"The Lean Startup" by Eric Ries

• The grim reality is that most startups fails. Most new products are not successful. Most new ventures do not live up to their potential.
• Startup success is not a consequence of good genes or being in the right place at the right time. Startup success can be engineered by following the right process, which means it can be learned, which means it can be taught.
• The Lean Startup is the application of lean thinking to the process of innovation.
• The Lean Startup Method:
• Entrepreneurs are everywhere.
• Entrepreneurship is management.
• Validated learning.
• Build-Measure-Learn.
• Innovation accounting.
• Definition of a startup: a human institution designed to create new products and services under conditions of extreme uncertainty.
• A startup is an institution, not just a product, and so it requires a new kind of management specifically geared to its context of extreme uncertainty.
• Learning can be validated scientifically by running frequent experiments that allow entrepreneurs to test each element of their vision.
• The fundamental activity of a startup is to turn ideas into products, measure how customers respond, and then learn whether to pivot or persevere. All successful startup processes should be geared to accelerate that feedback loop.
• To improve entrepreneurial outcomes and hold innovators accountable, we need to focus on the boring stuff: how to measure progress, how to set up milestones, and how to prioritize work.
• Startups do not yet know who their customer is or what their product should be.
• Build a startup is an exercise in institution building; thus it necessarily involves management.
• Among its [Lean Manufacturing] tenets are drawing on the knowledge and creativity of individual workers, the shrinking of batch sizes, just-in-time production and inventory control, and an acceleration of cycle times.
• 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.
• Every setback is an opportunity for learning how to get where they want to go.
• In general management, a failure to deliver results is due to either a failure to plan adequately or a failure to execute properly.
• Leadership requires creating conditions that enable employees to do the kinds of experimentation that entrepreneurship requires.
• 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.
• Validating learning is the process of demonstrating empirically that a team has discovered valuable truths about a startup’s present and future business prospects.
• Lean thinking defines value as providing benefit to the customer; anything else is waste.
• Most of the time customers don't know what they want in advance.
• I’ve come to believe that learning is the essential unit of progress for startups. The effort that is not absolutely necessary for learning what customers want can be eliminated. I call this validated learning because it is always demonstrated by positive improvements in the startup’s core metrics.
• This is true startup productivity: systematically figuring out the right things to build.
• This is one of the most important lessons of the scientific method: if you cannot fail, you cannot learn.
• The Lean Startup methodology reconceives a startup’s efforts as experiments that test its strategy to see which parts are brilliant and which are crazy. A true experiment follows the scientific method. It begins with a clear hypothesis that makes predictions about what is supposed to happen. It then tests these predictions empirically.
• 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.
• Even when experiments produce a negative result, those failures prove instructive and can influence the strategy.
• In the Lean Startup model, an experiment is more than just a theoretical inquiry; it is also a first product.
• I try to push my team to first answer four questions:
• Do consumers recognize that they have the problem you are trying to solve?
• If there was a solution, would they buy it?
• Would they buy it from us?
• Can we build a solution for that problem?
• Success is not delivering a feature: success is learning how to solve the customer’s problem.
• Remember, planning is a tool that only works in the presence of a long and stable operating history.
• At its heart, a startup is a catalyst that transforms ideas into products.
• Build-Measure-Learn Feedback Loop: build -> product -> measure -> data -> learn -> ideas -> build
• This Build-Measure-Learn feedback loop is at the core of the Lean Startup model.
• The truth is that none of these activities by itself is of paramount importance. Instead, we need to focus our energies on minimizing the total time through this feedback loop.
• To apply the scientific method to a startup, we need to identify which hypothesis to test.
• I call the riskiest elements of a startup’s plan, the parts on which everything depends, leap-of-faith assumptions. The two most important assumptions are the value hypothesis and the growth hypothesis.
• The first step is to enter the Build phase as quickly as possible with a minimum viable product (MVP). The MVP is that version of the product that enables a full turn of the Build-Measure-Learn loop with a minimum amount of effort and the least amount of development time. The minimum viable product lacks many features that may prove essential later on.
• I recommend innovation accounting, a quantitative approach that allows us to see whether our engine-turning efforts are bearing fruit. It also allows us to create learning milestones, which are an alternative to traditional business and product milestones.
• Learning milestones are useful for entrepreneurs as a way of assessing their progress accurately and objectively; they are also invaluable to managers and investors who must hold entrepreneurs accountable.
• Upon completing the Build-Measure-Learn loop, we confront the most difficult question any entrepreneur faces: whether to pivot the original strategy or persevere.
• If we’ve discovered that one of our hypothesis is false, it is time to make a major change to a new strategic hypothesis.
