The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses – Eric Ries

Here are 3 other points from the book:

How do you create radically successful businesses? Entrepreneur and blogger Eric Ries states that it’s all about having a vision, steering towards it, and then accelerating to it. In his book, Ries breaks down the 12 necessary steps of starting up and running a successful business (start, define, learn, experiment, leap, test, measure, pivot (or persevere), batch, grow, adapt, and innovate). He goes in depth on how he’s personally used these concepts in his own business (IMVU Inc.) and how other successful startups and/or corporate businesses (such as Toyota) have used these practices as well. For those of you who are interested in starting a business but aren’t sure how to begin or where to start, this book is definitely worth reading as it guides you step by step on setting one up. Here are some of the points to the book:


1. Prior to starting a business, make sure you can address these factors: vision and concept, product development, marketing and sales, scaling up, partnerships and distributions, and structure and organization design. Whenever I watch the TV show Shark Tank, it’s interesting that pretty much all of these points get asked about by the sharks, especially with the scaling part. If you’re not clear on the answers to these questions, I’m quite sure you’ll have a hard time running a successful business.A comprehensive theory of entrepreneurship should address all the functions of an early-stage venture: vision and concept, product development, marketing and sales, scaling up, partnerships and distribution, and structure and organizational design. It has to provide a method for measuring progress in the context of extreme uncertainty. It can give entrepreneurs clear guidance on how to make the many trade-off decisions they face: whether and when to invest in process; formulating, planning, and creating infrastructure; when to go it alone and when to partner; when to respond to feedback and when to stick with vision; and how and when to invest in scaling the business. Most of all, it must allow entrepreneurs to make testable predictions.


2. Every successful person who I read up on or learn about all talk about the importance of learning. If you’re not consistently learning, you don’t know what the trends are and where they’re headed. If you can’t see the trend, you can’t follow it. If you can’t follow it, you get left behind. If you get left behind, you go out of business. That’s one thing about business, it doesn’t care about how long you’ve been in business for, where you came from, what your ethnicity is, what your background is, the rules are all the same to everyone.You can’t take learning to the bank; you can’t spend it or invest it. You cannot give it to customers and cannot return it to limited partners. Is it any wonder that learning has a bad name in entrepreneurial and managerial circles? Yet if the fundamental goal of entrepreneurship is to engage in organization building under conditions of extreme uncertainty, its most vital function is learning. We must learn the truth about which elements of our strategy are working to realize our vision and which are just crazy. We must learn what customers really want, not what they say they want or what we think they should want. We must discover whether we are on a path that will lead to growing a sustainable business. In the Lean Startup model, we are rehabilitating learning with a concept I call validated learning . Validated learning is not after-the-fact rationalization or a good story designed to hide failure. It is a rigorous method for demonstrating progress when one is embedded in the soil of extreme uncertainty in which startups grow. Validated learning is the process of demonstrating empirically that a team has discovered valuable truths about a startup’s present and future business prospects. It is more concrete, more accurate, and faster than market forecasting or classical business planning. It is the principal antidote to the lethal problem of achieving failure: successfully executing a plan that leads nowhere.


3. To create a radically successful business, create a product or service that consistently provides a lot of value to your customers. You want to exceed the customers’ perceived expectations compared to what you’re charging them. In the beginning it may be difficult to acquire customers, but if your product or service is of great value, word of mouth will spread and you’ll find yourself not needing to find customers but rather they’ll come to you.As we saw in the Facebook story, two leaps of faith stand above all others: the value creation hypothesis and the growth hypothesis. The first step in understanding a new product or service is to figure out if it is fundamentally value-creating or value-destroying. I use the language of economics in referring to value rather than profit, because entrepreneurs include people who start not-for-profit social ventures, those in public sector startups, and internal change agents who do not judge their success by profit alone. Even more confusing, there are many organizations that are wildly profitable in the short term but ultimately value-destroying, such as the organizers of Ponzi schemes, and fraudulent or misguided companies (e.g., Enron and Lehman Brothers). A similar thing is true for growth. As with value, it’s essential that entrepreneurs understand the reasons behind a startup’s growth. There are many value-destroying kinds of growth that should be avoided. An example would be a business that grows through continuous fund-raising from investors and lots of paid advertising but does not develop a value-creating product.


