The Lean Startup: How Today's Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses
By Eric Ries
•Reading time: 15 minutes
•Last updated: January 1, 2024
Overview
"The Lean Startup" by Eric Ries introduces a scientific approach to creating and managing successful startups. Drawing on lessons from lean manufacturing, it shows entrepreneurs how to test their vision continuously, adapt quickly, and adjust before it's too late.
This revolutionary approach changes the way companies are built and new products are launched, emphasizing validated learning, rapid scientific experimentation, and practices that shorten product development cycles and measure actual progress.
"The only way to win is to learn faster than anyone else." — Eric Ries
Core Principles of the Lean Startup
Validated Learning
Startups exist to learn how to build a sustainable business. This learning can be validated scientifically by running frequent experiments to test each element of the entrepreneur's vision.
Build-Measure-Learn
The fundamental activity of a startup is to turn ideas into products, measure how customers respond, and then learn whether to pivot or persevere. This feedback loop should be as short as possible.
Innovation Accounting
To improve entrepreneurial outcomes and hold innovators accountable, focus on boring metrics: how to measure progress, how to set up milestones, and how to prioritize work.
The Build-Measure-Learn Feedback Loop
The Build-Measure-Learn feedback loop is the core component of the Lean Startup methodology. It provides a scientific approach to creating and managing successful startups:
1. Build
Convert ideas into a minimum viable product (MVP) as quickly as possible to begin the learning process. The MVP is the version of the product that enables a full turn of the feedback loop with minimum effort.
2. Measure
Determine if actual progress is being made. Innovation accounting helps startups prove objectively that they're learning how to grow a sustainable business.
3. Learn
Analyze data to validate or invalidate the initial idea and decide whether to pivot (make a fundamental change to the strategy) or persevere with the current approach.
Key Concepts
Minimum Viable Product (MVP)
The MVP is the version of a new product that allows a team to collect the maximum amount of validated learning about customers with the least effort. It's not about creating a minimal product; it's about testing business hypotheses quickly.
Examples of MVPs:
- A simple landing page to gauge interest
- A "Wizard of Oz" service where human work is disguised as automation
- A video demonstration of how a product would work
- A concierge service delivering a custom experience to a few customers
Pivot or Persevere
A pivot is a structured course correction designed to test a new fundamental hypothesis about the product, strategy, or engine of growth. It's not a failure but a necessary part of the entrepreneurial process.
Types of Pivots:
- • Zoom-in Pivot
- • Zoom-out Pivot
- • Customer Segment Pivot
- • Customer Need Pivot
- • Platform Pivot
- • Business Architecture Pivot
- • Value Capture Pivot
- • Engine of Growth Pivot
- • Channel Pivot
- • Technology Pivot
Engines of Growth
Sustainable growth follows one of three engines of growth, each with specific metrics to focus on:
Sticky Engine
Focuses on customer retention. The growth rate is determined by the rate of customer acquisition minus the churn rate.
Viral Engine
Growth happens automatically as a side effect of customers using the product, measured by the viral coefficient.
Paid Engine
Each customer acquisition costs money, but that customer generates revenue. Growth happens when revenue from each customer exceeds acquisition cost.
Applying The Lean Startup Methodology
Five Principles of the Lean Startup
- 1
Entrepreneurs Are Everywhere
You don't have to work in a garage to be a startup. A startup is an institution designed to create new products and services under conditions of extreme uncertainty.
- 2
Entrepreneurship Is Management
A startup requires a new kind of management specifically geared to its context of extreme uncertainty.
- 3
Validated Learning
Startups exist to learn how to build a sustainable business. This learning can be validated scientifically by running experiments.
- 4
Build-Measure-Learn
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.
- 5
Innovation Accounting
To improve entrepreneurial outcomes and hold innovators accountable, we need to focus on the boring stuff: how to measure progress, how to set up milestones, and how to prioritize work.
Implementation Checklist:
Identify your leap-of-faith assumptions
Create an MVP to test those assumptions
Establish baseline metrics
Implement innovation accounting
Run small, fast experiments
Make pivot or persevere decisions
Conclusion
The Lean Startup methodology offers a scientific approach to creating and managing successful startups, empowering entrepreneurs to make decisions based on evidence rather than intuition. By embracing validated learning, the Build-Measure-Learn feedback loop, and innovation accounting, entrepreneurs can significantly increase their chances of building a sustainable business.
The key takeaway is to start small, test assumptions quickly, measure results accurately, and be willing to adapt based on what you learn. This approach reduces waste, accelerates innovation, and helps entrepreneurs navigate the inherent uncertainty of startup ventures.