Lean startup

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Lean startup is a method for developing businesses and products first proposed in 2011 by Eric Ries. Based on his previous experience working in several U.S. startups, Ries claims that startups can shorten their product development cycles by adopting a combination of business-hypothesis-driven experimentation, iterative product releases, and what he calls "validated learning". Ries' overall claim is that if startups invest their time into iteratively building products or services to meet the needs of early customers, they can reduce the market risks and sidestep the need for large amounts of initial project funding and expensive product launches and failures.[1][2][3][4][5]

Originally developed in 2008 by Ries with high-tech companies in mind, the lean startup philosophy has since been expanded to apply to any individual, team, or company looking to introduce new products or services into the market.[2] Today, the lean startup's popularity has grown outside of its Silicon Valley birthplace and has spread throughout the world, in large part due to the success of Ries' bestselling book, The Lean Startup: How Today's Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses.[6]

Background[edit]

Main article: Eric Ries

Ries developed the idea for the Lean Startup from his experiences as a startup advisor, employee, and founder.[7][8][9] His first startup, Catalyst Recruiting, failed because they did not understand the wants of their target customers, and because they focused too much time and energy on the initial product launch.[10][11] After Catalyst, Ries was a senior software engineer with There, Inc.[10][11] Ries describes There Inc. as a classic example of a Silicon Valley startup with five years of stealth R&D, $40 million in financing, and nearly 200 employees at the time of product launch.[11] In 2003, There, Inc. launched its product, There.com, but they were unable to garner popularity beyond the initial early adopters.[11] Ries claims that despite the many proximate causes for failure, the most important mistake was that the company’s "vision was almost too concrete," making it impossible to see that their product did not accurately represent consumer demand.[11]

Although the lost money differed by orders of magnitude, the failures of There, Inc. and Catalyst Recruiting share similar origins, with Ries stating that "it was working forward from the technology instead of working backward from the business results you're trying to achieve."[2] Ries began to develop the lean startup philosophy from these experiences, and from others observed by working in the high-tech entrepreneurial world.[11][12]

Origins[edit]

The lean startup philosophy is based on lean manufacturing, the streamlined production philosophy pioneered by Taiichi Ohno by combining flow principles used by Henry Ford starting in 1906 and the TWI programs introduced to Japan in 1951. After more than 15 years of experiments, he had a stable and reproducible system. In the 1990, this system was called "lean" in the book "The Machine That Changed the World". The lean manufacturing system considers as waste the expenditure of resources for any goal other than the creation of value for the end customer, and thus a target for elimination. In particular, the system focuses on minimizing inventory throughout the assembly line. Kanban cards are used to signal only when the necessary inputs to production are needed, and in so doing, reduce assembly waste (Inventory) and increase productivity.[13] Additionally, immediate quality control checkpoints can identify mistakes or imperfections during assembly as early as possible to ensure that the least amount of time is expended developing a faulty product.[14] Another primary focus of the lean management system is to maintain close connections with suppliers in order to understand their customers’ desires. In a recent article published in the Harvard Business Review, Ries' mentor Steven G. Blank describes how the lean method also draws its inspiration from the work of people like Ian C. MacMillan and Rita Gunther McGrath who developed a technique called discovery driven planning which was an attempt to bring an entrepreneurial mindset to planning [15]

In 2008, Ries took the advice of his mentors and developed the idea for the lean startup, using his personal experiences adapting lean management principles to the high-tech startup world.[10][16] In September 2008, Ries first coined the term on his blog, Startup Lessons Learned, in a post called “The lean startup.”[17]

Philosophy[edit]

Similar to the precepts of lean management, Ries' lean startup philosophy seeks to eliminate wasteful practices and increase value producing practices during the product development phase so that startups can have a better chance of success without requiring large amounts of outside funding, elaborate business plans, or the perfect product.[16] Ries believes that customer feedback during product development is integral to the lean startup process, and ensures that the producer does not invest time designing features or services that consumers do not want.[18] This is done primarily through two processes, using key performance indicators and a continuous deployment process.[5][19][20] Because startups typically cannot afford to have their entire investment depend upon the success of one single product launch, Ries maintains that by releasing a minimum viable product that is not yet finalized, the company can then make use of customer feedback to help further tailor their product to the specific needs of its customers.[5][16][21]

The lean startup philosophy pushes web based or tech related startups away from the ideology of their dot-com era predecessors in order to achieve cost-effective production by building a minimal product and gauging customer feedback.[2] Ries asserts that the "lean has nothing to do with how much money a company raises," rather it has everything to do with assessing the specific demands of consumers and how to meet that demand using the least amount of resources possible.[10]

Definitions[edit]

Based on The Lean Startup[edit]

In his blog and book, Ries uses specific terminology relating to the core lean startup principles.

