The Lean Startup

We must learn the truth about which elements of our strategy are working to realize our vision and which are just crazy. We must learn what customers really want, not what they say they want or what we think they should want.

The critical first question for any lean transformation is: which activities create value and which are a form of waste? Once you understand this distinction, you can begin using lean techniques to drive out waste and increase the efficiency of the value-creating activities.

Companies that cannot bring themselves to pivot to a new direction on the basis of feedback from the marketplace can get stuck in the land of the living dead, neither growing enough nor dying, consuming resources and commitment from employees and other stakeholders but not moving ahead.

Only 5 percent of entrepreneurship is the big idea, the business model, the whiteboard strategizing, and the splitting up of the spoils. The other 95 percent is the gritty work that is measured by innovation accounting: product prioritization decisions, deciding which customers to target or listen to, and having the courage to subject a grand vision to constant testing and feedback.

If you are building the wrong thing, optimizing the product or its marketing will not yield significant results. A startup has to measure progress against a high bar: evidence that a sustainable business can be built around its products or services.

Innovation accounting works in three steps: first, use a minimum viable product to establish real data on where the company is right now. Second, startups must attempt to tune the engine from the baseline toward the ideal. That is the third step: pivot or persevere. When a company pivots, it starts the process all over again, reestablishing a new baseline and then tuning the engine from there.

WHY FIRST PRODUCTS AREN’T MEANT TO BE PERFECT: Before new products can be sold successfully to the mass market, they have to be sold to early adopters. Early adopters use their imagination to fill in what a product is missing. The lesson of the MVP is that any additional work beyond what was required to start learning is waste, no matter how important it might have seemed at the time.

Every business plan begins with a set of assumptions. Because the assumptions haven’t been proved to be true (they are assumptions, after all) and in fact are often erroneous, the goal of a startup’s early efforts should be to test them as quickly as possible. The first challenge for an entrepreneur is to build an organization that can test these assumptions systematically.

This Build-Measure-Learn feedback loop is at the core of the Lean Startup model. Instead, we need to focus our energies on minimizing the total time through this feedback loop.

The two most important assumptions entrepreneurs make are what I call the value hypothesis and the growth hypothesis. The value hypothesis tests whether a product or service really delivers value to customers once they are using it. For the growth hypothesis, which tests how new customers will discover a product or service, we can do a similar analysis.

It is also 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.

In other words, which of our efforts are value-creating and which are wasteful? This question is at the heart of the lean manufacturing revolution; it is the first question any lean manufacturing adherent is trained to ask. Learning to see waste and then systematically eliminate it has allowed lean companies such as Toyota to dominate entire industries.

In the Lean Startup model, we are rehabilitating learning with a concept I call validated learning. Validated learning is the process of demonstrating empirically that a team has discovered valuable truths about a startup’s present and future business prospects.

The fundamental goal of entrepreneurship is to engage in organization building under conditions of extreme uncertainty. Its most vital function is learning.

A comprehensive theory of entrepreneurship should address all the functions of an early-stage venture: vision and concept, product development, marketing and sales, scaling up, partnerships and distribution, and structure and organizational design.

I studied lean manufacturing, a process that originated in Japan with the Toyota Production System. This line of thought evolved into the Lean Startup: the application of lean thinking to the process of innovation.

I have learned from both my own successes and failures and those of many others that it’s the boring stuff that matters the most. Startup success can be engineered by following the right process, which means it can be learned, which means it can be taught.

Innovation accounting enables startups to prove objectively that they are learning how to grow a sustainable business. Innovation accounting begins by turning the leap-of-faith assumptions discussed in Chapter 5 into a quantitative financial model.Innovation accounting works in three steps: first, use a minimum viable product to establish real data on where the company is right now. Second, startups must attempt to tune the engine from the baseline toward the ideal. That is the third step: pivot or persevere. When a company pivots, it starts the process all over again, reestablishing a new baseline and then tuning the engine from there.

The Lean Startup is not a collection of individual tactics. It is a principled approach to new product development.

The products a startup builds are really experiments; the learning about how to build a sustainable business is the outcome of those experiments.

What would happen if businesses were built from the ground up to learn what their customers really wanted? The Lean Startup is the foundation for reimagining almost everything about how work works.

The Lean Startup isn’t just about how to create a more successful entrepreneurial business; it’s about what we can learn from those businesses to improve virtually everything we do.

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.

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.

Every new version of a product, every new feature, and every new marketing program is an attempt to improve this engine of growth.

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.

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

I’ve come to believe that learning is the essential unit of progress for startups. The effort that is not absolutely necessary for learning what customers want can be eliminated.

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?

Success is not delivering a feature; success is learning how to solve the customer's problem.

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

Markets change all the time and our job is to change with them.

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

A minimum viable product (MVP) helps entrepreneurs start the process of learning as quickly as possible. It is not necessarily the smallest product imaginable, though; it is simply the fastest way to get through the Build-Measure-Learn feedback loop with the minimum amount of effort.

The goal of the MVP is to begin the process of learning, not end it. Unlike a prototype or concept test, an MVP is designed not just to answer product design or technical questions. Its goal is to test fundamental business hypotheses.

If we do not know who the customer is, we do not know what quality is. Even a “low-quality” MVP can act in service of building a great high-quality product.

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.

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

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 persevere the plane right into the ground. Instead, they possess a unique combination of perseverance and flexibility.

Innovation accounting enables startups to prove objectively that they are learning how to grow a sustainable business.

Actionable metrics are the antidote to this problem. When cause and ef fect is clearly understood, people are better able to learn from their actions.

