This is a pretty long read, for those in a hurry, feel free to check out the 2-minute summary at the end of this article here.

Why startups Fail? 😨

Startups don’t operate in the same realm of certainty that established companies are so acquainted with. More often than not, the startup does not even know what its final product is going to be or who is the audience, or if its product will be liked by the assumed target audience.

Amidst all these uncertainties, startups have garnered the reputation of having very disastrous success rates.

Then, what is the solution? are startups doomed to be a failure for eternity?

Lean Startup by Eric Ries is a guide to aspiring entrepreneurs and startups to wade through the thick waters of uncertainty and still manage to come out on top. It formulates a robust framework of management that combines the lean principles of conventional manufacturing, Design Thinking, Agile, and other modern practices.

“Lean Startup isn’t about being cheap, but is about being less wasteful and still doing things that are big.”

Entrepreneurial Management

For a lot of people, Entrepreneurial management sounds like an oxymoron, as they believe in the notion that Managers and Entrepreneurs are diametrically opposite positions, where one is considered to be rigid and systematic, and the other is dynamic and exciting.

But, this notion is far from reality, a startup is an exercise in Institution Building and that necessitates Management to be an important function.

Entrepreneurs have been trying to fit the square peg of their unique problems into the round hole of general management for decades.

So, who is an Entrepreneur?😒

Everybody, starting from young visionaries with little financial backup but great ideas, to veteran players in the corporates with strong backup, is a potential entrepreneur.

And, every human institution that is designed to produce a new product or service under extreme uncertainty qualifies as a startup

Once, the definition of an Entrepreneur and a startup are clear, we need to understand what to do next, what processes should we use, and how to hold those processes accountable for performance milestones.

This book answers all of those questions!

Learn from successes and failures ? wait what !🤔

It is absolutely essential that we learn from our failed experiments, without concocting an inspirational story of ‘Learnings’ to hide the failure. We need to understand which elements of our strategy have been successful in advancing our vision and which ones are batshit crazy!

We have to identify what our target audience actually wants, and not what they think they want, or what we think they want. Read this again.

what is the solution you ask?

Validated Learning!

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

It is more concrete, more accurate, and faster than market forecasting or classical business planning”.

It essentially means, every-time we run an experiment we need to be absolutely clear about our objectives and the metrics that we are going to validate our experiment with.

There should be an unambiguous way to decide whether our experiment was a success or a failure

All efforts that are not used to understand customer requirements and behavior must cease to exist.

The Lean Startup is not a collection of individual tactics. It is a principled approach to new product development. The only way to make sense of its recommendations is to understand the underlying principles that make them work.

The question is not “Can this product be built?”. The more pertinent question is “Should this product be built?”

To answer that, we need a method for systematically breaking down a business plan into its component parts and testing each part empirically.

Think big and start small

Build a small product and experiment with it, find out more accurate details about your customer requirements. Don’t go around asking hypothetical questions, talk to real customers, and understand their behavior, sell them your MVP

For long-term change, experiment immediately

Validate your baseline assumptions on Value creation and Growth, and make sure that the following questions are answered:

1. Do consumers recognize that they have the problem you are trying to solve?
2. If there was a solution, would they buy it?
3. Would they buy it from us?
4. Can we build a solution for that problem?

Steering through assumptions🤔

Every startup is based on certain ‘leap of faith’ assumptions, those are the assumptions that can make or break the startup.

They might look something like: If I’m trying to develop a new ride-sharing app, then my leap of faith assumptions might be that there are enough people out there who would be interested in ride-sharing, and they would be particularly interested in my offering, and that number is high enough to make my business proposal economically viable.

The goal of every startup should be to test those assumptions as early as possible. The best way to do it is through a Minimum Viable Product

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.

Our assumptions provide us with the tuning variables that control the startup’s engine of growth. Every experiment we perform is an attempt to rev the engine of growth and to check if it’s running. Once it’s running we shift to higher gears.

The Leap

The first step in every startup is to ensure that our leap of faith questions are based in reality.

Too much or too little analysis can cause damage to the startup.

