The Lean Startup at Web 2.0 Expo

The Lean Startup  #leanstartup  Eric Ries (@ericries)  h7p://startuplessonslearned.blogspot.com 

Thank You!  •  Scholarship Donors  •  Customer Advisory  Board  –  KISSmetrics  –  Hiten Shah  –  Bill Braasch  (@billmelater)  –  Jared Goralnick  –  Bob Aniello  –  Siqi Chen  (@CornOnTheBob)  –  Andrew Meyer   –  Simon Newstead  –  Jeﬀrey Barman  –  Sean Heywood 

Most Startups Fail  •  But it doesn’t have to be that way. We can do  be7er. This talk is about how. 

The Lean Startup and You  •  Thinking of starXng a new company, but  haven’t taken the ﬁrst step  •  In a startup now and want to iterate faster  •  Want to create the condiXons for lean  innovaXon inside a big company 

A Tale of Two Startups 

Startup #1 

A good plan?  •  Start a company with a compelling long‐term  vision.   •  Raise plenty of capital.  •  Hire the absolute best and the brightest.  •  Hire an experienced management team with tons  of startup experience.  •  Focus on quality.   •  Build a world‐class technology pla_orm.  •  Build buzz in the press and blogosphere. 

Achieving Failure  •  Company failed u7erly, $40MM and ﬁve years  of pain.  •  Crippled by “shadow beliefs” that destroyed  the eﬀort of all those smart people. 

Shadow Belief #1  •  We know what customers want.  

Shadow Belief #2  •  We can accurately predict the future.  

Shadow Belief #3  •  Advancing the plan is progress.  

A good plan?  •  Start a company with a compelling long‐term  vision.   •  Raise plenty of capital.  •  Hire the absolute best and the brightest.  •  Hire an experienced management team with tons  of startup experience.  •  Focus on quality.   •  Build a world‐class technology pla_orm.  •  Build buzz in the press and blogosphere. 

Startup #2 

New plan  •  Shipped in six months – a horribly buggy beta  product  •  Charged from day one  •  Shipped mulXple Xmes a day (by 2008, on  average 50 Xmes a day)  •  No PR, no launch  •  Results: 2007 revenues of $10MM 

Lean Startups Go Faster  •  Commodity technology stack, highly leveraged  (free/open source, user‐generated content,  SEM).  •  Customer development – ﬁnd out what  customers want before you build it.   •  Agile somware development – but tuned to  the startup condiXon. 

Commodity technology stack  •  Leverage = for each ounce of eﬀort you invest  in your product, you take advantage of the  eﬀorts of thousands or millions of others.  •  It’s easy to see how high‐leverage technology  is driving costs down.  •  More important is its impact on speed.  •  Time to bring a new product to market is  falling rapidly.  

Customer Development  ConXnuous cycle of customer    interacXon  Rapid hypothesis    tesXng about market,  pricing, customers, …    Extreme low cost, low  burn, Xght focus    Measurable gates for  investors  h7p://bit.ly/tpTtE 

A tale of two startups, revisited  •  Mirrors the changes in development  methodologies over the past few years.  •  Let’s look at those changes schemaXcally.  •  These examples are drawn from somware  startups, but increasingly:  –  All products require somware   –  All companies are operaXng in a startup‐like  environment 

TradiXonal Product Development  Unit of progress: Advance to Next Stage  Waterfall Requirements  Design  Problem: known Solution: known Implementa2on  Veriﬁca2on  Maintenance 

Agile  Unit of progress: a line of working code  “Product Owner” or in-house customer Problem: Known Solution: Unknown

Product Development at Lean Startup  Unit of progress: validated learning about customers ($$$)  Problem: Unknown Solution: Unknown

Minimize TOTAL Xme through the loop  IDEAS  LEARN  BUILD  DATA  CODE  MEASURE 

How to build a Lean Startup  •  Let’s talk about some speciﬁcs. These are not  everything you need, but they will get you  started  •  ConXnuous deployment  •  Split‐test (A/B) experimentaXon  •  Five why’s  

ConXnuous Deployment  IDEAS  Learn Faster  Code Faster  LEARN  BUILD  Five Whys Root  ConXnuous  Cause Analysis  Deployment  DATA  CODE  Measure Faster  MEASURE  Rapid Split Tests 

Continuous Deployment •  Deploy new software quickly •  At IMVU time from check-in to production = 20 minutes •  Tell a good change from a bad change (quickly) •  Revert a bad change quickly •  Work in small batches •  At IMVU, a large batch = 3 days worth of work •  Break large projects down into small batches

