The Lean Startup

extremely fast cycle time, a focus on what customers want (without asking them), and a scientific approach to making decisions.

the business and marketing functions of a startup should be considered as important as engineering and product development and therefore deserve an equally rigorous methodology to guide them. He called that methodology Customer Development, and it offered insight and guidance to my daily work as an entrepreneur.

They exist to learn how to build a sustainable business. This learning can be validated scientifically by running frequent experiments that allow entrepreneurs to test each element of their vision.

The fundamental activity of a startup is to turn ideas into products, measure how customers respond, and then learn whether to pivot or persevere. All successful startup processes should be geared to accelerate that feedback loop.

Metcalfe’s law: the value of a network as a whole is proportional to the square of the number of participants.

This is one of the most important lessons of the scientific method: if you cannot fail, you cannot learn.

His hypothesis was that customers were ready and willing to buy shoes online. To test it, he began by asking local shoe stores if he could take pictures of their inventory. In exchange for permission to take the pictures, he would post the pictures online and come back to buy the shoes at full price if a customer bought them online.

If Zappos had relied on existing market research or conducted a survey, it could have asked what customers thought they wanted. By building a product instead, albeit a simple one, the company learned much more:

In fact, in 2009 Zappos was acquired by the e-commerce giant Amazon.com for a reported $1.2 billion.

The value hypothesis tests whether a product or service really delivers value to customers once they are using it.

growth hypothesis, which tests how new customers will discover a product or service,

1. Do consumers recognize that they have the problem you are trying to solve? 2. If there was a solution, would they buy it? 3. Would they buy it from us? 4. Can we build a solution for that problem?”

The Lean Startup method builds capital-efficient companies because it allows startups to recognize that it’s time to pivot sooner, creating less waste of time and money.

We saw the same phenomenon with Facebook, which faced early competition from other college-based social networks whose head start proved irrelevant.

entrepreneurs must, in Steve Blank’s famous phrase, “get out of the building” and start learning.

You cannot be sure you really understand any part of any business problem unless you go and see for yourself firsthand. It is unacceptable to take anything for granted or to rely on the reports of others.

A minimum viable product (MVP) helps entrepreneurs start the process of learning as quickly as possible. It is not necessarily the smallest product imaginable, though; it is simply the fastest way to get through the Build-Measure-Learn feedback loop with the minimum amount of effort.

Today, Dropbox is one of Silicon Valley’s hottest companies, rumored to be worth more than $1 billion.5 In this case, the video was the minimum viable product.

If we do not know who the customer is, we do not know what quality is.

A startup’s job is to (1) rigorously measure where it is right now, confronting the hard truths that assessment reveals, and then (2) devise experiments to learn how to move the real numbers closer to the ideal reflected in the business plan.

A STARTUP’S RUNWAY IS THE NUMBER OF PIVOTS IT CAN STILL MAKE

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.

Pivots come in different flavors. The word pivot sometimes is used incorrectly as a synonym for change. A pivot is a special kind of change designed to test a new fundamental hypothesis about the product, business model, and engine of growth.

Zoom-in Pivot In this case, what previously was considered a single feature in a product becomes the whole product.

Zoom-out Pivot In the reverse situation, sometimes a single feature is insufficient to support a whole product. In this type of pivot, what was considered the whole product becomes a single feature of a much larger product.

Customer Segment Pivot In this pivot, the company realizes that the product it is building solves a real problem for real customers but that they are not the type of customers it originally planned to serve.

Tags: #product

Customer Need Pivot As a result of getting to know customers extremely well, it sometimes becomes clear that the problem we’re trying to solve for them is not very important.

Platform Pivot A platform pivot refers to a change from an application to a platform or vice versa.

Business Architecture Pivot This pivot borrows a concept from Geoffrey Moore, who observed that companies generally follow one of two major business architectures: high margin, low volume (complex systems model) or low margin, high volume (volume operations model).6 The former commonly is associated with business to business (B2B) or enterprise sales cycles, and the latter with consumer products (there are notable exceptions). In a business architecture pivot, a startup switches architectures.

This pivot borrows a concept from Geoffrey Moore, who observed that companies generally follow one of two major business architectures: high margin, low volume (complex systems model) or low margin, high volume (volume operations model).

Value Capture Pivot There are many ways to capture the value a company creates.

Engine of Growth Pivot As we’ll see in Chapter 10, there are three primary engines of growth that power startups: the viral, sticky, and paid growth models. In this type of pivot, a company changes its growth strategy to seek faster or more profitable growth.

Channel Pivot In traditional sales terminology, the mechanism by which a company delivers its product to customers is called the sales channel or distribution channel. For example, consumer packaged goods are sold in a grocery store, cars are sold in dealerships, and much enterprise software is sold (with extensive customization) by consulting and professional services firms. Often, the requirements of the channel determine the price, features, and competitive landscape of a product. A channel pivot is a recognition that the same basic solution could be delivered through a different channel with greater effectiveness.

Technology Pivot Occasionally, a company discovers a way to achieve the same solution by using a completely different technology. Technology pivots are much more common in established businesses. In other words, they are a sustaining innovation, an incremental improvement designed to appeal to and retain an existing customer base.

1. Be tolerant of all mistakes the first time. 2. Never allow the same mistake to be made twice.

Whenever something goes wrong, ask yourself: How could I prevent myself from being in this situation ever again?