How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses
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We’re scratching the surface in The Lean Startup summary. If you don’t already have Eric Ries’s popular book on business, technology and entrepreneurship, order it here or get the audiobook for free to learn the juicy details.
Introduction
Do you want to learn the secret to a successful startup? The key lies in understanding that a startup is different to a traditional business. You can’t afford to waste time and resources where they are not getting results. A startup needs to be lean, informed and adaptable. Now there is a guide to help you achieve that with your company.
The Lean Startup is a New York Times bestseller. It has sold over one million copies and has now been translated into over thirty languages. It is a guide for entrepreneurs, business owners, and innovators alike.
The book provides a framework for creating successful businesses. The lean startup methodology is a systematic approach. It involves continuous innovation, experimentation and data-driven decision-making. This allows a business to maximize success while minimizing risk.
The Lean Startup process focuses on quickly validating ideas before investing too much time or money into them. This allows entrepreneurs to identify which ideas are worth pursuing and which should be discarded early in the process, saving valuable resources.
Toyota’s lean manufacturing revolution inspired the Lean Startup. This revolution incorporated:
- attending to the ideas and knowledge of the workers,
- making smaller batch sizes,
- implementing just-in-time production,
- and accelerating cycle times.
It is better to have cross-functional teams that each focus on different stages of the growth cycle. As the product ages, it gets shifted from one team to the next.
The book is structured in three parts: Vision, Steer, and Accelerate. We’ll draw out the key points from each part.
Free Audiobook Summary
About Eric Ries
Eric Ries is an entrepreneur, author, and speaker, best known for his work on The Lean Startup method. He outlines some essentials of this method in his highly popular Startup Lessons Learned blog. Ries is the co-founder and former chief technology officer of IMVU, an online social entertainment community based in Mountain View, California.
Ries also founded the Long-Term Stock Exchange (LTSE). This is a securities exchange designed for businesses and investors who share a vision for long-term value creation.
Ries is a graduate of Yale University. He has been featured in many publications, including The New York Times, The Wall Street Journal, and Forbes. He is a sought-after speaker and has given keynote addresses at events such as the World Economic Forum, TechCrunch Disrupt, and TEDx.
PART 1: Vision
StoryShot #1: Startups Require Responsive Management
Technology has made startups more viable, but traditional management practices are not suitable for them. Startups need management techniques that fit their unique structure.
Startups have growth engines. These are processes and structures that help them grow. Every iteration of the product and every new feature should improve the growth engine. Startups also spend a great deal of time tinkering with their ideas and improving them, so feedback is essential. Feedback helps startups catch problems as early as possible.
Startups must focus on implementing a strategy to achieve their vision, and the product results from that strategy. Over time, products may require modification. In such cases, strategies must also be flexible to accommodate changing needs.
Three lean startup principles underpin the process. Speed, persistence, and customer needs are all equally important for assessing productivity in a startup. The customer’s approval of the product is essential.
The Lean Startup incorporates customer feedback into the productivity equation. After creating an initial product, further iterations must incorporate customer responses to the product. These iterations will help startups acquire new customers while existing ones are being served. Startup founders have to learn when to make changes, and when they should stick to their approach.
Startups also need to use failures as opportunities to make changes. As the startup develops, products will be tested, and shortfalls identified. In established businesses, shortfalls are seen in a negative light. However, failure is integral to startup development. It should therefore be analyzed.
StoryShot #2: What is a Startup?
Startup managers must understand the terms most relevant to their company. From Ries’s definition above, three key terms are especially important:
- Institution: Startups are institutions built by entrepreneurs who hire employees and direct their activities. Startups revolve around innovative products, but it is also important to remember they are still institutions.
- Product: Your product must be something new and innovative.
- Uncertainty: Most companies can adopt traditional management techniques. There is a degree of uncertainty with startups. The management techniques used should reflect this uncertainty.
StoryShot #3: Collect Data and Learn
“After more than ten years as an entrepreneur, I came to reject that line of thinking. I have learned from both my own successes and failures and those of many others that it’s the boring stuff that matters the most. 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.” – Eric Ries
Traditionally, a company’s progress has been measured by three metrics. These are its ability to stick to plans, produce high-quality work, and stay within its budget. However, these measures of progress do not guarantee your customers will buy your product. Therefore, learning from your mistakes is so important. Traditional companies see mistakes as waste; startup companies should see mistakes as opportunities.
