The Lean Startup

The Lean Startup

Author
Eric Ries
Year
2011
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Review

This is a hugely influential book in the product management community. The Lean Startup codified how to take a scientific approach to create and manage startups. The author also explains why traditional firms have such trouble navigating uncertainty. The Lean Startup emphasises the importance of learning, and validating assumptions. This book popularised a number of concepts that are now considered foundational in product management (e.g. build-measure-learn, pivot, minimum-viable-product). It’s a must-read for anyone building digital products.

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Key Takeaways

The 20% that gave me 80% of the value.

  • Startups produce a lot of waste, primarily products customers don’t want.
  • The Lean Startup is about the application of lean manufacturing to innovation
  • Entrepreneurship is management of extreme uncertainty
  • Lean manufacturing ideas:
    • Draw on the knowledge and creativity of everyone
    • Reduce batch sizes
    • Just-in-time production
    • Inventory control
    • Acceleration of cycle times
  • We needed a measure of progress that works in extreme uncertainty. Validated learning is that measure.
  • Build cross functional teams, and hold them accountable for hitting learning milestones.
  • The goal of a startup is to figure out the right thing to build as quickly as possible
  • Startups are designed to confront situations of extreme uncertainty.
    • Tools of general management don’t do well in extreme uncertainty.
  • Innovation is bottom-up, decentralised and unpredictable.
  • A Lean Startup: an organisation designed to create new products and services under conditions of extreme uncertainty
  • It doesn’t matter if you’re on time, on budget and doing high quality work if you’re building something that nobody wants
  • Key Questions: Which elements of your strategy are working? What do customers really want? Are you on a path to building a sustainable business?
  • Validated learning is a rigorous method for demonstrating progress in extreme uncertainty.
    • Systematically figuring out the right thing to build
    • Demonstrate empirically you have discovered valuable truths about your prospects
    • It’s the antidote to successfully executing a plan that leads nowhere.
  • Learning is the essential unit of progress for startups
    • Eliminate all effort that isn’t necessary for learning what customers want
  • Understand customers better → improve product → improve metrics
  • You need to demonstrate your product development efforts are leading you toward massive success
  • Should this product be built? > Can this product be built?
  • Can we build a sustainable business around this product? > Can this product be built?
  • Systematically break down a business plan into component parts and test each part empirically
  • If you cannot fail, you cannot learn
  • Startups should put their effort into experiments that test their strategy
  • An experiment must have a hypothesis that makes predictions.
  • Break it down. The two most valuable hypothesis entrepreneurs make are what I call the value hypothesis and the growth hypothesis.
    • The value hypothesis: tests if a product (or service) really delivers value to customers once they’re using it.
    • The growth hypothesis: how many customers will discover a product or service.
  • Find the early adopters quickly: customers who feel the need for the product the most
  • Four key questions you should know the answer to:
    • Do consumers recognise that they have the problem you’re trying to solve?
    • If there was a solution, would they buy it?
    • Would they buy it from us?
    • Can we build a solution for that problem?
  • Identify risks and assumptions before you build anything, then test those assumptions with experiments
  • Success is not delivering a feature, success is learning how to solve the customers problem
  • A startup is a catalyst to transform ideas into products
    • As customers interact with those products they generate feedback
  • Ideas → Build → Product → Measure → Data → Learn → 🔁
  • Information is the most important currency in uncertain environments
  • The goal is to minimise the total through the feedback loop
  • Strategy is based on assumptions test them as quickly as possible
  • Important assumptions are leap-of-faith assumptions → the entire venture rests on them
  • The difference between success and failure is having the foresight, ability and tools to discover which parts of you strategy are going to work, and which aren’t and adapt their strategies accordingly.
  • Is your product creating or destroying value?
  • Can you grow without destroying value?
  • Early contact with customers can clarify basic coarse level customer problems.
    • Allows you to craft a customer archetype → a hypothesis, and considered provisional until the strategy has shown via validated learning
  • Two ends of the spectrum: Analysis paralysis vs rushing to build.
  • A minimum viable product (MVP) helps entrepreneurs start the process of learning as quickly as possible.
    • it’s not the smallest possible product
    • it’s just the fastest way to get through the Build-Measure-Learn feedback loop
  • An MVP tests the fundamental business hypotheses
    • It tests Viability, Usability, and Feasibility
  • You have to sell to early adopters before the mainstream market. They’re OK with an 80% product
  • It feels uncomfortable to ship an MVP, a little embarrassing
  • Create a business model, make assumptions about your funnel numbers. Ideally your MVP would test the most important assumptions (E.g. We assume that 10% of customers will sign up)
  • The lesson of the MVP is that any additional work beyond what was required to start learning is waste, no matter how important is might have seemed at the time
  • MVPs can take many forms (Teaser Videos, Concierge, Wizard of Oz)
