The Lean Startup - Eric Ries

The Lean Startup - Eric Ries

Discover how current entrepreneurs use continuous innovation to create extremely successful businesses.

We are experiencing a time of many changes and opportunities to apply different business models.

Currently, a major challenge for any startup is being able to find a market for its products. The traditional way to create business plans, develop a product, launch it in the market, for only then sell it, has been the main reason for the failure of companies worldwide.

Unlike the well-known way of creating companies, "The Lean Startup" proposes new ways to create products and services that lead to a sustainable business that fights against the waste of time and resources.

About the book "The Lean Startup"

The book "The Lean Startup" by Eric Ries, published in 2011, describes a roadmap for all innovators, managers, and business leaders seeking to launch more successful products without wasting time, talent, and resources.

The central idea of the book is the concept of Lean Startup, which develops on various ideas such as Lean Manufacturing, design thinking, customer development, and agile development.

The book has been translated into 30 languages and has sold more than 1 million copies.

About the author Eric Ries

Eric Ries is a Silicon Valley entrepreneur and author acknowledged for being the creator of the Lean Startup movement, a new business model strategy that directs startups to allocate their resources more efficiently. He is also a well-known blogger among the technology entrepreneurs community.

Ries has already founded a number of startups, including the IMVU, where he served as chief technology officer. He offered business consulting and product strategies for startups, venture capital firms, and large companies, including GE, with which he created the Fast-Works program.

He has also worked as a resident entrepreneur at Harvard Business School, IDEO, and Pivotal, and he is the founder and executive director of the Long-Term Stock Exchange.

To whom is this book indicated?

The content of the book "The Lean Startup" is relevant for anyone interested in entrepreneurship or who wants to start their own company.

It is applicable for people interested in rapid product development and testing.

Especially important for founders, managers, and employees of technology companies.

Main ideas of the book "The Lean Startup"

The highlights of the book are:

  • How to start, learn, define and try ideas for a Startup;
  • How to use constant innovation to validate ideas;
  • The importance of validated learning as a way of understanding the clients' needs;
  • The need to create prototypes and develop the Minimum Viable Product (MVP) before promoting an end product;
  • The right time to pivot a project or continue its execution;
  • The need to maintain real indicators in order to maintain a growth engine in the company.

These concepts represent a new approach to creating continuous innovation. You will not miss a chance to learn more about this book, right? Follow this article!

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[Book Summary] The Lean Startup - Eric Ries

Overview: Principle 1 – Continuous Innovation

Innovation is not only a concern for startups. There are managers in large companies who have the mission to lead an initiative of a new product or service - they are called internal entrepreneurs.

In addition, the author defines a startup as a human institution to create new products and services under conditions of extreme uncertainty.

It is important to emphasize that "institutions" can refer to different types of organizations: government agencies, venture capital companies, nonprofits, or profit-making companies.

The fact that the startup product or service is also an essential part of the definition. The organization is dedicated to revealing a new source of value to customers and cares about the impact of your product on those customers.

It is also important that the word "innovation" is widely understood. It can be original scientific discoveries, a new use for existing technology, creation of a new business model, among others.

Overview: Principle 2 – Learning

Validated Learning

Validated learning is a rigorous method to demonstrate progress within this context of uncertainty in which startups grow.

The process consists of empirically representing that the team discovered valuable information about the company's current and potential customers. It is faster, more precise, and more concrete than market forecasts or classic business plans.

Learning is the nucleus for the progress of these institutions. The effort that is not necessary to learn what customers want should be eliminated.

The road to progress is to see startup as a great experiment. The question should not be "Can we build this product?" But rather "Can we build a sustainable business involving this product?".

Your job is to find the commonalities between your vision and what consumers would accept.

Productivity

The true productivity of a startup is measured by the systematic search for the right things to do. In a Lean Startup, every product, every feature, and every advertising campaign is understood as an experiment to achieve validated learning.

Overview: Principle 3 – Experimentation

The experimentation phase begins with a clear hypothesis that makes predictions about what should happen. It should be guided by the company's vision.

The goal of each experiment is to figure out how to build a sustainable business around that vision. Even when they produce negative results, these failures can help and influence strategy.

In the Lean Startup model, an experiment is more than theoretical research. It is the first product.

The two most important assumptions entrepreneurs make are:

  1. Value Hypothesis: Formulated to test whether the product or service actually provides value to customers at the time they are using it.
  2. Growth Hypothesis: Made to test how new customers will discover a product or service. The most important thing to evaluate is behavior.

And the four questions that should be asked are:

  1. Do consumers recognize that they have the problem we are trying to solve?
  2. If there was a solution, would they buy it?
  3. Would they buy from us?
  4. Can we develop a solution to this problem?

Overview: Principle 4 – Minimum Viable Product

If you want to create a sustainable business, you need to know initially if there is a demand for your product. The best way to achieve this is by the concept of MVP (Minimum Viable Product).

From this method, you get feedback from actual customers about your product idea. MVP should be as simple as possible and should contain only what is needed to deliver a realistic experience of how your idea works.

