Lean Startup Cycle
The fundamental activity of a startup is to turn ideas into products, measure how customers respond, and then learn whether to pivot or persevere. The entrepreneur’s focus is to measure progress, set up milestones, and knowing how to prioritize work. (Page 21)
Because startups often accidentally build something nobody wants, it doesn’t matter much if they do it on time and on budget. The goal of a startup is to figure out the right thing to build—the thing customers want and will pay for—as quickly as possible. (Page 33)
Products change constantly through the process of optimization, what I call tuning the engine. Less frequently, the strategy may have to change (called a pivot). However, the overarching vision rarely changes. Entrepreneurs are committed to seeing the startup through to that destination. Every setback is an opportunity for learning how to get where they want to go. (Page 37)
Established companies face the Innovator’s Dilemma: they are very good at creating incremental improvements to existing products and serving existing customers, which Christensen called sustaining innovation, but struggle to create breakthrough new products—disruptive innovation—that can create new sustainable sources of growth. (Page 48)
We must learn the truth about which elements of our strategy are working to realize our vision and which are just crazy. We must learn what customers really want, not what they say they want or what we think they should want. We must discover whether we are on a path that will lead to growing a sustainable business. (Page 56)
The value hypothesis tests whether a product or service really delivers value to customers once they are using it. (Page 82)
The point is not to find the average customer but to find early adopters: the customers who feel the need for the product most acutely. Those customers tend to be more forgiving of mistakes and are especially eager to give feedback. (Page 83)
- Do consumers recognize that they have the problem you are trying to solve? 2. If there was a solution, would they buy it? 3. Would they buy it from us? 4. Can we build a solution for that problem?” (Page 86)
Startups need to conduct experiments that help determine what techniques will work in their unique circumstances. For startups, the role of strategy is to help figure out the right questions to ask. (Page 102)
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. (Page 118)
In a Wizard of Oz test, customers believe they are interacting with the actual product, but behind the scenes human beings are doing the work. Like the concierge MVP, this approach is incredibly inefficient. Imagine a service that allowed customers to ask questions of human researchers—for free—and expect a real-time response. Such a service (at scale) would lose money, but it is easy to build on a micro scale. 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? (Page 133)
When one is choosing among the many assumptions in a business plan, it makes sense to test the riskiest assumptions first. (Page 149) For example, a company might spend time improving the design of its product to make it easier for new customers to use. This presupposes that the activation rate of new customers is a driver of growth and that its baseline is lower than the company would like. To demonstrate validated learning, the design changes must improve the activation rate of new customers. If they do not, the new design should be judged a failure. This is an important rule: a good design is one that changes customer behavior for the better. (Page 150)
Instead of looking at cumulative totals or gross numbers such as total revenue and total number of customers, one looks at the performance of each group of customers that comes into contact with the product independently. Each group is called a cohort. (Page 155)
Split testing often uncovers surprising things. For example, many features that make the product better in the eyes of engineers and designers have no impact on customer behavior. This was the case at Grockit, as it has been in every company I have seen adopt this technique. Although working with split tests seems to be more difficult because it requires extra accounting and metrics to keep track of each variation, it almost always saves tremendous amounts of time in the long run by eliminating work that doesn’t matter to customers. (Page 170)
Thus, stories could be cataloged as being in one of four states of development: in the product backlog, actively being built, done (feature complete from a technical point of view), or in the process of being validated. Validated was defined as “knowing whether the story was a good idea to have been done in the first place.” This validation usually would come in the form of a split test showing a change in customer behavior but also might include customer interviews or surveys. (Page 171)
Three A’s of metrics: actionable, accessible, and auditable. (Page 177) For a report to be considered actionable, it must demonstrate clear cause and effect. Otherwise, it is a vanity metric. (Page 177) Make the reports as simple as possible so that everyone understands them. (Page 178)
There is no bigger destroyer of creative potential than the misguided decision to persevere. (Page 183)
I recommend that every startup have a regular “pivot or persevere” meeting. In my experience, less than a few weeks between meetings is too often and more than a few months is too infrequent. (Page 200) Each pivot or persevere meeting requires the participation of both the product development and business leadership teams. The product development team must bring a complete report of the results of its product optimization efforts over time (not just the past period) as well as a comparison of how those results stack up against expectations (again, over time). The business leadership should bring detailed accounts of their conversations with current and potential customers. (Page 200)
Hospital pharmacies often deliver big batches of medications to patient floors once a day because it’s efficient (a single trip, right?). But many of those meds get sent back to the pharmacy when a patient’s orders have changed or the patient is moved or discharged, causing the pharmacy staff to do lots of rework and reprocessing (or trashing) of meds. (Page 237) The ideal goal is to achieve small batches all the way down to single-piece flow along the entire supply chain. (Page 239)
Incomplete designs, not-yet-validated assumptions, and most business plans are WIP. Almost every Lean Startup technique we’ve discussed so far works its magic in two ways: by converting push methods to pull and reducing batch size. Both have the net effect of reducing WIP. (Page 239)
Sustainable growth is characterized by one simple rule: New customers come from the actions of past customers (Page 247) This is word of mouth. Embedded in most products is a natural level of growth that is caused by satisfied customers’ enthusiasm for the product. (Page 247) Fashion or status, such as luxury goods products, drive awareness of themselves whenever they are used. When you see someone dressed in the latest clothes or driving a certain car, you may be influenced to buy that product. This is also true of so-called viral products such as Facebook and PayPal. (Page 247) 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. (Page 251) A viral loop with a coefficient that is greater than 1.0 will grow exponentially. (Page 254)
It is important to standardize your work processes and prepare a curriculum of the concepts that new employees should learn. Every new engineer would be assigned a mentor, who would help the new employee work through a curriculum of systems, concepts, and techniques he or she would need to become productive (Page 269)
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. (Page 278)
“If our production process is so fragile that you can break it on your very first day of work, shame on us for making it so easy to do so.” (Page 279) If they did manage to break it, we immediately would have them lead the effort to fix the problem as well as the effort to prevent the next person from repeating their mistake. For new hires who came from companies with a very different culture, this was often a stressful initiation, but everyone came through it with a visceral understanding of our values. Bit by bit, system by system, those small investments added up to a robust product development process that allowed all our employees to work more creatively, with greatly reduced fear. (Page 279)
Be tolerant of all mistakes the first time but never allow the same mistake to be made twice. The first rule encourages people to get used to being compassionate about mistakes, especially the mistakes of others. Remember, most mistakes are caused by flawed systems, not bad people. The second rule gets the team started making proportional investments in prevention. (Page 280)