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The Lean Startup
    #leanstartup
     Eric Ries (@ericries)
http://StartupLessonsLearned.com
Lean Startup Principles


 Entrepreneurs are everywhere
Entrepreneurship is management

      Validated Learning
    Build – Measure - Learn

     Innovation Accounting
Lean Startup Principles


Entrepreneurs are everywhere
What is a startup?

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

• Nothing to do with size of company, sector of the
  economy, or industry
What is a startup?


 STARTUP
    =
EXPERIMENT
STOP
WASTING
PEOPLE’S
TIME
Most Startups Fail
Most Startups Fail
Most Startups Fail
Who to Blame
                           • Father of scientific
                             management
                           • Study work to find the best
                             way
                           • Management by exception
                           • Standardize work into tasks
                           • Compensate workers based
                             on performance


                           “In the past, the man was
                              first. In the future, the
                              system will be first.”
Frederick Winslow Taylor
     (1856 – 1915)            (1911)
Lean Startup Principles


 Entrepreneurs are everywhere
Entrepreneurship is management
Entrepreneurship is management

• Our goal is to create an institution, not just a
  product
• Traditional management practices fail
   - “general management” as taught to MBAs

• Need practices and principles geared to the
  startup context of extreme uncertainty
• Not just for “two guys in a garage”
The Pivot
I’
The Pivot

• What do successful startups have in common?
  - They started out as digital cash for PDAs, but evolved into online
    payments for eBay.
  - They started building BASIC interpreters, but evolved
    into the world's largest operating systems monopoly.
  - They were shocked to discover their online games
    company was actually a photo-sharing site.


• Pivot: change directions but stay grounded in what
  we’ve learned.
Speed Wins


If we can reduce the time between pivots

 We can increase our odds of success

      Before we run out of money
Lean Startup Principles


 Entrepreneurs are everywhere
Entrepreneurship is management

      Validated Learning
Achieving Failure

• If we’re building something nobody wants, what
  does it matter if we accomplish it:

                    On time?
                   On budget?
               With high quality?
              With beautiful design?

• Achieving Failure = successfully executing a bad
  plan
Lean Startup Principles


 Entrepreneurs are everywhere
Entrepreneurship is management

      Validated Learning
    Build – Measure - Learn
Minimize TOTAL time through the loop
There’s much more…


Learn Faster                                                                                 Build Faster

Split Tests                                                                                          Unit Tests

Customer Development                                                                            Usability Tests

Five Whys                                                                               Continuous Integration

Customer Advisory Board                                                                Incremental Deployment

Falsifiable Hypotheses                                                                    Free & Open-Source

Product Owner                                                                                Cloud Computing

Accountability                                                                         Cluster Immune System

Customer Archetypes                                                                     Just-in-time Scalability

Cross-functional Teams    Measure Faster                      Measure Faster                       Refactoring

Semi-autonomous Teams                                                                      Developer Sandbox
                          Split Tests                               Funnel Analysis
Smoke Tests                                                                            Minimum Viable Product
                          Continuous Deployment                     Cohort Analysis
                          Usability Tests                       Net Promoter Score
                          Real-time Monitoring & Alerting   Search Engine Marketing
                          Customer Liaison                     Predictive Monitoring
Lean Startup Principles


 Entrepreneurs are everywhere
Entrepreneurship is management

      Validated Learning
    Build – Measure - Learn

     Innovation Accounting
Innovation Accounting
         The Three Learning Milestones

1. Establish the baseline
  -   Build a Minimum Viable Product (MVP)
  -   Measure how customers behave right now


2. Tune the engine
  - Experiment to see if we can improve metrics from the
      baseline towards the ideal


3. Pivot or persevere
  - When experiments reach diminishing returns, it’s time to
     pivot.
Questions


How do we know when to pivot?
 Vision or Strategy or Product?
  What should we measure?
    How do products grow?
     Are we creating value?
      What’s in the MVP?
       Can we go faster?
http://bit.ly/LeanStartupUK
Thanks!

