Book Summary: The Lean Startup by Eric Ries

The Lean Startup Quick Summary: The Lean Startup approach fosters companies that are both more capital efficient and more effective at leveraging human creativity. Inspired by lessons from lean manufacturing, it relies on “validated learning,” rapid scientific experimentation, and a set of counterintuitive practices that shorten product development cycles, measure actual progress without relying on vain metrics, and learn what customers really want. This allows a company to flexibly change direction and alter its plans inch by inch, minute by minute.

Rather than wasting time crafting complicated business plans, The Lean Startup offers entrepreneurs – in companies of all sizes – the opportunity to continually test, adjust, and change their visions before it’s too late. Ries offers a scientific approach to creating and managing successful startups at a time when companies need to innovate more than ever.

You do not have to read the entire book if you don’t have time. This book summary provides an overview of everything you can learn from it.

You may also read some popular quotes from The Lean Startup here.

Let’s get started without further ado.

In this The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses book summary, I’m going to cover the following topics:

The Lean Startup Key Takeaways

  • Launch your company sooner rather than later.
  • Start small, see if it grows, and be prepared to let it go and move on to the next thing if you fail. 
  • Measure the minimum viable product correctly.
  • Establish a baseline and always test your product on the riskiest assumption you can make. Only if the baseline looks secure can you build on it.
  • It is better to measure your success by how many additional customers each one of your current customers brings in, not just to measure success by sales.
  • If it is doing well, always ask ‘Why?’ When you’ve worked out what is creating the success, then you can start adapting it to make it even better. If it’s not doing well you also need to ask ‘Why?’ Adapt and change (‘Pivot or Persevere’ is the instruction the author uses here). 
  • There are ‘Three Engines of Growth’ by which to measure your success: ‘Sticky’, a measure of how many customers you are acquiring; ‘Viral’, the number of additional customers each customer brings; and ‘Paid’, the amount each customer will spend. If all three are doing well you’re onto a winner.

The Lean Startup Book Summary

Lesson 1: The Essence of vision

Once a business idea is born, it cannot remain in limbo. Nor can you throw all caution to the wind and approach the business without some form of vision or plan. So to create a viable startup – to give form to the idea – you have to know what path the startup will take, and that is the essence of the vision.

The vision includes the strategy and possible changes to the strategy, which Eric Reis describes as pivots, a business model, a plan for a product line, a clear understanding of how the market works, possible partnerships, customers, and market competitors.

But even then, startup companies fail when it comes to implementing what a vision entails. To do that, you need to keep in mind the other cardinal points of the Lean methodology.

Lesson 2: The Essence of validated Learning

It’s always exciting to learn something new; after all, knowledge is power, or so they say. Eric Reis suggests that learning should not just be about education.

He believes that the most important thing is to question what you have learned, to compare what you have learned with reality to see if it still fits; to validate what you have learned, to test its truthfulness, and now to examine whether it would solve a problem that people have.

Eric Reiss discovered this cardinal principle while working on developing a 3D virtual world and plugins for chat tools in IMVU. At his startup in 2004, during the initial testing phase, he found that consumers were not keen on getting the plugins for their chat software, nor could they even install these plugins for their chat software; rather, they preferred to install new chat software and also use more chat software.

When Eric Reis learned this, he quickly started his experiments and got the confirmation he needed from the number of users and an in-depth analysis of the users’ attitudes. Based on this, he understood what was needed from his startup, kept it, and removed everything that was no longer needed.

Lesson 3: Focus on Making Money Early

Business startups survive when there is revenue to sustain their operations. When there are end-users who buy the products, they provide revenue that sustains their survival. Buying the product is a way to validate the product.

One of the strategies Eric Reis used with his startup was to start billing early. Many startups make the mistake of resting on making money to build goodwill or focus on product development, but Eric’s strategy paid off, and it helped his team, too. Early income is best because even if it’s low, it guarantees the company’s continued success.

Some startups waste time developing products without asking customers to pay early, instead of waiting for the time when they think consumers will want to pay for their products and services. This delay is dangerous for the startup’s time to be unnecessarily cautious. During this time, other companies would have already developed and launched a product similar to what the startup wants to develop and market.

It is important for the startup to begin marketing early so that it knows how valuable its product is to its customers, as this will allow it to connect with its ideal customers early on. For this reason, it is necessary to experiment and test products in time.

Lesson 4: The Essence of Experimentation

For insight into why experimentation is essential to any successful product development, learn from the founder of Zappos. When the Zappos singer first started out, he not only built a website and offered shoes for sale, but he took photos of shoes in various stores and uploaded them online.

When a customer ordered a shoe, he would buy the shoe from one of the different stores and send it to the customer. This small innovation in product delivery eventually led Zappos to a significant milestone.