  • The MVP challenges traditional notions of quality. If we do not know who the customer is, we do not know what quality is. Don’t speculate about what customers find valuable, build an MVP and find out.
  • Customers don’t care how long something takes to build → they only care that it serves their needs
  • The MVP rule: remove any feature, process, or effort that does not contribute directly to the learning you seek.
  • MVPs often result in bad news.
  • Reduce brand risk by operating under a different brand
  • In the beginning a startup is just a model. Measure the gap to expected/needed results and device experiments to close the gap.
  • Are you making your product better? How do you know?
  • Innovation accounting: a new type of accounting geared toward disruptive innovation
    • Can prove you’re learning to grow a sustainable business
    • Step 0: Turn your leap-of-faith assumptions into a quantitative financial model
    • Step 1: Establish a baseline. Use a MVP to establish real data on where the company is now. This is the first learning milestone.
    • Step 2: Tune the engine. Making changes to improve results towards the ideal scenario
    • Step 3: Pivot or Persevere. Assess how quickly you’re closing the gap. If you’re not making progress fast enough it might be that the strategy is flawed and you need to pivot. If you pivot check if the fundamentals are improving faster than before.
  • You can use cohort analysis to check the movement of key metrics over time
  • Optimisation vs Learning: If you’re building the wrong thing, optimising the product or its marketing will not yield significant results
  • Actionable vs vanity metrics :
    • Cohort metrics > gross metrics
    • Split tests > ubiquitous changes
  • Vanity metrics amplify attribution bias. When things go up we think it’s because of what we did.
  • Metrics should be actionable, auditable and accessible
  • Are we making sufficient progress to believe our product strategy is correct? Or do we need to pivot?
  • Innovation accounting leads to faster pivots
  • Time between pivots and MVPs will decrease as you get better at measuring the right things and making decisions
  • Think of your startups runway as the number of pivots you can make. The number of of opportunities you have to make a fundamental change to your business strategy.
  • Pivots require courage. Often founders say that wish they’d have pivoted sooner:
  • Have a regular pivot or persevere meeting. Find your own cadence. Try monthly?
  • Using small batch sizes is more efficient (less sorting, stacking, moving unfinished things)
    • Individual performance isn’t as important as the system as a whole
    • Using small batches enables you to find defects faster
    • The lean startup approach enables you to work out if you’re building the right thing faster → which minimises waste
  • Work in a cross functional team, get one thing done at a time
  • Just-in-time-production: Pull work. Have each part of the production line pull new parts from the step before. Avoid ‘getting ahead’ and producing more inventory.
  • Don’t apply ‘pull’ to customer wants. Remember customers can’t tell us what to build. Instead apply it to our hypothesis about the customer.
  • Engine of growth: the mechanism that startups use to achieve sustainable growth
  • Sustainable growth: when new customers come from the actions of past customers
  • 4 Primary ways past customers drive sustainable growth:
    • Word of mouth
    • As a side effect of product usage
    • Through funded advertising
    • Through repeat purchase or use
  • Startups have to stay focused on big experiments that lead to validated learning
  • Types of growth engine:
Sticky Engine
· Retention → attracting and retaining customers for the longterm · Tactics: Become the destination, vendor lock-in / switching costs · Product Growth = Natural growth rate - churn rate · Sometimes the way to find growth is to focus on existing customers. · Vanity metrics obscure these effects
Viral Engine
· Awareness spreads from person to person. · Growth is a side effect of product usage ‘P.s. get your free e-mail at Hotmail’ · Called the viral loop or viral coefficient. · Viral coefficient: How many friends will each customer bring with them? You’re viral above 1 · Tiny changes in the viral coefficient will cause huge changes
Paid Engine
· How much is a customer worth over their lifetime? LTV (Lifetime value) · How much do they cost to acquire? CPA (cost per acquisition)
  • Have you achieved product/market fit? If you’re asking, you probably haven’t
  • Evaluate how close you are to product/market fit by reviewing and tuning your growth engine
  • Every engine of growth will run out of gas
  • Shortcuts taken in quality, design or infrastructure today can slow you down tomorrow
    • Defects cause: rework, low morale and customer complaints
  • Low-quality products can inhibit learning, defects can prevent customers from experiencing the products benefits
  • The 5-Whys technique provides a natural feedback loop.
    • Forces you to slow down and invest in preventing the problems that are currently wasting time
  • When is something worth the effort of fixing?
    • Make incremental investments and evolve your process gradually
  • Ask why 5 times to get to the human problem at the bottom of every technical problem
    • Move from technical fault to human error
  • Consistently make proportional investments at each of the 5 levels of hierarchy
    • Don’t make large investments in prevention unless we’re coping with large problems
  • Make incremental improvements to processes constantly, to get incremental benefits.
  • Over time, impact will compound (saving time, energy, money)
  • Culture is important:
    • Be blameless
    • Foster an environment of trust and empowerment
    • Take ownership. A mistake happened? We made it easy to happen!
  • Adopt these rules:
    • Be tolerant of all mistakes the first time
    • Never allow the same mistake to be made twice
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Deep Summary

