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Lean Startups by Eric Ries

General Concepts summarized (partial) by
      George Howard (@gah650)




           Partial Summary of Eric Reis' Lean Startups   2
Intro

This deck provides a basic and partial
 summary of the book Lean Startups
   by Eric Ries. You should buy the
                 book.

          Partial Summary of Eric Reis' Lean Startups   3
It’s the boring stuff that matters
             the most




          Partial Summary of Eric Reis' Lean Startups   4
Entrepreneurship is a kind of
       management




        Partial Summary of Eric Reis' Lean Startups   5
Lean Startup
• Builds on
  – Lean manufacturing
  – Design thinking
  – Customer development
  – Agile development




               Partial Summary of Eric Reis' Lean Startups   6
Lean Startup
• Characterized by
  – Extremely fast cycle time
  – Focus on what customers want without asking
    them)
  – Scientific approach to decision making




                Partial Summary of Eric Reis' Lean Startups   7
5 principles
•   Entrepreneurs are everywhere
•   Entrepreneurship is management
•   Validated Learning
•   Build-Measure-Learn
•   Innovation Accounting




                Partial Summary of Eric Reis' Lean Startups   8
Why Startups Fail




  Partial Summary of Eric Reis' Lean Startups   9
Established business metrics don’t
                apply
• Startups don’t yet know who their customer is
  or what their product should be
• Planning and forecasting are only accurate
  when based on a long, stable operating
  history, and relatively static environment




               Partial Summary of Eric Reis' Lean Startups   10
“Just Do it” is a myth
• An “unmanaged” startup will fail
• Entrepreneurship is management
• Entrepreneurship is a discipline




               Partial Summary of Eric Reis' Lean Startups   11
Part One

             Vision




Partial Summary of Eric Reis' Lean Startups   12
Entrepreneurial management
• Problem – many Entrepreneurs eschew
  traditional management theory as too
  constraining
• Problem – traditional management not
  designed to deal with the chaos of startups




                Partial Summary of Eric Reis' Lean Startups   13
Theory of Entrepreneurship must
                encompass
•   Vision and concept
•   Product development
•   Marketing and sales
•   Scaling up
•   Partnerships and distribution
•   Structure and organizational design



                  Partial Summary of Eric Reis' Lean Startups   14
Theory of Entrepreneurship must
              encompass
• Provide method for measuring progress in the
  context of extreme uncertainty
• Give Entrepreneurships clear guidance on how to
  make trade-off decisions:
  – Whether and when to invest in process
  – Formulating, planning, and creating infrastructure
  – When to go it alone/when to partner
  – When to respond to feedback and when to stick to
    vision
  – How and when to invest in scaling the business

                  Partial Summary of Eric Reis' Lean Startups   15
Theory of Entrepreneurship must
      (more than anything else)
• Allow Entrepreneurs to make testable
  predictions




               Partial Summary of Eric Reis' Lean Startups   16
Lean Startup
• Ask people to start measuring their
  productivity differently
• Startups accidentally build something nobody
  wants, it doesn’t matter if they do it on time
  and on budget
• The goal of the startup is to figure out the
  right thing to build – the thing customers want
  and will pay for – as quickly as possible

                Partial Summary of Eric Reis' Lean Startups   17
Lean Startup
• Emphasizes fast iteration and customer insight
  a huge vision, and great ambition, all at the
  same time




                Partial Summary of Eric Reis' Lean Startups   18
Engine of growth
• Every new version of a product, every new
  feature, and every new marketing program is
  an attempt to improve the engine of growth
• Directional planning – more rocket ship than
  daily commute (i.e. over-adherence to a set-
  in-stone direction) - is bad
  – Rigorous and faithful achievement of failure



                 Partial Summary of Eric Reis' Lean Startups   19
Drive a startup
• LS approach: instead of making complex plans
  that are based on a lot of assumptions, you
  can make constant adjustments with a
  steering wheel called the build-measure-learn
  feedback loop.
  – Sharp turn = pivot




