Review of The Lean Startup

The Lean Start Up by Eric Ries is an inspiring and practical book and well worth reading if you’re working on a startup or launching a new product.  As the back cover says: “If you are an entrepreneur, read this book. If you are thinking about becoming an entrepreneur, read this book. If you are just curious about entrepreneurship, read this book” (Randy Komisar TiVo founder).

And FT.com also sings the book’s praises: “Unlike so many authors in this field, Ries writes clinically and intelligently, without hoopla.” However, it does include some great jargon!

The book encourages, very convincingly, a scientific approach to start ups, and particularly technology start ups.  It’s main focus is on the product development and product management sides. He says that you should build a ‘Minimum Viable Product’, get it to market quickly to test customer reaction, then, if there are issues, either ‘persevere’ or be prepared to change direction, by doing a ‘pivot’.

It’s all about experimenting in as scientific a way as possible, learning and adapting by following the ‘Build-Measure-Learn’ feedback loop.

Ries says that:

“…Every product, every feature, every marketing campaign – everything a startup does – is understood to be an experiment designed to achieve validated learning.” Start-ups tend to take approaches that make them much higher risk ventures than they need to be. Entrepreneurs have a tendency to build elaborate products with too many features before daring to test them with their customers. They make decisions based on the wrong information, and they stick with bad ideas long after they should have adapted or dropped them. This tendency is supported by stories of entrepreneurs who persist until they’re eventually successful.

Customer research is also essential

As early on as possible in your project, you must speak to and meet real customers, observe real customer behaviour and learn about your customers’ real needs. Ries is (overly) dismissive of customer research because, if you are creating a new product, it’s difficult to get accurate feedback from customers until it has been built. He says that you need to “overcome the management thinking that puts faith in well researched plans”, and business plans are based on “leaps of faith” assumptions. The answer is to build Minimal Viable Products and get them to market as quickly as possible to get feedback from customers.

In my opinion, research done well can still be valuable and can give informative feedback. I think there is still an important place for research although customer research for new technology products (and other innovative products and services) is difficult to do and the feedback can be  misleading. You should still do market research, competitor research and customer research but put considerable thought into how you do the research, what questions you ask, and analyse the findings objectively and critically.

The minimum viable product used to test an assumption need not be an actual product at all! It could be a video, a mock up or a demo. For example, Dropbox created a video as their first minimum viable product before they actually developed their product.

But Eric Reis sounds a slightly conflicting word of caution: be aware that shortcuts taken in product quality, design, or infrastructure today may well slow down your company tomorrow. This is especially true at the early stage of a startup. Personally I agree that product quality is nearly always important and you must plan your product for future growth and development.

You still need to create a marketing plan

A startup creates new products under conditions of extreme uncertainty.  Entrepreneurship, therefore, requires management for extreme uncertainty. Eric Ries says that traditional business plans (and strategic marketing plans) create strategy based on assumptions, but these are based on leaps of faith assumptions which are based on the business’s value hypothesis and growth hypothesis.  Because assumptions are not proven, they must be tested with experiments.  Early strategy is based to a significant extent on intuition.  To turn intuition into data, entrepreneur’s must start learning from customers as early in the product development process as possible.

So does that mean we should stop time consuming business planning? No, because going through business planning forces you to think through many key aspects of your business, and, of course, business plans are essential for fund raising.

I particularly liked these new pieces of jargon: always avoid ‘success theatre’ (artificial successes) and ‘vanity metrics’ (figures which look good but don’t really mean anything, such as total website hits).  Eventually, business fundamentals win.

As a marketer who firmly believes that the customer should be at the centre of all businesses, I like (and I’m trying to remember!) Genshi Gembutsu which means “go and see for yourself”. It’s all about the importance of basing strategic decisions on a “first hand understanding of customers”, one of the core principles of the Toyota Production System.

Customers may not use half your features. Nor do they care how much time your product takes to build. They’re only interested if it delivers value to them by serving their needs.

