The Lean Startup by Eric Ries is about applying lean principles and agile methodologies to build and grow successful businesses by continuously testing, iterating, and learning from customers’ feedback.
Book Title: The Lean Startup – How Today’s Entrepreneurs Use Innovation to Create Radically Successful Businesses
Book author: Eric Ries
Date of reading: February 2023
Table of Contents
What is being said in detail:
The Lean Startup is a book that teaches how to create and manage startups by experimenting, getting customer feedback, and making changes quickly. It emphasizes making a Minimum Viable Product, pivoting based on feedback, and measuring progress through learning and experimentation.
The Lean Startup is a book that teaches how to create and manage startups by using lean principles and agile development. It emphasizes the importance of experimenting, getting feedback from customers, and making changes quickly in order to make a product or service that people actually want.
The book talks about creating a Minimum Viable Product (MVP) that can be tested with customers and making decisions based on data-driven experiments. It also talks about the idea of pivoting, which means changing a startup’s direction based on feedback from customers or market conditions. The book provides case studies and examples to show what works and what doesn’t in the world of entrepreneurship, and how to measure progress by focusing on learning and experimentation.
Part 1: Vision
Chapter 1: Start
The chapter talks about the importance of entrepreneurial management and how it is necessary for startups to have a coherent management paradigm. The Lean Startup concept was derived from the principles of lean manufacturing, and it emphasizes fast iteration and customer insight. Startups have an engine of growth that needs to be managed precisely, and every new feature or marketing program is an attempt to improve this engine of growth. The chapter also highlights that even established companies need to invest in innovation and view internal innovators as entrepreneurs who need to be managed accordingly.
Chapter 2: Define
Entrepreneurs are not just young people with little backing but also general managers from large companies who are tasked with creating new ventures or product innovations. These people are known as “intrapreneurs” and have much in common with the rest of the community of entrepreneurs. The author defines a startup as a human institution created to develop a new product or service in a context of extreme uncertainty, regardless of the size of the company, the industry it operates in, or the sector of the economy it belongs to.
The author emphasizes that successful startups are more than just a product, technological breakthrough, or a brilliant idea; they are acutely human enterprises designed to confront situations of extreme uncertainty.
The SnapTax theory suggests that innovation and entrepreneurship can thrive even within large corporations, as long as senior management creates a supportive environment and empowers employees to experiment and take risks.
Finally, the idea of a “seven-thousand-person lean startup” involves adopting agile and lean methodologies to continuously innovate and create new products and services, as exemplified by Intuit, a large organization that has successfully implemented this approach.
Chapter 3: Learn
Entrepreneurs can learn from their mistakes and improve their businesses. Validated learning is a way to measure progress and make sure the business is sustainable. The example of IMVU shows how they were successful by creating a product that combined instant messaging with video games and virtual worlds. They also learned from their failures by listening to their customers and making changes to their product.
The text also talks about the importance of focusing on what creates value for customers and not wasting time on unnecessary features. Finally, the author explains that having zero revenue, customers, and traction can sometimes be better than having small numbers because it allows for imagination and creativity.
Chapter 4: Experiment
The “Lean Startup” methodology, which is a way for new businesses (startups) to test their ideas and strategies before fully committing to them. It’s important to test assumptions and get feedback from customers to see what works and what doesn’t. This testing is done through experiments, which are considered products in themselves. The goal is to build a sustainable business around a vision by discovering what customers want and need.
The text gives examples of how different organizations have used experiments to test assumptions and improve their products. For example, Zappos started with a simple product to test if there was enough demand for an online shoe shopping experience, but in the process of testing this assumption, they also learned about other aspects of their business. Caroline Barlerin at Hewlett-Packard experimented with a volunteering program to see what worked and what didn’t, and then made changes to improve it.
The text also talks about how the Lean Startup methodology can be applied in government agencies, such as the Consumer Federal Protection Bureau (CFPB). The CFPB could start with a simple hotline number to test assumptions about Americans’ financial problems before investing in a large staff and budget. By starting small and continuously improving, the CFPB could serve as a template for addressing financial abuse. Overall, the text emphasizes the importance of experimenting and testing assumptions in order to build a successful business or organization.
PART 2: STEER
Chapter 5: Leap
Different strategies for entrepreneurs to succeed in their business ventures. It emphasizes the importance of testing assumptions systematically and identifying “leaps of faith” in their business plans. Successful entrepreneurs adapt their strategies based on what is working and what isn’t, and they understand the reasons behind their growth.
To make good business decisions, entrepreneurs need to gain firsthand knowledge of customers by engaging with them directly and creating a customer archetype. However, entrepreneurs should avoid impatience to get started or falling victim to analysis paralysis when conducting market research. The solution is to create a minimum viable product, which is discussed in chapter 6. The text also provides examples of successful companies, such as Facebook and Toyota, and how they were able to validate their value hypothesis and growth hypothesis.
