employee, it’s all too easy to believe that that person is replaceable. If the CEO is not present, it’s all too easy to assume that his or her behavior is unchangeable. Neither presumption is usually correct.

ask teams to adopt these simple rules: Be tolerant of all mistakes the first time. Never allow the same mistake to be made twice.

Whenever something goes wrong, ask yourself: How could I prevent myself from being in this situation ever again?

For example, the first time I used the Five Whys successfully, I used it to diagnose problems with one of our internal testing tools that did not affect customers directly. It may be tempting to start with something large and important because that is where most of the time is being wasted as a result of a flawed process, but it is also where the pressure will be greatest.

session. Many organizations face the temptation to save time by sparing busy people from the root cause analysis. This is a false economy, as IGN discovered the hard way.

As an internal startup grows, the entrepreneurs who created the original concept must tackle the challenge of scale.

As new mainstream customers are acquired and new markets are conquered, the product becomes part of the public face of the company, with important implications for PR, marketing, sales, and business development.

Once the market for the new product is well established, procedures become more routine. To combat the inevitable commoditization of the product in its market, line extensions, incremental upgrades, and new forms of marketing are essential.

The problem for startups and large companies alike is that employees often follow the products they develop as they move from phase to phase. A common practice is for the inventor of a new product or feature to manage the subsequent resources, team, or division that ultimately commercializes it. As a result, strong creative managers wind up getting stuck working on the growth and optimization of products rather than creating new ones. This tendency is one of the reasons established companies struggle to find creative managers to foster innovation in the first place. Every new innovation competes for resources with established projects, and one of the scarcest resources is talent.

How do we know that the problem is due to a special cause versus a systemic cause? If we’re in the middle of adopting a new way of working, the temptation will always be to blame the new system for the problems that arise. Sometimes that tendency is correct, sometimes not. Learning to tell the difference requires theory. You have to be able to predict the outcome of the changes you make to tell if the problems that result are really problems.

switching to validated learning feels worse before it feels better. That’s the case because the problems caused by the old system tend to be intangible, whereas the problems of the new system are all too tangible. Having the benefit of theory is the antidote to these challenges. If it is known that this loss of productivity is an inevitable part of the transition, it can be managed actively. Expectations can be set up front.

We can see our forests vanishing, our water-powers going to waste, our soil being carried by floods into the sea; and the end of our coal and our iron is in sight. But our larger wastes of human effort, which go on every day

through such of our acts as are blundering, ill-directed, or inefficient … are less visible, less tangible, and are but vaguely appreciated. We can see and feel the waste of material things. Awkward, inefficient, or ill-directed movements of men, however, leave nothing visible or tangible behind them. Their appreciation calls for an act of memory, an effort of the imagination. And for this reason, even though our daily loss from this source is greater than from our waste of material things, the one has stirred us deeply, while the other has moved us but little.1