Books I read in September:

The Lean Startup by Eric Ries

Notes

Building a startup is an exercise in institution building; thus, it necessarily involves management.

The Lean Startup method, in contrast, is designed to teach you how to drive a startup. Instead of marking complex plans that are based on a lot of assumptions, you can make constant adjustments with a steering wheel called the Build-Measure-Learn feedback loop.

A startup is a human institution designed to create a new product or service under conditions of extreme uncertainty.

Lean thinking defines value as providing benefit to the customer; anything else is waste.

I’ve come to believe that learning is the essential unit of progress for startups.

This is true startup productivity: Systematically figuring out the right things to build.

The two most important assumptions entrepreneurs make are what I call the value hypotheses and the growth hypotheses. The value hypotheses tests weather a product or service really delivers value to customers once they are using it. For the growth hypotheses, which tests how new customers will discover a product or service, …

Their [entrepreneurs and managers] challenge is to overcome the prevailing management thinking that puts its faith in well-researched plans. Remember, planning is a tool that only works in the presence of a long and stable operating history.

Build-Measure-Learn Feedback Loop: LEARN -> Ideas -> BUILD -> Product -> MEASURE -> Data -> LEARN

… we need to focus our energies on minimising the total time through this feedback loop. This is the essence of steering a startup…

[To implemented validated learning] … the method I recommend is called innovation accounting, a quantitive approach that allows us to see whether our engine-tuning efforts are bearing fruit. It also allows us to create learning milestones.

Finally, and most important, there’s the pivot. Upon completing the Build-Measure-Learn loop, we confront the most difficult question any entrepreneur faces: whether to pivot the original strategy or persevere.

Although we write the feedback loop as Build-Measure-Learn because the activities happen in that order, our planning really works in the reverse order: we figure out what we need to learn, use innovation accounting to figure out what we need to measure to know if we are gaining validated learning, and then figure out what product we need to build to run that experiment and get that measurement.

The first challenge and entrepreneur is to build an organisation that can test these [basically all, business assumptions, strategy assumptions, assumptions about customer acceptance.] assumptions systematically. The second challenge, as in all entrepreneurial situations, is to perform that rigorous testing without losing sight of the company’s overall vision.

The restated approach should make clear that what is needed is to do some empirical testing first: let’s make sure that there really are hungry customers out there eager to embrace our new technology.

There are many value-destroying kinds of growth that should be avoided. An example would be a business that grows through continuous fund-raising from investors and logs of paid advertising but does not develop a value-creating product.

The importance of basing strategic decisions on firsthand understanding of customers is one of the core principles that underlies the Toyota Production System. At Toyota, this goes by the Japanese term genchi gembutsu, which is one of the most important phrases in the lean manufacturing vocabulary. In English, it is usually translated as a directive to “go and see for yourself” so that business decisions can be based on deep firsthand knowledge.

Before new products can be sold successfully to the mass market, they have to be sold to early adopters. These people are a special breed of customer. They accept - in fact prefer - an 80 percent solution; you don’t need a perfect solution to capture their interest.

Early adopters use their imagination to fill in what a product is missing. They prefer that state of affairs, because what they care about above all is being the first to use or adopt a new product or technology. In consumer products, it’s often the thrill of being the first one on the block to show off a new basketball shoe, music player, or cool phone. In enterprise products, it’s often about gaining a competitive advantage by taking a risk with something new that competitors don’t have yet. Early adopters are suspicious of something that is too polished: if it’s already for everyone to adopt, how much advantage can one get by being early? As a result, additional features or polish beyond what early adopters demand is a form of wasted resources and time.

It is important to contrast this with the case of a small business, in which it is routine to see the CEO, founder, president, and owner serving customers directly, one at a time. In a concierge MVP, this personalised service is not the product but a learning activity designed to test the leap-of-faith assumptions in the company’s growth model.

In a Wizard of Oz test, customers believe they are interacting with the actual product, but behind the scenes human beings are doing the work.

