The Lean Startup by Eric Ries

The Lean Startup by Eric Ries is a book written for entrepreneurs and talks about how startups should go about launching their business. The author also provides several examples of companies that have used innovation to develop radically new products, in order to drive certain points.

As per Ries, a startup is a company that tries to create new products and services under extremely uncertain conditions, which is the reason it should adopt a strategy wherein it can quickly learn what is working and what is not working on a minimum viable product, and based on the learnings it should further build on the product. In the book, the author makes references to the term “lean” and it means the same as what it means in “lean manufacturing”, the concept first introduced by Toyota, wherein there is a focus on reducing wastage (Chiarini et al, 2018). It talks about lean principles such as Kanban, and elimination of waste. In the book, the author refers to lean as an approach that suggests that expenditure of the resources should only be for the most important things, such as creation of value for the customer.

The book is divided into three parts. The first section is on Vision which talks about ‘validated learning’ which is a way to find out if the assumptions made are correct. The second section of the book is the ‘Steer’ part that talks about the various techniques that startups can use to speed up learning. The last section is the ‘Accelerate’ section that talks about how startups can grow without having to sacrifice on speed and agility (Ries, 2017).

In Chapter 3 which is named “Learn”, the author talks about his experience while developing a product wherein after six months of efforts he realized that there were not enough takers for the product in the market. The author felt that he should have learnt the lesson earlier and save all those wasted efforts, which led him to develop the lean principles.

Here’s the approach that the author recommends to startups (Ries, 2017):

Startups should go in for Validated Learning wherein the startups should conduct smaller experiments and see the result for themselves instead of just believing in unvalidated opinions.

Startups should try to Build-Measure-Learn. It should start with a smaller version of the product, learn from it, and build it further.

The author talks about the Minimum Viable Product, which is different from a prototype. While a prototype is commonly used to test certain set of features, a Minimum Viable Product is like a mini product that lets the startup test out the fundamental business idea. The author recommends testing the riskier aspects of the business initially.

So, the startup should build a Minimum Viable Product, test it, learn from it, and build the next version. It should do this often during the product development. The author talks about the concept of Continuous Deployment where in the product is tested in small batch sizes to uncover defects; this approach is more conducive to environments such as software development.

Pivot or Preserve refers to what the entrepreneur needs to do based on the actionable metrics; the startup may alter the course of action, or continue with the current vision. Another concept that the author talks about is Innovation Accounting. Using this approach, the success of the product should be evaluated based on how valuable it is becoming to the users. The Chapter on ‘Growth’ talks about the three engines of growth – sticky, viral and paid and suggest ways to check how they could be used for their product/market.

To sum it up, most entrepreneurs start their business based on an idea that is based on the entrepreneurs’ assumption of what the business should be, and although some market research work is done, usually the idea is not validated by gaining a feedback from the target customers. However, for certain traditional businesses this approach could still work; for example, a hairdresser who has worked at a certain saloon and now wants to start his own business knows that the business model works and what sort of expenses and margins he can expect. However, for someone who is starting with an innovative idea, it can be challenging to find something similar that has worked in the past; that is where this book suggests a less risky approach to starting a business, something that will also save a lot of time.

The goal of this book is to answer the question “How should a startup that offers new products or services be built” and the recommendation is to implement mini versions/projects based on fundamental business hypothesis that can be tested.

Because there is so much uncertainty involved when developing a unique/innovative product, traditional management techniques may not be adequate for start-ups. The book tells you that you shouldn’t ideally have the answers to most questions because you’re a startup; however, it says that while one should accept the uncertainty, one should develop an experimental approach of “build it, measure it, and learn from it” (Ideabuddy, 2020). This is what I particularly like about the product that it provides an approach to test out the business idea.

The startup should quickly develop a minimum viable product (MVP) and get it out to potential customers so that key elements of the business idea can be tested, see how the response to the product is, learn from it, and keep innovating the product until you have a product that works in the market effectively. The book encourages entrepreneurs to challenge most opinions and to rationalise feedback through customer validation to ascertain if the vision is viable and scalable.

The book also offers some interesting ways to get to the root cause of issues in order to get a better perspective of their business. For example, I found the “5 Whys” technique quite interesting; this approach helps get to the root cause of a problem. It says that one should ask the question “why did that happen?” to the person most responsible and then follow the chain to ask at least five more people at different levels as to why did something happen. And the answer from all these people is most likely to take you to the root of the problem, something that will help you make some strategic changes, which could be beneficial in the long run.

I personally think the ‘lean philosophy’ is a great way to start a business; because most startups have limited funds the business should spend the money in the most effective manner, something that will add value to the customer. I have seen people start their business by going overboard and spending a lot of money on fancy offices and doing fancy interiors whereas the money could have been used to improve the product, or on building a better website or on advertising and marketing of the business (CBinsights, 2021).

So many startups which have gone on to become big businesses started from bedroom or from the garage, and somehow it feels that they knew about ‘lean’ because whatever money they had, they spent on making the product more useful and more robust. It was only after their product met with success and the company started making money that they moved to proper offices and started hiring more staff. Until then, the entrepreneur probably wore multiple hats, and continually worked on improving the business.

However, there are some challenges of ‘lean thinking’ as well. One challenge I see is that it could probably make people develop a narrow focus; entrepreneurs and those who are part of the business could lose track of the larger picture and can be obsessed with cost reduction, which means they could even cut down on advertising and marketing or on customer support. It could even make an entrepreneur think small and that mindset could prevent the entrepreneur from scaling the business.

Also, I feel that ‘lean’ does not seem to be compatible with the modern management philosophy which somehow doesn’t seem to be comfortable involving everyone in most initiatives and seem to think that lean is something that needs to be carried out by certain specific departments. This is also the reason why many see the cost reduction initiative as an opportunity to suit narrow objectives; for example, finance managers looking at cost cutting drives for P/L benefits. So, if someone from the corporate world is going to be part of a startup, its important that the person understands the priorities of the startup.

Lot of people, who implement lean, opt for quick fixes without keeping the larger picture in mind, without understanding what the customer values; however, what the customer values is vital for lean thinking. Without a larger vision, lean implementation will yield isolated short-term benefits that may not benefit the company.

 

References

• CBinsights, 2021. 368 Startup Failure Post-Mortems. [Online]. Available at [Accessed: 24 April 2021]
• Chiarini, A., Baccarani, C. and Mascherpa, V. (2018). Lean production, Toyota Production System and Kaizen philosophy. The TQM Journal, 30(4), pp.425–438. Ideabuddy, 2020. The Key Principles Of Lean Startup Methodology [Online]. Available at < https://ideabuddy.com/blog/lean-startup-methodology/> [Accessed: 23 April 2021]
• Ries, E. (2017). The lean startup: how today’s entrepreneurs use continuous innovation to create radically successful businesses. New York: Currency.