• Buy the book @
 http://theleanstartup.com/book
• Startup Lessons Learned Blog
  - http://StartupLessonsLearned.com
• Getting in touch (#leanstartup)
  - http://twitter.com/ericries
  - eric@theleanstartup.com

• Additional resources
  - NEW: http://theleanstartup.com
Myth #1

                  Myth
Lean means cheap. Lean startups try to
    spend as little money as possible.



                   Truth
The Lean Startup method is not about cost,
            it is about speed.
Myth #2

                    Myth
         The Lean Startup is only for
Web 2.0/internet/consumer software companies.



                    Truth
 The Lean Startup applies to all companies that
face uncertainty about what customers will want.
Myth #3

                    Myth
Lean Startups are small bootstrapped startups.



                    Truth
   Lean Startups are ambitious and are able
     to deploy large amounts of capital.
Myth #4

                 Myth
 Lean Startups replace vision with data
         or customer feedback.



                   Truth
 Lean Startups are driven by a compelling
vision, and are rigorous about testing each
           element of this vision
Lean Startup Principles


 Entrepreneurs are everywhere
Entrepreneurship is management

      Validated Learning
    Build – Measure - Learn

     Innovation Accounting
Minimum Viable Product

• Visionary customers can “fill in the gaps” on
  missing features, if the product solves a real
  problem

• Allows us to achieve a big vision in small
  increments without going in circles

• Requires a commitment to iteration

• MVP is only for BIG VISION products;
  unnecessary for minimal products.
Continuous Deployment



Learn Faster                                      Build Faster
Customer Development                        Continuous Deployment
Five Whys
                                                    Small Batches
                                            Minimum Viable Product
                                                       Refactoring




                       Measure Faster

                       Split Testing
                       Actionable Metrics
                       Net Promoter Score
                       SEM
Continuous Deployment Principles


     Have every problem once

  Stop the line when anything fails

  Fast response over prevention
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
  - And “shut down the line”

• 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
•   Continuous Integration Server (BuildBot)
     -   All tests must pass or “shut down the line”
     -   Automatic feedback if the team is going too fast
•   Incremental deploy
     -   Monitor cluster and business metrics in real-time
     -   Reject changes that move metrics out-of-bounds
•   Alerting & Predictive monitoring (Nagios)
     -   Monitor all metrics that stakeholders care about
     -   If any metric goes out-of-bounds, wake somebody up
     -   Use historical trends to predict acceptable bounds
•   When customers see a failure
     -   Fix the problem for customers
     -   Improve your defenses at each level
Minimum Viable Product



Learn Faster                                      Build Faster
Customer Development                        Continuous Deployment
Five Whys
                                                    Small Batches
                                            Minimum Viable Product
                                                       Refactoring




                       Measure Faster

                       Split Testing
                       Actionable Metrics
                       Net Promoter Score
                       SEM
Why do we build products?

• Delight customers
• Get lots of them signed up
• Make a lot of money
• Realize a big vision; change the world
• Learn to predict the future
Possible Approaches

• “Maximize chances of success”
  - build a great product with enough features that increase the
    odds that customers will want it
  - Problem: no feedback until the end, might be too late to adjust

• “Release early, release often”
  - Get as much feedback as possible, as soon as possible
  - Problem: run around in circles, chasing what customers think
    they want
Minimum Viable Product

• The minimum set of features needed to learn from
  earlyvangelists – visionary early adopters
  - Avoid building products that nobody wants
  - Maximize the learning per dollar spent

• Probably much more minimum than you think!
Minimum Viable Product

• Visionary customers can “fill in the gaps” on
  missing features, if the product solves a real
  problem

• Allows us to achieve a big vision in small
  increments without going in circles

• Requires a commitment to iteration

• MVP is only for BIG VISION products;
  unnecessary for minimal products.
Techniques

• Smoke testing with landing pages, AdWords
• SEM on five dollars a day
• In-product split testing
• Paper prototypes
• Customer discovery/validation
• Removing features (“cut and paste”)
Fears

• False negative: “customers would have liked the
  full product, but the MVP sucks, so we
  abandoned the vision”

• Visionary complex: “but customers don’t know
  what they want!”

