The Lean Startup by Eric Ries

The book focuses on the concept of validated learning and the build-measure-learn feedback loop.

In general management, failure to deliver results is caused by failure to plan or failure to execute. Both are frowned upon. But in the modern economy, both are useful tools for testing new ideas.

A startup has a true north, its vision. It employs a strategy that includes a business model, a product road map, and a view of partners, competitors, and customers. The product is the result of the strategy. Products constantly change (engine tuning). Strategy changes occasionally (pivot). Vision rarely changes.

Using Lean Startup means you don’t spend lots of time building something that nobody wants.

What I learnt:

Find a business model that works through validation.

Use split-testing to tell value from waste.

Never ever indulge in vanity metrics.

Point 1:

This is for validating the idea, In order to find a sustainable business model (i.e. one that you can roll with for at least 5 years), you have to (like a scientist) create a hypothesis and validate them until you find what you are looking for.

Point 2:

This is for product development, Split testing or A/B testing helps to tell the difference between features your customers value, and those they don’t want or need.

Point 3:

This is for measuring growth, Facing the truth means facing the right metrics. The only metrics you should measure your success with are the ones who tell you if you’re profitable or not.

Disciplined experiments using Build-Measure-Learn feedback loop helps in learning faster, what the potential customers want and what might create a sustainable business model. To avoid any wastage of resources, learning quickly is also the goal.

Build

The MVP, Minimum Viable Product, allows you to measure actual customer behaviour, not just their opinions. Real customer action is the best form of data and get real results as people actually have to pull out their wallets.

Value hypothesis: What do the customers want? Do customers actually want what you’re planning to offer?

Growth hypothesis: How will the startup grow? Are the interested customers willing to pay?

Measure

Useful metrics should have three characteristics, known as the three A’s:

Actionable: There must be a clear cause and effect for an experiment. Otherwise, how will you know if you’re making progress?

Accessible: Make your metric as simple for everyone in the company to understand as possible. For example, not everyone understands what a website “hit” is, but everyone knows what a person who visited your site means. Consider putting key metrics on public display screens so everyone can see them.

Auditable: It should be possible to dig into the data to see how a particular metric is put together. This stops employees arguing about how the metric was constructed and allows people to focus on making progress.

Some examples can be

• Registration rate %
• Activation rate %
• Referral Rate %
• Lifetime Value (LTV)
• Customer Acquisition Cost (CPA)
• Net Promoter Score (NPS)

Using Cohorts and A/B testing to compare and validate the metrics.

Learn

When to Pivot:

You may feel like your startup is chugging along but not really gaining any real traction. The number one sign that you need to pivot is that your metrics aren’t good enough and that your experiments aren’t making any progress moving the needle.

There are many common types of pivot, including:

1. Zoom-In Pivot

Users really like a specific feature of your product. You decide to focus exclusively on this feature and drop all the others.

2. Zoom-Out Pivot

Your startup’s features aren’t enough on their own for customers, so you add more.

3. Customer Segment Pivot

Your product is great, but it’s solving a problem for the wrong group of users. You decide to pivot to a new target audience.

4. Customer Need Pivot

You’ve spent time understanding your customers, but the product you’ve built doesn’t solve a significant problem they have. You pivot to address a more important problem for the same customers.

5. Platform Pivot

A platform pivot involves changing from an application into a platform or vice versa.

6. Business Architecture Pivot

Here you pivot from a high margin and low volume sales approach to a low margin and high volume approach or vice versa.

7. Value Capture Pivot

In this pivot, you change the way you monetise your product. For example, you might move from an advertising model to a subscription model.

8. Engine of Growth Pivot

In this pivot, you change the way you attract customers. For example, you may move from an organic model to a paid model.

9. Channel Pivot

A channel pivot involves changing how you deliver your product to your customers. For example, you could pivot from selling directly to selling through third-party distributors.

10. Technology Pivot

A technology pivot happens when a company discovers how to deliver the same solution via a different technology, usually to save costs.

Accelerating: Engines of Growth

The only way to create a sustainable business is when new customers come from old customers. There are three ways to achieve this.

1. Sticky Growth Engine

With the sticky growth engine, when you acquire a customer, you want them to stick around for as long as possible. This type of engine is especially important for subscription services, social networks, and marketplaces.

Churn rate is a crucial metric for these types of businesses.

2. Viral Growth Engine

With the viral engine of growth, when you acquire a customer, you depend directly on that customer to bring in more new customers. If each customer brings in enough new customers, then this can lead to exponential growth.

Viral coefficient is a key metric for these types of businesses.

3. Paid Growth Engine

With the paid engine of growth, you pay to acquire new customers, for example, using ads. If a new customer generates more than it costs to acquire that customer, then you can use the excess profit to run more ads generating further profit.

Customer Acquisition Cost (CAC) and Lifetime Value (LTV) are critical metrics for these types of businesses.

Solving problems in growth

Small Batch Sizes

For a faster learning experience, build updates as frequently and as smaller as possible.

The 5 Whys

To find the root cause of a problem you can use the 5 Whys.

Ask why five times to get to the root of any problem. Example:

• Why did we get no new subscribers yesterday? Because the signup page was broken.
• Why was the signup page broken? Because it wasn’t connecting to the email database.
• Why? Because it was trying to access the old database.
• Why? Because the switch wasn’t something we tested.
• Why? Because the engineer didn’t realise a new database was being used.

By asking questions in this way, you get to the root cause of the problem. If you’d only asked two whys, you’d think that the cause of the problem was something entirely different.

The book reads more on innovations in larger companies. How to adapt to the system, how to protect the newer innovations from legacy products and vice versa etc.

I have shared those ideas which seemed relevant to my path and stayed with me through the book reading.

Cheers!