                 Partial Summary of Eric Reis' Lean Startups   20
True North
• Startups have a True North – a destination – in
  mind
  – LS refers to this as its vision
  – To achieve that vision, startups employ a strategy
     •   Business model
     •   Product road map
     •   Pov about partners and competitors
     •   Ideas about who the customer will be
  – The product is the end result of this strategy

                     Partial Summary of Eric Reis' Lean Startups   21
Partial Summary of Eric Reis' Lean Startups   22
Change/constant
• Products change constantly through the
  process of optimization (tuning the engine)
• The strategy may have to change (less
  frequently) = a pivot
• The overarching vision rarely changes
  – Entrepreneurship’s are committed to seeing the
    startup through to that destination
  – Every setback is an opportunity for learning how
    to get where they want to go

                 Partial Summary of Eric Reis' Lean Startups   23
Define




Partial Summary of Eric Reis' Lean Startups   24
“Intrapreneurs”
• Convert raw materials of innovation into real-
  world breakthrough successes
• Entrepreneurs who operate inside an
  established organization sometimes are called
  “Intrapreneurs” because of the special
  circumstances that attend building a startup
  within a larger company.


                Partial Summary of Eric Reis' Lean Startups   25
Startup definition
• A startup is a human institution designed to
  create a new product or service under
  conditions of extreme uncertainty
  – Nothing to do with:
     • Size of the company
     • Industry
     • Sector
  – A startup is greater than the sum of its parts; it an
    acutely human enterprise

                  Partial Summary of Eric Reis' Lean Startups   26
Innovator’s dilemma
• Established companies are very good at
  creating incremental improvements to existing
  products and serving customers (sustaining
  innovation), but struggle to create
  breakthrough new products (disruptive
  innovation) than can create new sustainable
  sources of growth



               Partial Summary of Eric Reis' Lean Startups   27
Importance of LS in established
              companies
• The amount of time a company can count on
  holding on to market leadership to exploit its
  earlier innovations is shrinking, and this creates
  an imperative for even the most entrepreneurial
  companies to invest in innovation.
• The only sustainable path to long-term economic
  growth is to build an “innovation factory” to
  create disruptive innovations on a continuous
  basis

                 Partial Summary of Eric Reis' Lean Startups   28
Learn




Partial Summary of Eric Reis' Lean Startups   29
Fundamental goal
• Engage in organization building under
  conditions of extreme uncertainty
• Most vital function is learning
  – Learn the truth bat which elements of our strategy
    are working to realize our vision and which are
    just crazy
  – Learn what customers really want, not what they
    say they want or what we think they should want


                 Partial Summary of Eric Reis' Lean Startups   30
Validated Learning
• Not after-the-fact rationalization or a good
  story designed to hide failure
• Is a rigorous method for demonstrating
  progress when one is embedded in the soil of
  extreme uncertainty
• Is the process of demonstrating empirically
  that a team has discovered valuable truths
  about a startup’s present and future business
  prospects

                Partial Summary of Eric Reis' Lean Startups   31
Validated Learning
• Is more concrete, more accurate, and faster
  than market forecasting or classical business
  planning
• Is the principal antidote to the lethal problem
  of achieving failure: successfully executing a
  plan that leads nowhere



                Partial Summary of Eric Reis' Lean Startups   32
Quantitative Targets
• Create the motivation to engage in qualitative
  inquiry and guides questions




                Partial Summary of Eric Reis' Lean Startups   33
Value v waste
• Lean thinking defines value as providing
  benefit to the customer; anything else is
  waste
  – Remember, this is different from asking customers
    what they want; most customers don’t know what
    they want in advance.




                 Partial Summary of Eric Reis' Lean Startups   34
Avoidance of waste
• Shipping faster allows you to see what the
  customer values, and thus you can avoid
  debating what features the customer
  wants, etc.
• Learning is the essential unit of progress for
  startups
  – Effort that is not absolutely necessary for learning
    what customers want can be eliminated
     • This is VALIDATED learning – always demonstrated by
       positive improvement in the startup’s core metrics.

