Lean Startup pdf Notes

Here is a 4 page summary of The Lean Startup pdf. The book is by Eric Ries. Kurt Ostergaard wrote the notes.

The notes take a to do list approach to maximize the action oriented quality.
Individual points have page numbers for quick reference to to the text. Although I am proud of this summary, the notes read more as a review than an introduction to the material. I encourage readers to purchase the book to support the author, then refer to these notes.

Link ==> The Lean Startup pdf summary

The Lean Startup pdf notes:


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 [20]

A startup is a human institution designed to create a new product or service under conditions of extreme uncertainty. [27]

When you have only one test, you don’t have entrepreneurs; you have politicians, because you have to sell. [33] Snaptax

Validated learning is the process of demonstrating empirically that the team has discovered valuable truths about a startup’s present and future business prospects. [38]

Lean thinking defines value as providing benefit to the customer; anything else is waste. [48] Real progress is learning quickly about what creates value for customers.

Should this product be built? (not can) and Can we build a sustainable business around this set of products and services? [55]
Start with a clear hypothesis that makes predictions about what is supposed to happen. Test those predictions empirically. [57]

Zappos: hypothesis: customers were ready and willing to buy shoes online. [57] One Q: is there already sufficient demand for a superior online shopping experience for shoes? [57]

By building a product, albeit a simple one, the company learned more than if it had conducted market research:

  1. It had more accurate data about customer demand because it was observing real customer behavior, not asking hypothetical questions.
  2. It put itself in a position to interact with real customers and learn about their needs. E.G., how are customer perceptions affected by discounting strategy?
  3. It allowed itself to be surprised when customers behaved in unexpected ways, revealing information Zappos might not have known to ask. E.G., what if customers returned shoes? [58]

Value hypothesis tests whether a product or service really delivers value to customers once they are using it.[61]
Growth hypothesis tests how new customers will discover a product or service. [61]

Segment the market and 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. [62]

Kodak: Mark Cook: Four Qs:

  1. Do customers recognize that they have the problem you are trying to solve?
  2. If there was a solution, would they buy it?
  3. Would they buy it from us?
  4. Can we build a solution for that problem? [64]

Kodak Gallery assumptions:

  1. The team assumed that customers would want to create the albums in the first place.
  2. It assumed that event participants would upload photos to event albums created by friends or colleagues. [65]

Success is not delivering a feature; success is learning how to solve the customer’s problem. [66]

Minimize total time in Build-Measure-Learn feedback loop. [76]

Our planning really works in the reverse order:

  1. We figure out what we need to learn
  2. Use innovation accounting to figure out what we need to measure to know if we are gaining validated learning, and then
  3. Figure out what product we need to build to run that experiment and get that measurement. [78]

Randy Komisay, Getting to Plan B, Analogs and Antilogs: analogs have already proven assumptions (Walkman ? ipod). Antilogs must be disproven (Napster, for iTunes store). Out of these analogs and antilogs come a series of unique, unanswered questions. Those are leaps of faith that an entrepreneur takes with a business venture. [84]

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 of their plans were working brilliantly and which were misguided, and adapt their strategies accordingly. [84]

Steve Blank: “Get out of the building”. Genchi gembutsu ~ “Go see for yourself” [86]

Intuit: Scott Cook: cold calls to answer Leap-of-faith assumption: do people find it frustrating to pay bills by hand? [89]

Craft a customer archetype, a brief document that seeks to humanize the proposed target customer. [89]

Create a minimum viable product MVP to test the fundamental business hypothesis.
Food on the Table: Concierge MVP: this personalized service is not the product but a learning activity designed to test leap-of-faith assumptions in the company’s growth model. [102]

Deming: The customer is the most important part of the production process. [107]

If we do not know who the customer is, we do not know what quality is. [107]

As you consider building your own MVP, let this simple rule suffice: remove any feature, process, or effort that does not contribute directly to the learning you seek. [110]

The most common speed bumps are: legal issues, fears about competitors, branding risks, and the impact on morale. [110]

The only way to win is to learn faster than anyone else. [111]

Are you making the product better? How do you know? [115]

Growth depends on: profitability of each customer, cost of acquiring new customers, customer repeat purchase rate. [116]
Innovation accounting:

  1. Use an MVP to establish real data on where the company is right now.
  2. Tune the conversion engine
  3. Pivot or persevere [118]

Test the riskiest assumptions first. [119]

Media company assumptions:

  1. can it capture the attention of a defined customer segment on an ongoing basis?
  2. can it sell that attention to advertisers?

So, build the content first. Sell ads later. [119]

A good design is one that changes customer behavior for the better. [120]

Cohort analysis: look at the performance of each group of customers that comes into contact with the product independently, say monthly. [123] traditional sales funnel.