• Too busy to learn: “it would be faster to just build
  it right, all this measuring distracts from
  delighting customers”
Five Whys



Learn Faster                                          Code Faster
Five Whys Root                                   Continuous Deployment
Cause Analysis




                 Measure Faster

                 Rapid Split Tests
Five Whys Root Cause Analysis

• A technique for continuous improvement of
  company process.

• Ask “why” five times when something
  unexpected happens.

• Make proportional investments in prevention at
  all five levels of the hierarchy.

• Behind every supposed technical problem is
  usually a human problem. Fix the cause, not just
  the symptom.
Rapid Split Tests



Learn Faster                                         Code Faster
Five Whys Root                                  Continuous Deployment
Cause Analysis




                 Measure Faster

                 Rapid Split Tests
Split-testing all the time

• A/B testing is key to validating your hypotheses

• Has to be simple enough for everyone to use
  and understand it

• Make creating a split-test no more than one line
  of code:
     if( setup_experiment(...) == "control" ) {
         // do it the old way
     } else {
        // do it the new way
     }
The AAA’s of Metrics

• Actionable
• Accessible
• Auditable
Measure the Macro

• Always look at cohort-based metrics over time
• Split-test the small, measure the large

                          Control Group (A)   Experiment (B)
      # Registered        1025                1099
      Downloads           755 (73%)           733 (67%)
      Active days 0-1     600 (58%)           650 (59%)
      Active days 1-3     500 (48%)           545 (49%)
      Active days 3-10    300 (29%)           330 (30%)
      Active days 10-30   250 (24%)           290 (26%)
      Total Revenue       $3210.50            $3450.10
      RPU                 $3.13               $3.14
Lean Startup Principles


 Entrepreneurs are everywhere
Entrepreneurship is management

      Validated Learning
     Innovation Accounting
Minimum Viable Product

• The minimum set of features needed to learn from
  earlyvangelists – visionary early adopters
  - Avoid building products that nobody wants
  - Maximize the learning per dollar spent

• Probably much more minimum than you think!
Minimum Viable Product

• Visionary customers can “fill in the gaps” on
  missing features, if the product solves a real
  problem

• Allows us to achieve a big vision in small
  increments without going in circles

• Requires a commitment to iteration

• MVP is only for BIG VISION products;
  unnecessary for minimal products.
Split-testing all the time

• A/B testing is key to validating your hypotheses

• Has to be simple enough for everyone to use
  and understand it

• Make creating a split-test no more than one line
  of code:
     if( setup_experiment(...) == "control" ) {
         // do it the old way
     } else {
        // do it the new way
     }
The AAA’s of Metrics

• Actionable
• Accessible
• Auditable
Measure the Macro

• Always look at cohort-based metrics over time
• Split-test the small, measure the large

                          Control Group (A)   Experiment (B)
      # Registered        1025                1099
      Downloads           755 (73%)           733 (67%)
      Active days 0-1     600 (58%)           650 (59%)
      Active days 1-3     500 (48%)           545 (49%)
      Active days 3-10    300 (29%)           330 (30%)
      Active days 10-30   250 (24%)           290 (26%)
      Total Revenue       $3210.50            $3450.10
      RPU                 $3.13               $3.14
I’

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BLN CEO Tales. Eric Ries, The Lean Startup

