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Lessons from Eric Ries:

Running Your Business the Lean
Startup Way

At Serra Ventures, we believe a

constant pursuit of excellence,
adaption to change, and
perseverance are key to building
a high performance company.
Many of our philosophies and
strategies align with those of
Harvard Business School startup
advisor, entrepreneur, and
author, Eric Ries. As a seasoned
business executive that has
advised numerous companies,
both established and startup, in
addition to an array of venture
capital firms, Ries has seen and
experienced it all when it comes
to the challenges of building a
company.
Riess ideas focus on continuous
adaptation and readjustment,
and being more capital efficient
from the beginning. Many startup
companies in todays market are

utilizing Reiss lean startup theory

as central to their business
models, and they are succeeding.
This paper will outline some of
Riess key ideas from his book
The Lean Startup, on continuous
innovation to create radically
successful businesses.
A key principle The Lean Startup
begins with is Entrepreneurship is
Management. Ries states that a
company is an institution, not just
a product, and it requires a
special kind of management
geared specifically to its context.
The Lean Startup suggests that
entrepreneurs start measuring
productivity differently. 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
challenge for entrepreneurs is to

balance the activity that is

happening simultaneously
improving the product,
marketing, operations, and
deciding when to pivot.
Each startup has a destination in
mind, the goal of creating a
thriving and world-changing
business. This is the companys
vision. To achieve this vision,
there needs to be an employed
strategy. From here, a successfully
delivered product will be the end
goal of this strategy. Each of
these pieces are built upon one
another as a pyramid structure,
and Ries stresses that it is the
management activities of the
entrepreneur that will see the
company through this process of
optimization.
The purpose of a startup is to
learn how to build a sustainable

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Lessons From Eric Ries

February 2013

business. Ries explains this as

customers who have the potential

Validated Learning,

to be early adopters, taking to the

implemented by running

product quickly, giving feedback

experiments that allow the

and offering a vision of what the

company to test the elements of

product can become. These

its vision.

customers can suggest ideas to fill

Part of validated learning is the

development of a Minimum
Viable Product (MVP). This does

the gaps of missing features and

help create a product that will be
solving a real need.

not mean creating minimal

This process is crucial so

products. The definition of a

entrepreneurs can gauge what

minimum viable product is a

customers really want and

version of a new product that

determine the products vitality in

allows a team to collect the

the market, without spending a lot

maximum amount of validated

of time and money on a product

learning about customers and

that nobody will buy. Companies

their use of the product with the

often spend years perfecting a

least amount of effort.

product, bringing to market

Specifically, the product should

be equipped with the features
that make it ready enough to be
deployed, but no more. Most
importantly, it should be put into
the hands of a subset of specific
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something that no one seems to

care about. Multiple iterations of
MVPs can help your company
achieve its vision in increments
and can prevent considerable
amounts of wasted effort. Using

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Lessons From Eric Ries

the MVP process maximizes the

learning for each dollar spent,
and the result is a product that
provides great value to the
customer.
The next principle is Innovation
Accounting, a specific kind of
accounting geared towards
startups that measures real
progress. To improve
entrepreneurial outcomes and
hold the company accountable in
meeting them Innovation
Accounting is an important tool
for setting up milestones and
prioritizing work.
Innovation Accounting refers to
creating a quantifiable financial
model. This model provides
assumptions about what the
business will look like at a
successful point in the future.
Innovation accounting works via
three learning milestones. The
first, which was discussed
previously, is the MVP to
establish real data on where the
company is right now. The
second milestone involves an
attempt to tune the startup engine
from the baseline toward the
ideal. Ries explains that in order
to fine tune, you need to create
metrics, which will help guide
the process. He outlines the
Three As of Metrics.
The first A is Actionable,
meaning the information coming
from the system should be
actionable. The user of the

February 2013

information should be able to

take a specific action step based
on what the system is telling him
or her. There must be a clear
demonstration of cause and
effect.
The next A is Accessible,
meaning all information,
specifically reports, should be
simple, easy for everyone to
understand and should use units
that are tangible and concrete.
Information should be accessible
at any time to anyone.
Lastly, metrics should be
Auditable. It must be ensured
that data is credible to employees
and outside stakeholders and that
the source of information is
always documented.
The final milestone of Innovation
Accounting is the moment of
pivot vs. persevere. Ultimately, it
comes down to a simple
question: Is the company making
sufficient progress to believe that
the original strategic hypothesis
is correct, or does management
need to make a change? The
change is called a pivot, which is
a structured course correction
designed to test a new
fundamental hypothesis about
the product, strategy and engine
of growth.
No matter what, pivots take
courage. Employees will be
nervous and apprehensive to
revise the original plan.
However, it is vital to change that
course if the present strategy is
not working. Telltale signs the
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Lessons From Eric Ries

February 2013

company needs to pivot include the decreasing

effectiveness of product experiments and the general
feeling that product development should be more
productive. Ries recommends every company should
have regular pivot or persevere meetings, which
include both the business leaders and product
development teams.

The Lean Startup model only works if individuals are

able to build an organization as adaptable and fast as
the challenges it faces. It is not based on rigid
ideologies. Ideally, the organization would work
effectively by responding to setbacks and failures with
honesty and learning, not blame. The vision would
be tested, but not abandoned. Acceleration would be
achieved by bypassing anything that did not lead to
learning. Most importantly, peoples time would not
be wasted, and successful businesses would thrive.

To tie the previous points together, Ries explains that

as a whole, your company will go through a BuildMeasure-Learn cycle. Ideas turn into products, the
products vitality is then measured based on the
customers reactions and then it is decided to either
pivot or persevere. All successful startup processes
should be geared to accelerate. Ries describes this
acceleration as a feedback loop, consisting of a
continuous learning process.

References:
Ries, E. (2011). The Lean Startup. New York, NY:
Crown Publishing Group.

This process is a collective effort of all the previous

points creating a vision, building the product,
allowing others to use the product, gaining insight
and evaluating it, and then deciding what course of
action to take. This could mean continuing to
accelerate, or starting the process over. It is a nonstop cycle of continuous innovation.

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