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

The complexity of the MVP required cannot be calculated formulaically and has to be based on judgment. Sometimes it could simply be a video, and sometimes it is a functional prototype with some of the features missing.

The Ultimate goal of an MVP is to test business hypothesis

The testing phase involves us selling to a small segment of our audience called the early adopters. They are very special in the sense that, they are willing to disregard the missing features and even some glitchy features, and just focus on the potential the product holds.

The startup metrics

All startups need to have rigorous systems to measure where they are (based on the feedback and assessments ), and then they need to build systems that help them get closer to their projections.

The rate of growth depends primarily on three things: the profitability of each customer, the cost of acquiring new customers, and the repeat purchase rate of existing customers. The higher these values are, the faster the company will grow and the more profitable it will be. These are the drivers of the company’s growth model.

How do we measure?

So, how the heck do we understand if we are making progress, how do we identify if the growth in the number of sign-ups is due to the new feature we implemented and not due to something else?

The answer to this is split-testing, where we expose a certain segment of our audience to the new feature and use the remaining people as a control. This helps us get a better causal understanding of various metrics and their effects.

How does split-testing work, you ask?

Let’s say you’re trying to launch a new feature on your ride-sharing app to improve the conversion rate. Instead of releasing the new feature to all your users, you give access to the feature to a select few (randomly) and check the changes in conversion rates for your selected users, in comparison with the rest of your users.

If the conversion rates grew by 16% for your selected users and 3% for the rest of the users, then we can say with some surety that the new feature accounts for a 13% rise in the conversion rates.

Pivot or Persevere

Startup productivity is not about cranking out more widgets or features. It is about aligning our efforts with a business and product that are working to create value and drive growth. In other words, successful pivots put us on a path toward growing a sustainable business

Startups need to adapt in the face of counter-evidence, i.e if there is no progress despite repeated trials, it could be a sign to Pivot.

A pivot is a fundamental change in its business strategy.

An alternative definition of Pivot:

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

Signs that suggest you need to pivot

1. decreasing effectiveness of product experiments
2. The general feeling that the product development team should be more productive

To check, at which stage your startup is, schedule a pivot or persevere meeting. Set a cadence that is more suitable for your business.

Accelerate your startup growth

Accelerating your startup growth involves a very clear understanding of which activities create value and which ones don’t, then we can leverage the lean principles to eliminate the waste.

Small Batches

Modern manufacturing techniques have allowed us to produce things in bulk, and economies of scale dictate that we have as large a batch size as possible.

This style of thinking used to work for legacy FMCGs and other older industries, where they had a portfolio of products that their customers wanted, but it’s not the same for a startup. There is too much uncertainty to produce anything in bulk, the market is very dynamic for a new product.

We are not sure how much would be needed, or if the product will be needed at all..!

This calls for a counterintuitive strategy of ‘small batches’ that allow us to ensure that the few items/features that we have built/developed are actually desired by the users, and there is a market for more.

The small batch size also allows us to be more agile in the face of uncertainty.

Sustainable Growth and other strategies

There are various sustainable growth strategies and then there are some disastrous ones that are sure to lead your startup to doom.

The disastrous strategies appeal to the vanity metrics and keep growing exponentially by securing huge funding and investing in advertising without actually focussing on value creation.

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

The rule that governs the growth engine is very simple, if the new customer acquisition exceeds the churn rate then the product will grow.

The virility with which your product grows depends on the ‘Viral Coefficient (VC)’.

“It just means, how many friends is a new customer likely to bring with him/her”

For instance, if a product has a VC of 0.2, it means 2 out of every 10 people customer will recruit a friend. This is very low, for viral growth we need VCs as close to one as possible, or even greater than 1.

Adapt to grow

Training and learning should be an inherent part of all startups. You don’t necessarily have to stop work and start designing training modules, but let your learnings from the work itself become the source for subsequent new joiners.

All these learnings help the startup become adaptive, and it is one most important virtue of any startup die to the harsh conditions and uncertainty it is exposed to.

Every mistake or defect can be traced back to the learnings and training of the staff, and this helps to avoid the blame game and to make the system more robust and adaptive. One way to backtrack the issues is by employing the ‘5 why method’.

