The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses is a book by Eric Ries(1978-) who is an American entrepreneur, blogger, and author.
“The Lean Startup” was originally published in 2011. According to the publisher, the book has sold over one million copies and has been translated into more than thirty languages. It was also listed on The New York Times Best Sellers.
The Build-Measure-Learn feedback loop:
Don’t wait until you can make “the perfect product” to enter the market, create an MVP (minimal viable product), which is a product with very basic features, put it out there in the market, and see how people react to it, and collect data to help you measure customers behavior towards your product, learn from those reactions and apply what you learned to your product in order to improve it. This is the key concept of the “Lean Startup”.
According to Eric Ries, planning and forecasting are only useful when your business operations have been stable and where the environment is static, startups have neither of these.
Too much planning, for startups, makes the process rigid and too risky. On the other side, we want to avoid the “just do it” strategy because we don’t want to operate in chaos, so the build-measure-learn feedback loop might be the best option.
The goal is to progress through this loop as quickly as possible and constantly improve our product/service, based on the feedback we get from customers, to meet the market’s expectations
The reason why a lot of startups fail, according to Ries, is because they believe in the myth that says you shouldn’t reveal your ideas in public or someone is going to steal them from you.
Too many startups start with an idea for a product that they assume people want. They then spend months, now and again years, perfecting that product without ever revealing it, even in an introductory form, to the potential customers. When they fail to attain large uptake from clients, it’s far regular due to the fact they in no way spoke to potential clients and decided whether or not the product was interesting in the first place. When clients, in the end, communicate, thru their indifference, that they do not care approximately the concept, the startup fails.
Every startup is a grand experiment:
The best way to learn about your customers’ needs and willingness to pay for your products is through experiment. And the best way to experiment is by observing not asking. Consumers aren’t so good at telling what’s the next product you should be offering them, so just go ahead and show them a product and observe how they react and whether or not they show an interest in it.
The first question an experiment is supposed to answer is: “should this product even be built? “. Starting by finding an answer to this question is going to save us a lot of time and resources, we don’t want to spend money and time building something that the market doesn’t even need.
When the answer to that first question is confirmed, then we can move ahead and ask ourselves if can build a sustainable business around this set of products and services.
Growth engines:
Once we have confirmed that our product has value to provide and deserves to be on the market, it’s time to focus on growth and choose what’s called “an engine of growth”.
As stated by Ries, there are 3 different types of growth engines and each startup should pick only one and work on improving the metrics associated with it:
- The sticky engine: is designed to attract and retain customers for the long term. The goal is to make customers stay engaged with our business for as long as possible, hence we work on delighting existing customers and making their experiences with our products/services satisfying and worthwhile. companies with a sticky growth engine use 2 metrics to measure whether they’re progressing toward their objectives or not: the customer acquisition rate and the churn rate ( the rate at which customers stop doing business with a company over a given period).
- The viral engine: businesses that adopt a viral engine of growth want to spread like epidemics. They place emphasis on increasing person-to-person transmission. In other words, for every new customer joining us, we want them to invite one or more other people. To measure the success of a company of this sort we use a metric called: the viral coefficient(the number of new users or customers the average customer generates).
- The paid engine: it’s about using different forms of advertising to reach customers, then we calculate the cost per acquisition CPA to see how much it costs us to attract each customer, and the lifetime value LTV. The difference between how profitable a client is during its lifetime and how much it costs us to attract them determines our growth rate. Growth rate= LTV-CPE.
Validated learning:
Eric Ries puts high emphasis on the importance of validated learning through the process of lean startup, to the point he considers that everything that doesn’t lead to validated learning is a waste. He wants entrepreneurs to use validated learning as a unit of measurement for progress. He says that this is “a rigorous method for demonstrating progress when one is embedded in the soil of extreme uncertainty”.
Ries claims that if entrepreneurship is fundamentally about managing under conditions of uncertainty then learning is its most vital purpose.
The Lean Startup by Eric Ries remains one of the best books ever written on how to start and manage a startup, it provides a scientific and very practical approach to creating and growing a business in the most optimal ways.
“The Lean Startup method teaches you how to drive a startup-how to steer, when to turn, and when to persevere-and grow a business with maximum acceleration.”
Oeconomia 