The Lean Startup Summary & Infographic | Eric Ries

How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses

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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. 

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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: 

1. launched a low-quality early prototype,
2. charged customers from day one,
3. 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:

1. Value hypothesis: Ask whether the product delivers value to the customer. The best way to answer this question is through experimentation.
2. 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. 

StoryShot #7: Measure Your Company’s Progress 

Standard accounting practices are not suitable for startups. They require innovative accounting methods instead. You should:

1. Use an MVP to establish your baseline data.
2. Improve and fine-tune your product based on this data.
3. Establish a new baseline if your product’s data improves.
4. Repeat the process.

Your first MVP should be designed to test the riskiest assumptions you have placed in your business plan. 

Beware of vanity metrics. Business can be measured in many ways, but we are all partial to numbers that make us look better. Be honest with yourself. Here are two analyses that can be useful for startups:

1. Cohort analysis: Break your consumers down into cohort groups. Then look at the performance of your product within different cohorts. This type of analysis can help you to better understand whether real growth is happening.
2. Split tests: Giving different versions of a product to different people can help refine what the customer wants. If you test extra features, but it doesn’t change customer behavior, ask whether those features matter.

Metrics should be:

• Actionable: They must show clear cause and effect; no vanity metrics allowed.
• Accessible: People need to understand the data. Using cohort-based reports can help people better understand real-life behaviors and beliefs.
• Auditable: Everyone in the company should have faith in the metrics and have full access to the creation and display of these metrics. Finally, managers should avoid only looking at the data and also talk to real customers.

StoryShot #8: Pivot (or Persevere)

If an idea isn’t working out, you need to change your strategy. When you pivot, you don’t throw everything out and start over. Instead, you are using your current product as a foundation and using the knowledge you have learned to pivot your product.

Ries describes knowing when to pivot as an art form. Keep your eyes open for ineffective product experiments and unproductive product development. These are telltale signs that you may need to pivot. The lean startup process requires that you look for these signs and respond to them.

Being willing to pivot is a courageous decision. Pivoting is an admission of failure, and this is something we all struggle to do. However, many startups fail because they are not willing to accept they need to pivot.

Deciding to pivot requires an empirical and impartial approach. Both the product development and business leadership teams should attend regular “pivot or persevere” meetings. These meetings should follow the following structure:

• The product development team should report its metrics regarding previous performance. Goals should be adjusted based on these metrics.
• The business leadership team should provide a better understanding of the customers.
• Other specialists and advisors can be added depending on the agenda of the meeting.

Ries details a “catalog of pivots:” descriptions of different ways to change direction. However, it is also important to remember that there is no set formula to follow. These descriptions should be used as a starting point:

• Zoom in: Try to focus on a small part of your previous strategy or a feature of your product. Make this feature the entirety of your product.
• Zoom out: Expand your scope to encompass different ideas of the product.
• Focus on the good: Concentrate on the positive feedback given about your previous iteration. Bring that forward to your next product iteration.

Ries also provides multiple other pivots. These are:

• platform pivot,
• business architect pivot,
• value capture pivot,
• engine of growth pivot,
• channel pivot,
• and technology pivot.

Despite the wide variety of pivots, the most important thing is the strategy behind the pivot. You must be pivoting at the right time and for the right reasons. Plus, do not be afraid to use more than one type of pivot. 

PART 3: Accelerate

StoryShot #9: Stick to Small Batches

A startup can only speed up if it identifies the activities which are creating value and those that are creating waste. You can only begin placing activities in these activities once you know:

• who your customers are,
• what your customers like,
• how to listen to your customers,
• and how you plan to grow your business

Classic companies focus on large batches as they can benefit from economies of scale. However, small batch sizes are better for startups. Large batches can create more problems than they solve for startups, so it’s important to minimize risk by using small batches. Startups should focus on testing hypotheses rather than meeting high demand with large batches.

Small batch sizes are more efficient and reduce costs, workload, and risk. They also help shorten the learning cycle and provide a competitive edge by making it easier to spot mistakes. 

Build-Measure-Learn should be planned in the reverse order to its execution. First, decide what you want to learn, then figure out how to measure it. Only then should you design the build to fit.

StoryShot #10: Choose an Engine of Growth

Your company can grow more effectively if you adopt a structured method for growth. “The engine of growth” describes how startups achieve sustainable growth. Reis defines sustainable growth as any growth that exceeds one-time sources of growth. 