  • 1. The Lean Startup #leanstartup Eric Ries (@ericries) http://StartupLessonsLearned.com
  • 2. Lean Startup Principles Entrepreneurs are everywhere Entrepreneurship is management Validated Learning Build – Measure - Learn Innovation Accounting
  • 4. What is a startup? • A startup is a human institution designed to deliver a new product or service under conditions of extreme uncertainty. • Nothing to do with size of company, sector of the economy, or industry
  • 5. What is a startup? STARTUP = EXPERIMENT
  • 10. Who to Blame • Father of scientific management • Study work to find the best way • Management by exception • Standardize work into tasks • Compensate workers based on performance “In the past, the man was first. In the future, the system will be first.” Frederick Winslow Taylor (1856 – 1915) (1911)
  • 11. Lean Startup Principles Entrepreneurs are everywhere Entrepreneurship is management
  • 12. Entrepreneurship is management • Our goal is to create an institution, not just a product • Traditional management practices fail - “general management” as taught to MBAs • Need practices and principles geared to the startup context of extreme uncertainty • Not just for “two guys in a garage”
  • 14. I’
  • 15. The Pivot • What do successful startups have in common? - They started out as digital cash for PDAs, but evolved into online payments for eBay. - They started building BASIC interpreters, but evolved into the world's largest operating systems monopoly. - They were shocked to discover their online games company was actually a photo-sharing site. • Pivot: change directions but stay grounded in what we’ve learned.
  • 16. Speed Wins If we can reduce the time between pivots We can increase our odds of success Before we run out of money
  • 17. Lean Startup Principles Entrepreneurs are everywhere Entrepreneurship is management Validated Learning
  • 18. Achieving Failure • If we’re building something nobody wants, what does it matter if we accomplish it: On time? On budget? With high quality? With beautiful design? • Achieving Failure = successfully executing a bad plan
  • 19. Lean Startup Principles Entrepreneurs are everywhere Entrepreneurship is management Validated Learning Build – Measure - Learn
  • 20. Minimize TOTAL time through the loop
  • 21. There’s much more… Learn Faster Build Faster Split Tests Unit Tests Customer Development Usability Tests Five Whys Continuous Integration Customer Advisory Board Incremental Deployment Falsifiable Hypotheses Free & Open-Source Product Owner Cloud Computing Accountability Cluster Immune System Customer Archetypes Just-in-time Scalability Cross-functional Teams Measure Faster Measure Faster Refactoring Semi-autonomous Teams Developer Sandbox Split Tests Funnel Analysis Smoke Tests Minimum Viable Product Continuous Deployment Cohort Analysis Usability Tests Net Promoter Score Real-time Monitoring & Alerting Search Engine Marketing Customer Liaison Predictive Monitoring
  • 22. Lean Startup Principles Entrepreneurs are everywhere Entrepreneurship is management Validated Learning Build – Measure - Learn Innovation Accounting
  • 23. Innovation Accounting The Three Learning Milestones 1. Establish the baseline - Build a Minimum Viable Product (MVP) - Measure how customers behave right now 2. Tune the engine - Experiment to see if we can improve metrics from the baseline towards the ideal 3. Pivot or persevere - When experiments reach diminishing returns, it’s time to pivot.
  • 24. Questions How do we know when to pivot? Vision or Strategy or Product? What should we measure? How do products grow? Are we creating value? What’s in the MVP? Can we go faster?
  • 26. Thanks! • Buy the book @ http://theleanstartup.com/book • Startup Lessons Learned Blog - http://StartupLessonsLearned.com • Getting in touch (#leanstartup) - http://twitter.com/ericries - eric@theleanstartup.com • Additional resources - NEW: http://theleanstartup.com
  • 27.
  • 28. Myth #1 Myth Lean means cheap. Lean startups try to spend as little money as possible. Truth The Lean Startup method is not about cost, it is about speed.
  • 29. Myth #2 Myth The Lean Startup is only for Web 2.0/internet/consumer software companies. Truth The Lean Startup applies to all companies that face uncertainty about what customers will want.
  • 30. Myth #3 Myth Lean Startups are small bootstrapped startups. Truth Lean Startups are ambitious and are able to deploy large amounts of capital.
  • 31. Myth #4 Myth Lean Startups replace vision with data or customer feedback. Truth Lean Startups are driven by a compelling vision, and are rigorous about testing each element of this vision
  • 32. Lean Startup Principles Entrepreneurs are everywhere Entrepreneurship is management Validated Learning Build – Measure - Learn Innovation Accounting
  • 33. Minimum Viable Product • Visionary customers can “fill in the gaps” on missing features, if the product solves a real problem • Allows us to achieve a big vision in small increments without going in circles • Requires a commitment to iteration • MVP is only for BIG VISION products; unnecessary for minimal products.
  • 34. Continuous Deployment Learn Faster Build Faster Customer Development Continuous Deployment Five Whys Small Batches Minimum Viable Product Refactoring Measure Faster Split Testing Actionable Metrics Net Promoter Score SEM
  • 35. Continuous Deployment Principles Have every problem once Stop the line when anything fails Fast response over prevention