                  Partial Summary of Eric Reis' Lean Startups   35
Key points
  Effort that is not absolutely necessary for learning
    what customers want can be eliminated
     • This is VALIDATED learning – always demonstrated by
       positive improvement in the startup’s core metrics.
• Look for synthesis b/w vision and what
  customers would accept




                  Partial Summary of Eric Reis' Lean Startups   36
The audacity of zero




    Partial Summary of Eric Reis' Lean Startups   37
Zero invites imagination
• At the start – when the number is zero –
  people can imagine success
• Once you launch, and the numbers are
  small, it pours cold water over the project
  – Therefore, people delay launch, delay initiatives
    until they are CERTAIN of success.
     • However, these delays cause waste, and decrease
       feedback, and thus increase risk that a startup builds
       something nobody wants

                   Partial Summary of Eric Reis' Lean Startups   38
paradox
• Releasing a product – w/o planning – and
  hoping for the best is not a good plan either




                Partial Summary of Eric Reis' Lean Startups   39
tension
• Backers, etc want hockey-stick growth
• If you lack the language of validated
  learning, people will focus on the wrong
  metrics
  – Must look beyond small gross numbers to see real
    progress (assuming there is real progress being
    made)
  – Must show that product dev are leading towards
    success w/o giving in to the temptation to fall
    back on “success theater.” Things you can do to
    look successful
                Partial Summary of Eric Reis' Lean Startups   40
Success theater examples
• Marketing gimmicks
• Super bowl ads
• Flamboyant pr
  – All meant to juice gross numbers
  – = illusion of traction
     • Eventually the fundamentals of the biz win out and the
       PR bump passes.




                   Partial Summary of Eric Reis' Lean Startups   41
Key questions
• Should this product be built?
• Can we build a sustainable biz around this set
  of products?
  – To answer, we need a method for systematically
    breaking down a biz plan into its component parts
    and testing each part empirically
  – In the LS model every product, feature, marketing
    campaign – everything a startup does – is
    understood to be an experiment designed to
    achieve validated learning.

                 Partial Summary of Eric Reis' Lean Startups   42
Ch 4

      Experiment




Partial Summary of Eric Reis' Lean Startups   43
paradox
• If the plan is to see what happens, a team is
  guaranteed to succeed – at seeing what
  happens – but won’t necessarily gain
  validated learning
  – If you cannot fail, you cannot learn




                  Partial Summary of Eric Reis' Lean Startups   44
LS method
• Reconceives a startup’s efforts as experiments
  that test its strategy to see which parts are
  brilliant and which are crazy
• Begins witha clear hypothesis that makes
  predictions about what is supposed to happen
  – Then tests those predictions empirically
  – Just as scientific experimentation is informed by
    theory, startup exp is guided by the startup’s
    vision
                 Partial Summary of Eric Reis' Lean Startups   45
goal
• The goal of every startup is to discover how to
  build a sustainable biz around that vision




                Partial Summary of Eric Reis' Lean Startups   46
Think big, start small
• Zappos approach
  – Small-scale efforts did not prevent a huge vision
    from being realized




                 Partial Summary of Eric Reis' Lean Startups   47
For long-term change, experiment
             immediately
• Have to deal with untested assumptions and a
  lot of vision
  – Break it down – vision into component parts (TWO
    MOST IMPORTANT ASSUMPTIONS
    ENTREPRENEURS MAKE):
     • Value hypothesis – test whether a product or services
       really delivers value to customers once they’re using it
     • Growth hypothesis – tests how new customers will
       discover a product or service


                   Partial Summary of Eric Reis' Lean Startups    48
An experiment is a product
• That is, an experiment must be more than just
  a theoretical inquiry; it is also a first product
  – Allows managers to get started with the campaign
     • Get early adopters




                   Partial Summary of Eric Reis' Lean Startups   49
Key questions
• Do customers recognize that they have the
  problem you’re trying to solve?
• If there was a solution, would they buy it?
• Would they buy it from you (company)?
• Can we build a solution for that problem?

