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Lean Startup

It’s not the idea, but the execution determines the success of every startup. Whether you’re an individual or a big corporate, you can’t afford to lose big.

Whether you’re an individual or a big corporate, you can’t afford to lose big. However, that’s the untold story of most startups. It’s not the idea, but the execution determines the success of every startup. And this is what is the lean startup methodology Eric Ries preaching.

According to Eric Ries, everything is a grand experiment. The goal of a startup is to find the right thing to build that customers want and will pay. The build-measure-learn feedback loop is a systematic way of executing this experiment.

The Build-Measure-Learn Feedback Loop

A startup, however, begins from the learning part of the loop. They formulate hypotheses, aka critical success factors they want to learn more about, and then build a little experiment that could test those hypotheses. The results of this process are measured and evaluated to formulate new hypotheses, which could then be built and measured again. A startup continues to follow this loop until it finds the right thing customers want and pay for.

lean-cycle idea-build-code-measure

Drew Houston, the CEO of Dropbox, created a video dummy of his idea and called people to signup, and he got 75K signups for his idea. It is a perfect example of the build-measure-learn feedback loop.

This systematic method leads to validated learning, which differs from surveys, secondary research, etc. Often what the customer says, might not be what they want. Only by observation, we can learn the behavior of customers. And that is what is the lean startup method’s validated learning.

Ideas for Minimum Viable Product(MVP)

Drew Houston’s dummy we mentioned earlier, is called a video MVP. Eric Ries gives a couple of other examples. But before that, what is an MVP?

An MVP is a bare minimum solution that almost only satisfies the critical success factors, and which the customers want and pay for.

The Concierge MVP is where the entrepreneur chose a small segment of the market and satisfy their needs first. Then gradually expand it to other market segments. And the Wizard of Oz MVP, is where the entrepreneur mimics the solution with simpler alternatives behind the scenes.

Choose Only One Growth Engine

The growth engine is how the startup is planning to acquire its customers. Eric Ries suggests using only one of these at a given time. It is what is the lean startup way.

The viral engine expects each customer will bring one or more customers. Almost all social media operates in this model. Do you remember why you first signed up for Facebook?

The sticky engine is where the entrepreneur expects the customer to stay for an extended period. Netflix may not like you watching Prime videos.

The paid engine is where the company pays for every customer via advertising. Will you continue to buy your toothpaste if they stop advertising?

The decision to pivot

There are times when the expected is not reality. The startup needs to adjust itself in those times. However, the decision should come from the validated learning discussed above. It’s just another way of achieving the purpose of the startup.

Eric Ries discusses some of the most common pivots: Customer segment pivot, where the targeted segment is changed.

Value capture pivot is where the entrepreneur changes the way they capture value. Would you be willing to accept if google decides to charge for your searches? That’s a different way of value capture.

And then the growth engine pivot is where the entrepreneur decides to change the way they reach the market. I really thought TikTok would start mass advertising campaigns after dropping to a below 2-star rating.

Those are some of the main concepts from Eric Ries’s The Lean Startup. However, the book contains some more advanced ideas such as Innovation Accounting. If you’d like to buy the book, you can get it from Amazon: https://amzn.to/3fprZ7s

Here is an interesting video explaining what is a lean startup from The Swedish Investor

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