Each time startups and innovations fail, huge amounts of money, time, passion, and skill are wasted. Yet, with the right processes, their success could be significantly improved. Eric Ries’ “The Lean Startup” is not just about starting a new business. It’s about developing new products or services successfully under conditions of great uncertainty, reducing wastage, and building an adaptive organization that can thrive in a rapidly changing world. In this summary, we’ll give a synopsis of the lean startup concept and key principles/processes.
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Startups face unique challenges, which call for not just “ordinary” management, but entrepreneurial management. There are 5 important principles that underlie The Lean Startup method.
The 5 Lean Startup Principles
1. Entrepreneurs are Everywhere
A startup is “a human institution designed to create a new product or service under conditions of extreme uncertainty.” It’s not defined by company size, organization type (e.g. corporation, government, non-profit) nor industry. An “intrapreneur” in a big company – e.g. a HR manager doing creative recruitment, an IT manager developing a new solution – is as much an entrepreneur as a founder of a new company.
2. Entrepreneurship is Management
Many people think that management is dull and boring, while entrepreneurship is exciting and cool. But, entrepreneurship is management, since a start-up is basically an institution that needs to be managed. The Lean Startup integrates ideas from lean manufacturing (e.g. just-in-time inventory management, small batch sizes, accelerated cycle times), to the specific challenges of entrepreneurship and startups.
Since startups’ products or services are new, they don’t know who their clients are. They can’t predict which approach works best until they put them to the test, yet it’s inefficient to test all the options via trial-and-error. Entrepreneurs tend to either adopt a “just-do-it” approach, or suffer from analysis paralysis and spend too long trying to “perfect” their plan or product. Either ways, by the time they realize they’ve created something that nobody wants, it’s usually too late.
The Lean Startup’s Build-Measure-Learn feedback loop allows you to learn as early as possible and make constant adjustments, so you can decide whether to change course (to “pivot”) or persevere.
4. Validated Learning
Learning is essential to startups. They must find out if customers want what they have to offer, and how to market, sell, and operate effectively. Yet, how do you really know you’ve learnt the “right thing” and are creating value from it?
The key is to determine which efforts are value-creating, which ones are wasteful, then systematically eliminate the wasteful ones. Validated learning is about measuring the results of each applied insight, so you can measure real progress from learning.
5. Innovation Accounting
In order to measure progress towards goals and prioritise their work, startups need a different type of accounting. Innovation accounting quantifies if our efforts are generating results, and allows us to create learning milestones to access our progress accurately and objectively.
The Lean Startup: 3 Phases
In the early phases of your startup or innovation, you’ll need to clarify your assumptions (Vision) and test your hypotheses to figure out what really works (Steer), before you attempt to accelerate your growth (Accelerate). In our full 14-page book summary, we explain these 3 phases in more detail. Here’s a quick overview in the meantime!
PHASE 1: VISION
Building a startup is like driving a car. Most startups have a vision or destination in mind. To achieve that vision, they employ a strategy (a business model or road map) and create products or services to achieve that vision. The key is to avoid building your strategy and products/services on untested assumptions. Break down your grand vision into smaller components and identify the riskiest elements, or your “leap-of-faith assumptions”. The idea is to do experiment(s) over a few weeks, rather than wait for months or years for a full plan to be developed.
PHASE 2: STEER
Once you have defined your leap-of-faith assumptions, we are ready to test them with a Minimum Viable Product (MVP). In this phase, you build experiments to test the hypotheses relating to your vision, so you can identify and refine the key variables to start the engine. Then, you can “steer” your startup via the Build-Measure-Learn feedback loop, and use validated learning and innovation accounting to help you decide when to “pivot” or persevere. Use Innovation Accounting to determine which efforts are delivering results and which ones should be dropped to minimize wastage. In the book / our complete book summary, we provide more examples and tips for (a) MVP/hypothesis testing, (b) how to use innovation accounting to optimize your resources, and (c) what it means to pivot vs persevere.
PHASE 3: ACCELERATE
So far, we’ve looked at breaking down a startup idea to its leaps-of-faith assumption, testing it with an MVP, using innovation accounting and actionable metrics to evaluate the results, and making the decision to pivot or persevere. All these set the foundation for the last part – acceleration.In this phase, we increase the gears, move through the feedback look faster, and strengthen our foundations for ongoing innovation and growth. This involves many components, including:
• How to use the “Small Batch Approach” to get through the feedback loop asap;
• How to apply just-in-time production concepts to minimize waste in your design and
• How to identify and focus on the right growth strategy, with 4 sources of sustainable growth, and 3 Engines of Growth;
• How to build an adaptive organization that regulates its own pace of growth using the “Five Whys” system; and
• How to set up an innovative company with a systematic way of generating new startups and innovation as part of your organization’s structure.
Other Useful Details in “The Lean Startup”
This book is full of detailed case studies to illustrate the Lean Startup at work, from young startups to established corporations, government bodies and not-for profit organizations. Some examples include his own startup IMVU, online shoe giant Zappos, leading software firm Intuit, Village Laundry Service by Procter & Gamble, Hewlett-Packard, Kodak, Wealthfront, Aardvark School of One, Toyota, Facebook and even the Consumer Federal Protection Bureau (CFPB) set up during the Obama administration.the book via this link
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