• Typically, companies go to step 4 prior to
  confirming customers have the problem
                Partial Summary of Eric Reis' Lean Startups   50
Success is not delivering a feature
• Success is learning how to solve the
  customer’s problem




                Partial Summary of Eric Reis' Lean Startups   51
Key approach
• Treat the new venture as an experiment
• Id the elements of the plans that are
  assumptions rather than facts
• Figure out ways to test them
• Using these insights, build a min viable
  product and have something up and running
  before the official plan was set in motion


               Partial Summary of Eric Reis' Lean Startups   52
remember
• Planning is a tool that only works in the
  presence of a long and stable operating
  history




                 Partial Summary of Eric Reis' Lean Startups   53

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Lean startups Partial Summary

  • 1. Lean Startups by Eric Ries General Concepts summarized (partial) by George Howard (@gah650) Partial Summary of Eric Reis' Lean Startups 2
  • 2. Intro This deck provides a basic and partial summary of the book Lean Startups by Eric Ries. You should buy the book. Partial Summary of Eric Reis' Lean Startups 3
  • 3. It’s the boring stuff that matters the most Partial Summary of Eric Reis' Lean Startups 4
  • 4. Entrepreneurship is a kind of management Partial Summary of Eric Reis' Lean Startups 5
  • 5. Lean Startup • Builds on – Lean manufacturing – Design thinking – Customer development – Agile development Partial Summary of Eric Reis' Lean Startups 6
  • 6. Lean Startup • Characterized by – Extremely fast cycle time – Focus on what customers want without asking them) – Scientific approach to decision making Partial Summary of Eric Reis' Lean Startups 7
  • 7. 5 principles • Entrepreneurs are everywhere • Entrepreneurship is management • Validated Learning • Build-Measure-Learn • Innovation Accounting Partial Summary of Eric Reis' Lean Startups 8
  • 8. Why Startups Fail Partial Summary of Eric Reis' Lean Startups 9
  • 9. Established business metrics don’t apply • Startups don’t yet know who their customer is or what their product should be • Planning and forecasting are only accurate when based on a long, stable operating history, and relatively static environment Partial Summary of Eric Reis' Lean Startups 10
  • 10. “Just Do it” is a myth • An “unmanaged” startup will fail • Entrepreneurship is management • Entrepreneurship is a discipline Partial Summary of Eric Reis' Lean Startups 11
  • 11. Part One Vision Partial Summary of Eric Reis' Lean Startups 12
  • 12. Entrepreneurial management • Problem – many Entrepreneurs eschew traditional management theory as too constraining • Problem – traditional management not designed to deal with the chaos of startups Partial Summary of Eric Reis' Lean Startups 13
  • 13. Theory of Entrepreneurship must encompass • Vision and concept • Product development • Marketing and sales • Scaling up • Partnerships and distribution • Structure and organizational design Partial Summary of Eric Reis' Lean Startups 14
  • 14. Theory of Entrepreneurship must encompass • Provide method for measuring progress in the context of extreme uncertainty • Give Entrepreneurships clear guidance on how to make trade-off decisions: – Whether and when to invest in process – Formulating, planning, and creating infrastructure – When to go it alone/when to partner – When to respond to feedback and when to stick to vision – How and when to invest in scaling the business Partial Summary of Eric Reis' Lean Startups 15
  • 15. Theory of Entrepreneurship must (more than anything else) • Allow Entrepreneurs to make testable predictions Partial Summary of Eric Reis' Lean Startups 16
  • 16. Lean Startup • Ask people to start measuring their productivity differently • Startups accidentally build something nobody wants, it doesn’t matter if they do it on time and on budget • The goal of the startup is to figure out the right thing to build – the thing customers want and will pay for – as quickly as possible Partial Summary of Eric Reis' Lean Startups 17
  • 17. Lean Startup • Emphasizes fast iteration and customer insight a huge vision, and great ambition, all at the same time Partial Summary of Eric Reis' Lean Startups 18
  • 18. Engine of growth • Every new version of a product, every new feature, and every new marketing program is an attempt to improve the engine of growth • Directional planning – more rocket ship than daily commute (i.e. over-adherence to a set- in-stone direction) - is bad – Rigorous and faithful achievement of failure Partial Summary of Eric Reis' Lean Startups 19
