Lean Startup for Product Managers

05 Jun 2012

tl;dr

The Lean Startup by Eric Ries can help to create breakthrough new products (‘disruptive innovation’) that can create new sustainable sources of growth (p.31). Product Management enacts many of the principles outlined in the Lean Startup and is a useful touch-point for product managers. The pivot is at the heart of the Lean Startup: pivots represent the option to bulid, test and learn or to fail quickly and cheaply.

Introduction.

This post is a largely paraphrased overview of the Lean Startup (with page references to help you locate the original text).

The Lean Startup Method (p.8-10):

[Lean Startup comes from] lean manufacturing, design thinking, customer development, and agile development (p.4).

Entrepreneurship is Management.

The concept of entrepreneurship includes anyone who works within my definition of a startup: a human institution designed to create new products and services under conditions of extreme uncertainty (p.8). Entrepreneurs who operate inside an established organisation sometimes are called “intrapreneurs” (p.26).

Entrepreneurship is a kind of management (p.3) and requires a managerial discipline (p.17).

[Lean Startup is] characterised by an extremely fast cycle time, a focus on what customers want (without asking them), and a scientific approach to making decisions (p.8).

Validated Learning.

It’s easy to kid yourself about what you think customers want and it’s easy to learn things that are completely irrelevant. Validated learning is demonstrated by positive improvements in the startup’s core metrics, backed up by empirical data collected from real customers (p.49).

Value VS. Waste

Learning is the essential unit of progress for startups. The effort that is not absolutely necessary for learning what customers want can be eliminated (p.49). Which of our efforts are value creating and which are wasteful? A common excuse for failure is that it was worthwhile because it enabled learning – was it the best way to learn that, or would talking to users have been more efficient? (p.47) Value in a startup is not the creation of ‘stuff’, but rather validated learning about how to build a sustainable business (p.182).

Get out of the building and speak to real people – behind all metrics & reports are real people. Run experiments to observe real customer behaviour (p.58) and avoid vanity metrics that give the illusion of success: focus on real progress. An experiment is more than just a theoretical inquiry, it is also a first product (p.63).

Example experiments (p.61):

build-measure-learn feedback loop.

Strategy is based on assumptions [. . .] because the assumptions haven’t been proved to be true [. . .] the goal of a startup’s early efforts should be to test them as quickly as possible (p.81).

Too many [. . .] business plans look more like they are planning to launch a rocket ship than drive a car. They prescribe the steps to take and the results to expect in excruciating detail, and as in planning to launch a rocket, they are set up in such a way that even tiny errors in assumptions can lead to catastrophic outcomes (p.21). Instead of making complex plans that are based on a lot of assumptions, you can make constant adjustments with [. . .] the Build-Measure-Learn feedback loop. We can learn when and if it’s time to make a sharp turn called a pivot or whether we should persevere along our current path (p.22).

We need to focus our energies on minimising the total time through this feedback loop. The two most important assumptions are the value hypothesis and the growth hypothesis [. . .] once clear of these leap-of-faith assumptions, the first step is to enter the Build phase as quickly as possible with a minimum viable product (M.V.P) (p.76). The MVP is that version of the 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 (p.77).

The goal of such early contact with customers is not to gain definitive answers. Instead, it is to clarify at a basic, coarse level that we understand our potential customer and what problems they have. With that understanding we can craft a customer archetype, a brief document that seeks to humanise the proposed target customer (p.89).

A new breed of designers is developing brand-new techniques under the banner of Lean User Experience (Lean UX). They recognise that the customer archetype is a hypothesis, not a fact. The customer profile should be considered provisional until the strategy has shown via validated learning that we can serve this type of customer in a sustainable way (p.90).

Down the road – after many iterations – you may learn that some element of your product or strategy is flawed and decide it is time to make a change, which I call a pivot, to a different method for achieving your vision (p.113). ‘Innovation accounting’ leads to faster pivots (p.150) and entrepreneurs should pivot as soon as they can: failure to pivot is costly (p.169).

Accountability

When one is choosing among the many assumptions in a business plan, it makes sense to test the riskiest assumptions first (p.119). Metrics should be (p.142-146):

Innovation accounting – how it works in three milestones (p.117, 118, 120):

Pivot

A pivot is a special kind of change designed to test a new fundamental hypothesis about the product, business model, and engine of growth (p.172). When a company pivots, it starts the process all over again, re-establishing a new baseline and then tuning the engine from there. The sign of a successful pivot is that these engine-tuning activities are more productive after the pivot than before (p.118).

A startup’s runway is the number of pivots it can still make [. . .] a startup with a $1 million in the bank that is spending $100,000 per month has a projected runway of ten months [. . .] the true measure of runway is how many pivots a startup has left: the number of opportunities it has to make a fundamental change to its business strategy (p.160). A pivot is better understood as a new strategic hypothesis that will require a new minimum viable product to test (p.177). It is a special kind of structured change designed to test a new fundamental hypothesis about the product, business model, and engine of growth. It is the heart of the Lean Startup method. (p178)

Types of pivot (p.173-176):

Growth

Sustainable growth is characterised by one simple rule: New customers come from the actions of past customers (p.207). There are four primary ways past customers drive sustainable growth (p.207-208):

  1. Word of mouth (through satisfied customers)
  2. As a side effect of product usage (Facebook gets you to invite friends)
  3. Through funded advertising (for sustainable growth advertising should be paid for out of revenue, not one-time sources; cost of customer acquisition through advertising should be less than the revenue the customer creates)
  4. Through repeat purchase or use (e.g. subscription, like mobile phone, or repurchase, like light bulbs).

Engines of growth (p.209-218):

Technically, more than one engine of growth can operate in a business at a time. (p.219). There are many value-destroying kinds of growth that should be avoided. An example would be a business that grows through continuous fund-raising from investors and lots of paid advertising but does not develop a value-creating product (p.85).