  • 36. 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 - And “shut down the line” • Work in small batches - At IMVU, a large batch = 3 days worth of work • Break large projects down into small batches
  • 37. 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 • Continuous Integration Server (BuildBot) - All tests must pass or “shut down the line” - Automatic feedback if the team is going too fast • Incremental deploy - Monitor cluster and business metrics in real-time - Reject changes that move metrics out-of-bounds • Alerting & Predictive monitoring (Nagios) - Monitor all metrics that stakeholders care about - If any metric goes out-of-bounds, wake somebody up - Use historical trends to predict acceptable bounds • When customers see a failure - Fix the problem for customers - Improve your defenses at each level
  • 38. Minimum Viable Product Learn Faster Build Faster Customer Development Continuous Deployment Five Whys Small Batches Minimum Viable Product Refactoring Measure Faster Split Testing Actionable Metrics Net Promoter Score SEM
  • 39. Why do we build products? • Delight customers • Get lots of them signed up • Make a lot of money • Realize a big vision; change the world • Learn to predict the future
  • 40. Possible Approaches • “Maximize chances of success” - build a great product with enough features that increase the odds that customers will want it - Problem: no feedback until the end, might be too late to adjust • “Release early, release often” - Get as much feedback as possible, as soon as possible - Problem: run around in circles, chasing what customers think they want
  • 41. Minimum Viable Product • The minimum set of features needed to learn from earlyvangelists – visionary early adopters - Avoid building products that nobody wants - Maximize the learning per dollar spent • Probably much more minimum than you think!
  • 42. Minimum Viable Product • Visionary customers can “fill in the gaps” on missing features, if the product solves a real problem • Allows us to achieve a big vision in small increments without going in circles • Requires a commitment to iteration • MVP is only for BIG VISION products; unnecessary for minimal products.
  • 43. Techniques • Smoke testing with landing pages, AdWords • SEM on five dollars a day • In-product split testing • Paper prototypes • Customer discovery/validation • Removing features (“cut and paste”)
  • 44. Fears • False negative: “customers would have liked the full product, but the MVP sucks, so we abandoned the vision” • Visionary complex: “but customers don’t know what they want!” • Too busy to learn: “it would be faster to just build it right, all this measuring distracts from delighting customers”
  • 45. Five Whys Learn Faster Code Faster Five Whys Root Continuous Deployment Cause Analysis Measure Faster Rapid Split Tests
  • 46. Five Whys Root Cause Analysis • A technique for continuous improvement of company process. • Ask “why” five times when something unexpected happens. • Make proportional investments in prevention at all five levels of the hierarchy. • Behind every supposed technical problem is usually a human problem. Fix the cause, not just the symptom.
  • 47. Rapid Split Tests Learn Faster Code Faster Five Whys Root Continuous Deployment Cause Analysis Measure Faster Rapid Split Tests
  • 48. Split-testing all the time • A/B testing is key to validating your hypotheses • Has to be simple enough for everyone to use and understand it • Make creating a split-test no more than one line of code: if( setup_experiment(...) == "control" ) { // do it the old way } else { // do it the new way }
  • 49. The AAA’s of Metrics • Actionable • Accessible • Auditable
  • 50. Measure the Macro • Always look at cohort-based metrics over time • Split-test the small, measure the large Control Group (A) Experiment (B) # Registered 1025 1099 Downloads 755 (73%) 733 (67%) Active days 0-1 600 (58%) 650 (59%) Active days 1-3 500 (48%) 545 (49%) Active days 3-10 300 (29%) 330 (30%) Active days 10-30 250 (24%) 290 (26%) Total Revenue $3210.50 $3450.10 RPU $3.13 $3.14
  • 51. Lean Startup Principles Entrepreneurs are everywhere Entrepreneurship is management Validated Learning Innovation Accounting
  • 52. Minimum Viable Product • The minimum set of features needed to learn from earlyvangelists – visionary early adopters - Avoid building products that nobody wants - Maximize the learning per dollar spent • Probably much more minimum than you think!
  • 53. Minimum Viable Product • Visionary customers can “fill in the gaps” on missing features, if the product solves a real problem • Allows us to achieve a big vision in small increments without going in circles • Requires a commitment to iteration • MVP is only for BIG VISION products; unnecessary for minimal products.
  • 54. Split-testing all the time • A/B testing is key to validating your hypotheses • Has to be simple enough for everyone to use and understand it • Make creating a split-test no more than one line of code: if( setup_experiment(...) == "control" ) { // do it the old way } else { // do it the new way }
  • 55. The AAA’s of Metrics • Actionable • Accessible • Auditable
  • 56. Measure the Macro • Always look at cohort-based metrics over time • Split-test the small, measure the large Control Group (A) Experiment (B) # Registered 1025 1099 Downloads 755 (73%) 733 (67%) Active days 0-1 600 (58%) 650 (59%) Active days 1-3 500 (48%) 545 (49%) Active days 3-10 300 (29%) 330 (30%) Active days 10-30 250 (24%) 290 (26%) Total Revenue $3210.50 $3450.10 RPU $3.13 $3.14
  • 57. I’