  • 19. Drive a startup • LS approach: instead of making complex plans that are based on a lot of assumptions, you can make constant adjustments with a steering wheel called the build-measure-learn feedback loop. – Sharp turn = pivot Partial Summary of Eric Reis' Lean Startups 20
  • 20. True North • Startups have a True North – a destination – in mind – LS refers to this as its vision – To achieve that vision, startups employ a strategy • Business model • Product road map • Pov about partners and competitors • Ideas about who the customer will be – The product is the end result of this strategy Partial Summary of Eric Reis' Lean Startups 21
  • 21. Partial Summary of Eric Reis' Lean Startups 22
  • 22. Change/constant • Products change constantly through the process of optimization (tuning the engine) • The strategy may have to change (less frequently) = a pivot • The overarching vision rarely changes – Entrepreneurship’s are committed to seeing the startup through to that destination – Every setback is an opportunity for learning how to get where they want to go Partial Summary of Eric Reis' Lean Startups 23
  • 23. Define Partial Summary of Eric Reis' Lean Startups 24
  • 24. “Intrapreneurs” • Convert raw materials of innovation into real- world breakthrough successes • Entrepreneurs who operate inside an established organization sometimes are called “Intrapreneurs” because of the special circumstances that attend building a startup within a larger company. Partial Summary of Eric Reis' Lean Startups 25
  • 25. Startup definition • A startup is a human institution designed to create a new product or service under conditions of extreme uncertainty – Nothing to do with: • Size of the company • Industry • Sector – A startup is greater than the sum of its parts; it an acutely human enterprise Partial Summary of Eric Reis' Lean Startups 26
  • 26. Innovator’s dilemma • Established companies are very good at creating incremental improvements to existing products and serving customers (sustaining innovation), but struggle to create breakthrough new products (disruptive innovation) than can create new sustainable sources of growth Partial Summary of Eric Reis' Lean Startups 27
  • 27. Importance of LS in established companies • The amount of time a company can count on holding on to market leadership to exploit its earlier innovations is shrinking, and this creates an imperative for even the most entrepreneurial companies to invest in innovation. • The only sustainable path to long-term economic growth is to build an “innovation factory” to create disruptive innovations on a continuous basis Partial Summary of Eric Reis' Lean Startups 28
  • 28. Learn Partial Summary of Eric Reis' Lean Startups 29
  • 29. Fundamental goal • Engage in organization building under conditions of extreme uncertainty • Most vital function is learning – Learn the truth bat which elements of our strategy are working to realize our vision and which are just crazy – Learn what customers really want, not what they say they want or what we think they should want Partial Summary of Eric Reis' Lean Startups 30
  • 30. Validated Learning • Not after-the-fact rationalization or a good story designed to hide failure • Is a rigorous method for demonstrating progress when one is embedded in the soil of extreme uncertainty • Is the process of demonstrating empirically that a team has discovered valuable truths about a startup’s present and future business prospects Partial Summary of Eric Reis' Lean Startups 31
  • 31. Validated Learning • Is more concrete, more accurate, and faster than market forecasting or classical business planning • Is the principal antidote to the lethal problem of achieving failure: successfully executing a plan that leads nowhere Partial Summary of Eric Reis' Lean Startups 32
  • 32. Quantitative Targets • Create the motivation to engage in qualitative inquiry and guides questions Partial Summary of Eric Reis' Lean Startups 33
  • 33. Value v waste • Lean thinking defines value as providing benefit to the customer; anything else is waste – Remember, this is different from asking customers what they want; most customers don’t know what they want in advance. Partial Summary of Eric Reis' Lean Startups 34
  • 34. Avoidance of waste • Shipping faster allows you to see what the customer values, and thus you can avoid debating what features the customer wants, etc. • Learning is the essential unit of progress for startups – Effort that is not absolutely necessary for learning what customers want can be eliminated • This is VALIDATED learning – always demonstrated by positive improvement in the startup’s core metrics. Partial Summary of Eric Reis' Lean Startups 35
  • 35. Key points Effort that is not absolutely necessary for learning what customers want can be eliminated • This is VALIDATED learning – always demonstrated by positive improvement in the startup’s core metrics. • Look for synthesis b/w vision and what customers would accept Partial Summary of Eric Reis' Lean Startups 36