Longer form notes, typically condensed, reworded and de-duplicated.

Introduction

  • Application of lean manufacturing to innovation
  • Startups produce a lot of waste, products customers don’t want.
  • Five principles of the Lean Startup:
    1. Entrepreneurs are everywhere: approach can work in company of any size
    2. Entrepreneurship is management: management of extreme uncertainty
    3. Validated learning: Learning can scientifically validated by running frequent experiments
    4. Build-Measure-Learn: Turning ideas into products, measure how customers respond, learn whether to pivot or persevere. An accelerated feedback loop.
    5. Innovation Accounting: Hold innovators accountable: measure progress, set milestones, prioritise work.
  • Reasons why startups fail:
    1. Following a plan / strategy in areas that are too uncertain (unknown customer, product)
    2. Just building, like management is the problem and chaos is the answer

Part 1 Vision

1.Start

  • Management has a bad reputation. Doesn’t have to be thought of as the opposite to entrepreneurial.
    • Traditional management techniques don’t work well when applied to innovation. For every success, there are too many failures. This is as waste of time, passion and skill.
  • Lean manufacturing ideas:
    • Draw on the knowledge and creativity of everyone
    • Reducing batch sizes
    • Just in time production
    • Inventory control
    • Acceleration of cycle times
  • Measures of Progress:
    • Manufacturing: Units of production
    • Lean Startup: Validated Learning
  • We needed a measure of progress that works in extreme uncertainty
  • Build cross functional teams, and hold them accountable for hitting learning milestones.
    • People are resistant to this.
    • People like to measuring progress locally
    • E.g. I’m a productive engineer if I spent 8 hours uninterrupted coding today
    • It feels productive → but what if you’re building something nobody wants?
  • We need a better measure of productivity than code written / things build
  • The goal of a startup is to figure out the right thing to build as quickly as possible
  • Don’t commit yourself to a narrow plan. You need to give yourself flexibility to respond to feedback and learnings as you go.
  • The Lean Startup method is designed to teach you how to drive a startup:
    • Complex plans < Build-Measure-Learn feedback loop
    • Build-Measure-Learn → persevere or Pivot?
  • Product, Strategy, Vision Pyramid
  • Product
    Constantly change through optimisation. The end result of strategy.
    Strategy
    The strategy changes less frequently. Pivot or persevere?
    Vision
    Stable. Rarely Changes.