Chapter 6: Test
The concept of a minimum viable product (MVP) and how it helps entrepreneurs test their ideas quickly and with minimal effort. The chapter uses the example of Groupon, a successful social commerce company that started as a platform for collective activism. The founders built a simple MVP, which was enough to launch Groupon into record-breaking success. The chapter also explains that the first version of a product doesn’t need to be perfect, as early adopters are willing to use their imagination to fill in what’s missing.
The chapter introduces a method called “concierge MVP” which helps entrepreneurs test and develop a product without spending too much money. The chapter also discusses the common speed bumps in building an MVP, such as legal issues, fears about competitors, branding risks, and the impact on morale. The solution to these challenges is a commitment to iteration and a locked-in agreement to not give up hope, no matter what comes of testing the MVP.
Chapter 7: Measure
The importance of measuring a startup’s progress and using a new kind of accounting called innovation accounting to objectively prove that they are learning how to grow a sustainable business. The process involves establishing a baseline through a minimum viable product, tuning the engine towards the ideal, and deciding whether to pivot or persevere.
The author emphasizes the importance of focusing on actionable metrics that drive business growth and customer satisfaction, rather than vanity metrics. They also discuss the difference between optimization and learning and the value of three A’s of metrics: actionable, accessible, and auditable. The chapter provides examples of how startups like IMVU and Grockit used innovation accounting and actionable metrics to improve their product and customer satisfaction.
Chapter 8: Pivot (Or persevere)
The challenge of deciding when to change your business strategy (called a “pivot”) and when to keep going (called “persevere”) in order to create a successful product. The chapter emphasizes the importance of using a scientific approach to make these decisions, while also using human judgment and creativity. Failure is seen as a necessary part of the process of learning and growing. There are discusses different examples of startups and how they faced challenges related to pivoting.
A “runway” refers to the amount of time a startup has left before they run out of money. The chapter also emphasizes the need to schedule regular meetings to evaluate whether it’s time to pivot or not. A pivot is a structured change that requires testing a new fundamental hypothesis about the product, business model, and growth.
PART THREE: ACCELERATE
Chapter 9: Batch
Working in small batches can be better than working in large batches in different areas like production, entrepreneurship, education, and product design. Small-batch production is faster and more efficient because it allows errors to be identified early and minimized, and it enables companies to use smaller general-purpose machines that can produce a wide variety of parts.
Small-batch entrepreneurship involves learning how to build a sustainable business as quickly as possible, testing features with customers as soon as they are ready, and evaluating their impact on customers. Small-batch product design can help companies create physical products in a shorter time frame and can personalize learning for each student in education.
In contrast, large-batch production can lead to delays, interruptions, and the need for rework, which creates a cycle of ever-larger batches, resulting in the large-batch death spiral. The pull technique in Lean Manufacturing is better than traditional mass production because it tunes the production process to levels of customer demand and reduces the amount of just-in-case inventory.
When developing new products, the product development team should design and run experiments as quickly as possible using the smallest batch size that will get the job done. Overall, the chapter emphasizes the importance of working in small batches and using the pull technique to improve productivity and progress.
Chapter 10: Grow
The concept of “engine of growth,” which is the way that startups achieve sustainable growth over time. There are three engines of growth: the sticky engine, the viral engine, and the paid engine. Each engine has different strategies for jump-starting growth and unique metrics that can be used to evaluate whether a startup is on the verge of achieving product/market fit.
Successful startups usually focus on just one engine of growth at a time, and attempt to specialize in everything that is required to make it work. The article also emphasizes the importance of identifying and leveraging the engine of growth that is right for a particular business, as every engine of growth eventually runs out of gas and making the transition to mainstream customers will require additional work.
Chapter 11: Adapt
The first part talks about the challenges of managing a startup as it grows and the need for a system to coordinate operations without becoming too strict. The author shares their own experiences of failing at their job and realizing the need for additional processes and systems. They emphasize the importance of building an organization that can adjust to current conditions.
The second part is about the “Five Whys” problem-solving tool, which involves asking “Why?” five times to understand the root cause of a problem. The goal is to see that chronic problems are caused by bad processes, not bad people. The author recommends using this method to make incremental investments and evolve processes gradually, but also warns against blaming individuals for problems.
The third part discusses the importance of adapting to changing business environments and describes how QuickBooks was developed to be more adaptive. The article focuses on four principles to make the development process more adaptive: smaller teams, shorter cycle times, faster customer feedback, and empowering teams to make fast and courageous decisions. However, implementing these changes was not easy.
Overall, the article emphasizes the importance of being flexible and adaptable in managing a startup or developing a product. It also highlights the value of problem-solving tools like the Five Whys in identifying and correcting problems.