4. Know your customer and know them well. Understand well how your product is solving your customers’ problem. Don’t just assume that your product is solving a specific problem, actually go and find out what that problem that you’re solving is.To demonstrate, take a look at the development of Toyota’s Sienna minivan for the 2004 model year. At Toyota, the manager responsible for the design and development of a new model is called the chief engineer, a cross-functional leader who oversees the entire process from concept to production. The 2004 Sienna was assigned to Yuji Yokoya, who had very little experience in North America, which was the Sienna’s primary market. To figure out how to improve the minivan, he proposed an audacious entrepreneurial undertaking: a road trip spanning all fifty U.S. states, all thirteen provinces and territories of Canada, and all parts of Mexico. In all, he logged more than 53,000 miles of driving. In small towns and large cities, Yokoya would rent a current-model Sienna, driving it in addition to talking to and observing real customers. From those firsthand observations, Yokoya was able to start testing his critical assumptions about what North American consumers wanted in a minivan. It is common to think of selling to consumers as easier than selling to enterprises, because customers lack the complexity of multiple departments and different people playing different roles in the purchasing process. Yokoya discovered this was untrue for his customers: ‘The parents and grandparents may own the minivan. But it’s the kids who rule it. It’s the kids who occupy the rear two-thirds of the vehicle. And it’s the kids who are the most critical—and the most appreciative of their environment. If I learned anything in my travels, it was the new Sienna would need kid appeal.’ Identifying these assumptions helped guide the car’s development. For example, Yokoya spent an unusual amount of the Sienna’s development budget on internal comfort features, which are critical to a long-distance family road trip (such trips are much more common in America than in Japan). The results were impressive, boosting the Sienna’s market share dramatically. The 2004 model’s sales were 60 percent higher than those in 2003. Of course, a product like the Sienna is a classic sustaining innovation , the kind that the world’s best-managed established companies, such as Toyota, excel at. Entrepreneurs face a different set of challenges because they operate with much higher uncertainty. While a company working on a sustaining innovation knows enough about who and where their customers are to use genchi gembutsu to discover what customers want, startups’ early contact with potential customers merely reveals what assumptions require the most urgent testing.


5. Have an idea but aren’t sure if it’ll turn into a great business? Test it with a MVP (minimum viable product). Strip away all the bells and whistles of the product and test the bare minimum. For example, you’re interested in starting a fruit juice store. Rather than starting up a fruit just store, why not just create several different fruit juices first and get your friends, family, and neighbors to try it out and give you feedback on it. With your MVP, you’ll be able to get a lot more feedback on whether or not it’s a product that you can create a successful business out of. Rather than creating a full product or service and later finding out that no one wants or needs it, create something small first and see if people are willing to give you their cash for it.A minimum viable product (MVP) helps entrepreneurs start the process of learning as quickly as possible. It is not necessarily the smallest product imaginable, though; it is simply the fastest way to get through the Build-Measure-Learn feedback loop with the minimum amount of effort. Contrary to traditional product development, which usually involves a long, thoughtful incubation period and strives for product perfection, the goal of the MVP is to begin the process of learning, not end it. Unlike a prototype or concept test, an MVP is designed not just to answer product design or technical questions. Its goal is to test fundamental business hypotheses.He later says,Minimum viable products range in complexity from extremely simple smoke tests (little more than an advertisement) to actual early prototypes complete with problems and missing features. Deciding exactly how complex an MVP needs to be cannot be done formulaically. It requires judgment. Luckily, this judgment is not difficult to develop: most entrepreneurs and product development people dramatically overestimate how many features are needed in an MVP. When in doubt, simplify. For example, consider a service sold with a one-month free trial. Before a customer can use the service, he or she has to sign up for the trial. One obvious assumption, then, of the business model is that customers will sign up for a free trial once they have a certain amount of information about the service. A critical question to consider is whether customers will in fact sign up for the free trial given a certain number of promised features (the value hypothesis). Somewhere in the business model, probably buried in a single cell in a spreadsheet, it specifies the ‘percentage of customers who see the free trial offer who then sign up.’ Maybe in our projections we say that this number should be 10 percent. If you think about it, this is a leap-of-faith question. It really should be represented in giant letters in a bold red font: WE ASSUME 10 PERCENT OF CUSTOMERS WILL SIGN UP. Most entrepreneurs approach a question like this by building the product and then checking to see how customers react to it. I consider this to be exactly backward because it can lead to a lot of waste. First, if it turns out that we’re building something nobody wants, the whole exercise will be an avoidable expense of time and money. If customers won’t sign up for the free trial, they’ll never get to experience the amazing features that await them. Even if they do sign up, there are many other opportunities for waste. For example, how many features do we really need to include to appeal to early adopters? Every extra feature is a form of waste, and if we delay the test for these extra features, it comes with a tremendous potential cost in terms of learning and cycle time. The lesson of the MVP is that any additional work beyond what was required to start learning is waste, no matter how important it might have seemed at the time.


By Ryan Timothy Lee


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