Book Brief: The Lean Startup
Continuous Innovation to Create Successful Businesses
Brief Summary
Title: The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses
Author: Eric Ries
Published: 2011 by Crown Business
What It Teaches: The Lean Startup introduced the world to the Lean Startup methodology, a new iterative approach to launching and building a business.
When To Use It: The Lean Startup is a good introduction to how modern technology-driven entrepreneurs launch new businesses. If you aren’t familiar with the Lean Startup methodology, and you care about innovation and entrepreneurship, then this book is a good place to start.
Brief Review
By the time I read The Lean Startup, I had already been founder or co-founder of three technology-driven businesses. Each one had a level of success, but also faced it’s challenges. One had a successful exit. One sustained itself for seven years before we shut it down. The third never really found its market.
At the time we started those businesses, entrepreneurs tended to start with a business plan where they presented (supposed) truths to investors, raised money, spent the money to build and launch the business, and then, more often than not, failed miserably. They often failed because things they thought were true, weren’t really true at all. They thought the customer for this new thing was A, when it was really B (or maybe no one was willing to pay for the new thing). They thought that customers valued this new thing because of C, when really it was D. They thought the best channels for reaching A to offer C were E but in reality, F was the best way to reach B. I could go on, but you get the point. The whole approach was backwards. You raised the money. You spent the money. And then you learned what worked.
The Lean Startup methodology rightly put the horse in front of the cart, so to speak. You learn what works. Then you raise money and spend it to launch a successful business.
In my defense (and in defense of all my fellow entrepreneurs), in years past, we didn’t really have much choice. You had to spend a decent amount of money just to test ideas out and figure out what was going to work. If your business was selling something to consumers, you might need to rent a storefront, furnish it, buy inventory, and hire employees before you could really learn anything at scale. The Internet changed that, and over time the startup costs rapidly came down. My first Internet startup was in 1995. We needed to spend $20,000 on a Sun server and we needed to lease space to host that server. My second Internet startup was in 2002 and the cost of the server had dropped to $2,000 and I could run it (at least at first) over the DSL line into my home. Before long hosting companies were offering plans for $10 a month or less with high speed connectivity. By the time The Lean Startup was published, Amazon Web Services (AWS) was offering an array of services that made it relatively easy for tech-driven startups to launch and scale. And that’s just one component of startup costs.
Bottom line, before 2000 the Lean Startup methodology probably wasn’t even an option for many businesses. Today, for tech-driven businesses, it’s seemingly the only way to go.
Here’s my short explanation of the Lean Startup methodology: Instead of starting with a business plan based on “truths”, you start with a high level model of the business idea where you identify all of the hypotheses on which the idea is based. Following the scientific method, you then iteratively turn the hypotheses into truths. You identify a way to test a hypothesis; you run the test; you measure results; and you modify the hypothesis based on what you learned. You keep doing this until you are confident that you have proven the business idea. Then you raise money and invest the money to turn the idea into a scalable business.
By the time I read The Lean Startup, I already knew this. I had reconnected with the local startup ecosystem and many of the companies I encountered were doing things differently than I remembered. I learned from them and from reading blogs and articles online. I read Business Model Generation which provided a great framework for modeling the business idea and identifying hypotheses to test. I saw it in action, and like any other new idea, even the methodology was improving as people learned.
Many people recommended The Lean Startup to me, so I ordered a copy and read it.
To be honest, I was disappointed. I had wrong expectations about the book.
I was ready to jump in and start applying Lean Startup principles. I was hoping for a practical guide to how to implement the Lean Startup methodology. That’s not what The Lean Startup is. The book is almost philosophical — explaining the new methodology in terms of a new philosophy around how to successfully launch a startup. It is largely told in the form of the story of Eric Ries’ launching and building a startup called IMVU and the lessons he learned along the way. At times he does describe some practical steps entrepreneurs can take, but mostly he describes how our mindset needs to change as we think about startups and entrepreneurship.
The Lean Startup is a good introduction to the Lean Startup methodology. If you are fairly new to the concepts, this is a pretty good place to start. If, however, like me you’re already up to speed on what Lean Startup is, you may find the book disappointing.
The author starts by sharing five principles of the Lean Startup:
- Entrepreneurs are everywhere. The Lean Startup methodology can work in any size of company, in any sector or industry.
- Entrepreneurship is management. Startups require a different kind of management that is specifically designed for extreme uncertainty.
- Validated learning. Startups exist to learn how to build a sustainable business and they learn by running experiments.
- Build-Measure-Learn. The methodology is built around iterating through this experimentation loop.
- Innovation accounting. Like everyone else, entrepreneurs need to be held accountable, but new metrics are needed to measure progress in validated learning.
The book itself is organized into three parts:
Vision: Makes the case for the Lean Startup approach.
Steer: Teaches the core building blocks of the methodology.
Accelerate: Explains how to scale a business through the methodology.
Throughout the book the author not only uses examples from his own company but also from others that have adopted the Lean Startup methodology.
The book explains that every startup has, at its core, two critical hypotheses:
- Value Hypothesis: This is how we create value for customers.
- Growth Hypothesis: This is how we will grow.
There are many other hypotheses in and around these two, but these are the hypotheses that are critical to turn into truths if the business is going to be successful. Doing that requires “getting out of the building” to talk to customers and running experiments.
The best experiment involves what is called a Minimum Viable Product. This shouldn’t be a finished product, but rather the fastest and cheapest version of the product that you can build that demonstrates the value hypothesis. Until you can get this into customers hands, you aren’t going to learn much. Once you do get it out, you begin learning and iterating towards a real product.
As you iterate through the Build-Measure-Learn loop, at each cycle you have to choose between three possible next steps:
- Persevere: Improve the product and stay the course.
- Pivot: Realize that a major hypothesis is wrong and you need to change direction. Often this involves recognizing that you should focus on a different market, or recognizing that you need to deliver a different value proposition.
- Perish: Realize that your tests have proven that your hypotheses are so flawed that the business you envisioned isn’t viable. Cut your losses and start over with a new idea.
These lessons are mostly taught through the author’s telling of his own story. While the book offers some practical guidance on how to apply these lessons, those nuggets of wisdom are somewhat scattered throughout the book’s fourteen chapters.
Bottom Line: The Lean Startup is an excellent introduction to the Lean Startup methodology. I strongly recommend that entrepreneurs and innovators learn the concepts introduced in the book. However, you may find it easier to learn those concepts elsewhere — from online articles and videos, or by reading more practical books such as The Unicorn Within, The Startup Mixtape, VisuALS: A Startup Strategic Journey, or Business Model Design. Even if you learn the concepts elsewhere, if you’re active in the startup ecosystem, The Lean Startup is referenced often enough that you might want a copy for your bookshelf that you’ve skimmed enough to have a sense for how the concepts are covered.