2.Define

  • Entrepreneurs can also come from and operate inside large companies (intrapreneurs)
  • Startups are a human enterprise
  • The definition of a product should include any source of value for the people who become customers, anything they interact with should be considered part of that company’s product
  • Startups are designed to confront situations of extreme uncertainty.
    • Most of the time in general management at an established company your success depends only on execution
    • Tools of general management don’t do well in extreme uncertainty.
  • Most companies are good at sustaining innovations but struggle to create break-through new products (disruptive innovation)
  • Innovation is bottom-up, decentralised and unpredictable.
  • Large companies need to build innovation factories that use Lean Startup techniques to create disruptive innovations on a continuous basis.
  • Definition of a Lean Startup: an organisation designed to create new products and services under conditions of extreme uncertainty
  • Leadership requires creating conditions that enable employees to do the kinds of experimentation that entrepreneurship requires.

3.Learn

  • It doesn’t matter if you’re on time, on budget and doing high quality work if you’re building something that nobody wants
  • If you’re building under conditions of extreme uncertainty, the most vital thing you can do is learn.
    • Which elements of your strategy are working?
    • What do customers really want?
    • Are you on a path to building a sustainable business?
  • Validated learning is a rigorous method for demonstrating progress when one is embedded in the soil of extreme uncertainty.
    • It’s about demonstrating empirically that a team has discovered valuable truths about a startups present and future prospects
    • More concrete, accurate and faster than market forecasting or business planning
    • It’s the antidote to successfully executing a plan that leads nowhere.
  • Always ask… which of efforts are value-creating and which are wasteful?
    • Learn to see waste and systematically eliminate it
    • Why are the majority of some teams’ efforts wasted?
  • Learning is the essential unit of progress for startups
    • Eliminate all effort that isn’t necessary for learning what customers want
  • It’s your job to find a synthesis between our vision and what customers would accept
  • Understand customers better → improve product → improve metrics
  • Productivity metric: how much validated learning you’ve done < how much stuff you’ve built
    • Systematically figuring out the right thing to build
  • No numbers generates less question than low numbers → which creates a brutal inventive. Postpose getting any data until you’re certain of success.
  • You need to demonstrate your product development efforts were leading us toward massive success (without falling back to vanity metrics and success theatre).
  • Because tactics are context dependent this book focuses on a principled approach to product development
  • Should this product be built? > Can this product be built?
  • Can we build a sustainable business around this product? > Can this product be built?
  • Systematically break down a business plan into component parts and test each part empirically
  • Everything a startup does is understood to be an experiment designed to achieve validated learning

4. Experiment

  • If you cannot fail, you cannot learn
  • Startups should put their effort into experiments that test their strategy
  • An experiment must have a hypothesis that makes predictions.
  • Zappos tested if people would buy shoes online by taking photos of shoes in retail stores, posting them online and then just buying them at retail price if customers ordered.
    • Taught them real customer demand
    • Could interact with real customers and learn about their needs
    • Allowed them to be surprised about how customers acted
  • As well as the quantitative data they got a chance to own a customer relationship and gather qualitative information too
  • Break it down. The two most valuable hypothesis entrepreneurs make are what I call the value hypothesis and the growth hypothesis.
    • The value hypothesis: tests if a product (or service) really delivers value to customers once they’re using it.
      • Experiment > Surveys
    • The growth hypothesis: how many customers will discover a product or service.
      • Experiment > Surveys
  • A good early goal is to find the early adopters: customers who feel the need for the product the most
  • A concierge minimum viable product could make sure the first few participants had an experience. An experience completely aligned with the vision. That enables you to measure what customers actually do.
  • Four key questions you should know the answer to:
    • Do consumers recognise that they have the problem you’re trying to solve?
    • If there was a solution, would they buy it?
    • Would they buy it from us?
    • Can we build a solution for that problem?
  • Identify risks and assumptions before you build anything, then test those assumptions with experiments
  • Success is not delivering a feature, success is learning how to solve the customers problem

Part 2: Steer

  • A startup is a catalyst to transform ideas into products
    • As customers interact with those products they generate feedback (qualitative and quantitative)
  • Ideas → Build → Product → Measure → Data → Learn → 🔁
  • Information is the most important currency in uncertain environments
  • The goal is to minimise the total through the feedback loop

