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Understanding the Lean Startup

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Review of the book 'The Lean Startup' by Eric Ries. Entrepreneurs can use these concepts in a variety of businesses both new and old. Great group conversation to explore how a variety of people can …

Review of the book 'The Lean Startup' by Eric Ries. Entrepreneurs can use these concepts in a variety of businesses both new and old. Great group conversation to explore how a variety of people can use the methodology.

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  • Metrics: Actionable; Accessible; & AuditableActionable: Must demonstrate clear cause and effect (otherwise it’s a vanity metric)Accessible: All employees and managers should have access to the results to help them guide their decision making. Make it easily understood (what’s a web hit?)Auditable: Ensure the data is credible to employees
  • Traditional analysis can easily be masked by the size of your existing user base. In the same way, it’s possible for a large proportion of new users to mask changes in your existing user base. The cohort analysis uniquely clarifies these changes by tuning your focus to the user groups that provide the most insight into the impact of product changes
  • The great thing about customer cohort analysis is that each new group provides the opportunity to start with a fresh set of users. This allows us to passively identify differences in our cohort metrics after the fact or actively segment out controlled cohort test groups for more directed analysis. We can now, on a regular basis, focus on how well we engage with our audience independent of how much we’re growing.One of the best metrics for identifying whether users love your product is retention. It tells you whether the visitors, which you worked so hard to acquire, are going to come back. Retention evaluation nicely highlights the advantages of a cohort analysis.Grouping users into cohorts based on their signup date can also be used to measure changes in engagement. It’s much easier to make informed decisions about new features and refinements when you can correlate cohort behavior changes in your startup analytics with product alterations. Instead of plotting the percentage of users who refer their friends each week, we’ll instead graph the percentage of users who sign up each week and then, at some point in the future, decide to refer their friends. This allows us to consistently focus on the experience of new users who aren’t tainted by prior experience with the product
  • KanBan (Capacity constraint) – Stories could be cataloged as being in one of four stages of development: in the product backlog, actively being built, done (feature complete), process of being validated.As engineers look for ways to increase their productivity, they start to realize that if they include the validation exercise from the beginning, the whole team can be more productive
  • Transcript