Startups should collect their company’s data. They should use customers’ feedback to understand their product. This improves product-market fit. The sooner you can understand what your customers think about your product, the sooner you can improve your product. These improvements reduce the time spent in the development process.
Startups involve many unknowns. Learning is essential to their development. Validated learning uses customers’ data to show progress in a chaotic and changing environment. It’s quick and easy.
When developing their startup, Ries and IMVU:
- launched a low-quality early prototype,
- charged customers from day one,
- And used low-volume revenue targets to drive accountability.
These are core lean startup techniques.
StoryShot #4: Experiment and Build a Minimum Viable Product
Launching a new product should be approached like a scientific experiment. As with scientific experiments, Ries recommends producing hypotheses and testing these predictions.
Directly testing our assumptions provides useful information. The two most important assumptions are:
- Value hypothesis: Ask whether the product delivers value to the customer. The best way to answer this question is through experimentation.
- Growth hypothesis: See how customers discover the new product. Test behavior to see if your assumptions are correct.
Build-Measure-Learn Feedback Loop
As well as developing hypotheses, it is also vital that a startup considers the fundamentals:
- Will consumers believe they need your product?
- If consumers need your product, why will they prefer your product to your competitors?
- Even if consumers need and want your product, is it viable to create?
Check these fundamentals before you even consider building a product and testing its viability.
The Build-Measure-Learn feedback loop is crucial once you have established these fundamentals. Ries recommends starting this loop with your Minimal Viable Product (MVP). It is the simplest version of your product that can be put through the Build-Measure-Learn feedback loop.
Once you have identified your MVP, plan with the expectation of pivoting. We can make predictions, but the world is ever-changing. Your startup’s strategy will need to pivot based on circumstances.
PART 2: Steer
StoryShot #5: Collect and Use Feedback to Improve Your Product and Service
A startup builds a product, and customers interact with it. These interactions create information as feedback. This feedback should be collected and used to improve the next iteration of the product. Your customers’ feedback is far more critical than the money generated from early sales.
Many of us will be more skilled in one of the build-measure-learn feedback loop features. However, each of these steps is integral and must not be left out. The goal is to complete a feedback loop within the shortest cycle time.
To succeed as a startup, adapt your strategy to your unique circumstances rather than copying what others do. Initially, rely on your intuition, as there is a lack of data. Once data becomes available, test your assumptions using the MVP to gather essential data.
This is the build phase of the loop.
Use innovative accounting to ensure that you are creating a product that people will want. Innovative accounting involves creating learning milestones to track your progress. After receiving feedback from consumers, you can identify if you are on track with your goals. If your company is not matching your initial goals, you need to make the active decision to pivot.
If one of our assumptions is false, we will need to develop a new strategy. Companies need to learn to pivot sooner rather than later.
It comes back to the value hypothesis and the growth hypothesis. You need to understand how the product creates or destroys value, as well as how it creates or destroys growth.
StoryShot #6: Keep Your MVP Simple and Test It Thoroughly
Gear your MVP towards the early adopters who understand the intricate details and will prioritize the product’s idea over its quality. Start with a stripped-back MVP, including only features that early adopters will care about.
One type of MVP that can be useful is the concierge MVP. This type of MVP provides the opportunity for consumers to engage with the product fully. For example, Aardvark is a company that developed a prototype to test customer responses before releasing its social network.
Although creating MVPs is important, we should also approach them with caution. It’s risky to launch an MVP without a patent, as it can expose breakthrough innovation to competitors. Big companies rarely care about the ideas of startups. As a startup, you are struggling for anybody to notice you, so having your ideas stolen should be the least of your worries.
You must be persistent with your testing. It is easy to become impatient and release a product without thorough testing. However, you must gather this information to release the best version of your product based on the available information.
Infographic
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Rating
We rate The Lean Startup 4.1/5.
How would you rate Eric Ries’s book?
Editor’s Note
This review was first published in early 2021. It was revised and updated on 23 June 2023.
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