Chapter 12: Innovate
Contrary to conventional wisdom, Ries believes that companies can maintain their capacity for innovation and growth even as they grow larger. In order to foster successful innovation teams, Ries recommends three key structural attributes: scarce but secure resources, independent authority to develop their business, and a personal stake in the outcome. Startups and internal startup teams typically have these attributes naturally, but they can also be created within established companies by changing the management philosophy to what Ries calls “portfolio thinking.”
The need to establish ground rules for autonomous startup teams and how to protect the parent organization while holding entrepreneurial managers accountable. The author emphasizes the importance of having a platform for experimentation.
The text provides an example of a large company that failed to conduct a successful experiment because nobody understood the data. The author suggests that the company’s lack of growth in the consumer segment was due to its current pricing structure, which was much too high for that segment. The author believes that the team in charge of growing the consumer segment should experiment with a lower price structure, while the team in charge of the enterprise segment was nervous that this would cannibalize or otherwise diminish its existing relationships with its customers.
The four phases of business management, which include the growth of the original concept, becoming a part of the public face of the company, optimization, and legacy products. The author suggests managing each of these phases differently and developing cross-functional teams for each area to prevent employees from getting stuck on a single phase.
The article also suggests that companies should consider entrepreneurship as a viable career path for innovators and hold them accountable for innovation accounting. Finally, the author suggests that the innovation sandbox should grow over time, providing opportunities for enlarging the scope of the sandbox.
Chapter 13: Epilogue
Taylor’s scientific approach to management revolutionized the way work was viewed, leading to a focus on improving the efficiency of individual workers, standardizing work, and using the task-plus-bonus system of compensation. However, this approach led to the mistreatment of workers and the emergence of harmful techniques.
The article suggests that lean manufacturing rediscovered the initiative of workers and redirected Taylor’s focus on efficiency from individual tasks to the corporate organism as a whole. In the 21st century, the article notes that the big question of our time is not “Can it be built?” but “Should it be built?” and that modern work is incredibly wasteful, with many projects failing due to poor planning and decision-making. The author believes that much of this waste is preventable, and that our future prosperity depends on the quality of our collective imaginations.
The importance of using a systematic approach to innovation and entrepreneurship, rather than relying on individual brilliance. The Lean Startup movement encourages people to scientifically validate their ideas before it’s too late. However, the managers being pitched these ideas sometimes fail to see the system at play and conclude that they need brilliant individuals like the presenter to join their teams.
The author warns that businesses have become too rigid, and there is an overemphasis on planning and procedure. The author encourages businesses to take advantage of the adaptability, creativity, and wisdom of individual workers. Finally, the text argues that innovation teams should engage in true experiments and customer feedback, rather than using intuition and success theater to selectively find data that supports their vision.
Long-term stock exchange
the current startup industry is too focused on short-term profits and needs to prioritize long-term thinking. To address this issue, the author proposes creating a Long-Term Stock Exchange (LTSE) where companies would report on their long-term performance and be allowed to invest in long-term projects without being pressured by short-term profit targets.
This new stock exchange would have higher transaction costs to discourage day trading and focus on sustainable growth. By applying the principles of the Lean Startup, companies could achieve speed and quality in pursuit of long-term customer satisfaction. The author encourages a culture of honesty, learning, and the creation of new institutions dedicated to sustainable value creation.
Chapter 14: Join the movement
The Lean Startup movement and lists various resources available for aspiring entrepreneurs including events, books, and blogs for further reading and practice. The author emphasizes the importance of being embedded in a startup ecosystem and highlights the availability of such ecosystems in more startup hubs worldwide.
The resources mentioned include a website with case studies and links to further reading, Lean Startup Meetups, the Lean Startup Wiki, the Lean Startup Circle mailing list, the Startup Lessons Learned Conference, and various blogs on topics such as customer development, startup metrics, and marketing. The author also recommends Steve Blank’s book, “The Four Steps to the Epiphany,” as an indispensable guide for customer development.
A list of books that can be helpful in understanding and applying the theory of disruptive innovation and product development in practice. It includes classic works such as Clayton M. Christensen’s The Innovator’s Dilemma and Geoffrey A. Moore’s Crossing the Chasm, as well as more recent works like Christensen’s The Innovator’s Prescription and Disrupting Class. Other books cover topics such as lean product development, the Toyota Production System, and business strategy.
Most Important Keywords, Sentences, And Quotes:
“We are living through an unprecedented worldwide entrepreneurial renaissance”
“Lean thinking is radically altering the way supply chains and production systems are run”
“A startup is a human institution designed to create a new product or service under conditions of extreme uncertainty.”
It goes against the grain of what people have been taught in business and what leaders have been taught. The problem isn’t with the teams or the entrepreneurs. They love the chance to quickly get their baby out into the market.
