Summary of “The Lean Startup” by Eric Ries. An important read to all young startups…

Every passionate entrepreneur who is pursuing his / her dream startup will greatly benefit by reading The Lean Startup by Eric Ries, as it encompasses many vital aspects that we should be aware of to be successful. The statistics suggest that many startups fail. They do so due to small errors made in thinking, planning and execution. Thus its would be greatly beneficial to read and learn from the experts, and have some understanding on their experiences which would help you in your journey as an entrepreneur.

I would like to briefly summarize the main key elements I found interesting and useful in The Lean Startup. This would be the first of many articles which would focus on summarizing the most popular books on Startups & Entrepreneurs. I strongly urge you all to read all these books and not just be limited to the presented summary.

The book unveils all the concepts discussed using appropriate examples, and I wish to highlight those key concepts. When you commence a startup you have some new idea, a new way to do something. Will it work ? The thinking behind the idea… is it sound?

Hence its of great importance to validate the idea whether there is a significant value addition. This is called the Value Hypothesis. We need to conduct some quick tests to verify whether our hypothesis is sound. It should not be limited only to the value of the idea. The Growth Hypothesis ensures that even though there is value in the idea, whether it can achieve the expected growth. These should be clearly distinguished as sometimes even though the idea is unique and creates value, in terms of growth it would be stunted. If we pursue in the particular path without any idea of the growth you might end up in a position after some time where you cannot achieve the level of success you wanted.

Just think you worked on your bright idea for so long and after some time you find, that it is not going to work. It would be a complete waste of resources, time… a complete disaster in the end!!!

This would have been avoided if you focussed on Validated Learning where you make sure that the product development is carried out appropriately through continuous learning. This is called the build, measure, learning cycle.

Build -> Measure -> Learn

If we focussed on building the product step by step validating the decisions that we take using the valuable feedback, it will enable us to make the necessary changes and pivoting required before ending up building something useless. This is of great importance, to build something really quick and deploying to see the feedback, and thus through the learning steer your product / service towards success. We require metrics to set targets and compare our continuous iterations. The higher the frequency of the build, measure, loop higher the amount of learning we acquire. Although, it is important to setup proper metrics to set targets and monitor progress. These are called Actionable Metrics. It is important to select these metrics appropriately as you do not want to fall into the trap of setting Vanity Metrics which would ruin you in future. For a simple example, even though the number of registered users are increasing drastically if the retention or active users are dropping setting a metric to measure number of registered users will be useless. In order to measure these metrics and conduct analysis techniques such as the Cohort Analysis and A/B Testing can be used.

Once you successfully go through the loop along with the focus on actionable metrics, you would be able to get a clear understanding whether to Pivot or Persevere. Pivoting is not a bad thing, maybe a small setback on your initial value hypothesis. But it would be essential for success. Pivoting could be in the form of technology pivot, channel pivot, platform pivots etc. This setup ensures that a quick pivot could be done if needed, which reduces the risk of being stuck.

Eric Ries then focuses on Engines of Growth. In a quick summary it focuses on the different types of growth a company could achieve. Such as the Viral engine of growth, where how you could grow virally. The viral coefficient would be a crucial factor in this case. Sticky engine of growth focusses on retaining customers in the long run, where the focus would be on the new customer acquisition rate (NCA) and the Custer churn rate(CCR). Paid engine of growth focusses on the cost per customer acquisition(CPA) and the life time value (LTV) of the customer.

The concept of Innovation Accounting is also fascinating where the focus would be on measuring the true progress without stifling the innovation compared to conventional mindsets. How innovation could be driven in larger organizations is also discussed clearly, and how the cultures should be properly setup.

Finally, the 5 Why Concept is presented where we could focus on drilling on a problem to find the root cause. This will enable to understand the important reasons of failure which could be easily hidden. For an example in case of a failure of a server the team could gather and search for the reasons of failure?. If the failure was due to a bug, they would keep drilling down to see why the bug was introduced? It could be due to a new recruit who wasn’t given a sufficient training. Likewise important conclusions and insights could be gathered using this technique and valuable adjustments made. It should be done mindfully to ensure that the focus is on correction rather than pointing fingers, in which case it could easily become the 5 blames, everyone pointing at each other and blaming of failure.

Apart from the summarized concepts mentioned above, there are many other interesting concepts discussed in the book which you could read through. Again I would like to stress the value of reading the book to grasp all this concepts presented clearly with the help of examples. I hope the above short summary would be a motivator for you to start reading and adding greater value to your self as well as your entrepreneurial journey.

Good Luck!