Ries is a fan of using ‘cohort analysis’ when analysing and learning how your customers use your product. This complex sounding term means you should analyse the performance of each customer group or customer segment who uses your product. That can provide great insights into what your customers really value in your product.

The Lean Startup in more detail

The Lean startup way is to product development what Agile has been to software development. Both espouse short iterations backed up by customer feedback. The Lean Startup approach has already spawned a movement with many fans.

The “Lean” of Lean startup is inspired by the Lean manufacturing practice. It is a method for identifying successful product concepts and then growing a sustainable business starting with that product. The Lean Startup method, in contrast, is designed to teach you how to build a startup.

Instead of making complex plans that are based on a lot of assumptions, through learning as you go along, you can make constant adjustments with a “steering wheel” called the Build-Measure-Learn feedback loop. Through this process of steering, you can learn when and if it’s time to make a sharp turn called a “pivot” or whether we should “persevere” along our current path.

A central theme is this Build-Measure-Learn loop. Here an initial product , called a Minimum Viable Product (MVP) is built as quickly as possible just to get a feel of whether customers are willing at all to pay for the product (Measure step). If this product is successful, then the sweet spot has been found, if not then the product idea will require change followed once again by the Build-Measure-Learn loop. This will go on until a good product idea has been discovered.

Ries says that it is perfectly okay to build throwaway products just to find the sweet spot as the greater goal is to identify the right product concept instead of building a perfect, shiny product that nobody wants from day one. We work out what we need to learn and then work backwards to see what product will work as an experiment to get that learning. This is where the Lean Startup method differs from traditional management practices. Traditional approaches risk building a complete, shiny product and then going to market only to find that nobody wants it.

Another theme promotes small batch production (similar to Agile and Lean Manufacturing) alongside the Five Whys method of questioning to build a successful business once a successful product concept has been identified. Build-Measure-Learn should not be limited to identifying a new product idea only. It can be used to decide whether or not to implementing particular features. This way a minimum new feature can be built, A/B tested or split tested, to see if customer reactions are positive.

Your startup

  • Traditional management practices are not enough for startups. Despite the success of general management, some of those principles are ill suited to handle the chaos and uncertainty that startups must face. In general management, a failure to deliver results is seen as either a failure to plan adequately or failure to execute properly.
  • The fundamental activity of a startup is to turn ideas into products, measure how customers respond, and then learn whether to pivot (ie change direction or persevere).  This could be changing the product or a major feature, targeting a more specific market segment, adjusting market positioning or strategy significantly, or totally abandoning the current product.
  • In their early stages, Startups based on new technologies often do not really know who their customers will be or what their product should be. There are of course assumptions about who the customer is and what the product should be, but assumptions are just assumptions or sometimes “leaps of faith”, they are not facts.
  • The goal of a startup is to work out the right product to build – the product customers want and will pay for – as quickly and inexpensively as possible.

Your customers

  • Most of the time customers don’t know what they want in advance. So directly asking them questions may lead to wrong answers. It is better to let them try a minimal product and measure their reaction.
  • We could have conducted an experiment, offering customers the chance to try something and then measuring their behaviour. This is also ‘test marketing’. We must learn what customers really want, not what they say they want or what we think they should want.
  • There are two main types of customers in terms of the product life cycle – early adopters and mainstream customers. But the goal of a startup is to reach the mainstream. Making the transition to mainstream customers will require tremendous additional work.

Testing a new product plan

Treat a new product launch like an experiment (or series of experiments). Ask: Should this product be built? Can we build a sustainable business around this set of products and services?
Identify the elements of the plan that are assumptions rather than facts, and figure out ways to test them.

Although this approach to product development and building a startup puts the customer at the centre, like marketing, this book does has less on how to market your products. Please contact me, Christopher Lamotte, if you’d like a free Marketing Review with advice on your new product or start up.

This review has been written by Christopher Lamotte of Real Marketing Specialists 01620 825751 or 07957 870071. I’m also grateful to some of the other reviews of this book which have contributed to this article.

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