Key takeaways from The Lean Startup by Eric Ries

Читала цю книжку для домашки в Genesis IT school. Нарешті оцінки за домашку виставлені, тому можна ділитись=)

Startup’s success is not a result of good luck. It can be engineered by following the right process. In the book, Eric Ries shares his experience of managing startups and innovating in established companies, using the Lean Startup approach. It’s characterized by extremely fast cycles, a focus on what customer want (without asking them) and a scientific decision-making. The method takes it name from the lean manufacturing revolution at Toyota.

Startup is a human institution designed to create new products and services under conditions of extreme uncertainty. Entrepreneurship is a kind of management, geared to deal with conditions of extreme uncertainty. Entrepreneurs are everywhere, in a company of any size and industry.
The startup’s goal is to figure out the right thing to build - the thing customers want and will pay for -  as quickly as possible.

The leap-of-faith assumptions. Value hypothesis tests whether a product or service delivers real value to customers once they are using it. Growth hypothesis tests how new customers will discover a product or service.

Build-Measure-Learn feedback loop. Build → product → Measure → data → Learn → ideas → Build... Focus on minimizing the total time through the loop.
Enter the Build phase as quickly as possible with a minimum viable product (MVP) . Additional features or polish beyond what early adopters demand is a form of waste. When in doubt, simplify.
Build-Measure-Learn loop for planning works in the reverse order: we figure out what we need to learn and then work backwards to see what product will work as an experiment to get that learning.

Innovation accounting algorithm:

1) use an MVP to establish real data on where the company is right now; 
2) attempt to tune the engine from the baseline toward the ideal;
3) pivot or preserve.

Cohort analysis.  Instead of looking at cumulative totals, look at the performance of each group of customers. Three A’s of metrics - actionable (not vanity totals and grosses), accessible, auditable. Metrics are people, too.

Launch each new feature as a split-test experiment: offer different versions of a product to different customers at the same time. True experiments are easy to classify as success or failures because top-level metrics either move or not. The goal of an experiment is to achieve validated learning - discover how to build a sustainable business around the vision.

The pivot question:  are we making sufficient progress to believe that our original strategic hypothesis is correct or do we need to make a major change? Keep one foot rooted in what you’ve learned so far.

Get to each next pivot faster. Find ways to achieve the same amount of validated learning at lower cost or in a shorter time. A “pivot or preserve” meeting: less then a few weeks is too often, more than a few months - too infrequent.

Accelerate. Use small batches.  The small-batch approach produces a finished product very fast, whereas the large-batch approach must deliver all the products at ones, at the end. The biggest advantage of working in small batches is that quality problem can be identified much sooner.

Pull, don’t push. In lean production, each step in the line pulls the parts it needs from the previous level. Reduces work in progress and “just-in-case” inventory.

The engine of growth is the mechanism to achieve sustainable growth. Rule: new customers come from the actions of past customers. Four ways customers drive sustainable growth: word of mouth, the side effect of product usage, through funded advertising (must be paid out of revenue), through repeat purchase or use. Every engine eventually runs out.

Three engines of growth  (focus on one at a time):
1) The sticky engine of growth. Rate of new customer acquisition > churn rate.
Focus on existing customers, improve retention rate.
2) The viral engine of growth. Growth is a side effect of customers using the product. Focus - Viral coefficient (how many new customers will use a product as a consequence of each new customer who signs up). Must be >1 to grow. Indirect sources of revenue (advertising).
3) The paid engine of growth. Lifetime value > cost per acquisition. To grow - either increase the revenue from each customer or decrease the cost of acquiring a new customer.

Adapt.  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.

Andon cord at Toyota brings work to stop as soon as uncorrectable quality problem surfaces, forces it to be investigated.

The Five Whys.  Repeating “why” five times helps to uncover a root of the problem and correct it. Most problems that at first appear to be individual mistakes can be traced back to problems in training or the original playbook. Consistently make proportional investment at each of the five levels of the hierarchy.

Innovate.  Startup teams should be cross-functional and have three structural attributes: scare but secure resources, independent authority to develop their business, and a personal stake in the outcome (not necessarily financial). Protect the parent organization from startup experiments (innovation sandbox). Entrepreneurial managers should be accountable. Reintegrate the innovation back into the parent organization if it’s successful.

Switching to validated learning feels worse before it feels better.

Successfully growing into an established company is not the end of the story. A startup’s work is never done. Even established companies must struggle to find new sources of growth through disruptive innovation.