The Lean Startup by Eric Ries (Summary)
By: Chitrak Kumar
Tags: Startup, Startup Lessons, Venture Capital, Entrepreneur, The Lean Startup

As today’s entrepreneur creates successful businesses, the most startup fails in the process to build successful and scalable businesses. The lean startup is a new approach being adopted across the globe and changing the way a company is built and new products are launched.

The book is split into these three parts: -

Vision

This book is a new way of looking at the development of innovative new products that emphasizes fast iteration and customer insight, a huge vision, and great ambition, all at the same time. Startups do not exist to make money, their goal is to learn how to build a sustainable business, it is a job that requires a new kind of management. In this split, Eric makes the case for a new discipline of entrepreneurial management and articulates a new way for startups to gauge if they are making progress, called validated learning. To do this you need to make two kinds of assumptions: the value hypothesis tests whether a product delivers value to the consumer. The second, the growth hypothesis tests how your product will spread to the customers.

Steer

In this spilt, the author gave us the most important tool “The feedback loop — Build, measure, learn” and it can be represented through the following steps: ideas > BUILD > product > MEASURE > data > LEARN > ideas, this loop is at the core of the Lean startup model. The leap of faith is the riskiest move but can generate some incredible results. Once the value hypothesis established, the growth hypothesis is the next critical aspect of the startup. Next, we have to create a minimum viable product (MVP) which is a physical version of the product that will allow entering the build phase. MVP can be everything, from a simple website, a video, a PowerPoint presentation, a prototype and it should be tested faster and cheaper to see early adopters are responding, quality doesn’t matter here. It is also the fastest way to get through the feedback loop with a minimum amount of effort.

Innovative accounting was one of the important measures, as it’s very important to understand that the changes were made to any product are in direct relation to the results and what are the correct lessons learned from each change. It can be done with the three steps process — first, establish real data from an MVP, then tune your engine to the ideal based on your measures and finally choose whether to pivot or persevere. Everything was going as planned but suddenly we realized that the stats were not improving and this will be the biggest challenge an entrepreneur can have, so we have to decide if there is a need to pivot or no.

Accelerate

In this technique, the startup learns to speed up through the feedback loop as quickly as possible. In contrast to a large-batch approach, the small-batch approach will be more useful as it focuses on creating a single finished product very regularly, every couple of seconds even. Building a sustainable business model is very inevitable to eliminate the effects of any one-time customer actions that will never transform into a long-term benefit.

Eric explains that past customers are able to promote sustainable growth in four different ways:

Repeat purchase Word of mouth Funded advertising Side effects of product use e.g., status symbols

There three main engines of growth as well.

Sticky engine — designed to attract and retain customers in the long term Viral engine — depends on person-to-person transmission Paid engine — based on the revenue you can make from each customer or the cost of acquiring a new customer

“Like the other engines, the paid engine of growth is powered by a feedback loop. Each customer pays a certain amount of money for the product over his or her “lifetime” as a customer.”

Conclusion

Below are the 5 principles that were at the core of the Lean Startup methodology and I find them very critical throughout the above stages.