THE LEAN STARTUP Eric Ries SUMMARY PREETI BHALLA

THE LEAN STARTUP (Eric Ries) SUMMARY PREETI BHALLA

AGENDA Ø What is Lean Startup? Ø Principles Ø The Lean Pyramid Ø Leaps of Faith Ø Antilogs and Analogs Ø Genchi Genbutsu Ø Minimum Viable Product Ø Innovation Accounting Ø Engines of Growth Ø Innovation Sandbox

WHAT IS A LEAN STARTUP ? Ø LEAN STARTUP is an approach to business development that is based on the application of LEAN PRODUCTION to innovation. Ø Guide to how drive a Start-up, build and maintain products.

ROOTS OF THE LEAN STARTUP Ø Lean manufacturing revolution in the Toyota production system. Ø Lean manufacturing/Production involves the following: Ø Know your customer Ø Eliminate waste Ø Shrink batch size Ø Just-in-time production Ø Acceleration of cycle times

DEFINING KEYWORDS Ø Startup – A human institution to create a new product or service under conditions of extreme uncertainty. Ø Entrepreneur – Everyone from young visionaries with little backing to seasoned visionaries with larger companies. Ø Product – Anything that a customer experiences as a part of interaction with the company.

PRINCIPLES OF LEAN STARTUP Ø Entrepreneurs are everywhere Ø Entrepreneurship is management Ø Validate Learning Ø Build – Measure – Learn Ø Innovative Accounting

THE LEAN PYRAMID Ø Vision – Where you thrive to reach once you begin Ø Strategy – Business model , road map , point of view etc. Ø Product – End result of the strategy Product Strategy Vision

A STARTUP’S VISION Ø Destination in mind – Creating a thriving business. Ø The First Question – “Should this product be build? ” Ø Measure progress Ø Evaluate performance locally Ø Always drive a new project and avoid complex plans Ø Break down the larger vision and start with small experiments to gather customer responses

EXPERIMENTATION Ø An EXPERIMENT is the first product Ø How to Experiment ? Ø Define a clear hypothesis using the Leap of faith assumptions Ø Use ‘Genchi Genbutsu’ approach for better understanding Ø Look for Antilogs and Analogs Ø Start by building an MVP Ø Identify and eliminate waste Ø Example : Zappos , VLS

LEAPS OF FAITH Ø Act of believing or attempting something, the outcome or existence of which cannot be proven or known beforehand. Hypothesis Value Hypothesis Growth Hypothesis

GENCHI GENBUTSU Ø Key principle in the Toyota production system Ø Go and look out for yourself Ø Facilitates early contact with potential customers Ø Increases the chance that actual issues and unplanned events will be observed first hand Ø Example : Toyota’s Minivan

ANALOGS AND ANTILOGS Ø Analog : Proof that something has been tried and works well in the market Ø Antilog : Proof that something doesn’t work in the market Ø Look for Antilogs and Analogs, if possible Ø Try to come up with alternatives to Antilogs Ø Address high risk assumptions first Ø Example : Ø Analog for i. Pod : Sony’s Walkman Ø Antilog for i. Pod : Napster

MINIMUM VIABLE PRODUCT Ø Version of product that enables a full turn of the Build – Measure – Learn loop with a minimum amount of effort and the least amount of development time. Ø Has core features which allow the product to be deployed. Ø Helps in avoiding building a product that the customers do not want. Ø Can be deployed to Early Adopters that are thought to be more likely to provide feedback.

THE QUALITY PRINCIPLE (MVP) If we do not know who the customer is, we do not know what quality is. Ø Try not to presuppose what attribute of the product will the customer consider as worthwhile Ø Learn what the customers care about Ø Remove any feature, process or effort that does not contribute directly to the learning that you seek Ø Example : 3 D Avatars in IMVU

PROBLEMS IN BUILDING AN MVP Ø Legal issues Ø Fear of competition Ø Branding Risks Ø Fear of failure

WHAT IS WASTE ? Ø The major wastes as per the Lean Methodology are : Ø Waiting Ø Defects Ø Overproduction Ø Improper use of skills

VALUE VS WASTE Ø The effort that is not absolutely necessary for learning what your customer wants can be eliminated. Ø Work Smart, not just hard Ø Identify value creating efforts Ø Identify and eliminate waste

STEERING A STARTUP Ø To Steer a Startup , minimize the total time through the BUILD Feedback Loop Ø Enter the build phase with an MVP in mind Ø Evaluate progress Innovation accounting LEARN using MEASUR E