Minimum viable product[edit]

A minimum viable product (MVP) is the "version of a new product which allows a team to collect the maximum amount of validated learning about customers with the least effort."[1][22] The goal of a MVP is to test fundamental business hypotheses (or leap-of-faith assumptions) and to help entrepreneurs begin the learning process as quickly as possible.[1] As an example, Ries notes that Zappos founder Nick Swinmurn wanted to test the hypothesis that customers were ready and willing to buy shoes online.[1] Instead of building a website and a large database of footwear, Swinmurn approached local shoe stores, took pictures of their inventory, posted the pictures online, bought the shoes from the stores at full price, and sold them directly to customers if they purchased the shoe through his website.[1] Swinmurn deduced that customer demand was present, and Zappos would eventually grow into a billion dollar business based on the model of selling shoes online.[1] See also Pilot experiment.

Continuous deployment[edit]

Continuous deployment is a process “whereby all code that is written for an application is immediately deployed into production,” which results in a reduction of cycle times.[23] Ries states that some of the companies he’s worked with deploy new code into production as often as 50 times a day.[23] The phrase was coined by Timothy Fitz, one of Ries’s colleagues and an early engineer at IMVU.[1][24] See also Continuous delivery.

Split testing[edit]

A split or A/B test is an experiment in which "different versions of a product are offered to customers at the same time."[1] The goal of a split test is to observe differences in behavior between the two groups and to measure the impact of each version on an actionable metric.

A/B testing can also be performed in serial fashion where a group of users one week may see one version of the product while the next week users see another. This can be criticized in circumstances where external events may influence user behavior one time period but not the other. For example a split test of two ice cream flavors performed in serial during the summer and winter would see a marked decrease in demand during the winter where that decrease is mostly related to the weather and not to the flavor offer.

Actionable metrics[edit]

Actionable metrics can lead to informed business decisions and subsequent action.[1][25] These are in contrast to 'vanity metrics' - measurements that give “the rosiest picture possible” but do not accurately reflect the key drivers of a business.

Vanity metrics for one company may be actionable metrics for another. For example, a company specializing in creating web based dashboards for financial markets might view the number of web page views[20] per person as a vanity metric as their revenue is not based on number of page views. However, an online magazine with advertising would view web page views as a key metric as page views are directly correlated to revenue.

A typical example of a vanity metric is 'the number of new users gained per day'. While a high number of users gained per day seems beneficial to any company, if the cost of acquiring each user through expensive advertising campaigns is significantly higher than the revenue gained per user, then gaining more users could quickly lead to bankruptcy.

Pivot[edit]

A pivot is a “structured course correction designed to test a new fundamental hypothesis about the product, strategy, and engine of growth.”[1] A notable example of a company employing the pivot is Groupon; when the company first started, it was an online activism platform called The Point.[4] After receiving almost no traction, the founders opened a WordPress blog and launched their first coupon promotion for a pizzeria located in their building lobby.[4] Although they only received 20 redemptions, the founders realized that their idea was significant, and had successfully empowered people to coordinate group action.[4] Three years later, Groupon would grow into a billion dollar business.

Innovation Accounting[edit]

This topic focuses on how entrepreneurs can maintain accountability and maximize outcomes by measuring progress, planning milestones, and prioritizing.[26]

Build-Measure-Learn[edit]

Build-Measure-Learn is the core part of the lean startup methodology that explains what we should do between the phases of Idea (Build), Code (Measure), and Data (Learn). In other words, it's a loop process of turning ideas into products, measuring customers reaction and behavior against built products, and then learn whether to persevere or pivot the idea; this process repeats over and over again.