He recommends the following ways to build sustainable growth:

1. Word of mouth: Customers talk about your product with friends, family, and colleagues.
2. Observation: People see the company’s customers using the company’s product.
3. Traditional advertising: Advertising that focuses on ensuring that costs are less than the profit gained by additional sales.
4. Repeat purchasing: If a startup is providing a relatively cheap product, repeat business is an integral part of its business model.

There are three types of engines of growth. Each has a specific metric to focus on:

• Sticky engines of growth rely on repeat business. Startups must pay close attention to the churn rate, or the percentage of customers who don’t stay engaged. If they can acquire new customers faster than they lose them, then they are growing. 
• With viral engines of growth, people are exposed to the product because of customer use. The viral engine is powered by a feedback loop — the viral loop — and its productivity is measured with the viral coefficient. The higher the coefficient, the faster the product will spread. Small changes in the viral coefficient can have a dramatic effect on the growth curve.
• The paid engine of growth features traditional methods such as advertising. The cost of acquiring a new customer must be less than the potential profit. 

Established companies can have more than one engine of growth working, but startups should focus on one of them to make it easier to test and pivot.

StoryShot #11: Tackle Problems and Do Not Cut Corners

There are many ways for a startup to fail. It is easy for entrepreneurs to reject bureaucracy at the cost of not scaling the company enough. Similarly, other companies can get too buried in bureaucracy to the point that the company can no longer function effectively.

To make an MVP available to consumers, some startup managers will tighten the Build-Measure-Learn loop by taking shortcuts. They sacrifice quality. Shortcuts in quality and design will just create problems further down the line. Early adopters are tolerant of minor flaws, but eventually, you’ll want to go mainstream. The mainstream market is intolerant of flaws.

One way to regulate speed is to employ the “Five Whys” method. Dig deeper into the root of a problem by asking “Why?” five times. This method helps objectively analyze problems. It doesn’t assign blame and should only focus on recent problems. The team should deal with these problems, then move on. 

StoryShot #12: Innovate

Innovation is frequently seen in young startups, but innovation can be seen in any company. There are specific structures and organizational qualities that facilitate innovation. These aren’t the qualities that you typically see in established companies, but established organizations can still facilitate such an environment. This means that established companies can use the lean startup methodology to build new startups.

Startups can maintain an innovative approach through the following methods:

• Startups are likely to have scarce resources. Despite this, a startup’s resources should be secure. A steady income is vital for growth but also for the company’s confidence.
• Startups need to run many experiments without needing permission. Hence, startup teams must be autonomous if they are working within a larger, more established company.
• Startup teams should be built of every functionally relevant individual in the company. This will allow the startup to work without the need for new experts to be integrated.

Startups must take the necessary steps to protect the parent company. The startup team should only experiment with price points that are not undercutting the parent business. Avoiding undercutting is as important for the startup as the parent company. The startup relies on a steady and secure financial investment from the parent company.

One way to ensure that internal startups can experiment without damage to the parent company is to set up a sandbox where innovators can try new ideas. This option is more productive than a company hiding its innovation team. These sandboxes must have specific ground rules so that the parent company isn’t negatively impacted. Sandboxes involve creating a real product, but it will only be marketed to a tiny, well-defined market. 

The Lean Startup Final Summary and Review

The Lean Startup details a method to develop and manage startups. Standard business practices are not always applicable to startups. The lean startup process is all about efficiency. A startup needs to move quickly to assess what is working and avoid wasting time and money on things that are not working. Collecting and using data is essential to understanding and delivering what your customers want. You also need to be prepared to acknowledge when ideas and failed and pivot to new ideas. 

Once you have an idea, form hypotheses about it. These will allow you to measure and test whether or not it works in a rational, scientific way. Next, develop a minimum viable product. Test that product on your core market, collect feedback and use it to improve your product and service. If something isn’t working, decide to pivot to a new idea. The lean startup process is summarized in the following diagram: 

Eric Ries uses real-life case studies from various businesses to illustrate the principles of the lean startup methodology. He then draws on his knowledge as a startup entrepreneur to guide you toward developing an effective startup.

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Rating

We rate The Lean Startup 4.1/5.

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Editor’s Note

This review was first published in early 2021. It was revised and updated on 23 June 2023.

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