Review of the book 'The Lean Startup' by Eric Ries. Entrepreneurs can use these concepts in a variety of businesses both new and old. Great group conversation to explore how a variety of people can use the methodology.

1. The Lean Startup
How Today‟s Entrepreneurs Use Continuous Innovation to
Create Radically Successful Businesses
by Eric Ries
Book review session with Vested for Growth by Ric Pratte
Taking the core concepts developed for lean manufacturing and
utilize them for starting and building a business

2. Original Lean Concepts
Lean manufacturing taught the world the difference
between value-building activities and waste and showed
how to build quality into products from the inside out
“Lean thinking is lean because it provides a way to do
more and more with less and less – less human effort,
less equipment, less time, and less space – while coming
closer and closer to providing customers with exactly what
the want”
J. Womack & D. Jones, Lean Thinking, 1st Edition
@RicPratte

3. Lean Manufacturing
 Lean Manufacturing is a production philosophy
 Seeks to supply exactly what the customer wants, when the customer
wants it.
 Aims at supplying these goods and services with minimum waste.
 Eliminating waste along entire value streams, creates processes that need
less capital, human resources, less production space, and reduces the
time to make products and services.
 If implemented effectively, reduce the cost of producing goods and
services, reduce the number of defect products and produce and deliver
goods quickly to customers
 Lean Manufacturing is a production design that can handle both
internal and external variability, where variability in production
efficiency, product quality and customer orders are sought handled
and absorbed through the total design of the system.
@RicPratte

4. Lean Manufacturing economic
Gains
 Greater quality of goods
 Fewer costs of producing goods and services
 Quicker response time- faster delivery of goods and
services
@RicPratte

5. The Startup
 A human institution designed to create new products
under conditions of extreme uncertainty
 The goal of the startup is to figure out the right thing to
build, the thing customers want and will pay for, as
quickly as possible
 The riskiest elements of a startup‟s plan, the parts of
which everything depends, leap-of-faith assumptions
are the value hypothesis and grow hypothesis
 Strategy is based upon assumptions
@RicPratte

6. The Goal
 Startup productivity is not about cranking out more
widgets or features. It is about aligning our efforts with
a business and product that are working to create value
and drive growth
 If the fundamental goal of entrepreneurship is to
engage in organization building under conditions of
extreme uncertainty… then it‟s most vital function is
learning, validated learning
 Validated learning is backed by empirical data collected
from real customers.
@RicPratte

7. Startup Management
 Mainstream management principles are ill suited to
handle the chaos & uncertainty that startups must face
 Prior to lean manufacturing, managers were used to
focusing on the utilization rate of each machine.
 If a startup builds something that few people want then
it doesn‟t matter if it‟s on time and on budget
@RicPratte

8. Lean in Startups
 The critical first question for any lean transformation is:
which activities create value and which are a form of
waste.
 The products a startup builds are really experiments;
validated learning.
 How to build a sustainable business is the outcome of
those experiments
@RicPratte

9. SnapTax
 Idea: Automate the process of collecting tax info from W-2 forms
 Learned: Few people know how to use scanners
 Solution: Mobile phone picture to capture info
 Learned from testing: People were interested in completing their
return from their phone
 Created test version that only worked within CA
 From a single picture can file a 1040EZ
 350,000 downloads in 1st three weeks of going live
 SnapTax was developed within Intuit (TurboTax)
 Innovation is a bottoms up, decentralized and unpredictible thing,
but that doesn‟t mean it can‟t be managed.
@RicPratte

10. Build – Measure – Learn
The feedback loop at the core of the lean startup model
 Validated learning
 Validate strategic
assumptions
Learn Build
 Learn what customers really
find valuable (pull)
 Accelerate this feedback
loop
Measure
 Small quick cycles not major
gambles
@RicPratte

11. Build: Turn ideas into products
 Minimum viable product
(MVP)
 Concierge: start with one
customer
Learn Build  Quick product
releases/variations/tests
 Customer archetype, a brief
document that seeks to
humanize the proposed
Measure target customer.
If we don‟t know who the
customer is, we do not know
Our first pass through the cycle what quality is
@RicPratte

12. Measure: See how customers respond
 A systematic approach to
figuring out if you‟re making
progress and actually
achieving validated learning
 How do customers react
Learn Build compared to goal?
 Good design is one that
changes customer behavior
for the better
Measure  Split-test to find cause and
effect
 Metrics: Actionable;
Our first pass through the cycle Accessible; & Auditable
@RicPratte

13. Learn: Pivot or persevere
 Which activities create
value?
 What activities are waste?
 Find and fix root causes
Learn Build
Measure
Our first pass through the cycle
@RicPratte