Editor's Notes

  1. I’m not leaving you, I’m pivoting to another man
  2. Conference structure
  3. Truth: The Lean Startup method is not about cost, it is about speed. Lean Startups waste less money, because they use a disciplined approach to testing new products and ideas. Lean, when used in the context of lean startup, refers to a process of building companies and products using lean manufacturing principles applied to innovation. That process involves rapid hypothesis testing, validated learning about customers, and a disciplined approach to product development.
  4. Truth: The Lean Startup methodology applies to all companies that face uncertainty about what customers will want. This is true regardless of industry or even scale of company: many large companies depend on their ability to create disruptive innovation. Those general managers are entrepreneurs, too. And they can benefit from the speed and discipline of starting with a minimum viable product and then learning and iterating continuously.
  5. Truth: There’s nothing wrong with raising venture capital. Many lean startups are ambitious and are able to deploy large amounts of capital. What differentiates them is their disciplined approach to determining when to spend money: after the fundamental elements of the business model have been empirically validated. Because lean startups focus on validating their riskiest assumptions first, they sometimes charge money for their product from day one – but not always.
  6. Truth: Lean Startups are driven by a compelling vision, and they are rigorous about testing each element of this vision against reality. They use customer development, split-testing, and actionable analytics as vehicles for learning about how to make their vision successful. But they do not blindly do what customers tell them, nor do they mechanically attempt to optimize numbers. Along the way, they pivot away from the elements of the vision that are delusional and double-down on the elements that show promise.
  7. I’m not leaving you, I’m pivoting to another man