  • 36. The audacity of zero Partial Summary of Eric Reis' Lean Startups 37
  • 37. Zero invites imagination • At the start – when the number is zero – people can imagine success • Once you launch, and the numbers are small, it pours cold water over the project – Therefore, people delay launch, delay initiatives until they are CERTAIN of success. • However, these delays cause waste, and decrease feedback, and thus increase risk that a startup builds something nobody wants Partial Summary of Eric Reis' Lean Startups 38
  • 38. paradox • Releasing a product – w/o planning – and hoping for the best is not a good plan either Partial Summary of Eric Reis' Lean Startups 39
  • 39. tension • Backers, etc want hockey-stick growth • If you lack the language of validated learning, people will focus on the wrong metrics – Must look beyond small gross numbers to see real progress (assuming there is real progress being made) – Must show that product dev are leading towards success w/o giving in to the temptation to fall back on “success theater.” Things you can do to look successful Partial Summary of Eric Reis' Lean Startups 40
  • 40. Success theater examples • Marketing gimmicks • Super bowl ads • Flamboyant pr – All meant to juice gross numbers – = illusion of traction • Eventually the fundamentals of the biz win out and the PR bump passes. Partial Summary of Eric Reis' Lean Startups 41
  • 41. Key questions • Should this product be built? • Can we build a sustainable biz around this set of products? – To answer, we need a method for systematically breaking down a biz plan into its component parts and testing each part empirically – In the LS model every product, feature, marketing campaign – everything a startup does – is understood to be an experiment designed to achieve validated learning. Partial Summary of Eric Reis' Lean Startups 42
  • 42. Ch 4 Experiment Partial Summary of Eric Reis' Lean Startups 43
  • 43. paradox • If the plan is to see what happens, a team is guaranteed to succeed – at seeing what happens – but won’t necessarily gain validated learning – If you cannot fail, you cannot learn Partial Summary of Eric Reis' Lean Startups 44
  • 44. LS method • Reconceives a startup’s efforts as experiments that test its strategy to see which parts are brilliant and which are crazy • Begins witha clear hypothesis that makes predictions about what is supposed to happen – Then tests those predictions empirically – Just as scientific experimentation is informed by theory, startup exp is guided by the startup’s vision Partial Summary of Eric Reis' Lean Startups 45
  • 45. goal • The goal of every startup is to discover how to build a sustainable biz around that vision Partial Summary of Eric Reis' Lean Startups 46
  • 46. Think big, start small • Zappos approach – Small-scale efforts did not prevent a huge vision from being realized Partial Summary of Eric Reis' Lean Startups 47
  • 47. For long-term change, experiment immediately • Have to deal with untested assumptions and a lot of vision – Break it down – vision into component parts (TWO MOST IMPORTANT ASSUMPTIONS ENTREPRENEURS MAKE): • Value hypothesis – test whether a product or services really delivers value to customers once they’re using it • Growth hypothesis – tests how new customers will discover a product or service Partial Summary of Eric Reis' Lean Startups 48
  • 48. An experiment is a product • That is, an experiment must be more than just a theoretical inquiry; it is also a first product – Allows managers to get started with the campaign • Get early adopters Partial Summary of Eric Reis' Lean Startups 49
  • 49. Key questions • Do customers recognize that they have the problem you’re trying to solve? • If there was a solution, would they buy it? • Would they buy it from you (company)? • Can we build a solution for that problem? • Typically, companies go to step 4 prior to confirming customers have the problem Partial Summary of Eric Reis' Lean Startups 50
  • 50. Success is not delivering a feature • Success is learning how to solve the customer’s problem Partial Summary of Eric Reis' Lean Startups 51
  • 51. Key approach • Treat the new venture as an experiment • Id the elements of the plans that are assumptions rather than facts • Figure out ways to test them • Using these insights, build a min viable product and have something up and running before the official plan was set in motion Partial Summary of Eric Reis' Lean Startups 52
  • 52. remember • Planning is a tool that only works in the presence of a long and stable operating history Partial Summary of Eric Reis' Lean Startups 53