Most im portant, teams working in this system begin to measure their productivity according to validated learning, not in terms of the production of new features.

The true measure of runway is how many pivots a startup has left: the number of opportunities it has to make a fundamental change to its business strategy.

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.

The decision to pivot requires a clear-eyed and objective mindset.

The goal of creating learning milestones is not to make the decision easy; it is to make sure that there is relevant data in the room when it comes time to decide.

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.

A pivot is a special kind of change designed to test a new fundamental hypothesis about the product, business model, and engine of growth.

Pivots are a permanent fact of life for any growing business. Even after a company achieves initial success, it must continue to pivot.

It is the heart of the Lean Startup method. It is what makes the companies that follow Lean Startup resilient in the face of mistakes: if we take a wrong turn, we have the tools we need to realize it and the agility to find another path.

Even if the amount of time that each process took was exactly the same, the small batch production approach still would be superior, and for even more counterintuitive reasons.

Lean manufacturers discovered the benefits of small batches decades ago.

The right way to think about the product development process in a Lean Startup is that it is responding to pull requests in the form of experiments that need to be run.

Our goal in building products is to be able to run experiments that will help us learn how to build a sustainable business.

Startups don’t starve; they drown. There are always a zillion new ideas about how to make the product better floating around, but the hard truth is that most of those ideas make a difference only at the margins.

The ability to grow in the long term by using the paid engine requires a differentiated ability to monetize a certain set of customers.

However, in my experience, successful startups usually focus on just one engine of growth, specializing in everything that is required to make it work.

Marc Andreessen, the legendary entrepreneur and investor and one of the fathers of the World Wide Web, coined the term product/market fit to describe the moment when a startup finally finds a widespread set of customers that resonate with its product.

I believe the concept of the engine of growth can put the idea of product/market fit on a more rigorous footing.

At the root of every seemingly technical problem is a human problem. Five Whys provides an opportunity to discover what that human problem might be.

The Five Whys ties the rate of progress to learning, not just execution.

Building an adaptive organization, in other words, requires executive leadership to sponsor and support the process.

Start Small, Be Specific Once you are ready to begin, I recommend starting with a narrowly targeted class of symptoms.

Appoint a Five Whys Master To facilitate learning, I have found it helpful to appoint a Five Whys master for each area in which the method is being used.

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.

Successful innovation teams must be structured correctly in order to succeed. Venture-backed and bootstrapped startups naturally have some of these structural attributes as a consequence of being small, independent companies.

Financial incentives aside, I always felt that because my name was on the door, I had more to lose and more to prove than someone else. That sense of ownership is not insignificant.

The challenge here is to create a mechanism for empowering innovation teams out in the open. This is the path toward a sustainable culture of innovation over time as companies face repeated existential threats.

The sandbox was designed to protect them and the parent organization, and any expansion needs to take this into account.

The Lean Startup is a framework, not a blueprint of steps to follow. It is designed to be adapted to the conditions of each specific company.

The big question of our time is not Can it be built? but Should it be built? This places us in an unusual historical moment: our future prosperity depends on the quality of our collective imaginations.

As Peter Drucker said, 'There is surely nothing quite so useless as doing with great efficiency what should not be done at all.

Our society needs the creativity and vision of entrepreneurs more than ever. In fact, it is precisely because these are such precious resources that we cannot afford to waste them.

Sustainable growth is characterized by one simple rule: New customers come from the actions of past customers.

Validated learning is the process of demonstrating empirically that a team has discovered valuable truths about a startup’s present and future business prospects.

Startup success is not a consequence of good genes or being in the right place at the right time. Startup success can be engineered by following the right process, which means it can be learned, which means it can be taught.

The fundamental activity of a startup is to turn ideas into products, measure how customers respond, and then learn whether to pivot or persevere.

Entrepreneurship is a kind of management. No, you didn’t read that wrong.

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.

If you cannot fail, you cannot learn.

Success is not delivering a feature; success is learning how to solve the customer’s problem.

The question is not 'Can this product be built?' but 'Should this product be built?' and 'Can we build a sustainable business around this set of products and services?

If we’re building something that nobody wants, it doesn’t much matter if we’re doing it on time and on budget.

The ability to learn faster from customers is the essential competitive advantage that startups must possess.

The big question of our time is not Can it be built? but Should it be built?

There are four primary ways past customers drive sustainable growth: 1) Word of mouth. 2) As a side effect of product usage. 3) Through funded advertising. 4) Through repeat purchase of use.

Innovation accounting will not work if a startup is being misled by these kinds of vanity metrics: gross number of customers and so on. The alternative is the kind of metrics we use to judge our business and our learning milestones, what I call actionable metrics.

The five principles of the Lean Startup are as follows: 1) Entrepreneurs are everywhere. 2) Entrepreneurship is management. 3) Validated learning. 4) Build-measure-learn. 5) Innovation accounting.

The MVP is that version of the product that enables a full turn of the Build-Measure-Learn loop with a minimum amount of effort and the least amount of development time.

The Lean Startup asks people to start measuring their productivity differently. Because startups often accidentally build something nobody wants, it doesn’t matter much if they do it on time and on budget. 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.

The first challenge for an entrepreneur is to build an organization that can test these assumptions systematically.

The goal of such early contact with customers is not to gain definitive answers. Instead, it is to clarify at a basic, coarse level that we understand our potential customer and what problems they have.

The one envelope at a time approach is called “single-piece flow” in lean manufacturing. It works because of the surprising power of small batches.

The essential lesson is not that everyone should be shipping fifty times per day but that by reducing batch size, we can get through the Build-Measure-Learn feedback loop more quickly than our competitors can.