The Lean Startup by Eric Ries (Book Review)
World’s largest online shoe store Zappos, with annual gross sales of over $1 billion, is known as one of the most successful, customer-friendly e-commerce. But it did not start that way!
Founder Nick Swinmurn was frustrated because there was no central online site with a great selection of shoes. He envisioned a new and superior retail experience. Swinmurn could take a long time to build warehouses, distribution partners, and the promise of significant sales. Many early e-commerce pioneers did just that, including infamous dot-com failures such as Webvan and Pets.com.
Instead, he started by running an experiment. He began asking local shoe stores if he could take pictures of their inventory. He would then post the pictures online and come back to buy the shoes if a customer ordered.
Zappos began with a tiny, simple product. The initial experiment provided a clear, quantifiable outcome: either a sufficient number of customers would buy the shoes or they would not. It helped to observe, interact and learn from real customers and partners. Although the early efforts were small-scale, that did not fade the huge Zappos vision. In 2009, Zappos was acquired by the e-commerce giant Amazon.com for $1.2 billion.
Do you want to start a startup, but not sure where to start? Or are you running a startup that’s just not making the desired progress, though you are trying so hard? The New York Times bestseller, sold over one million copies and translated into more than thirty languages, “THE LEAN STARTUP: How Today’s Entrepreneuer Use Continuous Innovation to Create Radically Successful Business” by Eric Ries has the answer for you!
The Lean Startup Book
The LEAN STARTUP is considered a bible in the tech entrepreneurship community. I have read and reread hundreds of business books in the last several years (also check my review on the book DEEP WORK in Future Startup). But this book provides the largest impact on the thinking of methodology to build a successful startup. The concepts learned from this book will help the myriads of aspiring entrepreneurs to direct the business towards the right way. If you are going to read only one book this year, read this one!
The ideas in The Lean Startup came when Eric Ries, then a software engineer, graduated from Yale University, started his new Instant Messaging company named IMVU. As the cofounder and CTO, Eric wanted to do something different. He was inspired by Steve Blanks idea of Customer Development: a rigorous methodology for the business and marketing side of a startup. Another inspiration was Japan’s lean manufacturing systems, made famous by Toyota.
Eric Ries applied these concepts to IMVU, which became a roaring success, with millions of users and $50 million in annual revenues in 2011. BusinessWeek named him one of the Best Young Entrepreneurs of Tech. The Lean Startup methodology has been written about in the New York Times, the Wall Street Journal, Harvard Business Review, Inc. (where he appeared on the cover), Wired, Fast Company, and countless blogs.
To help others succeed in innovation, Eric started the Lean Startup movement by publicizing the framework I am going to discuss in detail below. But in a nutshell: The Lean Startup is a Methodology for creating businesses that focuses you on finding out what customers want as quickly as possible. It uses concepts of scientific experimentation to prove that you’re making progress. It encourages you to launch as early and cheaply as possible so you don’t waste time and money.
In this book review, I have focused on what I found most important and insightful parts of the book, gathering from years of experience. I strongly recommend you to read the book in order to fully grasp the concepts written here. This review can be bookmarked, and revisited, again and again, to have a quick refresher while implementing Lean Methodology in your business.
(Since the book itself is a long one with many useful concepts, and I have also added some examples from Bangladesh Startup Scene, the review becomes quite long. Thus it will be divided into two parts, this is the first part.)
THE LEAN STARTUP METHOD
There are 5 main concepts in the Lean Startup. I’ll be exploring each one in much more detail later.
1. Entrepreneurs are everywhere. You don’t have to work in a garage to be in a startup. Eric’s definition of a startup is: “a human institution designed to create new products and services under conditions of extreme uncertainty.” That means the Lean Startup approach can work in any size company, even a very large enterprise, in any sector or industry.
2. Entrepreneurship is Management. A startup is an institution, not just a product. So it requires a new kind of management specifically geared to its context of extreme uncertainty. In fact, Eric argued that “entrepreneur” should be considered a job title in all modern companies that depend on innovation for future growth.
3. Validated Learning. Startups exist not just to make stuff, make money, or even serve customers. They exist to learn how to build a sustainable business. This learning can be validated scientifically by running frequent experiments that allow entrepreneurs to test each element of their vision.
4. Build-Measure-Learn. The fundamental activity of a startup is to turn ideas into products, measure how customers respond, and then learn whether to pivot or persevere. All successful startup processes should be geared to accelerate that feedback loop.
5. Innovation Accounting. To improve entrepreneurial outcomes and hold innovators accountable, we need to focus on the boring stuff: how to measure progress, how to set up milestones, and how to prioritize work. This requires a new kind of accounting designed for startups—and the people who hold them accountable.
HOW THE BOOK IS ORGANIZED
With the five principles in mind, the author takes the reader through the rest of the book in three parts: “Vision”, “Steer” and “Accelerate”. He builds his case with several interesting case studies including his time in IMVU.
“Vision” makes the case for a new discipline of entrepreneurial management. Eric identified who is an entrepreneur, defined a startup, and articulated a new way for startups to gauge if they are making progress, called validated learning. To achieve that learning, he demonstrated that startups – in a garage or inside an enterprise – can use scientific experimentation to discover how to build a sustainable business.
