# The Lean Startup  ## Metadata - Author: [[Eric Ries]] - Full Title: The Lean Startup - Category: #books ## Highlights - Planning and forecasting are only accurate when based on a long, stable operating history and a relatively static environment. Startups have neither. ([Location 210](https://readwise.io/to_kindle?action=open&asin=B004J4XGN6&location=210)) - It may seem counterintuitive to think that something as disruptive, innovative, and chaotic as a startup can be managed or, to be accurate, must be managed. Most people think of process and management as boring and dull, whereas startups are dynamic and exciting. But what is actually exciting is to see startups succeed and change the world. ([Location 214](https://readwise.io/to_kindle?action=open&asin=B004J4XGN6&location=214)) - The goal of a startup is to figure out the right thing to build—the thing customers want and will pay for—as quickly as possible. In other words, the Lean Startup is a new way of looking at the development of innovative new products that emphasizes fast iteration and customer insight, a huge vision, and great ambition, all at the same time. ([Location 290](https://readwise.io/to_kindle?action=open&asin=B004J4XGN6&location=290)) - The Lean Startup method, in contrast, is designed to teach you how to drive a startup. Instead of making 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. ([Location 319](https://readwise.io/to_kindle?action=open&asin=B004J4XGN6&location=319)) - Startups also have a true north, a destination in mind: creating a thriving and world-changing business. I call that a startup’s vision. ([Location 325](https://readwise.io/to_kindle?action=open&asin=B004J4XGN6&location=325)) - in general management, a failure to deliver results is due to either a failure to plan adequately or a failure to execute properly. Both are significant lapses, yet new product development in our modern economy routinely requires exactly this kind of failure on the way to greatness. ([Location 342](https://readwise.io/to_kindle?action=open&asin=B004J4XGN6&location=342)) - A startup is a human institution designed to create a new product or service under conditions of extreme uncertainty. ([Location 380](https://readwise.io/to_kindle?action=open&asin=B004J4XGN6&location=380)) - Usually, companies like Intuit fall into the trap described in Clayton Christensten’s The Innovator’s Dilemma: they are very good at creating incremental improvements to existing products and serving existing customers, which Christensen called sustaining innovation, but struggle to create breakthrough new products—disruptive innovation—that can create new sustainable sources of growth. ([Location 426](https://readwise.io/to_kindle?action=open&asin=B004J4XGN6&location=426)) - Innovation is a bottoms-up, decentralized, and unpredictable thing, but that doesn’t mean it cannot be managed. It can, but to do so requires a new management discipline, one that needs to be mastered not just by practicing entrepreneurs seeking to build the next big thing but also by the people who support them, nurture them, and hold them accountable. In other words, cultivating entrepreneurship is the responsibility of senior management. ([Location 434](https://readwise.io/to_kindle?action=open&asin=B004J4XGN6&location=434)) - when you have only one test, you don’t have entrepreneurs, you have politicians, because you have to sell. Out of a hundred good ideas, you’ve got to sell your idea. So you build up a society of politicians and salespeople. When you have five hundred tests you’re running, then everybody’s ideas can run. And then you create entrepreneurs who run and learn and can retest and relearn as opposed to a society of politicians. ([Location 462](https://readwise.io/to_kindle?action=open&asin=B004J4XGN6&location=462)) - Validated learning is the process of demonstrating empirically that a team has discovered valuable truths about a startup’s present and future business prospects. ([Location 519](https://readwise.io/to_kindle?action=open&asin=B004J4XGN6&location=519)) - Lean thinking defines value as providing benefit to the customer; anything else is waste. ([Location 652](https://readwise.io/to_kindle?action=open&asin=B004J4XGN6&location=652)) - We adopted the view that our job was to find a synthesis between our vision and what customers would accept; it wasn’t to capitulate to what customers thought they wanted or to tell customers what they ought to want. ([Location 685](https://readwise.io/to_kindle?action=open&asin=B004J4XGN6&location=685)) - the right way to think about productivity in a startup: not in terms of how much stuff we are building but in terms of how much validated learning we’re getting for our efforts. ([Location 694](https://readwise.io/to_kindle?action=open&asin=B004J4XGN6&location=694)) - The question is not “Can this product be built?” In the modern economy, almost any product that can be imagined can be built. The more pertinent questions are “Should this product be built?” and “Can we build a sustainable business around this set of products and services?” ([Location 751](https://readwise.io/to_kindle?action=open&asin=B004J4XGN6&location=751)) - The value hypothesis tests whether a product or service really delivers value to customers once they are using it. ([Location 829](https://readwise.io/to_kindle?action=open&asin=B004J4XGN6&location=829)) - push my team to first answer four questions: 1. Do consumers recognize that they have the problem you are trying to solve? 