They love the chance to have the customer vote instead of the suits voting. The real issue is with the leaders and the middle managers. There are many business leaders who have been successful because of analysis. They think they’re analysts, and their job is to do great planning and analyzing and have a plan”
“Learning is cold comfort to employees who are following an entrepreneur into the unknown”
“It is the principal antidote to the lethal problem of achieving failure: successfully executing a plan that leads nowhere.”
“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”
“Most people have a hard time assessing their feelings objectively”
“There are an almost infinite number of counterexamples for any technique”
“There are any number of famous entrepreneurs who made millions because they seemed to be in the right place at the right time.
However, for every successful entrepreneur who was in the right place in the right time, there are many more who were there, too, in that right place at the right time but still managed to fail”
“Products are perfect, and many will fail, but even if your product isn’t the smallest available, it’s the fastest way to get back on track again”
“Think about it. Google and its peers excel at answering factual questions: What is the tallest mountain in the world? Who was the twenty-third president of the United States? But for more subjective questions, Google struggles. Ask, “What’s a good place to go out for a drink after the ball game in my city?” and the technology fails”
“The fundamental activity of a startup is to turn ideas into products, measure how customers respond, and then learn whether to pivot or persevere.”
“The goal of a startup is to figure out the right thing to build — the thing customers want and will pay for — as quickly as possible.”
“Innovation accounting is an essential part of the Lean Startup methodology. It provides a rigorous, quantitative way to track progress and make decisions about whether to pivot or persevere.”
“The only way to win is to learn faster than anyone else.”
“The ability to learn faster from customers is the essential competitive advantage that startups must possess.”
“The goal of the Build-Measure-Learn feedback loop is to turn ideas into products, measure how customers respond, and then learn whether to pivot or persevere. All successful startup processes should be geared to accelerate that feedback loop.”
“The most successful entrepreneurs I know are all obsessed with the process of improvement. That obsession manifests in different ways, but it always involves feedback loops, iteration, and a fanatical dedication to making things just a little bit better every single day.”
“The pursuit of entrepreneurship is not about getting rich quick, nor is it about a life of leisure. It’s about building a better tomorrow. It’s about taking on the impossible challenge, mobilizing other people to join you in the cause, and creating the change you seek in the world.”
“To stay ahead, the modern company must be adaptive. Its leaders must foster a culture of experimentation and learning, constantly seeking ways to improve the organization and its products. This is the only way to survive and thrive in a fast-changing market.”
“In order to empower mission command, an organization must create an environment in which people feel safe to take risks and try new things. This requires a culture of trust, where employees know that failure is not punished but rather seen as an opportunity to learn and improve.”
“Innovation is a never-ending process. To stay ahead, a company must constantly be experimenting, testing new ideas, and adapting to changing market conditions. This requires a culture of innovation, in which everyone in the organization is encouraged to think creatively and take risks.”
“Innovation is not a solo endeavor. It requires collaboration, communication, and a willingness to work together toward a common goal. The most successful companies are those that create a culture of innovation, in which everyone feels empowered to contribute their ideas and work together to bring them to life.”
“The most successful entrepreneurs are those who can create the most value with the least waste. They are the ones who can identify the key drivers of their business, and focus relentlessly on improving them, while eliminating anything that does not contribute to that goal.”
“Entrepreneurship is not just about starting a business; it’s about creating something of value that can have a positive impact on the world. It requires a deep commitment to your mission and values, as well as a willingness to learn, experiment, and adapt in the face of uncertainty.”
Book review- Personal opinion:
I found “The Lean Startup” by Eric Ries to be a valuable resource for understanding how entrepreneurship and innovation can be approached in a more efficient and effective manner. The book’s emphasis on experimentation and continuous improvement aligns with the principles of economics. It is not just about starting a business but creating something of value that has a positive impact on society.
This book is for:
- Entrepreneurs: “The Lean Startup” provides a practical and comprehensive framework for building successful businesses through experimentation, customer feedback, and continuous improvement.
- Innovators: The book offers a methodology for developing and testing ideas that can help innovators identify the key drivers of their business and focus on delivering value to customers.
- Business Students: “The Lean Startup” provides a valuable introduction to entrepreneurship and innovation through practical examples and case studies that align with the principles of economics.
If you want to learn more:
Watch Eric Ries give a speech about Lean Startup methodology at Toronto’s Rotman School of Management
How I’ve implemented ideas from the book:
I’ve used ideas from The Lean Startup by Eric Ries to test assumptions and get customer feedback before launching new products. I’ve learned to make a minimum viable product and to pivot when necessary based on feedback and market conditions. The book has helped me be more agile and customer-focused in my approach to entrepreneurship.
One small actionable step you can do:
One small actionable step you can take after reading “The Lean Startup” is to identify a key assumption or hypothesis about your product or business and test it through an experiment with real customers, using the book’s methodology of “Build-Measure-Learn” to iterate and improve based on the results.