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

Customers don’t care how much time something takes to build. They care only if it serves their needs.

As you consider building your own minimum viable product, let this simple rule suffice: remove any feature, process, or effort that does not contribute directly to the learning you seek.

For startups that rely on patent protection, there are special challenges with releasing an early product. [so read up on them]

In fact, I have often given entrepreneurs fearful of this issue the following assignment: take one of your ideas (one of your lesser insights, perhaps), find the name of the relevant product manager at an established company who has responsibility for that area, and try to get that company to steal your idea. Call them up, write them a memo, send them a press release - go ahead, try it. The truth is that most managers in most companies are already overwhelmed with good ideas. Their challenge lies in prioritisation and execution, and it is those challenges that give a startup hope of surviving.

The only way to win is to learn faster than anyone else.

Successful entrepreneurs do not give up at the first sign of trouble, nor do they preserve the plane right into the ground. Instead, they possess unique combination of perseverance and flexibility.

We all need a disciplined, systematic approach to figuring out if we’re making progress and discovering if we’re actually achieving validated learning.

This is why to myth of perseverance is so dangerous. We all know stories of epic entrepreneurs who managed to pull out a victory when things seemed incredibly bleak. Unfortunately, we don’t hear stories about the countless nameless others who preserved too long, leading their companies to failure.

When one is choosing among the many assumptions in a business plan, it makes sense to test the riskiest assumptions first.

To demonstrate validated learning, the design changes must improve the activation rate of new customers. If they do not, the new design should be judged a failure. This is an important rule: a good design is one that changes customer behaviour for the better.

Compared to a lot of startups, the Grockit team had a huge advantage: they were tremendously disciplined. A disciplined team may apply the wrong methodology but can shift gears quickly once it discovers its error. Most important, a disciplined team can experiment with its own working style and draw meaning ful conclusions.

.. the three A’s of metrics. actionable, accessible, and auditable.

In Silicon Valley, we call this experience getting stuck in the land of the living dead. It happens when a company has achieved a modicum of success - just enough to stay alive - but is not living up to the expectations of its founders and investors. Such companies are a terrible drain of human energy. Out of loyalty, the employees and founders don’t want to give in; they feel the success might be just around the corner.

We’ve discussed the telltale signs of the need to pivot: the decreasing effectiveness of product experiments and the general feeling that the product development should be more productive. Whenever you see those symptoms, consider a pivot.

I recommend that every startup have a regular “pivot or preserve” meeting. In my experience, less than a few weeks between meetings is too often and more than a few months is too infrequent.

Working in small batches ensures that a startup can minimise the expenditure of time, money, and effort that ultimately turns out to have been wasted.

Five Whys is a powerful organisational technique. Some of the engineers I have trained to use it believe that you can derive all the other Lean Startup techniques from the Five Whys. Coupled with working in small batches, it provides the foundation a company needs to respond quickly to problems as they appear, without overinvesting or overengineering.

I ask teams to adopt these simple rules:

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

As Lean Startups grow, they can use adaptive techniques to develop more complex processes without giving up their core advantage: speed through the Build-Measure-Learn feedback loop. In fact, one of the primary benefits of using techniques that are derived from lean manufacturing is that Lean Startups, when they grow up, are well positioned to develop operational excellence based on lean principles. They already know how to operate with discipline, develop processes that are tailor-made to their situation, and use lean techniques such as the Five Whys and small batches.

… startup teams require three structural attributes: scarce but secure resources, independent authority to develop their business, and a personal stake in the outcome.

Shusa … Toyota employees translate the term as chief engineer, and they refer to the vehicle under development as the shusa’s car. They assured us that the shush has final, absolute authority over every aspect of vehicle development.

There is a fourth phase as well, one dominated by operating costs and legacy products. This is the domain of outsourcing, automation and cost reduction.

Over time, those teams are almost guaranteed to improve as long as they get the constant feedback of small-batch development and actionable metrics and are held accountable to learning milestones.