Overall

In a nutshell, The Lean Startup is about taking the scientific

process to this question:

How can we build a sustainable organization

around a new set of products or services?

Since our productive capacity exceeds our ability to know

what to build, the question to ask is never can it be built?,
but instead, should it be built?

This is because Erics stated goal of innovation is to learn

that which is currently unknown. It is not to efficiently and
quickly build something to see what happens, simply because
we can.

In order to learn, failure must be an option, and failure while

learning must be accepted within the organization. If you
cannot fail, then you cannot succeed. You can only do, and
there is no bigger waste of startup time than doing without
it leading anywhere.

Do work that leads you to learn about what works and what
doesnt work.

Feedback loops and measuring

progress
The differences between startup success stories and startup
failure stories are that the winners in success stories were
able to discover which parts of their plans were working,
which parts were misguided, and then properly adapt their
strategies accordingly.

Validated Learning and Innovation Accounting

The point of early stage startups is to achieve as much

validated learning as fast as possible. The means by which a
team is held accountable for their progress in validated
learning is through innovation accounting.

Innovation accounting allows a team to:

Build a model of customer behavior over time

Use that model to change the product/service and change
customer behavior
Ergo, establish facts about validity of the vision and if it is
sustainable

The three major learning milestones in innovation

accounting are:

Building an MVP and establishing a baseline and feedback

loop with customers
Run experiments on the MVP to move from baseline
customer behaviors to ideal customer behaviors
Decision pointpersevere or pivot based on what has
been learned

Validated Learning Techniques

The primary engine for keeping the learning process moving
forward is the Build-Measure-Learn feedback loop. The faster
a team can go through the loop, the faster they can learn, and
theoretically, the faster they can create a sustainable
business.

It doesnt matter how fast you can build, measure, or learn

individually. It matters how fast you can move through the
whole loop. These are three techniques Eric discusses at
length:

Continuous deploymentDeploying small batches into

production often in order to get feedback more quickly,
and in smaller chunks
Falsifiable hypothesisCreating predictions for each
change that can be proved correct or incorrect
Actionable metricsfocus on a small set of well defined
metrics to measure, deliver them in simple reports the
entire team can understand, and link everything back to
people

Eric specifically suggest that teams:

Use cohort analysis

Use A/B testing
Measure people and their actions (vanity metrics dont do
this)

When deciding what and how to report findings, his key

advice is:
For a report to be considered actionable, it
must demonstrate clear cause and effect.

When managing tasks, tests and other initiatives Eric

suggests that nothing is done until validated learning had
occurredin other wordsknowing whether the task was a
good idea to have been done in the first place.

Learning Milestones Rather Than Success Theater

By focusing on learning milestones, entrepreneurs can make

decisions based on facts discovered through experiments,
rather than simply tracking up and to the right style metrics.

If you hold yourself accountable for learning, then you will

not waste time or resources proving your success. Do not fall
back on success theater gimmicks.

Get out of the building

Finally, after all that data collection, you still must get
extensive contact with potential customers to understand
them. It is unacceptable to take anything for granted or to
rely solely on the reports of others.

Core Hypotheses, Pivoting and

Growth Engines
In the beginning, everything is an assumption. In order to
bring the scientific method to learning about your startup,
you need to start writing hypotheses.
All feedback loops begin with writing a falsifiable hypothesis
that tests a pressing assumption.

Every change to the product requires a hypothesis, or a team

is not learning and therefore wasting time. Big time strategy
also require hypotheses.

The two highest level strategy hypotheses are:

Value Hypothesisdoes the product or service really

deliver value?
Growth Hypothesishow do new customers discover a
product or service?

These are what Eric calls the leap-of-faith hypotheses that

start the whole enterprise. If (and most likely when) these
initial hypotheses are proven wrong or partially wrong
through innovation accounting and build-measure-learn
feedback loops, a pivot needs to be considered.

