“Eric Ries – Lean Startup: The Lean Startup Method for Rapidly Testing Ideas and Choosing a Business Model” Summary Review

I prefer to learn something new using the “from general to specific” method, so first I suggest looking at a brief summary of each chapter.

Three parts: Part 1 Vision, Part 2 Getting behind the wheel, Part 3 Picking up speed.
Introduction – five principles of methodology, description of the book;
Part 1 – how Eric Ries’ methodology was formed and its main essences;
Part 2 – how to translate this picture of the world into practical actions;
Part 3 – how to increase the effectiveness and effect of such practical actions;

Part 1:
Chapter 1. Start – learning to be friends in the head between management and entrepreneurship;
Chapter 2. Definition – we expand the definition of a “startup” to the creation of any new systems in extremely uncertain conditions of existence;
Chapter 3: Learning is about how startups can and should use the experimental method to test their hypotheses and improve the product if they want to survive and thrive;
Chapter 4. Experiments – the final part of the first part, leading the reader to the fact that when creating a startup, he should first of all focus on experimenting with consumers;

Part 2:
From vision to practice – that the description of tools and methodology will now begin;
Chapter 5. The Leap – rather about the necessary leap from theoretical activity to experimental activity, which, for various reasons, people do not want to make;
Chapter 6. Testing – about simple methodologies for testing your business ideas;
Chapter 7. Evaluation – how to process everything we have tested and experimented with;
Chapter 8. Pivot – about ways and methods of changing the strategic course of a startup;

Part 3:
How to launch the mechanism – how to launch the mechanism of startup growth, not the mechanism of the startup itself, which may not be obvious from the title, plus, there is a brief description of all the chapters of the part, which was not in a similar introduction “from vision to practice” for the second part;
Chapter 9. Batch Size – more praise for Toyota, lean manufacturing and small batches, the word Lean in the title of the book obliges us to devote a separate chapter to this;
Chapter 10. Growth – the growth mechanisms of a startup and how they interact with each other;
Chapter 11. Adaptation – how to remain flexible within a startup;
Chapter 12. Creating innovations – about how to maintain the spirit of a startup, innovation, in a company when it has long outgrown its formation and startup period;

Next is the epilogue, advertising for the Eric Ries community, thanks, etc.

And now, what kind of essence and ideas do we get from this book:

Five principles of Lean Startup:

1. Entrepreneurs are everywhere.

2. Entrepreneurship is management.

3. Confirmation by facts.

4. The Create-Evaluate-Learn Cycle

5. Accounting for innovations

The Create-Measure-Learn Cycle

From general to specific, the main idea of ​​the entire Lean Startup methodology can be depicted as follows:

The meaning of his methodology is consistent creation many improved versions of the product, which are released to the market one by one and little by little, only to estimatehow the market will react to the hypotheses of the creators of this product. And draw conclusions, learn.

Hypotheses

Every business plan begins with a series of hypotheticals and assumptions. To bring your startup idea to life, it is important to clearly describe your vision for the business model. This vision then needs to be broken down into key hypotheses. Testing these hypotheses is the main task of a startup.

In the lean startup methodology, there are two main hypotheses: the value hypothesis (will the client pay us for this) and the growth hypothesis (will our startup be able to grow).

MVP

The initial version of the product on which we will test our hypotheses, like all subsequent versions, should be minimally expensive and not require large time and financial investments. This Minimum Viable Product is abbreviated as MVP.

Here are some examples of MVP variations from Eric Ries:

• MVP for one client (Concierge): a startup team approaches one single buyer, who represents the average consumer of their future product, in order to test their hypotheses at minimal cost.

• Wizard of Oz MVP: a product that looks automated, but in reality all the work is done manually by the startup team (the person at the ATM).

• Video presentation: an example of a company called Dropbox, whose MVP was a video that simulated the operation of a product that did not yet exist.

• Landing: a website or other platform with a description of a product that does not yet exist in fact and an offer to purchase it.

• Prototype: not directly mentioned anywhere in the book, the most obvious option is mvp.

When creating a product/new version of a product, Eric Ries advises answering 4 questions:

1. Do consumers recognize that they have a problem that we are trying to solve?

2. If you offer them a solution to this problem, are they willing to pay for it?

3. Will they pay us?

4. Can we offer a solution?

Accounting for innovations

Innovation accounting is a planned, systematic approach to finding out whether we are making progress and whether we are getting evidence. In essence, it is an alternative to traditional reporting for startup companies. It is a reporting system that allows us to correctly interpret and evaluate whether changes are making a difference.

Three stages of innovation accounting:

1. Create an MVP and get feedback to understand the real state of affairs.

2. Bring the basic indicators closer to ideal.

3. Decide whether to continue in the same direction or make a turn.

Three aspects of innovation accounting:

1. Actionable indicators. Actionable metrics should demonstrate cause and effect, showing what needs to be done to achieve the desired results. They help you learn from your actions, otherwise they will be “vanity metrics” – impressive, but useless data in a practical sense.

2. Simplicity of presentation. Reports should be presented simply and clearly. It is worth remembering that behind any indicators there are people. The report should be related to people and their actions; it is better to avoid arrays of abstract data.

3. Possibility of data verification – controllability. It is important that employees do not question the reliability of the data. It is necessary to be able to check the reporting data in practice, in the real world, communicating with clients.

Cohort Analysis: This may seem complicated, but it is based on one simple premise. Instead of looking at aggregate totals, such as total revenue and total number of customers, we look at the totals for each group of customers that comes into contact with the product independently of the others. Each group is called a cohort.

Mechanisms of growth

There are four ways to achieve sustainable growth:

• Word of mouth

• Side effect of using the product

• Advertising costs

• Repeat purchases or repeat business

And the three mechanisms they trigger:

1. The mechanism of “sticky” growth. The rules that govern “sticky” growth are quite simple: if the rate of acquisition of new customers exceeds the rate of loss, then the popularity of the product grows.

2. Mechanism of viral growth. It is called the viral cycle, and its speed is determined by the so-called viral coefficient. The higher this coefficient, the faster the product will gain popularity. The viral coefficient shows how many more clients each new client can bring with him. Every friend of his is also a potential client, and he can also bring his friends.

3. Paid Growth Engine: “For a company to grow sustainably over time using the Paid Growth Engine, it needs a differentiated ability to 'monetize' a specific group of users.”

Pivot

The moment our hypotheses no longer match reality, it is time to make a turn. Types of turns:

1. Pivot of customer needs
   Changing a product to meet a different, more significant customer need.

2. Consumer Segment Pivot
   Reorientation to another consumer segment.

3. A Pivot in Monetization Methods
   Changing the monetization model to increase revenue.

4. Distribution Channel Pivot
   Changing the distribution channel to more effectively attract customers.

5. The turn of technology
   Using a different technology to achieve the same goals is more effective.

6. Platform turn
   Transforming a product into a platform or, conversely, a platform into a product.

7. Turn-increase
   Turning one product feature into the product itself.

8. Superelevation-reduction
   The product becomes just one function of a larger product.

9. Business architecture pivot
   Transition from high-margin business to mass business or vice versa.

I described the main concept in general terms. I liked two more principles mentioned by E. Rees in the book, which pay tribute to Toyota's lean manufacturing:

Genchi Genbutsu

Genchi genbutsu – come and see.

Toyota's lean manufacturing principle, which tells us that the most effective analysis of a problem/opportunity/risk can only be carried out by being directly at the scene of the events for which we plan to conduct such an analysis.

The Five Whys Method

To eliminate the superficial wandering of the mind around a problem, we consciously ask at least five questions “why?” in order to logically get to the root of this problem.