By Eric Ries
The stories in magazines are all lies. Hard work and perseverance doesn’t lead to success. Even worse many of the promises you made to friends, family are not going to come true. Everyone who thought you were foolish for stepping out on your own will be proven right. 2
Toyota Production system – lean manufacturing a process that originated from Japan. A completely new way of thinking about the manufacturing of physical goods. 6 The most advanced production system of management in the world. 204
Validated learning – A rigorous method for demonstrating progress when one is embedded in the soil of extreme uncertainty in which startups grow. Validated learning is the process of demonstrating empirically that a team has discovered valuable truths about a startup’s present and future business prospects. 38
Metcalfe’s law – the value of a network as a whole is proportional to the square of the number of participants. In other words, the more people in the network, the more valuable the network. 39
Customers have to validate a product themselves first before they will dare sharing it with their friends. They won’t risk spending social capital unless it is a solid product. 44
Offer customers the OPPORTUNITY to download the product even before building it. Purely on the basis of its proposed features. 49
Value Hypothesis – does a product/service really deliver value to customers once they are using it? 61
Growth Hypothesis – how many new customers will discover a product or a service? How will it spread from initial early adopters to mass adoption? 61
Is a product or service value creating or value destroying? A business that grows on constant fundraising is value destructive.
Genchi Gembutsu – Japanese term that means “go and see for yourself”. You cannot really understand any part of a business unless you go and see for it yourself. Don’t rely on others to tell you what is wrong. 86
Customer archetype – a brief document that seeks to humanize the proposed target customer. Essential for product development and daily prioritization. 89
Minimum Viable Product – push product to market and validate first. Any additional work beyond what is required to start learning is a waste of time.
On stealing ideas – if only you were so lucky. If someone steals your idea then you are likely doomed anyways because with your head start you should have accelerated the Build-Measure-Learn feedback loop faster than anyone else. You must execute faster and better than anyone else. Secrecy won’t fix that. 111
Successful entrepreneurs do not give up at the first sign of trouble, nor do they persevere the plane right into the ground. Instead they possess a unique combination of perseverance and flexibility. 113
You rate of growth depends on three things: the profitability of each customer, the cost of acquiring new customers, and the repeat purchase rate of existing customers. If a company has a high retention rate and very little attrition then the marketplace will grow no matter how the company acquires new customers. (Ebay) 117
Old direct marketing trick (now newly revamped by Kickstarter and Indegogo) – customers are given the opportunity to preorder a product that has not yet been built. This by itself is insufficient to validate an entire growth model but it can be very useful to get feedback on this assumption before committing more time and money on a project. 118
Grockit case study – company prioritized the work that needed to be done by writing a story that described the feature from the POV of a customer. The story helped keep the engineers focused on the customer’s perspective throughout the entire development process. 132
Vanity metrics – the total number of customers and the total number of questions answered in a survey. 135
Hypothesis testing – allow users to use the service first and register only after they have had a chance to experience it. 141
Stuck in the Land of the Living Dead – 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. 153
A startup’s runway – the amount of time remaining in which a startup must either achieve lift off or fail. This is usually defined as the remaining cash in the bank divided by the monthly burn rate, or net drain on that account balance. 160
Types of Pivots 172
Zoom in pivot – a single feature of the product becomes the whole product
Zoom out pivot – the whole product becomes a single feature of an even larger product
Customer Segment Pivot – the product solves a problem for a different type of customer
Customer Need Pivot – Change the problem you sold based on intimate knowledge of the customers
Platform Pivot – Change form an application to a platform or vice versa.
Business Architecture Pivot – High margin, low volume to low margin high volume
Value Capture Pivot – changing monetization or revenue models
Engine of growth Pivot – viral, sticky, paid growth.
Channel Pivot – Changing sales or distribution channels
Technology Pivot – completely changing tech
The value of a startup is not creating stuff, it is validated learning about how to build a sustainable business. What do customers want? How will the business grow? Who is the customer? Which customers do you listen to and which do you ignore? 182
Single piece flow – a lean manufacturing term due to the power of small batches. Doing things on an assembly line does not take into the account the extra time required to stack, sort, and move around large piles of half complete items. 185
Toyota’s Andon Cord – any worker is allowed to ask for help as soon as they notice a problem. The line gets halted repeatedly but the benefits of finding and fixing problems far outweighs the costs.
New customers come from the actions of past customers. 207
Churn rate – the fraction of customers in any period who fail to remain engaged with the company’s product. If new customer acquisition exceeds the churn rate the product will grow. Speed of growth is determined by the rate of compounding which is natural growth minus churn. 210
Customers will not evangelize your product. Growth happens automatically as a side effect of customers using the product. Viruses are not optional. 212
Viral coefficient – how many new customers will use a product as a consequence of each new customer who signs up? The higher the coefficient the faster the product will spread. Greater than 1 (each customer brings in new one) will show exponential growth. 213-214
Use the 5 whys when confronted with a problem to figure out the cause. 230
Organizations have muscle memory. It is hard for people to unlearn old habits. 248
Switching to validated learning feels worse before it feels better. This is because problems caused by the old system tend to be intangible, where as the problems of the new system are all too tangible. Having the benefit of theory is the antidote to these challenges. You need to manage expectations that loss of productivity is part of the transition. 271