INNOVATION ACCOUNTING Ø To evaluate and improve outcomes, focus on how to measure progress, how to set up milestones and prioritize work. Ø Learning milestones : ØEstablishing the baseline ØTuning the engine ØPivot or Persevere

SPLIT TESTS AND METRICS Ø Split Tests : Experiment where different versions of the product are offered to the client simultaneously. Example : Grockit Ø Choose the right metrics to evaluate progress. Ø Do not be mislead by VANITY METRICS Ø A metric should be : ØActionable ØAccessible ØAuditable

COHORT ANALYSIS Ø Cohort - Group of people who share a common characteristic over a certain period of time. Ø Helps understanding the business quantitatively

COHORT ANALYSIS Studying the spending trends of cohorts from different periods in time can indicate if the quality of the average customer being acquired is increasing or decreasing in over time.

PIVOT OR PERSEVERE Ø Pivot is a special kind of structured change designed to test a new fundamental hypothesis. Ø When to PIVOT ? Ø A start-up's runway is the number of pivots it can still make Ø PIVOTS require courage Ø The PIVOT or PERSEVERE meeting Ø Example : Wealthfront

CATALOG OF PIVOTS Ø Zoom-in Pivot - Flickr Ø Zoom-out Pivot - Facebook Ø Customer Segment Pivot - Wealthfront Ø Customer Need Pivot - Starbucks

ACCELERATE When accelerating a Startup, it’s important to keep the following in mind : Ø Keep the batches small Ø Aim for sustainable growth Ø The FIVE WHYS Ø Keep Innovating

BATCHING Batch size – Work that moves from one stage to the next at a time. Ø Problems with Large batches : Ø Detecting and fixing bugs becomes difficult Ø Efficiency decreases Ø The Large-Batch Death Spiral problem

ONE ENVELOPE AT A TIME Ø Adopt the Single-piece Flow strategy Ø Produces finished products faster Ø Quality problems can be identified much sooner Ø Overhead Reduces Ø Toyota became world’s largest automaker in 2008 using this approach

CONTINUOUS DEPLOYMENT Ø Aims at minimizing the time elapsed between writing one new line of code and this new code being used by live users in production. Ø Facilitates early feedback Ø Defects can be detected faster and sooner Remove Defect Notify Team Avoid new changes until fixed RCA

SUSTAINABLE GROWTH * New customers come from the actions of past customers How past customers drive sustainable growth : Ø Word of Mouth Ø As a side effect of product usage Ø Through funded advertising Ø Through repeated purchase or use

ENGINES OF GROWTH Ø Engine of growth is what drives the underlying Business Model Ø Helps the business to stay focussed on the metrics that matter STICKY METRICS EXAMPLE VIRAL PAID New Customer Acquisition rate, Churn Rate Viral Coefficient Cost per Acquisition, Customer’s Lifetime Value (CLV) Database Solutions Hotmail, Facebook IMVU

THE FIVE WHYS Ø Iterative question-asking technique used to explore the cause-and-effect relationships underlying a particular problem. Ø Benefits of the Five Whys : Ø Achieving better quality Ø Automatic Speed regulator Ø Building a more adaptive organization Ø One of the simplest tools; easy to complete analysis without statistics

FIVE WHYS IN ACTION Ø 1. A new release disabled a feature for customers. Why? Because a particular server failed. Ø 2. Why did the server fail? Because an obscure subsystem was used in the wrong way. Ø 3. Why was it used in the wrong way? The engineer who used it didn’t know how to use it properly. Ø 4. Why didn’t he know? Because he was never trained. Ø 5. Why wasn’t he trained? Because his manager doesn’t believe in training new engineers because he and his team are "too busy. "

INNOVATION Ø Innovation teams must be structured correctly in order to succeed. Ø The Structural attributes for a startup are : Ø Scarce but Secure Resources Ø Independent Development Authority Ø Personal Stake in the Outcome

THE INNOVATION SANDBOX Ø Any team can Split-Test in a specific segment Ø One team goes through the whole experiment Ø Time Limits for experiments Ø Not affecting more than a certain number of customers Ø Experiment evaluation to be done on actionable metrics Ø Use the same metrics throughout the experiment Ø Monitor customers and metrics during experiment

When changing to lean expect changes. With LEAN you will have growth, a better product and happier teams. THANK YOU! http: //vinsol. com