Cluster Immune System What it looks like to ship one piece of code to production: •  Run tests locally (SimpleTest, Selenium) Everyone has a complete sandbox o  •  Continuous Integration Server (BuildBot) o  All tests must pass or “shut down the line” Automatic feedback if the team is going too fast o  •  Incremental deploy  Monitor cluster and business metrics in real-time  o  Reject changes that move metrics out-of-bounds o  •  Alerting & Predictive monitoring (Nagios)  Monitor all metrics that stakeholders care about  o  If any metric goes out-of-bounds, wake somebody up  o  Use historical trends to predict acceptable bounds o  When customers see a failure:  Fix the problem for customers o  Improve your defenses at each level  o 

Rapid Split Tests  IDEAS  Learn Faster  Code Faster  LEARN  BUILD  Five Whys Root  ConXnuous  Cause Analysis  Deployment  DATA  CODE  Measure Faster  MEASURE  Rapid Split Tests 

Split‐tesXng all the Xme  •  A/B tesXng is key to validaXng your  hypotheses  •  Has to be simple enough for everyone to use  and understand it  •  Make creaXng a split‐test no more than one  line of code:  if( setup_experiment(...) == quot;controlquot; ) {      // do it the old way  } else {     // do it the new way  } 

The AAA’s of Metrics  •  AcXonable  •  Accessible  •  Auditable 

Measure the Macro  •  Always look at cohort‐based metrics over Xme  •  Split‐test the small, measure the large  Control Group (A)  Experiment (B)  # Registered  1025  1099  Downloads  755 (73%)  733 (67%)  AcXve days 0‐1  600 (58%)  650 (59%)  AcXve days 1‐3  500 (48%)  545 (49%)  AcXve days 3‐10  300 (29%)  330 (30%)  AcXve days 10‐30  250 (24%)  290 (26%)  Total Revenue  $3210.50  $3450.10  RPU  $3.13  $3.14 

Five Whys  IDEAS  Learn Faster  Code Faster  LEARN  BUILD  Five Whys Root  ConXnuous  Cause Analysis  Deployment  DATA  CODE  Measure Faster  MEASURE  Rapid Split Tests 

Five Whys Root Cause Analysis  •  A technique for conXnuous improvement of  company process.  •  Ask “why” ﬁve Xmes when something  unexpected happens.  •  Make proporEonal investments in prevenXon  at all ﬁve levels of the hierarchy.  •  Behind every supposed technical problem is  usually a human problem. Fix the cause, not  just the symptom. 

There’s much more…  IDEAS  Learn Faster  Code Faster  LEARN  BUILD  Split Tests  Unit Tests  Customer Interviews  Usability Tests  Customer Development  ConXnuous IntegraXon  Five Whys Root Cause Analysis  Incremental Deployment  Customer Advisory Board  Free & Open‐Source Components  Falsiﬁable Hypotheses  Cloud CompuXng  Product Owner Accountability  Cluster Immune System  DATA  CODE  Customer Archetypes  Just‐in‐Xme Scalability  Cross‐funcXonal Teams  Refactoring  Semi‐autonomous Teams  Developer Sandbox  Smoke Tests  Measure Faster  MEASURE  Split Tests  Funnel Analysis  Clear Product Owner  Cohort Analysis  ConXnuous Deployment  Net Promoter Score  Usability Tests  Search Engine MarkeXng  Real‐Xme Monitoring  Real‐Time AlerXng  Customer Liaison  PredicXve Monitoring 

The Lean Startup  •  You are ready to do this, whether you are:  –  Thinking of starXng a new company, but haven’t  taken the ﬁrst step  –  Are in a startup now that could iterate faster  –  Want to create the condiXons for lean innovaXon  inside a big company  •  Get started, now, today. 

Thanks!  •  Startup Lessons Learned Blog  –  h7p://startuplessonslearned.blogspot.com/  •  Webcast: “How to Build a Lean Startup, step‐by‐step”  –  May 1, 2009 at 10am PST  –  h7p://www.oreillynet.com/pub/e/1294    •  The Lean Startup Workshop    –  An all‐day event for a select audience  –  May 29, 2009 in San Francisco  –  Sign up at: h7p://bit.ly/a5uw8  

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The Lean Startup at Web 2.0 Expo

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The Lean Startup at Web 2.0 Expo Webinar Transcript