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Book Review: The Lean Startup by Eric Ries

Introduction of "The Lean Startup" by Eric Ries.

Most startups fail. But many of those failures are preventable. The Lean Startup is a new approach being adopted across the globe, changing the way companies are built and new products are launched.

Eric Ries defines a startup as an organization dedicated to creating something new under conditions of extreme uncertainty. This is just as true for one person in a garage or a group of seasoned professionals in a Fortune 500 boardroom. What they have in common is a mission to penetrate that fog of uncertainty to discover a successful path to a sustainable business.

The Lean Startup approach fosters companies that are both more capital efficient and that leverage human creativity more effectively. Inspired by lessons from lean manufacturing, it relies on “validated learning,” rapid scientific experimentation, as well as a number of counter-intuitive practices that shorten product development cycles, measure actual progress without resorting to vanity metrics, and learn what customers really want. It enables a company to shift directions with agility, altering plans inch by inch, minute by minute.

Rather than wasting time creating elaborate business plans, The Lean Startup offers entrepreneurs—in companies of all sizes—a way to test their vision continuously, to adapt and adjust before it's too late. Ries provides a scientific approach to creating and managing successful startups in an age when companies need to innovate more than ever.

About the author 

ERIC RIES is an entrepreneur and author of the popular blog Startup Lessons Learned. He co-founded and served as CTO of IMVU, his third startup, and has had plenty of startup failures along the way. 

He is a frequent speaker at business events, has advised a number of startups, large companies, and venture capital firms on business and product strategy, and is an Entrepreneur-in-Residence at Harvard Business School. 

His Lean Startup methodology has been written about in the New York Times, the Wall Street Journal, the Harvard Business Review, the Huffington Post, and many blogs. He lives in San Francisco.
book-review-the-lean-startup-by-eric-ries

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




The Lean Startup Book Summary

A book like this that has obvious themes and tells the reader a reason and a method are usually divided into two parts. The first part is what the result is to be achieved and why it is to be achieved. The second part is how to achieve the above results, and why to achieve this. 

For example, the first part of this book stated that under today's uncertain market conditions, entrepreneurs should learn from the ideas of lean production to achieve the fastest entrepreneurial success with the least waste. Why do you want to achieve such a result, because failure is frustrating, failure is a waste of resources.

    It can be seen that this part of the description is basically a mere formality, and no one will raise any objections. For example, I want to write a book called "Face Life Bravely". In the first part, I will say that we must face life bravely, and then I will say why we must face life bravely. In fact, this is a cliché, but you can write so well, but in fact, there is nothing new.

    The second part of this type of book is usually the most valuable part of the book. Teaching people how to do it is always more difficult than just telling the truth. We often tell children to play fewer online games and read more. But how can it be done? Few people propose practical methods. The book's performance at this key point is quite satisfactory, not bad or brilliant. How can we achieve lean entrepreneurship? 

The main theme is gradual progress, small batch production, and continuous revision, similar to PDCA (Plan-Do-Check-Action). I looked around, and it seemed that the entrepreneurs around me were doing this. Whoever is determined to win from the beginning, mass production, success or failure depends on whether the initial bet is right or not. 

So I said that this book just describes the process that everyone has done. And because the author is from the software industry, the examples cited are basically software entrepreneurship. The other non-software innovations or entrepreneurship are a bit vague and provide little reference value.

Excerpts from the original text

Chapter Name: Accelerating (2) Growth_Three Growth Engines

1. Adhesive growth engine

Using an adhesive growth engine requires attracting and retaining customers for a long time.

Companies that use sticky growth engines need to track customer attrition rates, also known as churn rates, very carefully. (The so-called churn rate refers to the proportion of customers who have not continued to use the company's products in any period of time to the total number of customers.)

The rules governing sticky growth engines are simple: if the rate of acquiring new customers exceeds the rate of churn, the product will grow. The growth rate depends on the "compound rate", which is actually the natural growth rate minus the attrition rate.——Quoted from Accelerating (2) Growth_Three Growth Engines

2. Viral growth engine

Products with viral growth characteristics rely on the transmission between people, which is an inevitable result of the normal use of products. Customers do not intend to act as evangelists, and they don’t need to go around saying good things about the product. As long as customers use the product, it naturally drives growth.