Pivoting

A pivot is a specific kind of change designed to test a new

fundamental hypothesis about the business, product, and
growth.

Erics catalogue of pivots include:

Zoom-in Pivot
Zoom-out Pivot
Customer Segment Pivot
Customer Need Pivot
 Platform Pivot
Business Architecture Pivot
Value Capture Pivot
Channel Pivot
Technology Pivot

A few generally misunderstood components of

pivots are:

They are not simply changes

They are very structured changes to fundamental
hypotheses that change the direction of the business
You also dont start from scratch when you pivot

You have to repurpose what has been built as a means to find

a more positive direction. One foot firmly planted where
youve been and what youve learned, one foot moving where
you want to go.

A startups runway can measured by the number of pivots it

has left before running out of funding or establishing a
sustainable business.

Engines of Growth

Each engine of growth can be defined quantitatively, and

each has a unique set of metrics.

Viral

Metric: Viral coefficient

Positive growth looks like: Viral coefficient > 1

Sticky

Metrics: New Customer Acquisition (NCA), Customer Churn

Rate (CCR)

Positive growth looks like: NCA > CCR

Paid

Metrics: Lifetime Value (LTV), Cost per Acquisition (CPA)

Positive growth looks like: LTV > CPA

Note: long term success depends on a differentiated ability to

monetize a certain set of customers.

It is possible for engines of growth to run out. This happens

because engines are tied to a segment of customers, their
habits, and their advertising channels. Early on, it is wise to
focus on one engine in order to keep the learning process
simple.

Engines of Growth Need to Foster Sustainable

Growth

It is important that the team strives for sustainable growth

and not rely on events or one-off promotions.

Sustainable means that new customers come from the

actions of past customers.
There are four primary ways past customers can do this:

Word of mouth: satisfied customers recommend the

product
As a side effect of product usage: users naturally invite
others just by using the product as designed
Funded Advertising: advertising purchased by revenue
(not one-time sources such as investment capital)
Repeat purchase or use: The product is designed to be re-
purchased on a subscription or by project basis.

Internal Management Techniques

It is imperative that entrepreneurs within any organization:

Shun the impulse to slow down and to increase batch size

Avoid the curse of prevention
Achieve speed by bypassing the excess work that does not
lead to learning

Do Work in Small Batches

Doing work in small batches allows teams to work better

cross-functionally (not necessarily more efficiently). By
shipping small updates continuously, errors, problems and
negative feedback are discovered earlier on in the process.
This makes it easier for the team to respond rapidly.

Value the System Over Individuals (but not in the

Taylorian sense)
There is wisdom and initiative hidden in every factory
workerefficiency is best measured not on individual tasks
(waterfall management with achievement accounting), but in
the system as a whole (cross-functional management with
innovation accounting). By making teams accountable for
success as a whole, individuals are less inclined to worry
about maximizing individual productivity (which can lead to
unnecessary work).

Root cause analysis

Eric is a major advocate of using the Five Whys method of

determining root cause and creating solutions that fix core
issues, not band aiding a symptom. In order for this method
to be effective, company culture and senior management
must believe that people dont fail, processes and incentives
fail. Managers should feel ashamed when a preventable
mistake happens.

A simplified version of the Five Whys for those getting

started is:
Be tolerant of all mistakes the first time. Never
allow the same mistake to be made twice

Discovering the cause is not enough, you must allow for fast
reaction and find simple solutions to fix the problem. If there
is not a simple solution, make the problem smaller or
implement a solution around a smaller, more specific pain
point.

Pull work from your need to prove a sustainable

business model
It is important that startups do not get caught (for the long
term) in the consultingware trap. It is easy to do this when a
team allows their to be driven solely by customer feedback.
Instead, work should be derived from the teams hypothesis
about the customer.
Work stems from experiments that must be
run in order to validate a hypothesis made in
effort to learn more about creating a
sustainable business.