    • 1. The Lean Startup How Today‟s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses by Eric Ries Book review session with Vested for Growth by Ric PratteTaking the core concepts developed for lean manufacturing and utilize them for starting and building a business
    • 2. Original Lean ConceptsLean manufacturing taught the world the differencebetween value-building activities and waste and showedhow to build quality into products from the inside out“Lean thinking is lean because it provides a way to domore and more with less and less – less human effort,less equipment, less time, and less space – while comingcloser and closer to providing customers with exactly whatthe want” J. Womack & D. Jones, Lean Thinking, 1st Edition @RicPratte
    • 3. Lean Manufacturing Lean Manufacturing is a production philosophy  Seeks to supply exactly what the customer wants, when the customer wants it.  Aims at supplying these goods and services with minimum waste.  Eliminating waste along entire value streams, creates processes that need less capital, human resources, less production space, and reduces the time to make products and services.  If implemented effectively, reduce the cost of producing goods and services, reduce the number of defect products and produce and deliver goods quickly to customers Lean Manufacturing is a production design that can handle both internal and external variability, where variability in production efficiency, product quality and customer orders are sought handled and absorbed through the total design of the system. @RicPratte
    • 4. Lean Manufacturing economic Gains Greater quality of goods Fewer costs of producing goods and services Quicker response time- faster delivery of goods and services @RicPratte
    • 5. The Startup A human institution designed to create new products under conditions of extreme uncertainty 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 The riskiest elements of a startup‟s plan, the parts of which everything depends, leap-of-faith assumptions are the value hypothesis and grow hypothesis Strategy is based upon assumptions @RicPratte
    • 6. The Goal Startup productivity is not about cranking out more widgets or features. It is about aligning our efforts with a business and product that are working to create value and drive growth If the fundamental goal of entrepreneurship is to engage in organization building under conditions of extreme uncertainty… then it‟s most vital function is learning, validated learning  Validated learning is backed by empirical data collected from real customers. @RicPratte
    • 7. Startup Management Mainstream management principles are ill suited to handle the chaos & uncertainty that startups must face Prior to lean manufacturing, managers were used to focusing on the utilization rate of each machine. If a startup builds something that few people want then it doesn‟t matter if it‟s on time and on budget @RicPratte
    • 8. Lean in Startups The critical first question for any lean transformation is: which activities create value and which are a form of waste. The products a startup builds are really experiments; validated learning.  How to build a sustainable business is the outcome of those experiments @RicPratte
    • 9. SnapTax Idea: Automate the process of collecting tax info from W-2 forms Learned: Few people know how to use scanners Solution: Mobile phone picture to capture info Learned from testing: People were interested in completing their return from their phone  Created test version that only worked within CA From a single picture can file a 1040EZ 350,000 downloads in 1st three weeks of going live SnapTax was developed within Intuit (TurboTax) Innovation is a bottoms up, decentralized and unpredictible thing, but that doesn‟t mean it can‟t be managed. @RicPratte
    • 10. Build – Measure – Learn The feedback loop at the core of the lean startup model  Validated learning  Validate strategic assumptionsLearn Build  Learn what customers really find valuable (pull)  Accelerate this feedback loop Measure  Small quick cycles not major gambles @RicPratte
    • 11. Build: Turn ideas into products  Minimum viable product (MVP)  Concierge: start with one customerLearn Build  Quick product releases/variations/tests  Customer archetype, a brief document that seeks to humanize the proposed Measure target customer. If we don‟t know who the customer is, we do not knowOur first pass through the cycle what quality is @RicPratte
    • 12. Measure: See how customers respond  A systematic approach to figuring out if you‟re making progress and actually achieving validated learning  How do customers react Learn Build compared to goal?  Good design is one that changes customer behavior for the better Measure  Split-test to find cause and effect  Metrics: Actionable; Our first pass through the cycle Accessible; & Auditable @RicPratte
    • 13. Learn: Pivot or persevere  Which activities create value?  What activities are waste?  Find and fix root causesLearn Build MeasureOur first pass through the cycle @RicPratte
    • 14. Build: Minimum viable product  In building your MVP, let this simple rule suffice, remove any feature, process, or effort that does not contribute to directly to the learning youLearn Build seek  First product targets early adopters, it does not need to be perfect. Measure  Most overestimate feature volume, when in doubt… simplify @RicPratte
    • 15. MVP at Dropbox Idea: File synchronization was a problem that most people didn‟t know they had (at the time) and the software needed to „work like magic‟. VCs weren‟t interested since they thought it was a crowded space (not seeing the user experience opportunity) Significant engineering hurdle to overcome to make the experience seamless. Breakthrough: 3 Minute video targeted to early adopters demonstrating the concept. Waiting list of users went from 5,000 to 75,000 overnight Dropbox is now valued at over $1 Billion @RicPratte
    • 16. Build: Pull  Concept of „pull‟ in lean manufacturing does not work the same in startup methodologyLearn Build  Customers do not really know what they want in product development. (i.e. Ford & faster horses) Measure  „Pull‟ is to run an experiment to test underlying customer need hypothesis @RicPratte
    • 17. Measure: Cohort Analysis  Cohort analysis: among the people who used our product in this period, here‟s how many of them exhibited each of the behaviors we careLearn Build about  Energy invested in success theater (vanity metrics) is energy that could have been Measure used to help build a sustainable business @RicPratte
    • 18. Traditional Cumulative Metrics Just because your graphs are going up and to the right, doesn‟t mean your business is doing well240 900220 New Signups 800 Total Current Users200 700 600180 500160 400140 300120 200100 100 80 0 “Vanity Metrics” @RicPratte
    • 19. Cohort Analysis Each conversion rate shows the percentage of customers who registered in that month who subsequently went on to take the indicated action0.55 1 0.5 Stayed after 5mos 0.950.45 0.9 Retainage 0.4 0.850.35 0.3 0.80.25 0.75 0.2 0.7 @RicPratte
    • 20. Compare two startups Company 1  Sets out with clear baseline metric  Hypothesis on how to improve that metric  Set of experiments designed to improve that hypothesis Company 2  Debates on what would improve the product  Implements several changes at one  Celebrates with any positive increase in any number Which company is more likely to achieve lasting results? @RicPratte
    • 21. Learn: Kanban  Validated learning in a Kanban board is a great way for developers to engage in how useful features work in a customer environmentLearn Build  Include validation planning from the beginning  Kanban: features are in four stages-  Product backlog Measure  Being built  Feature complete  Process of validation @RicPratte
    • 22. Learning at Grockit Idea: Bring peer-to-peer learning to help passing standardized tests more affordable Highly efficient engineering team delivering new product features. Total number of customers were increasing.  Not seeing growth in product use by customers  Metrics would go up & down seemingly on their own  Couldn‟t draw clear cause and effect inferences Changed to make sure improvements mattered to customers  Launched each new feature as a true split-test experiment  Learned many features had no impact on customer behavior Learned students preferred having learning choices (styles) and created what customers wanted not what the company thought. @RicPratte
    • 23. Learn: Pivot or Persevere  Pivot: a structured course correction designed to test a new fundamental hypothesis about the product, strategy and engine of growth.Learn Build  Zoom-in pivot  Zoom-out pivot  Customer segment pivot  Customer need pivot  Platform pivot Measure  Business architecture pivot  Value capture pivot  Engine growth pivot  Channel pivot @RicPratte
    • 24. Batch SizeSmall batch size of work units is an important lean concept  A cycle through the Build- Measure-Learn loop is a batchLearn Build  Biggest advantage of working in small batches is that quality problems can be identified much sooner Measure  Dramatically improve the speed at which startups find validated learning @RicPratte
    • 25. B-M-L Summary  Although the feedback loop is Build-Measure-Learn because the activities happen in thatLearn Build order, planning really works in reverse order:  Figure out what you need to learn and then work in the reverse order Measure  How will it be measured  What product will work as an experiment to get that learning @RicPratte
    • 26. Lean Startup Summary Focus energy on minimizing the total time through the feedback loop Dramatically improve the speed at which startups find validated learning Each time you repeat this simple rhythm: establish the baseline, tune the engine and make a decision to pivot or persevere Once efforts are aligned with customer wants, experiments are more likely to change behavior for the better Sustainable growth is characterized by one simple rule: New customers come from the actions of past customers @RicPratte