Viral engines, like other growth engines, are powered by a quantitative feedback loop. This cycle is called the "virus cycle", and its speed depends on the "virus coefficient". This is a mathematical term. The higher the coefficient, the faster the spread of the product. The viral coefficient measures how many new customers using the product each registered customer will bring. In other words, how many friends will each customer bring? Since each friend is a new customer, they may introduce more friends.

If the virus coefficient of a product is 0.1, that is, 1 out of 10 customers will introduce 1 friend, which is not a sustainable cycle. Imagine that there are 100 customers registered, and they will bring 10 friends to join. These 10 friends introduce another one to participate, and the cycle ends here.

Conversely, if the coefficient is greater than 1.0, the virus cycle will increase exponentially, because each registered member will bring more than 1 customer on average.

Companies that rely on the engine of viral growth must care about how to increase the viral coefficient, which is more important than anything else. Even a small change in this number will make a dramatic change in the company's future prospects.

The result is that many viral products do not directly charge customers, but rely on indirect sources of income such as advertising. Because viral products can't be in the slightest in the process of acquiring new customers and recruiting their friends. Otherwise, it will be very difficult to test the value hypothesis of viral products.

The true test of the value hypothesis is often to measure the value of voluntary exchanges between the customer and the service-providing startup.——Quoted from Accelerating (2) Growth_Three Growth Engines

3. Paid growth engine

There are two such companies. The former earns $1 from each registered customer, and the latter earns $100,000 from each customer. To predict which company will grow faster, you only need to know one more thing: how much it costs to acquire a new customer.

If a company using a paid growth engine attempts to increase its growth rate, it has two options: either increase revenue from each customer or reduce the cost of acquiring new customers. This is how the paid growth engine works.

The paid growth engine, like other engines, is powered by a feedback loop. Each customer pays a certain fee for the product during its "life cycle". After deducting variable costs, the remaining part is usually called the customer's "life cycle value" (LTV). This income can be used to purchase advertising as an investment for growth.

Although I explained the paid growth engine from the perspective of advertising, it has a broader meaning. Start-ups that use external sales teams also rely on this engine, just like retail companies that rely on foot traffic. All these costs should be included in the cost per acquisition. 

Many sources of customer acquisition depend on the competition. After a period of time, the "cost per acquisition" of any source of customer acquisition will be pushed up due to competition. If every company in the industry makes the same amount of money in each sale, they will end up spending most of their profit margins on acquiring customer sources. Therefore, to use paid engines to achieve long-term growth requires a unique ability to monetize those customers.——Quoted from Accelerating (2) Growth_Three Growth Engines

4. Technical warning

Technically speaking, a business can run several growth engines at a time.
However, in my experience, successful start-ups often focus on only one growth engine and do all the work to make this engine work.

I strongly recommend that start-ups pay attention to one growth engine at a time. Most entrepreneurs already have a strong belief leap hypothesis about which growth engine is most effective. If they haven't figured it out yet, walking out of the office and taking the time to understand the customer will quickly let them know which engine might work best. Only after the new venture has thoroughly used this engine, will it consider whether it needs to transform to another engine.——Quoted from Accelerating (2) Growth_Three Growth Engines




The Lean Startup Book Review

Reading "The Lean Startup" by Eric Ries 

Silicon Valley entrepreneur Eric Ries proposed a new type of business management theory "The Lean Startup", It aims to build a successful company through continuous innovation. It originated from the author's practice and summary when he founded IMVU, and mainly borrowed from theories such as lean manufacturing, customers development, and agile development.

The book is divided into three parts (vision -> steer-accelerate), covering five major principles.

The first is vision. Eric defines a startup as: a human institution designed to create new products and services under conditions of extreme uncertainty. Therefore, Entrepreneurs are everywhere. Since the enterprise is a human institution, then entrepreneurship is management. Project teams, small companies, large companies, non-profit organizations, government departments, etc., as long as it is a human institution, The Lean Startup is applicable.