Over time, the demand for their products increased, they learned the best price for their products, and they became aware of some basic complaints and other challenges like the logistics of doing business with minimal costs. All this led Amazon to buy the company for a considerable amount of money within the short time it started its operations.

Lesson 5: Build-Measure-Learn Phase

Scientifically, a hypothesis is the root of all experiments. This is also the case in the business realm. Hypothesis, no matter how little it may be, must begin with every business that needs growth. The hypothesis can take the form of:

Price hypothesis – aimed at testing the value of products to consumers.

Marketing hypothesis – aimed at profit-making by sensitizing consumers about the company’s products.

However, the price and marketing hypothesis is no mean feat in a startup without the help of the build-measure-learn phase. This is the cranium behind every successful startup. Therefore, startups must be able to measure and build their minimum viable products (MVP).

Lesson 6: Have Absolute Faith in the Product

Startups must have great confidence in their product and take the risk of bringing it to market. The risk of going to market can be reduced by experimenting and testing the products. It is important to note that Groupon’s idea of creating a blog and mailing list came from an initial failed attempt, but with determination, this approach has helped ideal customers solve various types of problems over time.

Drew Houston did not have an investor willing to put his money into his startup, but he went ahead to make the uniqueness of his product clear with a video. Steve Jobs also had his own beliefs when he launched the iPod. The first belief was that users would love to be able to listen to music anywhere when they were in the mood, especially if they covered their ears.

This was already an existing product from Sony, cue Walkman. Still, Apple stole the show from Sony, which stagnated because it did not want to expose its music production to more torture from pirates, which made Steve’s other idea even more explosive.

The second idea was that people would pay for music on the Internet, as opposed to the usual way of downloading music from the Internet. Steve nailed it again, playing on the fact that he had an excellent interface for the iPod, that Apple had unique storage, and that the songs were better quality than most pirated songs.

Another company that had a good vision and believed in its product was Intuit. A company based on the idea that in the near future businesses would use computers to pay bills, keep track of their expenses, finances and accounts.

To test the concept, the founders called people at random to see how the vision would play out in practice and how successful it was.

Like Groupon, Drew, Intuit and Steve, startups should not let fear stop them from launching and testing products for fear that the public will reject them or they will not find investors. That’s the essence of testing, to validate the idea. Apple was heavily criticized for the iPods and it was even predicted that they would fail with it, but they had a smooth and friendly user interface that made people overlook the shortcomings and even pay more to get music online.

Startups should not give up on their dream for fear of competition from more experienced companies. In fact, large companies suffer from having too many products to choose from and having to wonder how to launch and market the products available to them.

Startups should take advantage of other companies’ confusion by testing their products much earlier to gain the loyalty of their customers, who would likely trust their products more. This would give the startup its MVP (Minimum Viable Product) and the opportunity to improve the product to meet the tastes of consumers who have used the product and responded in a certain way or even openly suggested possible improvements to the MVP, as was the case with Apple.

It is true that when a product is launched early, the MVP, for example, a technical product, can be full of bugs. However, the startup should not be discouraged by this, but focus on its ideal customers, making sure the product solves a specific problem for them, and work on ways to improve the product.

As long as the product is useful to consumers, they will most likely overlook the shortcomings and, as mentioned earlier, provide feedback that will lead to the improvement of the product.

To minimize the risk of receiving negative reviews or jumping into launching the product without sound knowledge, startups should experiment with the product. They should also analyze the market’s reaction to the product in order to generate more revenue from the product.

Lesson 7: How to Measure the Minimum Viable Products and Test a Product

Having validated knowledge is very crucial to product development. It is the cornerstone of the build measure and learn loop, this loop ensures that an idea is gotten, built on, experimented on in the market and provides viable information of customer reaction. Then how can you go about measuring your minimum viable products (MVP)?

There is no hard or fast rule for measuring a minimum viable product. As said earlier, it could be done in many ways but the end purpose is to have validated learning of reactions to the products by the analysis of the number of users and their behavior.

However, the MVP can be measured by using some techniques such as an ideal group of customers and checking the value of products to them Vis a Vis how the product solves a problem from said selected consumers. The reactions of these consumers are what would provide the basis for building what would be the MVP, (minimum viable product) of which their value, need, and possible improvements would be decided on careful study of the number of users, user behavior.

Also, it can be measured by the metric system, which was proposed by Eric, the metric system he called the good metric. He listed the metrics as follows:

  • The possibility of acting on the product, ways to change or improve it
  • The ease of usage
  • Whether it is a trustworthy product

Lesson 8: Test a Product

There are several ways you can test a product. For example, through a blog and mailing list, as Andrew Mason did in the early stages for his Groupon.

Andrew Mason accomplished this by interacting directly with consumers without any form of automated interaction with them. During this time, it was difficult for Mason because there was no software to test the idea with and everything was done manually.

The success of Mason’s Groupons laid the groundwork for the development of software that would automate such interactions. The development of the software led to it becoming the heart of Groupon.