• Every business plan begins with a set of assumptions. Because the assumptions haven’t been proved to be tray and in fact are often erroneous, the goal of a startup’s early efforts should be to test them as quickly as possible.
• There is nothing intrinsically wrong with basing strategy on comparisons to other companies and industry. In fact, that approach can help you discover assumptions that are not really leaps of faith.
• For every successful entrepreneur who was in the right place in the right time, there are many more who were there, too, in that right place at the right time but still managed to fail.
• What differentiates the success stories from the failures is that the successful entrepreneurs had the foresight, the ability, and the tools to discover which parts or their plans were working brilliantly and which were misguided, and adapt their strategies accordingly.
• The first step in understanding a new product or service is to figure out if it is fundamentally value-creating or value-destroying.
• As with value, it’s essential that entrepreneurs understand the reasons behind a startup’s growth. There are many value-destroying kinds of growth that should be avoided.
• You cannot be sure you really understand any part of any business problem unless you go and see for yourself firsthand. It is unacceptable to take anything for granted or to rely on the reports of others.
• “genchi gembutsu” is one of the most important phrases in the lean manufacturing vocabulary. In English, it is usually translated as a directive to “go and see for yourself” so that business decisions can be based on deep first hand knowledge.
• No amount of design can anticipate the many complexities of bringing a product to life in the real world.
• The problem with most entrepreneurs’ plans is generally not that they don’t follow sound strategic principles but that the facts upon which they are based are wrong.
• A minimum viable product (MVP) helps entrepreneurs start the process of learning as quickly as possible. It is not necessarily the smallest product imaginable, though; it is simply the fastest way to get through the Build-Measure-Learn feedback loop with the minimum amount of effort.
• Contrary to traditional product development, which usually involves a long, thoughtful incubation period and strives for product perfection, the goal of the MVP is to begin the process of learning, not end it. Its goal is to test fundamental business hypotheses.
• Before new products can be sold successfully to the mass market, they have to be sold to early adopters. These people are a special breed of customer. They accept--in fact prefer--an 80 percent solution; you don’t need a perfect solution to capture their interest.
• Minimum viable products range in complexity from extremely simple smoke tests (little more than an advertisement) to actual early prototypes complete with problems and missing features.
• Deciding exactly how complex an MVP needs to be cannot be done formulaically. It requires judgment.
• Customers often don’t know what they want, and they often had a hard time understanding Dropbox when the concept was explained.
• 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.
• One of the most vexing aspects of the minimum viable product is the challenge it poses to traditional notions of quality. The best professionals and craftspersons alike aspire to build quality products; it is a point of pride.
• If we do not know who the customer is, we do not know what quality is.
• Even a “low-quality” MCP can act in service of building a great high-quality product.
• Customers don’t care how much time something takes to build. They care only if it serves their needs.
• We must be willing to set aside our traditional professional standards to start the process of validated learning as soon as possible.
• 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.
• The truth is that most managers in most companies are already overwhelmed with good ideas. Their challenge lies in prioritization and execution, and it is those challenges that give a startup hope of surviving.
• A startup’s job is to (1) rigorously measure where it is right now, confronting the hard truths that assessment reveals, and then (2) devise experiments to learn how to move the real numbers closer to the ideal reflected in the business plan.
• One of the most dangerous outcomes for a startup is to bumble along in the land of the living dead.
• Innovation accounting works in three steps: first, use a minimum viable product to establish real data on where the company is right now. Second, startups must attempt to tune the engine from the baseline toward the ideal. The third step: pivot or persevere.
• Energy invested in success theatre is energy that could have been used to help build a sustainable business.
• A split-test experiment is one in which different versions of a product are offered to customers at the same time. By observing the changes in behavior between the two groups, one can make inferences about the impact of the different variations.
• Split testing often uncovers surprising things.
• A solid process lays the foundation for a healthy culture, one where ideas are evaluated by merit and not by job title.
• The three A’s of metrics: actionable, accessible, and auditable.
• Vanity metrics wreak havoc because they prey on a weakness of the human mind.
• Actionable metrics are the antidote to this problem. When cause and effect is clearly understood, people are better able to learn from their actions.
• Human beings are innately talented learners when given a clear and objective assessment.
• Only 5 percent of entrepreneurship is the big idea, the business model, the whiteboard strategizing, and the splitting up of the spoils. The other 95 percent is the gritty work that is measured by innovation accounting: product prioritization decisions, deciding which customers to target or listen to, and having the courage to subject a grand vision to constant testing and feedback.
• The more money, time, and creative energy that has been sunk into an idea, the harder it is to pivot.
