Book Review: The Lean Startup by Eric Ries

Around 5 years ago while I was working as a marketing intern at a startup called The Social Art Movement (TSAM), I was exposed to the Lean Startup’s methodologies. TSAM consisted of a core team of 4 employees supplemented with 8 undergrads, including me, as marketing interns. The startup was trying to create an online artwork shopping platform that charges a low commision. The startup was at the very early stages as the online art platform was still being developed, so we have no customers, let alone revenues (you can probably guess by now the internship was unpaid). The founder, Justin Day, was a practitioner of the Lean Startup’s methodologies. He will tell us to go out on the street and start surveying art lovers and artists to learn about their hobbies, demographics, and interests in different art-related events. Even down to social media, different posts were A/B tested to see what has more reach and engagement. I was glad that I was exposed to how an early startup operates but I didn’t realize that I was practicing some of the Lean Startup’s methodologies until I read this book.

Fast forward to 2 years later while I was working as a user research coordinator, I saw the book again being passed around among my coworkers. I started thinking… maybe I should eventually find time to read this book. And fast forward to now… I have finally finished read it and I’ll say it’s the top 5 books I’ve read.

Entrepreneurs Are Everywhere

At this point, you might be thinking, “What is the Lean Startup?”. But before I get to that, let me first get to how Eric Ries defines a startup.

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

The most important part of this definition is what it excludes. It doesn’t specify anything about the size of the company or the time that has elapsed since the company was founded. Even if you are working at an established company like Google, as long as you are operating with extreme uncertainty about who your customers are and how to build a sustainable business, then you are an entrepreneur.

The Lean Startup, which took its name from the lean manufacturing revolution at Toyota, is a set of practices for helping entrepreneurs increase their odds of building a sustainable business. It is the application of lean thinking to the process of innovation and it includes practices like validated learning, feedback loop, and innovation accounting.

Validated Learning

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

Everything a startup does should be an experiment designed to achieve validated learning. Going back to my time at The Social Art Movement, one of our first goals is to figure out what’s the target segment for our online art platform. Surveys were designed with just enough questions to understand the potential target segment’s demographic and it’s potential interests.  All of us marketing interns then surveyed art lovers and artists in different areas of the city. It was a good exercise as we were able to speak to potential customers early on and narrow down the target demographic that will sell or pay for artworks. However, looking back now, we didn’t have an MVP (minimum viable product) when we were conducting the surveys and that cost us opportunities for more validated learning which would have increased the odds of the startup succeeding.

Eric stresses the need of having an MVP early to help entrepreneurs start the process of learning as soon as possible. And anything that is outside of the learning goals of the experiment is a waste and shouldn’t be included in the MVP.

During my internship at The Social Art Movement, the product was never built. If we wanted to learn whether there is a market for an online art platform that charges a low commission, we can build an online platform that has some placeholder artwork that can be found on google images along with a checkout button that does not work. This MVP will be enough for us to get the learning we seek as we can perform usability tests to see whether our target segment will use it and proceed to checkout. However, even this first version of the online platform will require weeks of dev work and will prove to be wasteful. If the learning we seek is simply to learn whether there is a market for an e-commerce platform selling artwork for a low commission, then why do we need to build out the e-commerce platform to learn that? Why can’t we simply use a video that shows how the e-commerce platform will work or perhaps have an interactive mockup that doesn’t require a single line of code?

Startups are scarce in resources, so keep in mind that any learning you seek will need to be able to be obtained as effectively as possible to increase your chances of becoming a sustainable business. So when you are designing an MVP, be clear on what learning you are seeking, define a hypothesis, build the absolute minimum product for you to obtain that learning, and go out and talk to your customers directly by seeing how they use your MVP.

Build – Measure – Learn Feedback Loop

The Build – Measure – Learn feedback loop is at the core of the Lean Startup model. “Build” is going from ideas to a product (can be a feature or service) that the customers can interact with. “Measure” is using that product to get usability feedback and data from your target customers. And “Learn” is using that feedback and data to get actionable insights that can either shape the idea or go in a different direction altogether. To improve the chances of becoming a sustainable business, we need to minimize the total time through the feedback loop.

Even though the feedback loop is stated as Build – Measure – Learn, the process starts in the reverse order. We first figure out what we need to learn, decide what we need to measure to know if we are gaining validated learning, and then figure out what product we need to build to run that experiment and get that measurement. Once you go through a loop, the hardest decision that an entrepreneur needs to make is whether to persevere or to pivot. Persevere is to stick with the original strategy, whereas pivoting is to switch to a different strategy and go in a different direction (ex. changing the segment you’re targetting or the type of product you are providing). Persevere for too long then you will burn up resources and lead your team to failure. Pivot too early then you might be giving up on a winning strategy before it has an opportunity to develop. This is why it’s crucial at the beginning to establish what are the metrics that will be measured and what are the hypothesis for those metrics. The decision to persevere or pivot is always subjective but with concrete and actionable metrics, you will then be able to make a more informed decision.

Innovation Accounting

Innovation accounting is the process of defining, measuring, and communicating the progress of innovation to hold entrepreneurs accountable.

Innovation accounting has 3 learning milestones:

1. Establish the baseline
   Use an MVP to determine what’s the startup’s current baseline. Don’t use gross numbers and instead focus on actionable metrics such as customer sign up and retention rate which measures per customer behavior. So for example, if you expect 10% of your website’s visitors will become registered users, use an MVP as soon as possible to find out what are the actual numbers right now. Without real numbers, you won’t be able to know how far you are from your goal and cannot begin to track your progress.
2. Tune the Engine
   Make product development changes that are not designed to drive huge gross numbers but to make those conversion numbers closer to the ideal numbers. This can take numerous iterations until the company reaches a decision point, to pivot or to persevere.
3. Pivot or Persevere
   Schedule a meeting in advance to discuss whether to persevere or to pivot. With the different iterations of MVP and the associated metrics, you will have the data to help you decide whether to continue to tune the engine or to pivot. If the company is making good progress towards the ideal scenario, then it makes sense to continue. If not, the management team must eventually conclude that its current strategy is flawed and needs to pivot. When a company pivots, it starts the process all over again, reestablishing a new baseline and tuning the engine from there. The sign of a successful pivot is that these engine-tuning activities are more productive after the pivot than before.

Summary

The Lean Startup laid down the core foundation to build a sustainable business. The materials are easy to grasp and the examples are relevant and engaging. And as Eric mentioned, entrepreneurs are everywhere. This book can be applicable and beneficial to you as long as you are working to deliver a product under extreme uncertainty.

Here’s The Lean Startup talk that Eric gave at Google. I’ll still recommend getting the book but the Google talk summarizes the key insights at a high level.

I’m currently reading Harry Potter y el prisionero de Azkaban.