“Steer” dives into the Lean Startup method in detail. showing one major turn through the core Build-Measure-Learn feedback loop. Beginning with leap-of-faith assumptions that cry out for rigorous testing, Eric explained how to build a minimum viable product to test those assumptions. He also introduced a new accounting system for evaluating whether you’re making progress, and a method for deciding whether to pivot (changing course with one foot anchored to the ground) or persevere.
In “Accelerate,” Eric explored techniques that enable Lean Startups to speed through the Build-Measure-Learn feedback loop as quickly as possible, even as they scale. He also explored lean manufacturing concepts that are applicable to startups, too. Such as the power of small batches. He also discussed organizational design, how products grow, and how to apply Lean Startup principles beyond the proverbial garage, even inside the world’s largest companies.
PART 1: VISION
The Origin of the Term ‘Lean Startup’
The Lean Startup takes its name from the lean manufacturing revolution that Taiichi Ohno and Shigeo Shingo developed at Toyota. The philosophies include: the knowledge and creativity of individual workers, the shrinking of batch sizes, just-in-time production and inventory control, and acceleration of cycle times.
The Lean Startup adapts these ideas to the context of entrepreneurship. It proposes that entrepreneurs should judge their progress differently from the way other kinds of ventures do. 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.
The Lean Startup method is designed to teach you how to drive a startup. Instead of making complex plans based on a lot of assumptions, you can make constant adjustments with a steering wheel called the Build-Measure-Learn feedback loop. Through this process of steering, we can learn when it’s time to make a sharp turn called a pivot or whether we should persevere along our current path. Once we have an engine that’s revved up, the Lean Startup offers methods to scale and grow the business with maximum acceleration.
What is a Startup?
According to Eric Ries: “A startup is a human institution designed to create a new product or service under conditions of extreme uncertainty.”
I found the most important part of this definition is what it omits. It says nothing about the size of the company, the industry, or the sector of the economy. Anyone who is creating a new product or business under conditions of extreme uncertainty is an entrepreneur. Whether that’s a government agency, a venture-backed company, a nonprofit, or a decidedly for-profit company with financial investors.
For example, Intuit demonstrated with Snaptax that they can build a good product even though they are a big organization. They found their own way to break the Innovator’s dilemma. Snaptax was able to solve an interesting problem of allowing users to finish their entire tax returns on a mobile phone.
A startup is greater than the sum of its parts; it is an acutely human enterprise.
The product or service of the startup, a new innovation, is an essential part of the definition. A product is something that encompasses any source of value for customers. Anything those customers experience from their interaction with a company should be considered part of that company’s product.
Startups are designed to confront situations of extreme uncertainty. To open up a new business that is an exact clone of an existing business is not a startup because its success depends only on execution.
According to Eric, validated learning is the process of demonstrating empirically that a team has discovered valuable truths about a startup’s present and future business prospects. It is more concrete, more accurate, and faster than market forecasting. It is the principal antidote to the lethal problem of achieving failure: successfully executing a plan that leads nowhere.
Which of our efforts are value-creating and which are wasteful? This question is at the heart of the lean manufacturing revolution. Lean thinking defines value as providing benefit to the customer; anything else is a waste.
Lean thinking defines value as providing benefit to the customer, anything else is a waste. In a manufacturing business, customers don’t care how the product is assembled, only that it works correctly. But in a startup, who the customer is and what the customer might find valuable are unknown, part of the very uncertainty that is an essential part of the definition of a startup.
The Experiment Phase
One of the most important lessons of the scientific method – if you cannot fail, you cannot learn.
The goal of every startup experiment is to discover how to build a sustainable business around the vision. Even when experiments produce a negative result, those failures prove instructive and can influence strategy. In the lean startup model, an experiment is more than just a theoretical inquiry; it is also a first product.
The first step would be to break down the grand vision into its component parts. The two most important assumptions entrepreneurs make are:
- The Value Hypothesis – test whether a product or service really delivers value to
customers once using it.
- The Growth Hypothesis – test how new customers will discover a product or service.
The product manager usually says “I want this”, and the engineer answers “I am going to
Instead, answer 4 questions:
- Do consumers recognize that they have the problem you are trying to solve?
- If there was a solution, would they buy it?
- Would they buy it from us?
- Can we build a solution for that problem?
An Example from Startup Industry in Bangladesh
In 2015, Khobaib Chowdhury, a young passionate and visionary entrepreneur, was trying to solve a unique problem that millions of people were facing every day. The number of women wearing Hijab was rising in Bangladesh, but there was no single source to find varieties of quality items at that time. He started an experiment, answering the above four questions, by collecting several dozens of hijabs, and placing them online in front of the prospects. The customer responses were beyond expectations. And thus from that validated learning started the journey of Styline, the only female-focused modest marketplace in the country (where I currently provide business consultancy).
Remember that success is not delivering a feature; success is learning how to solve the customer’s problem.
(This is Part One of the book review, please return in a few days for the next part)
About The Author: Mark Anupom Mollick is an experienced Software Engineer, Digital Marketer and Business Consultant for tech and internet companies. He is a strong believer of maximizing output, achieving geometric growth and continuously improving performance. Feel free to reach him at [email protected] or contact via linkedin
Mark Anupom Mollick is an experienced Software Engineer, Digital Marketer and Business Consultant. Currently, he is also a Doctor of Business Administration (DBA) Candidate in IBA (DU), where his research areas are Startups and Growth Hacking. Anupom is a strong believer of maximizing output, achieving geometric growth and continuously improving performance.
Feel free to reach him at [email protected] or contact via LinkedIn.