Then came the steer. Eric believes that the meaning of a startup is to learn how to build a sustainable business. "Lean" means validated learning, which is the core idea; "build" means build-measure-learn loop, which is concrete practice. The Lean Startup both opposes the traditional school of making complex plans that are based on a lot of assumptions, and denies the "just do it" school of let's just ship a product and see what happens. It requires validated learning through scientific experimental methods such as the build-measure-learn loop.

How to experiment? First, focus on two basic questions: Value (the value of the product?) and growth (how to grow?). This is called leap-of-faith, and it is the cornerstone of all future experiments. Then enter the build-measure-learn loop. Build refers to the rapid construction of a measurable minimum viable product (MVP) at the lowest cost. The key to Measure is to adopt actionable metrics that can clearly reveal causality, and avoid the "big and complete" vanity metrics. The core task of Learn is to answer pivot or persevere? Pivot focuses on strategy, including business model, product road map, etc.

Finally, accelerate. In the early stage, in the face of extreme uncertainty, the startup continuously validated learning through build-measure-learn, and slowly uncovered the mist-shrouded in leap-of-faith. This stage is called tune the engine of growth. Determining the engine of growth is a key milestone, marking the start of the acceleration phase of startup. After that, The Lean Startup focused on how to maintain agility while developing rapidly and introduced a series of methods to achieve innovation accounting, including small batches, continuous deployment, 5 whys, etc.

Evaluation

First, the book is a link between the past and the future.

It confirms a lot of the views I have contacted before: make complex plans that are based on a lot of assumptions and waterfall development model, leap-of-faith and Test-driven development, validated learning and "trial and error", build-measure- Learn loop and agile development process, MVP and discount usability testing, Engine of growth and product/market fit, small batches and "small steps". It resonates and is very kind.

It is also woven these views into a big picture, which has benefited me a lot. For example, a large amount of data shows that the growth curve of a startup is in line with exponential growth: creeping in the early stage, soaring into the sky in the later stage. 

This coincides with the startup model described by The Lean Startup: 
the startup is mainly divided into two stages: the early stage, the steer, focus on the direction; the later stage, the accelerate, focus on the speed. 

I have always been curious what is this turning point? The Lean Startup considers it to tune the engine of growth. This answer is enlightening but vague. For example, I tried to compare the growth engine and the business models listed in "New Generation of Business Models", and found that the latter is more comprehensive and more convincing. 

Fortunately, The Lean Startup has formed an ecosystem, and many people have further enriched the theory through personal practice. In "Running Lean", Ash Maurya believes that product/market fit is the turning point-this is my most satisfactory answer so far.

Secondly, I think Eric is very insightful about the startup business, and he has the right medicine.

What disease? extreme uncertainty. Why is the startup failure rate so high? Why is valuation so difficult? Why can angel investment only "invest people"? Why is the old management learning so difficult? The new method seems "cool" but is inconsistent? Why is the circle so "impetuous": bragging, slapped, "fake big sky", idol worship is endless? The startup is not like solving equations, no one knows what the "right way" is.

Over the years, I have observed that before entering the market of real swords and real guns, most people will deliberately or unconsciously and ideally ask and answer various questions that they may face in the future: users have this kind of demand and will accept us. 

The product. Moreover, even if they realize that most people will choose to procrastinate, rather than take the initiative to get out of this predicament-I see Steve Krug's "Don't Make Me Think" piled upon his/their desktop, but I can't see any discount. usability testing.

I think uncertainty can partly explain this phenomenon: in the face of the dark unknown world, most people choose to stay in their comfort zone: the CEO writes documents, designers draw prototypes, and programmers type codes—seemingly busy and productive, In fact, they are doing things that they are familiar with, and no one will ask real users-who dares? What if he/she says "I don't use it/not beautiful enough/too many bugs"? ! Fear caused delays, and the result was that after going online, I found out that I was building something nobody wants!

Where's the medicine? scientific experiment. Scientific experiments are the best way to explore the unknown world. In my opinion, validated learning is just "bold hypothesis, careful verification".