5.Leap

  • Strategy is based on assumptions
  • The goal of a startup should be to test these assumptions as quickly as possible
    • The first challenge is to build an organisation that can test these assumptions quickly
    • The second challenge is to perform rigorous testing without losing sight of the vision
  • Important assumptions are leap-of-faith assumptions → the entire venture rests on them
  • The difference between success and failure is having the foresight, ability and tools to discover which parts of you strategy are going to work, and which aren’t and adapt their strategies accordingly.
  • Is your product creating or destroying value?
  • Can you grow without destroying value?
    • If not, spending more money and growing user numbers is just success theatre
  • The facts we need to gather about customers, markets, suppliers and channels exist outside the building. We must get outside the building.
  • Step 1: Does the customer have a significant problem worth solving?
  • Early contact with customers can clarify basic coarse level customer problems.
    • Allows you to craft a customer archetype (a doc to humanise the customer, and guide product development)
  • No amount of design can anticipate the many complexities of bringing a product to life in the real world
  • Lean UX → customer archetype is a hypothesis, and considered provisional until the strategy has shown via validated learning
  • Two ends of the spectrum:
    • Analysis paralysis → always thinking you need to learn more about your customers
    • Rushing to build → not slowing down enough, suffering from confirmation bias, cracking on too quickly

6.Test

  • Groupon started as a wordpress blog → with a new post everyday
  • A minimum viable product (MVP) helps entrepreneurs start the process of learning as quickly as possible.
    • it’s not the smallest possible product
    • it’s just the fastest way to get through the Build-Measure-Learn feedback loop
  • An MVP tests the fundamental business hypotheses
    • It tests Viability, Usability, and Feasibility
  • You have to sell to early adopters before the mainstream market. They’re OK with an 80% product
  • It feels uncomfortable to ship an MVP, a little embarrassing
  • Create a business model, make assumptions about your funnel numbers. Ideally your MVP would test the most important assumptions
    • E.g. We assume that 10% of customers will sign up
  • The lesson of the MVP is that any additional work beyond what was required to start learning is waste, no matter how important is might have seemed at the time
  • MVPs can take many forms:
    • Dropbox: Video Teaser MVP (similar to a smoke test advert)
    • The concierge MVP
      • Measured by traditional accounting, concierge tests are a terrible idea.
      • Once you’re too busy, invest in automation
      • A concierge isn’t a product but a learning opportunity
    • Wizard of Oz: customers believe they’re interacting with the real product, but humans are doing the work behind the scenes.
  • The MVP challenges traditional notions of quality.
    • If we do not know who the customer is, we do not know what quality is
    • Don’t speculate about what customers find valuable, build an MVP and find out
  • Customers don’t care how long something takes to build → they only care that it serves their needs
  • Set aside your traditional quality standards and prioritise validated learning. You’ll build something customers love faster that way
  • The MVP rule: remove any feature, process, or effort that does not contribute directly to the learning you seek.
  • MVPs often result in bad news. But that validates their usefulness to some extent
    • Don’t give up hope, use what you’ve learnt and keep going
  • Brand risk? Launch them under a different brand

7.Measure

  • In the beginning a startup is just a model. It’s job is to:
    • Honestly measure the gap to the model
    • Devise experiments to learn how to close the gap
  • Standard accounting isn’t helpful in startups
  • Are you making your product better? How do you know?
  • Innovation accounting: a new type of accounting geared toward disruptive innovation
    • Can prove you’re learning to grow a sustainable business
    • Step 0: Turn your leap-of-faith assumptions into a quantitative financial model
    • Step 1: Establish a baseline. Use a MVP to establish real data on where the company is now. This is the first learning milestone.
    • Step 2: Tune the engine. Making changes to improve results towards the ideal scenario
    • Step 3: Pivot or Persevere. Assess how quickly you’re closing the gap. If you’re not making progress fast enough it might be that the strategy is flawed and you need to pivot. If you pivot check if the fundamentals are improving faster than before.
  • You can use cohort analysis to check the movement of key metrics over time
  • Optimisation vs Learning: If you’re building the wrong thing, optimising the product or its marketing will not yield significant results
  • A startup has to measure progress against a high bar: evidence that a sustainable business can be built around it’s product or services
  • It helps to have made clear, tangible predictions ahead of time \
  • Innovation accounting brings discipline and transparency, progress is more clear
  • Actionable vs vanity metrics :
    • Cohort metrics > gross metrics
    • Split tests > ubiquitous changes
  • Vanity metrics amplify attribution bias. When things go up we think it’s because of what we did.
  • Add a validated column to your Kanban
    • Backlog | In Progress | Built | Validated
    • Validated = knowing if it was a good idea to pick up the story in the first place
      • Often with a split test occasionally with a survey
  • Metrics should be actionable, auditable and accessible
    • Actionable: demonstrating clear cause and effect. Possible to replicate.
    • Accessible: should be understandable and available to everyone. Tangible concrete units.
      • Cohort-based reports are the gold standard
    • Auditable: Make the data credible to all employees.