In addition, one could also take inspiration from Drew Houston, the founder of Dropbox, who vehemently opposed reluctant investors who did not want to invest in a cloud storage startup because they felt the market for it was already dominated by other companies.

Drew had a vision, a different kind of strategic path his startup would take and was not willing to back down or change his view. He sought validation for his idea by shooting a video introducing the product as a different way to shop files. The interest he generated with his video led him to develop Dropbox.

That’s why startups need to test their products because it gives them validated insights into how consumers will react to their products.

Lesson 9: Continue or Pivot?

A pivot should be done strategically and as quickly as possible when the startup discovers that its product is not a market fit so as not to cause regret that the pivoting wasn’t done earlier as the company could end up not surviving. One should follow the path of the many companies that have quickly pivoted and benefited from it. For instance, the Wealth front pivoted from an equity management service for investors to an investment management company for consumers on the internet.

Pivot has different types. It is crucial to have an understanding of the different types to know the one that best fits one’s peculiar circumstances. The types of the pivot are as follows:

  • Internal Pivot: This type of pivot arises when the function of an MVP becomes the new product, and the focus is to improve the part of the system that already works;
  • External pivot: This occurs when the current MVP becomes a feature of a new product;
  • Customer Segment Pivot: The product is the same but marketed to other consumers from those initially targeted, in a bid to see where the outcome would have value to them;
  • Customer need pivot: The consumer is the same, but the product is changed to suit the consumer;
  • Platform Pivot: Here, the product becomes a host for other products;
  • Business Architecture Pivot: This is when the company drastically changes its business model in pursuit of capturing more value, for instance from high – margin to low volume or vice versa;
  • Value pivot: Here, the company alters the way it earns revenue for its services;
  • The engine of Growth Pivot: This occurs when the company changes the method it gets customers. Some startups do pay marketing, and some have their consumers recommend them to others, companies can decide to pivot either way;
  • Channel Pivot: This occurs when the company changes how and where the product is sold;
  • Technology Pivot: This happens when technology can be used to make a product or product creation more efficient and less costly.

Thus, the importance of a pivot is to allow the startup to introduce to the market, its market fit product.

If the product is doing well and it is market fit, while it is necessary to continue to improve the product to keep consumers on that product, a startup should be careful not to stagnate and must work to develop new products. One should draw a few lessons from Sony, which sat on its music-playing devices without finding ways to improve and get around its reservations, which eventually cost them its dominance in the market to Apple.

Lesson 10: The Market Fit

A product is a market fit when it satisfies strong market demand. This makes the product a validated one as it has so much value to the initial consumers that it has attracted new customers. The product is what people are talking about it, word of mouth is spreading, and sales are happening fast.

One would always know when a product doesn’t fit a market as there would be low demand, and sales are barely happening. When the product does not have a market fit, the startup should adapt and find a product that would be its MVP and adapt to the market. That is, it should be ready to pivot.

Pivoting means that the startup is changing towards a new product direction. This should usually be captured in the vision of the startup from the intention, and the startup should have planned a possible list of products it would divert to should the primary product fail.

Final Words

All start-ups are in danger of failing, especially if they require a lot of initial capital. So start small and don’t be too attached to one idea. ‘Build–Measure–Learn’ – and do this continuously. ‘Pivot or Persevere’ – be agile, adaptable, and ready to change if something’s not working.

Constantly measure your growth by how much value the customer places on your product and see how many other customers they generate. Start as soon as possible; that way you’ll have less to have to abandon. If it fails, rinse and repeat and aim for success the second or third time around.

Who is The Author of The Lean Startup?

Eric Ries is an entrepreneur and author of the popular blog Startup Lessons Learned. He co-founded and served as CTO of IMVU, his third startup,  and has had plenty of startup failures along the way. 

He is a frequent speaker at business events, has advised a number of startups, large companies, and venture capital firms on business and product strategy, and is an Entrepreneur-in-Residence at Harvard Business School. 

His Lean Startup methodology has been written about in the New York Times, the Wall Street Journal, the Harvard Business Review, the Huffington Post, and many blogs. He lives in San Francisco.

The Lean Startup Quotes

“We must learn what customers really want, not what they say they want or what we think they should want.”

 

“As you consider building your own minimum viable product, let this simple rule suffice: remove any feature, process, or effort that does not contribute directly to the learning you seek.”

 

“A startup is a human institution designed to create a new product or service under conditions of extreme uncertainty.”

 

“The big question of our time is not Can it be built? but Should it be built? This places us in an unusual historical moment: our future prosperity depends on the quality of our collective imaginations.”

 

“Innovation is a bottoms-up, decentralized, and unpredictable thing, but that doesn’t mean it cannot be managed.”

View our larger collection of the best Lean Startup quotes.

Further Reading

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