In this method, we ask ‘why’ 5 times. For instance,

A new release disabled a feature for customers.

1. Why? Because a particular server failed.
2. Why did the server fail? Because an obscure subsystem was used in the wrong way.
3. Why was it used in the wrong way? The engineer who used it didn’t know how to use it properly.
4. Why didn’t he know? Because he was never trained.
5. Why wasn’t he trained? Because his manager doesn’t believe in training new engineers because he and his team are “too busy

The ‘5 why method’ is very effective and can bring up some unpleasant truths about your startup to the surface. You need to be ready to face them and

Truly adaptive organizations realize that just changing the culture alone is not sufficient, there has to be an associated mindset change as well.

Innovation

Innovation at startups is a given, but people naturally assume that the capacity to innovate declines as the startup matures.

But, this need not be the case, an Enterprise can still have the startup blood flowing through it and be agile. They can cater to existing customers, while at the same time also figuring out ways to get new ones.

Creating a platform for experimentation

Every organization can promote a culture of innovation and experimentation by making sure of three things:

1. Providing secure resources to the individual teams
2. Independent authority to develop their business
3. A personal stake in the outcome

But, the startup culture involves a lot of risk-taking, and companies such as Microsoft and Dell are too huge to risk anything. These large companies fall into the trap of risk-averse methodologies that severely limit the innovation in the company.

Then how do we protect the spirit of innovation from the larger organization’s restricting culture, and at the same time, how do we protect the Company from the risks of innovation and experimentation that is so deeply ingrained in the startups.

The solution to this dilemma is a method called ‘Sandboxing‘

Sandboxing refers to a compartmentalized strategy for innovation that will contain the impact of the new innovation but not constrain the methods of the startup team.

Some ground rules for sandboxing could be

1. All teams should be able to conduct experiments (split testing) that affect only the sandboxed areas (a part of the product, or a certain segment of the users)
2. Only one team takes full accountability of the experiment, and they should also be capturing the efficacy of the experiment against the designated metrics, they should also abort if something catastrophic happens
3. All experiments should also be time-boxed, i.e. they can’t be running longer than a few weeks

The following quote concludes the summary well..!

Entrepreneurship should be considered a viable career path for innovators inside large organisations. Managers who can lead teams by using the Lean Startup methodology should not have to leave the company to reap the rewards of their skills or have to pretend to fit into the rigid hierarchies of established functional departments.

Summary

Understand

Startups operate in extremely uncertain environments, and the conventional clear-cut principles of general management fail to steer the startup through the thick waters of ambiguity and uncertainty.

Lean Startup principles help the entrepreneurs manage their startups based on a robust framework of management that combines the lean principles of conventional manufacturing, Design Thinking, Agile, and other modern practices.

The first thing a startup needs to do is to establish systems that validate their business hypothesis and their assumptions and quickly decide whether to continue or pivot.

Act

As a startup, we need to continuously conduct multiple experiments and learn from the successful and also the failed attempts at understanding customer behavior and their requirements.

There needs to be a clear-cut criterion to decide whether an experiment failed or worked. These criteria help us decide the metrics that we need to measure every time we conduct an experiment.

We need to deconstruct every aspect of our business into its components and test each part systematically and empirically

Accelerate

The ultimate goal of every startup is to have a sustained growth strategy. The value proposition is also streamlined by now, and what remains is to have a steady stream of new customers to accelerate the growth of our startup.

There are multiple growth strategies that a startup can pick up, just be wary of some damaging growth strategies that would hurt your startup by creating an illusion of growth, but in reality not creating any value for the customers.

Do not fall for the economies of scale and opt for large batches as that is not suitable for the startup environment.

Always keep adapting, as new evidence comes up, and furthermore, inculcate that into the psyche of your workforce.

Most importantly, keep innovating. It is an absolute myth that once the startup matures, the capacity to innovate dies. Employ the Sandboxing technique to keep innovating within the confines of your organization.

Feel free to use the following Infographics to get a better understanding of the Lean Startup principles.

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