2. If there was a solution, would they buy it? 3. Would they buy it from us? 4. Can we build a solution for that problem?” ([Location 872](https://readwise.io/to_kindle?action=open&asin=B004J4XGN6&location=872)) - “Success is not delivering a feature; success is learning how to solve the customer’s problem.”4 ([Location 906](https://readwise.io/to_kindle?action=open&asin=B004J4XGN6&location=906)) - Upon completing the Build-Measure-Learn loop, we confront the most difficult question any entrepreneur faces: whether to pivot the original strategy or persevere. If we’ve discovered that one of our hypotheses is false, it is time to make a major change to a new strategic hypothesis. ([Location 1023](https://readwise.io/to_kindle?action=open&asin=B004J4XGN6&location=1023)) - What differentiates the success stories from the failures is that the successful entrepreneurs had the foresight, the ability, and the tools to discover which parts of their plans were working brilliantly and which were misguided, and adapt their strategies accordingly. ([Location 1110](https://readwise.io/to_kindle?action=open&asin=B004J4XGN6&location=1110)) - If we do not know who the customer is, we do not know what quality is. ([Location 1420](https://readwise.io/to_kindle?action=open&asin=B004J4XGN6&location=1420)) - Customers don’t care how much time something takes to build. They care only if it serves their needs. ([Location 1442](https://readwise.io/to_kindle?action=open&asin=B004J4XGN6&location=1442)) - 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. ([Location 1455](https://readwise.io/to_kindle?action=open&asin=B004J4XGN6&location=1455)) - Building an MVP is not without risks, both real and imagined. Both can derail a startup effort unless they are understood ahead of time. The most common speed bumps are legal issues, fears about competitors, branding risks, and the impact on morale. ([Location 1458](https://readwise.io/to_kindle?action=open&asin=B004J4XGN6&location=1458)) - For a report to be considered actionable, it must demonstrate clear cause and effect. Otherwise, it is a vanity metric. ([Location 1890](https://readwise.io/to_kindle?action=open&asin=B004J4XGN6&location=1890)) - Remember the saying “Metrics are people, too.” The easiest way to make reports comprehensible is to use tangible, concrete units. ([Location 1911](https://readwise.io/to_kindle?action=open&asin=B004J4XGN6&location=1911)) - The heart of the scientific method is the realization that although human judgment may be faulty, we can improve our judgment by subjecting our theories to repeated testing. ([Location 1978](https://readwise.io/to_kindle?action=open&asin=B004J4XGN6&location=1978)) - Failure is a prerequisite to learning. The problem with the notion of shipping a product and then seeing what happens is that you are guaranteed to succeed—at seeing what happens. But then what? ([Location 2035](https://readwise.io/to_kindle?action=open&asin=B004J4XGN6&location=2035)) - A pivot requires that we keep one foot rooted in what we’ve learned so far, while making a fundamental change in strategy in order to seek even greater validated learning. ([Location 2040](https://readwise.io/to_kindle?action=open&asin=B004J4XGN6&location=2040)) - companies generally follow one of two major business architectures: high margin, low volume (complex systems model) or low margin, high volume (volume operations model). ([Location 2323](https://readwise.io/to_kindle?action=open&asin=B004J4XGN6&location=2323)) - Companies have a strong incentive to align their PR stories around the heroic founder and make it seem that their success was the inevitable result of a good idea. ([Location 2354](https://readwise.io/to_kindle?action=open&asin=B004J4XGN6&location=2354)) - A pivot is better understood as a new strategic hypothesis that will require a new minimum viable product to test. ([Location 2358](https://readwise.io/to_kindle?action=open&asin=B004J4XGN6&location=2358)) - Pivots are a permanent fact of life for any growing business. Even after a company achieves initial success, it must continue to pivot. ([Location 2359](https://readwise.io/to_kindle?action=open&asin=B004J4XGN6&location=2359)) - Sustainable