The Lean Startup - Review

    Completed the book "The Lean Startup" by Eric Ries. Link http://theleanstartup.com/ It was a good read. The book proposes improvisation of Toyota's Just-In-Time lean manufacturing process to startup companies (focuses on technology companies but tries to generalize this for other startups too) . Recommended for aspiring tech/other entrepreneurs.

Key points : 5 principles of Lean startup : Entrepreneurs Are Everywhere Entrepreneurship Is Management Validated Learning Innovation Accounting Build-Measure-Learn Validated Learning Any failure in a startup provides some lesson. However validated learning is not that. Make small and specific experiments (each experiment to be done alone) with the product/service and measure the impact of these changes specifically. Gross or cumulative metrics distort the picture. Cohort analysis to be used. If the metrics shows improvements after a specific experiment, it is validated learning.

• Build a minimum viable product (MVP) and launch it. Make small and incremental changes as experiments to the product continuously in small quick cycles. Measure the success of the experiments and use the learnings to build the next increment (Build - measure-learn)

Innovation accounting: standard accounting practices do not make a lot of sense for startups. especially for the employees and investors. Lessons from the early stages need to be measured . 1. Establish baseline: Establish the basline on where the company stands as of now 2. Tuning the engine: After establishing baseline, work toward the ideal. (the 2nd learning milestone, tuning the engine). Every product change should be driven by one of the growth engines. 3. Pivot or persevere:

Be wary of cumulative or vanity metrics. Try to stick to cohorts analysis and split tests (A/B Testing).

Startup runway : Remaining cash/ Burn rate But the true measure of runway should not be in absolute time but rather how many pivots are left before running out.

Schedule regular pivot or persevere meetings ahead of time. A pivot may be needed for a variety reasons:

Zoom-in pivot: Zooming in on a specific feature as the whole product zoom-out pivot: Zooming out to include more features to a product Customer segment pivot: Product solves problems for real customers but not the initial target segment. Many startups may require to do this at one point. After running out of early adopters, the mainstream customers come in and have very different expectations for the product and are more unforgiving. Customer need pivot: After initial product build, the product solves a problem that is not important. But identifies a related problem that requires re-positioning of the product. Platform pivot: Change from an application to a platform or vice versa. Startups create a platform and start selling a single application. Business architecture pivot: Change from high volume/high margin to the other way around. Value capture pivot: Changes to the way a company captures value. Engine of growth pivot Channel pivot technology pivot

Three engines of growth: 1. sticky engine of growth : Churn rate is critical. Maintain customer base 2. Viral engine of growth : Network effect , a viral coefficient closer to 1 or above makes the product highly sustainable. 3. Paid engine of growth: Growth is subsidized by existing sales. As long as the Cost per acquisition(CPA) is greater the Lifetime value (LTV) of the customer, growth is positive.

The Five whys - an important tool in finding the root cause without blaming someone. System comes first not the personnel.

Links: http://theleanstartup.com/ http://leanstartup.pbworks.com/

Further reading: Four steps to the epiphany by Steve Blank http://500hats.typepad.com blog.500startups.com

The innovator's dilemma Startup owner's manual