14. Build: Minimum viable product
 In building your MVP, let this
simple rule suffice, remove
any feature, process, or effort
that does not contribute to
directly to the learning you
Learn Build seek
 First product targets early
adopters, it does not need to
be perfect.
Measure  Most overestimate feature
volume, when in doubt…
simplify
@RicPratte

15. MVP at Dropbox
 Idea: File synchronization was a problem that most people
didn‟t know they had (at the time) and the software needed
to „work like magic‟.
 VCs weren‟t interested since they thought it was a crowded
space (not seeing the user experience opportunity)
 Significant engineering hurdle to overcome to make the
experience seamless.
 Breakthrough: 3 Minute video targeted to early adopters
demonstrating the concept.
 Waiting list of users went from 5,000 to 75,000 overnight
 Dropbox is now valued at over $1 Billion
@RicPratte

16. Build: Pull
 Concept of „pull‟ in lean
manufacturing does not work
the same in startup
methodology
Learn Build  Customers do not really
know what they want in
product development.
(i.e. Ford & faster horses)
Measure  „Pull‟ is to run an experiment
to test underlying customer
need hypothesis
@RicPratte

17. Measure: Cohort Analysis
 Cohort analysis: among the
people who used our product
in this period, here‟s how
many of them exhibited each
of the behaviors we care
Learn Build about
 Energy invested in success
theater (vanity metrics) is
energy that could have been
Measure used to help build a
sustainable business
@RicPratte

18. Traditional Cumulative Metrics
Just because your graphs are going up and to the right,
doesn‟t mean your business is doing well
240 900
220 New Signups 800
Total Current Users
200 700
600
180
500
160
400
140
300
120
200
100 100
80 0
“Vanity Metrics”
@RicPratte

19. Cohort Analysis
Each conversion rate shows the percentage of customers who
registered in that month who subsequently went on to take the
indicated action
0.55 1
0.5 Stayed after 5mos 0.95
0.45
0.9 Retainage
0.4
0.85
0.35
0.3 0.8
0.25
0.75
0.2
0.7
@RicPratte

20. Compare two startups
 Company 1
 Sets out with clear baseline metric
 Hypothesis on how to improve that metric
 Set of experiments designed to improve that hypothesis
 Company 2
 Debates on what would improve the product
 Implements several changes at one
 Celebrates with any positive increase in any number
 Which company is more likely to achieve lasting
results?
@RicPratte

21. Learn: Kanban
 Validated learning in a Kanban
board is a great way for
developers to engage in how
useful features work in a
customer environment
Learn Build  Include validation planning
from the beginning
 Kanban: features are in four
stages-
 Product backlog
Measure  Being built
 Feature complete
 Process of validation
@RicPratte

22. Learning at Grockit
 Idea: Bring peer-to-peer learning to help passing standardized
tests more affordable
 Highly efficient engineering team delivering new product features.
 Total number of customers were increasing.
 Not seeing growth in product use by customers
 Metrics would go up & down seemingly on their own
 Couldn‟t draw clear cause and effect inferences
 Changed to make sure improvements mattered to customers
 Launched each new feature as a true split-test experiment
 Learned many features had no impact on customer behavior
 Learned students preferred having learning choices (styles) and
created what customers wanted not what the company thought.
@RicPratte

23. Learn: Pivot or Persevere
 Pivot: a structured course
correction designed to test a
new fundamental hypothesis
about the product, strategy
and engine of growth.
Learn Build  Zoom-in pivot
 Zoom-out pivot
 Customer segment pivot
 Customer need pivot
 Platform pivot
Measure  Business architecture pivot
 Value capture pivot
 Engine growth pivot
 Channel pivot
@RicPratte

24. Batch Size
Small batch size of work units is an important lean concept
 A cycle through the Build-
Measure-Learn loop is a
batch
Learn Build  Biggest advantage of
working in small batches is
that quality problems can be
identified much sooner
Measure  Dramatically improve the
speed at which startups find
validated learning
@RicPratte

25. B-M-L Summary
 Although the feedback loop
is Build-Measure-Learn
because the activities
happen in that
Learn Build order, planning really works
in reverse order:
 Figure out what you need to
learn and then work in the
reverse order
Measure  How will it be measured
 What product will work as an
experiment to get that
learning
@RicPratte

26. Lean Startup Summary
 Focus energy on minimizing the total time through the feedback
loop
 Dramatically improve the speed at which startups find validated
learning
 Each time you repeat this simple rhythm: establish the
baseline, tune the engine and make a decision to pivot or
persevere
 Once efforts are aligned with customer wants, experiments are
more likely to change behavior for the better
 Sustainable growth is characterized by one simple rule:
New customers come from the actions of past customers
@RicPratte