8.Pivot or Persevere

  • Are we making sufficient progress to believe our product strategy is correct? Or do we need to pivot?
    • Pivot = Make a major change
    • You can’t outsource the pivot or persevere decision to data. You’re going to have to make the call
  • Don’t get stuck in the land of the living dead. Not growing fast enough but not wiped out either
  • Innovation accounting leads to faster pivots
  • Time between pivots and MVPs will decrease as you get better at measuring the right things and making decisions
  • A startups runway is the number of pivots it can still make. The number of of opportunities you have to make a fundamental change to your business strategy.
  • Pivots require courage. Often founders say that wish they’d have pivoted sooner:
    1. Vanity metrics cloud decision making
    2. Without a clear hypothesis, it’s hard to know when you’ve failed, or when to pivot
    3. The thought of letting go of your original vision too early is scary
  • Have a regular pivot or persevere meeting. Find your own cadence. Try monthly?
  • Types of Pivot:
Type of Pivot
One Sentence Description
Zoom-in Pivot
This pivot involves focusing on one specific feature or function of the product that was previously a smaller part of the whole.
Zoom-out Pivot
In this type of pivot, what was previously considered the whole product becomes just a single feature of a larger system.
Customer Segment Pivot
This pivot is when the company realises that the product is a good fit, but for a different customer segment.
Customer Need Pivot
This pivot happens when the company realises the problem it's trying to solve for its customers isn't very important to them.
Platform Pivot
A shift from an application to a platform or vice versa.
Business Architecture Pivot
This is a pivot from a high margin, low volume business to a low margin, high volume business model, or vice versa.
Value Capture Pivot
This pivot involves changing the way a company captures value, such as changing the revenue model.
Engine of Growth Pivot
This pivot changes the growth strategy of the company to seek faster or more profitable growth. (viral, sticky or paid growth)
Channel Pivot
This pivot involves changing the sales channel or method of delivery through which the company reaches its customers (distribution)
Technology Pivot
This type of pivot happens when a company uses a different technology to achieve the same solution more effectively or efficiently.

Part 3: Accelerate

9.Batch

  • Using small batch sizes is more efficient.
    • It seems counter intuitive but we underestimate the additional amount of time to sort, stack, and move around half-complete things.
    • Individual performance isn’t as important as the system as a whole
  • Using small batches enables you to find defects (quality problems) faster → in a startup, the lean startup approach enables you to work out if you’re building the right thing faster → which minimised waste (time, money, effort)
  • Put in place continuous measurement, make many deployments a day
  • Not everyone should be shipping 50 times a day, but reducing batch size will help you get through the Build-Measure-Learn loop faster than your company can.
    • The ability to learn faster from customers is the essential competitive advantage that startups must possess
  • It’s easy to end up in a large batch death spiral, where so much work in progress encourages people to pick up more work in progress
  • Work in a cross functional team - get one thing done at a time
  • Just-in-time-production: Pull work. Have each part in the production line, pull new parts from the step before. Avoid ‘getting ahead’ and producing more inventory.
  • WIP is less visible in a startup.
  • Almost every lean startup method either converts push to pull, or reduces batch size
  • Don’t apply ‘pull’ to customer wants. Remember customers can’t tell us what to build. Instead apply it to our hypothesis about the customer.
    • As soon as a hypothesis is formulated. The development team should be engineered to design, test and run this experiment as quickly as possible, using the smallest batch size.