Definitions Popularized After The Lean Startup[edit]

Business Model Canvas[edit]

The Business Model Canvas is a strategic management and lean startup template for developing new or documenting existing business models. It is a visual chart with elements describing a firm's value proposition, infrastructure, customers, and finances. It assists firms in aligning their activities by illustrating potential trade-offs.

Lean Canvas[edit]

The Lean Canvas is a lean startup adaptation of the Business Model Canvas. The lean canvas focuses on addressing broad customer problems and solutions and delivering them to customer segments through a unique value proposition.[27]

Build-Measure-Learn[edit]

The Build-Measure-Learn loop emphasizes speed as a critical ingredient to product development. A team or company's effectiveness is determined by its ability to ideate, quickly build an Minimum Viable Product of that idea, measure its effectiveness in the market, and learn from that experiment.

This rapid iteration allows teams to determine the most feasible path towards Product/market fit.[28][29]

The book[edit]

Ries' book, The Lean Startup: How Today's Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses, was published in September, 2011 by Crown Business Publishing, which is a subsidiary of Random House.[30] Due to the popularity of the lean startup philosophy prior to the release of his book, The Lean Startup was highly anticipated, and quickly became a #2 New York Times bestseller.[6][31] The book's popularity has helped to further promote the lean startup philosophy, which is used by both startups and more mature companies.[32][33][34] Amazon listed the book as one of their Best Business Books of 2011, and as of June 2012, the book has sold 90,000 copies.[35][36]

The movement[edit]

After introducing the concept on his blog, Startup Lessons Learned, Ries' lean startup philosophy became widely popular within Silicon Valley tech startups.[2][6] Ries now sits on many advisory boards for tech companies and investment funds, frequently gives interviews and presentations on the lean startup, and has also created his own annual technology conference called Startup Lessons Learned which has subsequently changed its name to the Lean Startup Conference.[2][9][10][11][30][37][38]

Ries travels constantly to promote the Lean Startup philosophy at conferences, and estimates that Lean Startup meetups in cities around the world garner 20,000 regular participants.[2] The first Lean Startup meetup named Lean Startup Circle was created by Rich Collins on June 26, 2009[39][40] hosting speaking events, workshops, and roundtable discussions. As of 2012, there are lean startup meetups in over 100 cities and 17 countries[41] as well as an online discussion forum with over 5500 members.[42] Third-party organizers have led Lean Startup meetups in San Francisco, Chicago, Boston, Austin, Beijing, Dublin, and Rio de Janeiro, among others—many of which are personally attended by Ries—with the New York City Lean Startup Meetup attracting over 2,500 members.[43] [44][45][46][47][48] Ries hosted the Lean Startup Track at SXSW 2012 with Dave McClure, Steve Blank, Robert Scoble, and dozens of other entrepreneurs and investors.[49][50] The Lean Startup Machine created a new spin on the Lean Startup meetups by having attendees start a new company in three-days[citation needed]. As of 2012, the Lean Startup Machine has created over 600 new startups this way.[51]

Several prominent high-tech companies have begun to publicly employ the Lean Startup philosophy, including Intuit, DropBox, Wealthfront, Votizen, Aardvark, and Grockit.[7][18][52] The Lean Startup principles are also taught in classes at Harvard Business School and UC Berkeley and are implemented in municipal governments through Code for America.[35]

In addition, the United States Government has recently begun to employ many of the lean startup ideas pioneered by Ries. The Federal Chief Information Officer of the United States, Steven VanRoekel noted that he is taking a "lean-startup approach to government."[53] Ries has also worked with the former and current Chief Technology Officers of the United StatesAneesh Chopra and Todd Park respectively—to implement aspects of the lean startup model into the United States Government.[54][55][56] In particular, Park noted that in order to understand customer demand, the Department of Health and Human Services, recognized "the need to rapidly prototype solutions, engage customers in those solutions as soon as possible, and then quickly and repeatedly iterate those solutions based on working with customers."[57][58][59] In May 2012, Ries and The White House announced the Presidential Innovation Fellows program, which brings together top citizen innovators and government officials to work on high-level projects and deliver measurable results in six months.[60]

