2021 | The Lean Startup

 

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The term "Lean Startup" was popularized by Eric Reis in his popular book of the same name. In it, he talks about ideas to setup, build, and grow a startup while leveraging lean principles - high levels of efficiency with minimal waste. In this post, we explore some of these ideas in some detail, and I also point you to relevant YouTube videos for those of you interested in learning more. 

Key Principles

1. The Build-Measure-Learn feedback loop - everything you do must be with a view to first formulating, and then learning about your domain or environment by first defining what you want to measure to test your hypotheses, building things out, measuring the quantities of interest, and learning from your experiments. If you fail, you fail early and move forward to conduct new and different experiments. 
2. Everything is a grand experiment - build a series of MVPs - Minimum Viable Products - anything that doesn't lead to validated learning is considered a waste. 
3. He also defines different types of MVPs: 
1. Video MVPs - some startups had great success setting up a website with fake videos illustrating not yet available functionality to get people to sign up early. This tests marketplace demand before too much potentially wasteful expenditure is incurred in building out features. 
2. Concierge MVPs - focus on a few customers at a time, build your product to satisfy them, then move on to other, newer, adjacent customer segments, conquering them one at a time. 
3. Wizard of Oz MVPs - sign up customers, and do manual work initially "behind the curtain", delight users, and keep automating as traffic volumes pick up. 
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5. He explains that there are different types of Growth Engines that target different attributes of the business - you have to pick one (and only one) that represents what is most important to you at a given time in your company's lifecycle, though you may change Engines when the situation calls for you to do so:
1. Stickiness focused - you expect clients to stay with you long term e.g. as subscribers. Here the metrics you track are things like Customer Acquisition rate and Churn rate. Some businesses where this kind of engine makes sense are firms like Gillette, and the HP Printers business. 
2. Virality Engine - you want more and more people to sign up for your company's products or services, measuring things like viral coefficient compounded if possible with Word Of Mouth recommendations. Social Networks apply this paradigm all the time. 
3. Paid Engine - use advertising to get customers. Measure things like cost per acquisition, lifetime customer value, and related metrics. Widely used in the retail ecommerce domain.
6. Pivot or Persevere? Typically startups begin with an end in mind - a target audience, a target market, a geography they are going after, etc. They build a baseline MVP, try and tune it towards the ideal state, and hope for the best. But sometimes it is prudent to change direction to either refine or fine-tune, product, market, customer segment, etc. to get more revenue to stay viable. So they have to decide - stay the course, or pivot to try something related to grow better as a firm? He explains different kinds of pivots startups go through: 
1. Customer Segment Pivot - when a change in customer segment is called for, to reach higher revenue gains. .
2. Value Capture Pivot - when you change how you intend to monetize the product you plan to sell. You have to hit revenue targets while protecting your margins after all. 
3. Growth Engine Pivot - this happens when you change your core growth focus, looking at the options in 4.1-4.3 above. 

Here are some additional resources for those interested to explore the topic further. Enjoy!

   

The first video above is a quick summary of the key takeaways from the book, while the second is a talk the author gave at Google. Both make for interesting watching, and are time well-spent to learn more about the lean startup methodology. Most importantly, in startups as in life, it matters that we focus our energies to do what really counts. 

"The worst thing in the world is to do something well that need not have been done at all" -- Peter Drucker (celebrated Management Guru)