growth follows one of three engines of growth: paid, viral, or sticky. ([Location 2402](https://readwise.io/to_kindle?action=open&asin=B004J4XGN6&location=2402)) - Toyota discovered that small batches made their factories more efficient. In contrast, in the Lean Startup the goal is not to produce more stuff efficiently. It is to—as quickly as possible—learn how to build a sustainable business. ([Location 2473](https://readwise.io/to_kindle?action=open&asin=B004J4XGN6&location=2473)) - Large batches tend to grow over time. Because moving the batch forward often results in additional work, rework, delays, and interruptions, everyone has an incentive to do work in ever-larger batches, trying to minimize this overhead. This is called the large-batch death spiral because, unlike in manufacturing, there are no physical limits on the maximum size of a batch. ([Location 2608](https://readwise.io/to_kindle?action=open&asin=B004J4XGN6&location=2608)) - New customers come from the actions of past customers ([Location 2735](https://readwise.io/to_kindle?action=open&asin=B004J4XGN6&location=2735)) - As long as the cost of acquiring a new customer (the so-called marginal cost) is less than the revenue that customer generates (the marginal revenue), the excess (the marginal profit) can be used to acquire more customers. The more marginal profit, the faster the growth. ([Location 2744](https://readwise.io/to_kindle?action=open&asin=B004J4XGN6&location=2744)) - The churn rate is defined as the fraction of customers in any period who fail to remain engaged with the company’s product. ([Location 2776](https://readwise.io/to_kindle?action=open&asin=B004J4XGN6&location=2776)) - Customers are not intentionally acting as evangelists; they are not necessarily trying to spread the word about the product. Growth happens automatically as a side effect of customers using the product. Viruses are not optional. ([Location 2800](https://readwise.io/to_kindle?action=open&asin=B004J4XGN6&location=2800)) - the viral engine is powered by a feedback loop that can be quantified. It is called the viral loop, and its speed is determined by a single mathematical term called the viral coefficient. The higher this coefficient is, the faster the product will spread. The viral coefficient measures how many new customers will use a product as a consequence of each new customer who signs up. ([Location 2813](https://readwise.io/to_kindle?action=open&asin=B004J4XGN6&location=2813)) - The margin between the LTV and the CPA determines how fast the paid engine of growth will turn (this is called the marginal profit). ([Location 2858](https://readwise.io/to_kindle?action=open&asin=B004J4XGN6&location=2858)) - Wealthy consumers cost more to reach because they tend to become more profitable customers. ([Location 2878](https://readwise.io/to_kindle?action=open&asin=B004J4XGN6&location=2878)) - the ability to grow in the long term by using the paid engine requires a differentiated ability to monetize a certain set of customers. ([Location 2880](https://readwise.io/to_kindle?action=open&asin=B004J4XGN6&location=2880)) - one of the most important discoveries of the lean manufacturing movement: you cannot trade quality for time. ([Location 2996](https://readwise.io/to_kindle?action=open&asin=B004J4XGN6&location=2996)) - At the root of every seemingly technical problem is a human problem. ([Location 3034](https://readwise.io/to_kindle?action=open&asin=B004J4XGN6&location=3034)) - Internal or external, in my experience startup teams require three structural attributes: scarce but secure resources, independent authority to develop their business, and a personal stake in the outcome. ([Location 3351](https://readwise.io/to_kindle?action=open&asin=B004J4XGN6&location=3351)) - With an internal startup team, the sequence of accountability is the same: build an ideal model of the desired disruption that is based on customer archetypes, launch a minimum viable product to establish a baseline, and then attempt to tune the engine to get it closer to the ideal. ([Location 3496](https://readwise.io/to_kindle?action=open&asin=B004J4XGN6&location=3496)) - Anytime a team attempts to demonstrate cause and effect by placing highlights on a graph of gross metrics, it is engaging in pseudoscience. How do we know that the proposed cause and effect is true? Anytime a team attempts to justify its failures by resorting to learning as an excuse, it is engaged in pseudoscience as well. ([Location 3697](https://readwise.io/to_kindle?action=open&asin=B004J4XGN6&location=3697)) - Science came to stand for the victory of routine work over creative work, mechanization over humanity, and plans over agility. Later movements had to be spawned to correct those deficiencies. ([Location 3704](https://readwise.io/to_kindle?action=open&asin=B004J4XGN6&location=3704))