10.Grow

  • Engine of growth: the mechanism that startups use to achieve sustainable growth
  • Sustainable growth: when new customers come from the actions of past customers
  • 4 Primary ways past customers drive sustainable growth:
    • Word of mouth
    • As a side effect of product usage (e.g. brand logo’s on trainers drive more awareness)
    • Through funded advertising
    • Through repeat purchase (subscription) or use
  • Startups have to stay focused on big experiments that lead to validated learning.
  • The engines of growth framework can help with focus:
Sticky Engine
· Retention → attracting and retaining customers for the longterm · Tactics: Become the destination, vendor lock-in / switching costs · Product Growth = Natural growth rate - churn rate · Sometimes the way to find growth is to focus on existing customers. · Vanity metrics obscure these effects
Viral Engine
· Awareness spreads from person to person. · Growth is a side effect of product usage ‘P.s. get your free e-mail at Hotmail’ · Called the viral loop or viral coefficient. · Viral coefficient: How many friends will each customer bring with them? You’re viral above 1 · Tiny changes in the viral coefficient will cause huge changes
Paid Engine
· How much is a customer worth over their lifetime? LTV (Lifetime value) · How much do they cost to acquire? CPA (cost per acquisition)
  • Normally startups focus on just one engine of growth at a time
  • When you have Product/Market fit it feels like a large market is pulling the product out of the startup
  • Have you achieved product/market fit? If you’re asking, you probably haven’t
  • Evaluate how close you are to product/market fit by reviewing and tuning your growth engine
  • Review your compounding growth rate. Look back a few months. Are you making progress or stuck?
  • Every engine of growth will run out of gas. You need to run a portfolio of activities, whilst tuning your growth engine and looking for new sources of growth for when that engine runs its course.

11.Adapt

  • Build an adaptive organisation: one that automatically adjusts its process and performance to current conditions
  • If you’re causing or missing quality problems now, they’ll slow you down later.
    • Defects cause: rework, low morale and customer complaints
  • Shortcuts taken in quality, design or infrastructure today can slow you down tomorrow
  • Low-quality products can inhibit learning - when defects prevent customers from experiencing the products benefits
  • The 5-Whys technique provides a natural feedback loop.
    • Force you to slow down and invest in preventing the problems that are currently wasting time
  • When is something worth the effort of fixing?
    • Make incremental investments and evolve your process gradually
  • Ask why 5 times to get to the human problem at the bottom of every technical problem
    • Move from technical fault to human error
  • Consistently make proportional investments at each of the 5 levels of hierarchy
    • Invest a smaller amount when the symptom is minor. And larger amounts when its more painful
    • Don’t make large investments in prevention unless we’re coping with large problems
  • Make incremental improvements to processes constantly, to get incremental benefits.
  • Over time, impact will compound (saving time, energy, money)
  • Culture is important:
    • Be blameless
    • Foster an environment of trust and empowerment
    • Take ownership. A mistake happened? We made it easy to happen!
  • Adopt these rules:
    • Be tolerant of all mistakes the first time
    • Never allow the same mistake to be made twice
  • Adopt the 5 whys by starting small and specific
  • Hold 5 whys sessions as problems come up (invite everyone connected, and remind folks of the purpose and ground rules)

12.Innovate

  • To foster innovation, teams need these structural attributes:
    • Scarce but secure resources
    • Independent authority to develop their business
      • make them cross functional
      • reduce dependencies
      • remove handoffs and approvals (they slow down the Build-Measure-Learn loop)
    • A personal stake in the outcome
  • Create a platform for success:
  • Protect the parent organisation
  • Fear of endangering the current business can stop action (sometimes by sabotage)
  • Create an innovation sandbox:
    • Contain the impact of the new innovation
      • Cap audience
      • Cap duration
      • See it through
      • Evaluate on 5-10 actionable metrics only
  • Hold entrepreneurial managers accountable
    • As products scale they go through different types of problems.
    • Manage the different stages differently
    • You can have different teams that are masters at different stages of the lifecycle
    • Eventually you can reintegrate innovations back into the company