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The Lean Startup by Eric Ries
This is our 5th ebook on our list of 10 must read entrepreneur books to read, The Lean Startup.

There is something strangely compelling about the modern day rags to riches story. The successful entrepreneur’s story is often one of perseverance, determination, with a mix of creative genius and hard work. Yet the grim reality is that many fail.

The Lean Startup by Eric Ries comes from the idea that an entrepreneur has a greater chance of success if they follow the right process. Success is not due to divine intervention or serendipity but from developing innovative new products as quickly as possible that customers are willing to pay for. The Lean Startup methodology will help any entrepreneur bring a new idea to a successful and sustainable outcome.

Our 7 takeaways from The Lean Startup

  • The lean startup method has 5 principles: The first is that entrepreneurs are everywhere. That means the principles of The Lean Startup can work for solopreneurs to the biggest corporations. The second is Entrepreneurship is management. The third is Validated Learning by running frequent experiments to test against the vision. The fourth is Build Measure Learn which is about turning ideas into something tangible that customers will want to purchase and use. The fifth is Innovation Accounting which is how an entrepreneur can measure progress and to prioritize work.

The Lean Startup is divided into 3 parts: Vision, Steer, and Accelerate.The important lesson for any entrepreneur or startup is to invest time and energy in having extensive contact with potential customers and in understanding them and their problems. Eric illustrates this with great examples throughout the book and is typified by:

  • Vision – every entrepreneur starts out with a goal, a vision of what they want to achieve. This book provides a new way for entrepreneurs to gauge if they are making progress towards that goal. It’s called “validated learning”.
  • Steer – entrepreneurs begin their journey with a leap of faith that there is a niche that will want to buy their product. It is cheaper and better to validate this assumption as early as possible rather than spend a lot of time and money building something that nobody wants. One way to do this is to build a minimum viable product (MVP). Rather than just asking customers what they want (often customers don’t know what they want before seeing it), entrepreneurs can use a MVP to see whether potential customers would buy it and use it. It like offering a very rough early working prototype that people can purchase. Dropbox original demo video One of the most famous MVPs is the original demo video for DropBox by Drew . The video isn’t anything special and Drew narrates it himself. The demo is full of in-jokes for Digg users and targeted and appreciated by the tech early adopters. Drew recounted, “It drove hundreds of thousands of people to the website. Our beta waiting list went from 5,000 people to 75,000 people literally overnight. It totally blew us away.” One of the most successful MVPs is Groupon. Groupon became one of the fastest company’s in history to achieve a $1 billion in sales. It started with a WordPress Blog and a simple form for people to email them to buy T-shirts in various colors and sizes. Customers would then be emailed a PDF coupon.
  • Accelerate – how to “tune the engine” to spin through the Build-Measure-Learn feedback loop as quickly as possible. This book has suggests that entrepreneurs use Validated Learning and experimentation to answer the question on what features are essential and should we build first.

“Steve Blank’s famous phrase “get out of the building” and start learning

  • Building any new product or feature should be based on answering these four questions:The rate of growth of any startup or business depends on three things: the profitability of each customer, the cost of acquiring a new customer, and repeat purchase rate of existing customers. The higher these values, the faster any business will grow. The way to measure this is to use funnel metrics for a cohort of customers (customers recruited at a specific time). Funnel metrics are stats on each stage of the customer lifecycle, like: customers who register, download our app, trial, repeat usage and purchase.

Does the customer recognise they have the problem you are trying to solve?

If there was a solution would they buy it?

Would they buy it from you?

Can we develop a solution to this problem?

  • Every entrepreneur has his Shakespeare moment, whether to pivot or to preserve with the strategy. The idea of a “pivot which is a change in strategy.  There are many different types of pivots: 

customer segment pivot – keeping the same functionality but for different customers than originally envisaged

platform pivot – changing the platform functionality

zoom in pivot – a single feature in a product becomes the whole product

zoom out pivot – a existing product becomes a single feature of a larger product

value capture pivot – the monetization or revenue model changes

engine of growth pivot – it changes its growth strategy to seek faster profitable growth

channel pivot – changes to how customers purchase

technology pivot – using a new technology

  • Sustainable growth is the lifeblood of any successful business. There are a couple of different engines of growth:

Sticky engine of growth – the key metric is churn or retention rate. New customer acquisition needs to exceeds the churn rate

Viral engine of growth – is person to person advertising through using the product e.g. Skype. The key metric is the viral loop or viral coefficient which is how many customers use a product as a consequence of each new customer that sign up. How many friends does each new customer bring with them.

Paid engine of growth – the revenue has to be greater than the cost of acquiring a customer. To increase the rate of growth, an entrepreneur can increase revenue from each customer or reduce the cost of acquisition.

Sustainable growth is characterized by one simple rule:

“New customers come from the actions of past customers

Summary of book

Most entrepreneurs fail. But many of the failures could have been prevented if following the process advocated in The Lean Startup.

This is an excellent book. and should be read if you’re an entrepreneur or contemplating being an entrepreneur. The Lean Startup has the entrepreneur’s formula for success and Eric Ries illustrates it really well with first hand experience and great case studies.

If you’re an entrepreneur and don’t have this book already, it should be top of your list.

We’re compiling our list of the next 10 entrepreneur ebooks to read during 2014. Let us know any suggestions you might have for what ebooks you think other online entrepreneurs would benefit from.

You can see the other 9 ebooks in our list of 10 ebooks on entrepreneurs and startups.

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About the author

Geoff Austin

Geoff Austin

I talk and write a lot. Some of it about eCommerce, selling online, startups, SEO, digital marketing. Chauffeur to twin daughters and a pizza chef master.

One comment

  1. Srinivasan R.

    I want to be an entrepreneur and start a business soon. I hope this may help to gain the necessory knowledge and skills to start with.
    Thanks

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