Portfolio.com called 2011 "the year of the lean startup," and Fast Company noted that the movement is "less about how to make web startups more successful and entrepreneurs richer than it is a fundamental reexamination of how to work in our complicated, faster-moving world."[4][61] Additionally, The New York Times noted that the Lean Startup is a "fresh approach to creating companies that has attracted much attention in the last year or so among Silicon Valley entrepreneurs, technologists and investors."[33]

Lean Concepts[edit]

The Lean Startup principles have been applied to specific competencies within typical startups and larger organizations:

  • Lean UX
  • Lean Analytics
  • Lean Product Management
  • Lean Marketing
  • Lean Sales

Criticism[edit]

In one commentators' view, the Lean Startup has become an under-questioned orthodoxy, and they have tried to counterbalance it by pointing out some of its limitations.[62]

Some commentators have also pointed out that in their opinion the majority of backing for The Lean Startup Methodology is anecdotal and that it has not been rigorously validated yet.[63][64] Perhaps this is a result of (1) the significant challenges involved in empirically validating the effectiveness of an entrepreneurial framework, given a number of exogenous variables and (2) the difficulty in defining "effectiveness" or "success" when assessing the methodology's value.

See also[edit]

References[edit]

  1. ^ a b c d e f g h i j Ries, Eric (2011). The Lean Startup: How Today's Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses. Crown Publishing. p. 103. ISBN 978-0-307-88791-7. 
  2. ^ a b c d e f g Roush, Wade. Eric Ries, the Face of the Lean Startup Movement, on How a Once-Insane Idea Went Mainstream. Xconomy. July 6, 2011.
  3. ^ The Lean Startup TESS Search. United States Patent and Trademark Office. September 6, 2011.
  4. ^ a b c d e Penenberg, Adam. Eric Ries Is A Lean Startup Machine. Fast Company. September 8, 2011.
  5. ^ a b c Adler, Carlye. Ideas Are Overrated: Startup Guru Eric Ries' Radical New Theory. Wired. August 30, 2011.
  6. ^ a b c Bury, Erin. How Eric Ries Changed the Framework for Startup Success. Financial Post. December 7, 2011.
  7. ^ a b Lohr, Steve. The Rise of the Fleet-Footed Start-Up. The New York Times. April 24, 2010.
  8. ^ Solon, Olivia. Interview: Eric Ries, Author Of The Lean Startup. Wired. January 17, 2012.
  9. ^ a b Eric Ries. Business Week.
  10. ^ a b c d e Loizos, Connie. “Lean Startup” evangelist Eric Ries is just getting started. Reuters. May 26, 2011.
  11. ^ a b c d e f g Venture Capital: Eric Ries, author of "The Lean Startup". YouTube. November 21, 2009.
  12. ^ Wealth Front. Advisors to Weathfront. Wealthfront Inc.. 2012.
  13. ^ Griffith,C. (2012). "Introduction to Lean".
  14. ^ What is Lean Manufacturing?. wiseGEEK.
  15. ^ Blank, S. (2013). "Why the Lean Start-Up Changes Everything." Harvard Business Review 91(5): 63-72.
  16. ^ a b c Creating the Lean Startup. Inc. Magazine. October 2011.
  17. ^ The lean startup. Startup Lessons Learned. September 8, 2008.
  18. ^ a b Tam, Pui-Wing. Philosophy Helps Start-Ups Move Faster. The Wall Street Journal. May 20, 2010.
  19. ^ Ries, Eric. Are You Building The Right Product?TechCrunch. September 11, 2011.
  20. ^ a b Schonfeld, Erick. Don’t Be Fooled By Vanity Metrics. Tech Crunch. July 30, 2011.
  21. ^ Butcher, Mike. Interview with Eric Ries, author, The Lean Startup. January 17, 2012.
  22. ^ Ries, Eric. Minimum Viable Product: a guide. Startup Lessons Learned. August 3, 2009.