• Failure is a prerequisite to learning.
• When startups start to run low on cash, they can extend the runway two ways: by cutting costs or by raising additional funds.
• The true measure of runway is how many pivots a startup has left: the number of opportunities it has to make a fundamental change to its business strategy.
• The decision to pivot is so difficult that many companies fail to make it.
• Remember that the rationale for building low-quality MVPs is that developing any features beyond what early adopters require is a form of waste.
• Mainstream customers have different requirements and are much more demanding.
• A pivot is a special kind of change designed to test a new fundamental hypothesis about the product, business model, and engine of growth.
• Pivots are a permanent fact of life for any growing business. Even after a company achieves initial success, it must continue to pivot.
• The critical first question for any lean transformation is: which activities create value and which are a form of waste?
• Sustainable growth follows one of three engines of growth: paid, viral, or sticky.
• The one envelope at a time approach is called “single-piece flow” in lean manufacturing. It works because of the surprising power of small batches.
• Single-piece flow is so named because it has a batch size of one.
• The small-batch approach produces a finished product every few seconds, whereas the large-batch approach must deliver all the products at one, at the end.
• The biggest advantage of working in small batches is that quality problems can be identified much sooner.
• The key to being able to operate quickly is to check for defects immediately, thus preventing bigger problems later.
• The essential lesson is not that everyone should be shipping fifty times per day but that by reducing batch size, we can get through the Build-Measure-Learn feedback loop more quickly than our competitors can. The ability to learn faster from customers is the essential competitive advantage that startups must possess.
• The more inventory you keep, the greater the likelihood you will have the right product in stock for every customer. But large inventories are expensive because they have to be transported, stored, and tracked. All spares may potentially become waste.
• 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.
• The engine of growth is the mechanism that startups use to achieve sustainable growth. I use the word sustainable to exclude all one-time activities that generate a surge of customers but have no long-term impact.
• Sustainable growth is characterized by one simple rule: New customers come from the actions of past customers.
• There are four primary ways past customers drive sustainable growth:
• Word of mouth.
• As a side effect of product usage.
• Through funded advertising.
• Through repeat purchase or use.
• Startups have to focus on the big experiments that lead to validating learning.
• The churn rate is defined as the fraction of customers in any period who fail to remain engaged with the company’s product.
• There are so many ways for a startup to fail.
• This is one of the most important discoveries of the lean manufacturing movement: you cannot trade quality for time. If you are causing (or missing) quality problems now, the resulting defects will slow you down later. Defects cause a lot of rework, low morale, and customer complaints, all of which slow progress and eat away at valuable resources.
• Having a low-quality product can inhibit learning when the defects prevent the customers from experiencing (and giving feedback on) the product’s benefits.
• To accelerate, Lean Startups need a process that provides a natural feedback loop. When you’re going too fast, you cause more problems. Adaptive processes force you to slow down and invest in preventing the kinds of problems that are currently wasting time. As those preventive efforts pay off, you naturally speed up again.
• At the root of every seemingly technical problem is a human problem.
• Five Whys provides an opportunity to discover what that human problem might be.
• By asking and answering “why” five times, we can get to the real cause of the problem, which is often hidden behind more obvious symptoms.
• When blame inevitably arises, the most senior people in the room should repeat this mantra: if a mistake happens, shame on us for making it so easy to make that mistake.
• I ask teams to adopt these simple rules:
• Be tolerant of all mistakes the first time.
• Never allow the same mistake to be made twice.
• Remember, most mistakes are caused by flawed systems, not bad people.
• Whenever something goes wrong, ask yourself: How could I prevent myself from being in this situation ever again?
• Both successful startups and established companies alike must learn to juggle multiple kinds of work at the same time, pursuing operational excellence and disruptive thinking.
• In my experience startup teams require three structural attributes: scare but secure resources, independent authority to develop their business, and a personal stake in the outcome.
• Startup teams need complete autonomy to develop and market new products within their limited mandate. They have to be able to conceive and execute experiments without having to gain an excessive number of approvals.
• People should be allowed to find the kinds of jobs that suit them best.
• In a startup situation, things constantly go wrong.
• The best way to achieve mastery of and explore these ideas is to embed oneself in a community of practice.
• Management is human systems engineering.
• The big question of our time is not Can it be built? but Should it be built?
• All innovation begins with vision.
• Too many innovation teams engage in success theatre, selectively finding data that support their vision rather than exposing the elements of the vision to true experiments, or, even worse, staying in stealth mode to create a data-free zone for unlimited “experimentation” that is devoid of customer feedback or external accountability of any kind.