A good example of this use was made by the founders of Dropbox, cloud storage software. They knew that developing their idea to a complete product would take a lot of time, so they thought in an easy way: they made a video.

It was a simple video, just a presentation of the technology and a demonstration of how it would work. The video worked: one night, 75, 000 people signed up for the Dropbox waiting list.

From this, they began to develop the final product. Nowadays, the company has a value of over 1 billion dollars.

Overview: Principle 5 – Build-measure-learn

A startup's priority should be learning: you need to know what products to build and how to make money from them. And it does not come without contact with the real world.

To facilitate this, you can use the build-measure-learn loop.

First, you create a trial version of your product, such as a prototype, an MVP.

After that, you need to put that product in your market and gather feedback. By collecting quantitative data from this experiment, you can measure people's interest in your product.

When analyzing, it's important not to focus on numbers alone. You should talk to people. This makes it easier to understand the data you collect once you have learned about your individual impressions.

What you learn in one cycle should be used in the design of the next. This process is then repeated until you find a sustainable model.

Overview: Principle 6 - The Pivots

Many startups believe in the popular myth that the secret to success is to have perseverance and a lot of will power: a heroic founder has a brilliant idea and goes through several obstacles until the product succeeds.

But this way of thinking leads companies to what the author Eric Ries calls "the land of the undead." Like zombies, they are unaware of their surroundings and are still struggling to sell a product that the market simply does not want.

To avoid this, you should ask yourself how you can change your product to improve it and help you find your market. In addition, you must be open to what the author calls "pivot" - a fundamental change of direction.

A pivot can take many forms, such as redefining the innate value of the product, pursuing a different market segment, or changing its main sales channel.

A characteristic of pivoting is the conduct of new hypothesis tests since the initial assumptions of the startup have changed.

Deciding this can be difficult, and many startups end up avoiding or postponing that choice. Therefore, it is valid to conduct monthly meetings to analyze the situation and deal with the matter.

Many startups had to swing a few times before succeeding. Take Groupon as an example: it started out as a platform for activism and fundraising, and nowadays it's an e-commerce marketplace.

Overview: Principle 7 – Growth Engine

A key part of any business is the growth engine, which ensures that the company does not become stagnant. There are three types:

1. The Recurring Growth Engine

It works by retaining existing customers that already generate a steady stream of revenue. The focus is not on gaining new consumers, so no major marketing investments are made in that direction.

Instead, new features or better services are offered for current consumers to use your product more often.

2. The Viral Growth Engine

The purpose of this type is to get the customers to do the marketing work for the company. Awareness about your product spreads to your target audience through word of mouth.

This enables a startup to save on advertising campaigns, so it's important to make it easier for customers to engage in this type of viral marketing.

A good example was when the Hotmail email service added an automatic signature at the end of each email saying "PS: Get your free email in Hotmail."

In six months, the service had more than 1 million new customers registered.

3. The Paid Growth Engine

The last method depends on investment in marketing, such as paid online advertising.

In "The Lean Startup" this modality is only sustainable if customers bring enough revenue to ensure that the cost per customer acquisition is less than the lifetime value of the customer.

In general, it is possible to attack these three growth fronts at the same time, but it is smart to focus on only one so that it can generate results more quickly.

In addition, doing only one method helps to evaluate the success of new features: if they help the growth engine gain speed, they are valuable; if not, they are wasteful and should be eliminated.

Overview: Principle 8 – Adaptation

One of the most important discoveries of Lean philosophy was that you can not change the quality by time. If you are having quality issues now, the resulting defects will slow you down in the future.

To accelerate, lean startups need processes that provide a natural cycle of feedbacks. Adaptive processes force you to invest in problem-solving that is wasting time.

As these preventive efforts generate results, you naturally can grow. One method recommended by the author Eric Ries to identify the root cause of problems is the 5 Whys.

In summary, the work of the startups is never finished. Even established companies must learn to conduct different forms of work at the same time, seek operational excellence, and always try to innovate.

What do other authors say about it?

In their research, the authors of the book "Built to Last", Jim Collins and Jerry I. Porras, found that most visionary companies did not start with a revolutionary idea that made them successful early on. In fact, they got off to a slow start and, over time, managed to dominate their markets.

Regarding the startup's foundation, Pier Thiel, in his book "Zero to One", said that: "A startup with problems in its foundation cannot be fixed". One of the biggest difficulties is choosing your partner. This decision is so important that the author compares it to a marriage.

You may have heard that market research is the most important part of preparation before opening a business. From it, you can identify your consumer audience and build your product according to your market niche.

However, Simon Sinek in the book "Start With Why", does not agree with this. He believes, of course, that the most important part is to discover and understand your "why". This is a process of discovery, not invention, that occurs overnight.

Okay, but how can I apply this to my life?

Unlike traditional companies, startups need to be managed in a different way than those already established. The goal is to find a sustainable business model.

With the analysis of "The Lean Startup", the reader is able to understand and apply an approach to test its main premises and, subsequently, build a sustainable business model.

In addition, you will have the ability to quickly develop product prototypes, and to continually improve, based on customer experience and learning cycles.

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