I can’t stand the startup world mostly because of the “exaggeration”, “how bold people are, how productive they are”, an impulse as talent, imagination as productivity, and GPU as CPU. There are thousands of financing applications in the back office of our company, and a lot of "fake and empty" marketing words are grasped. What about the field investigation report that requires you to do the dirty work? Very few. 

However, a slap can't be heard. The entrepreneur writes this way. Doesn't it cater to the taste of investors? This shows that the entire industry lacks the spirit of seeking truth from science.

In short, "The Lean Startup" is a good book.


Lean Startup Notes

1. The value hypothesis measures whether a certain product or service is actually realized when the user uses it.
2. The growth hypothesis is used to test how new customers discover a product or service.
3. Four questions to think about before doing:
  1. Do users agree that the problem you are solving is the problem they are facing?
  2. If there is a solution to the problem, will the user pay for it?
  3. Will they buy from us?
  4. Can we develop a solution to the problem?
4. Success is not about realizing a product function. Success is about learning how to solve customer problems.
5. Minimize the viable product (minimum viable product). Minimizing viable products is not used to answer product design or technical questions, but to verify basic business assumptions.
6. When you want to develop a minimally viable product, you should follow a simple principle: give up all functions, processes, or efforts that are not directly useful for the knowledge you need.
7. The company's growth rate mainly depends on three factors: the profitability of a single customer, the cost of acquiring new customers, and the repeat purchase rate of existing users.
8. The smoke test gives users the opportunity to book an undeveloped product. The smoke experiment only measures one thing: whether the customer is interested in trying the product.
9. Comparative testing is to provide customers with different versions of products at the same time.
10. The biggest advantage of working in small batches is the early detection of quality problems.
11. With a large number of death spirals, the product may be infinitely delayed, with unlimited functions, and it will never be perfect.
12. Sources of growth: New customers are brought about by the behaviors of previous customers.
  1. Word of mouth
  2. Derivative effects from product use
  3. Advertising with funding sources. As long as the cost of acquiring a customer (marginal cost) is lower than the income (marginal revenue) that he brings, the excess can be used to acquire more customers.
  4. Repeat purchase or use.
13. Adhesive growth engine, the rate of acquiring new customers exceeds the churn rate, and the product will grow.
14. Viral growth engine, the virus coefficient is greater than 1, and the virus cycle will increase exponentially.
15. Paid growth engine: increase the income of each customer and reduce the cost of acquiring new customers.
16. Five why break the casserole and ask in the end. The true cause of the problem is often obscured by other more obvious manifestations. Use the five why you need to follow the rules: tolerate the first mistake; don't allow the same mistake to happen twice.
17. The more outrageous the suggestions made, the closer the compromised direction may be to what they want.
18. Vanity indicators, they show the best scene, not the actual situation.
19. Executable indicators, which measure the actual situation.


Reading notes

Lean thinking defines value as providing benefit to the customer; anything else is waste. In a manufacturing business, customers don’t care how the product is assembled, only that it works correctly. But in a startup, who the customer is and what the customer might be and valuable are unknown, part of the very uncertainty that is an essential part of the definition of a startup. 

As we’ve seen, it’s easy to kid yourself about what you think customers want. It’s also easy to learn things that are completely irrelevant. Thus, validated learning is backed up by empirical data collected from real customers.

The irony is that it is often easier to raise money or acquire other resources when you have zero revenue, zero customers, and zero traction than when you have a small amount. Zero invites imagination, but small numbers invite questions about whether large numbers will ever materialize. Everyone knows (or thinks he or she knows) stories of products that achieved breakthrough success overnight. As long as nothing has been released and no data have been collected, it is still possible to imagine overnight success in the future. Small numbers pour cold water on that hope.

This phenomenon creates a brutal incentive: postpone getting any data until you are certain of success. Of course, as we’ll see, such delays have the unfortunate effect of increasing the amount of wasted work, decreasing essential feedback, and dramatically increasing the risk that a startup will build something nobody wants.

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