A startup has to measure progress (conversion improvement) against a high bar: evidence that a sustainable business can be built around its products or services. [126]

Split-test the cohorts. [136]

Kanban: four states: backlog, in progress, built, validated [138] Pull not push
Metrics three A’s:

  1. Actionable demonstrate clear cause and effect, otherwise it is a vanity metric [143]
  2. Accessible Metrics are people too. Forget hits. Think of people. Cohorts turn complex actions into people-based reports. [145] And widespread access to the reports. Email daily reports to all employees, ideally a one pager. [146]
  3. Auditable trace the data and recreate the report by hand to build credibility. [146]

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. [148]

Pivot: a structured course correction designed to test a new fundamental hypothesis about the product, strategy, and engine of growth. [149]

A startup’s runway is the number of pivots it can still make. [160]

Most entrepreneurs who have decided to pivot will say they wish they had made their decision sooner. Three reasons delay the decision: 1) vanity metrics, 2) unclear untestable hypothesis can make compete failure almost impossible, yet that’s the impetus needed to embark on the radical change the pivot requires, 3) acknowledging failure can lead to dangerously low morale. [161]

Hold regularly scheduled pivot or persevere meetings between few weeks and few moths. Bring complete report of results of optimization efforts (not just the past period) as well as a comparison of how these results stack up against expectations. Bring detailed accounts of conversations with current and potential customers. [164]

Once you have found success with early adopters, you want to sell to mainstream customers, who have different requirements and are much more demanding. [170] Crossing the Chasm

The purpose of iterating, tuning, and optimizing is testing a clear hypothesis in the service of the company’s vision. Develop another clear customer archetype. [172]
Pivots:

  • Zoom-in single feature becomes whole product
  • Zoom-out whole product becomes a single feature of a much larger product
  • Customer segment product solves a real problem for real customers, but they don’t pay enough. Find those who do.
  • Customer need solve a better problem
  • Platform usually from an app to a platform
  • Business architecture high margin, low volume to high volume, low margin
  • Value capture more than monetization, intrinsic to product hypothesis
  • Engine of growth viral, sticky or paid
  • Channel new distribution channel and price, features and competitive landscape
  • Technology more common in established companies [176]

A pivot is a new strategic hypothesis that will require a new MVP to test. [177]

Small batches identify quality problems sooner. Toyota’s famous andon cord can interrupt the carful assembly line flow. However the benefits of finding and fixing problems faster outweigh the cost. This process of continually driving out defects is the root cause of Toyota’s historic high quality ratings and low costs. [187]

Small batches on a web site could be 50 changes a day [189]

Product immune system is an elaborate defense mechanism to prevent engineers from accidentally breaking something important. It checks that the product behaves as expected, monitors the health of the business itself, finds mistakes, and removes them automatically. Then it notifies all and the team is blocked from further changes until the root cause is found and fixed. [191] Continuous deployment

Converting push methods to pull (kanban) and reducing batch size have the net effect of reducing work-in-progress (WIP) [201]

Product development in a lean startup responds to pull requests in the form of experiments tat need to be run. As soon as we formulate a hypothesis that we want to test, the product development team should be engineered to design and run this experiment as quickly as possible, using the small batch size that will get the job done. 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. Thus, it is not the customer, but rather our hypothesis about the customer, that pulls work from product development and other functions. [201]

Sustainable growth rule: New customers come from the actions of past customers. [207]

Four methods past customers drive growth:

  1. Word of mouth satisfied customers’ enthusiasm (TiVo)
  2. Side effect of usage clothes and cars, Facebook and PayPal, HotMail
  3. Paid ads cost of acquisition must be recouped in sales revenue
  4. Repeat purchase subscriptions (cable), or repeat purchases (groceries) [208]

Three engines of growth

  1. Sticky: subscription. Track attrition rate or churn rate very carefully. Compare acquisition to churn for net growth [211]
  2. Viral: word of mouth/side effect. Viral coefficient measures how many new customers will use a product as a consequence of each new customer that signs up. > 1.0 leads to big growth [213]
  3. Paid: ads. Lifetime customer value (LTV) must be > cost per acquisition (CPA). Over time competition increases CPAs [217]

Pick one engine of growth at a time. [219]

Build an adaptive organization through kanban pull. IMVU built a training program that was so good, new hires were productive on their first day of employment. Standardize the work process and prepare a curriculum of concepts for new employees to learn. Assign mentors to new employees to help new employees through the curriculum of systems, concepts, and techniques. Link the performance of mentor and mentee so mentors take education seriously. [226]

5 Whys (Taiichi Ohno) at the root of every seemingly technical problem is a human problem.

  1. Why did the new release disable a feature for customers? Because a particular server failed
  2. Why did the server fail? Because an obscure subsystem was used in the wrong way
  3. Why was it used the wrong way? Because the engineer didn’t know
  4. Why didn’t he know? Because he wasn’t trained
  5. Why wasn’t he trained? Because his manager is “too busy” to train him [231]

Invest time to correct problems proportional to the cost of failure [232]

Go through the 5Whys for any kind of failure. [233]

Include everyone affected by the problem in the 5 Why meeting to analyze the root cause. Include anyone who discovered or diagnosed the problem, customer service who fielded calls, anyone who worked on the system or tried to fix it and include senior management if it was escalated. Leave no one out, or they will be scapegoated. [234]

The most senior people should repeat: if a mistake happens, shame on us for making it so easy to make that mistake. [235]
5 Whys implementation:

  1. Be tolerant of all mistakes the first time.
  2. Never allow the same mistake to be made twice [236]

Start 5 Whys with new problems as they come up. Don’t rehash old battles. Start with a limited scope of problems with clear triggers. Keep the meetings short. Appoint a 5Whys master [238]

Explain what the process is for and how it works for the benefit of those who are new to it. [241]

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