  23. ^ a b Ries, Eric. Continuous deployment in 5 easy steps. O'Reilly Radar. March 30, 2009.
  24. ^ Continuous Deployment at IMVU: Doing the impossible fifty times a day. Timothy Fitz. February 10, 2009.
  25. ^ Ferriss, Tim. Vanity Metrics vs. Actionable Metrics – Guest Post by Eric Ries. May 19, 2009.
  26. ^ Inc. Eric Ries: How to Build a Lean Start-up
  27. ^ Maurya, Ash. Why Lean Canvas. Why Lean Canvas
  28. ^ Kromer, Tristan. Build-Measure-Learn vs. Learn-Measure-Build. Build-Measure-Learn vs. Learn-Measure-Build
  29. ^ Beck, Kent. Justin.tv: Startup Lessons Learned. Kent Beck talks beyond agile programming
  30. ^ a b Wellons, Mary Catherine. Startup Lessons From a Pro: Eric Ries on ‘The Lean Startup’. TechCrunch. September 19, 2011.
  31. ^ NYTimes. October 2, 2011 Best Sellers. The New York Times. October 2, 2011.
  32. ^ Kopytoff, Verne. Trendspotting at TechCrunch Disrupt. The New York Times. September 14, 2011.
  33. ^ a b Lohr, Steve. The Rise of the Fleet-Footed Start-Up. The New York Times. April 24, 2010.
  34. ^ Parsons, Sabrina. Pitching Your Business vs. PLanning Your Business. Forbes. February 29, 2012.
  35. ^ a b Greenwald, Ted. Upstart Eric Ries Has the Stage and the Crowd Is Going Wild. Wired. May 18, 2012.
  36. ^ Best Books of 2011: Business & Investing. Amazon.
  37. ^ Ries, Eric. Announcing 2012 Lean Startup Conference StartupLessonsLearned.com. June 27, 2012
  38. ^ Glenn, Devon. Eric Ries on What Every Startup Should Ask Their Customers. Media Bistro. August 9, 2010
  39. ^ Lean Startup Circle San Francisco
  40. ^ Lean Startup Circle Official Website
  41. ^ Ewel, Jim. Why Marketing Must Also be Lean. Agile Marketing. March 3, 2012.
  42. ^ Collins, Rich. New Leadership Lean Startup Circle. April 28, 2012.
  43. ^ Faircloth, Kelly. Startup News: Let’s Launch the Summer with a New York Tech Meetup and Loads of New Features. BetaBeat. May 30, 2012.
  44. ^ Eric Ries - Lean Startup Dublin. Eventbrite.
  45. ^ Wilson, Fred. Lean. Business Insider. September 16, 2011.
  46. ^ Goodison, Donna. 'Lean Startup' Guru Shares His Secrets. Hispanic Business. September 27, 2011.
  47. ^ Lean Startup Rio. Meetup.
  48. ^ Lean Startup Meetup Beijing. Meetup.
  49. ^ The Lean Startup SxSW Track. SxSW.
  50. ^ Lean Startup Author Eric Ries Added to 2012 Programming. SxSW.
  51. ^ Mashable. Why Startup Founders Need to Talk to Their Customers.
  52. ^ Case Studies. The Lean Startup.
  53. ^ Stacy, Michael. U.S. CIO VanRoekel talks startups, savings, new tech in Iowa visit. Silicon Prairie News. April 5, 2012.
  54. ^ Lean Government. Startup Lessons Learned. May 30, 2012.
  55. ^ Government as a Startup with ‘The Lean Startup’ Author Eric Ries. Fed Scoop Radio. March 19, 2012.
  56. ^ McKendrick, Joe. In search of the US government’s inner ’startup:’ federal CIO. Smartplanet. October 28, 2011.
  57. ^ Making a Difference: Innovation Pathway and Entrepreneurs in Residence U.S. Food and Drug Administration. April 10, 2012.
  58. ^ Foley, John. Busting Through The Federal IT Budget Ceiling. InformationWeek. April 30, 2012.
  59. ^ Wilson, Paul. The top five Lean Startup myths. Net Magazine. April 2, 2012.
  60. ^ Park, Todd. Wanted: A Few Good Women and Men to Serve as Presidential Innovation Fellows. The White House Blog. May 23, 2012.
  61. ^ Bernhard, Jr., Kent. The Biggest Idea of 2011: Think Lean. Portfolio.com. December 30, 2011.
  62. ^ Fat Startup: Lessons from my failed Lean Startup.
  63. ^ Empirically Validating The Lean Startup: Making A Startup Great By Choice.
  64. ^ The Lean Startup: Benefits and Criticisms.

External links[edit]