Acclaim for THE LEAN STARTUP

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Although it sounds complex, it is based on a simple premise. Instead of looking at cumulative totals or gross numbers such as total revenue and total number of customers, one looks at the performance of each group of customers that comes into contact with the product independently. Each group is called a cohort. The graph shows the conversion rates to IMVU of new customers who joined in each indicated month. Each conversion rate shows the percentage of customer who registered in that month who subsequently went on to take the indicated action. Thus, among all the customers who joined IMVU in February 2005, about 60 percent of them logged in to our product at least one time. Managers with an enterprise sales background will recognize this funnel analysis as the traditional sales funnel that is used to manage prospects on their way to becoming customers. Lean Startups use it in product development, too. This technique is useful in many types of business, because every company depends for its survival on sequences of customer behavior called ows. Customer ows govern the interaction of customers with a company’s products. They allow us to understand a business quantitatively and have much more predictive power than do traditional gross metrics. If you look closely, you’ll see that the graph shows some clear trends. Some product improvements are helping—a little. The percentage of new customers who go on to use the product at least ve times has grown from less than 5 percent to almost 20 percent. Yet despite this fourfold increase, the percentage of new customers who pay money for IMVU is stuck at around 1 percent. Think about that for a moment. After months and months of work, thousands of individual improvements, focus groups, design sessions, and usability tests, the percentage of new customers who subsequently pay money is exactly the same as it was at the onset even though many more customers are getting a chance to try the product. Thanks to the power of cohort analysis, we could not blame this failure on the legacy of previous customers who were resistant to change, external market conditions, or any other excuse. Each cohort represented an independent report card, and try as we might, we were getting straight C’s. This helped us realize we had a
might, we were getting straight C’s. This helped us realize we had a problem. I was in charge of the product development team, small though it was in those days, and shared with my cofounders the sense that the problem had to be with my team’s eorts. I worked harder, tried to focus on higher- and higher-quality features, and lost a lot of sleep. Our frustration grew. When I could think of nothing else to do, I was nally ready to turn to the last resort: talking to customers. Armed with our failure to make progress tuning our engine of growth, I was ready to ask the right questions. Before this failure, in the company’s earliest days, it was easy to talk to potential customers and come away convinced we were on the right track. In fact, when we would invite customers into the oce for in-person interviews and usability tests, it was easy to dismiss negative feedback. If they didn’t want to use the product, I assumed they were not in our target market. “Fire that customer,” I’d say to the person responsible for recruiting for our tests. “Find me someone in our target demographic.” If the next customer was more positive, I would take it as confirmation that I was right in my targeting. If not, I’d fire another customer and try again. By contrast, once I had data in hand, my interactions with customers changed. Suddenly I had urgent questions that needed answering: Why aren’t customers responding to our product “improvements”? Why isn’t our hard work paying o? For example, we kept making it easier and easier for customers to use IMVU with their existing friends. Unfortunately, customers didn’t want to engage in that behavior. Making it easier to use was totally beside the point. Once we knew what to look for, genuine understanding came much faster. As was described in Chapter 3, this eventually led to a critically important pivot: away from an IM add-on used with existing friends and toward a stand-alone network one can use to make new friends. Suddenly, our worries about productivity vanished. Once our eorts were aligned with what customers really wanted, our experiments were much more likely to change their behavior for the better. This pattern would repeat time and again, from the days when we were making less than a thousand dollars in revenue per month
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Acclaim for THE LEAN STARTUP
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—Geoffrey Moore, author, Crossing
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Copyright © 2011 by Eric Ries All
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Contents Cover Title Page Copyright
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Introduction S top me if you’ve h
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can be engineered by following the
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product vision. These supposed xes
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entrepreneurship, the movement has
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have neither. The second problem is
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shooting in the dark. We are relyin
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Part One VISION
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previous time in history. This has
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manufacturing is measured by the pr
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Every new version of a product, eve
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Products change constantly through
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2 DEFINE WHO, EXACTLY, IS AN ENTREP
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ecosystem regardless of company siz
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In 2009, a startup decided to try s
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accountable. In other words, cultiv
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signicant number of existing custom
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3 LEARN A s an entrepreneur, nothin
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ventures that had failed, and we we
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moving parts that we had to cut a l
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Out of desperation, we decided to t
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eight.” We had no idea how many i
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eliminate it has allowed lean compa
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trying to convince investors, emplo
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gathered suggested new experiments
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entrepreneur in residence. I’ve a
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FROM ALCHEMY TO SCIENCE The Lean St
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1. It had more accurate data about
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nicely. Yet despite all that work,
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second time? How many are willing t
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finding justified the significant e
Page 73 and 74: them to dry, which takes two to sev
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Page 77 and 78: have the opportunity to closely mon
Page 79 and 80: Part Two STEER
Page 81 and 82: This Build-Measure-Learn feedback l
Page 83 and 84: objectively; they are also invaluab
Page 85 and 86: spent. In other words, Facebook als
Page 87 and 88: The problem with analogies like thi
Page 89 and 90: the biggest market opportunities in
Page 91 and 92: To demonstrate, take a look at the
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Page 95 and 96: 6 TEST G roupon is one of the faste
Page 97 and 98: At IMVU, when we were raising money
Page 99 and 100: Most entrepreneurs approach a quest
Page 101 and 102: made a video. The video is banal, a
Page 103 and 104: sign up for a new service sight uns
Page 105 and 106: city?” and the technology flails.
Page 107 and 108: with humans replicating pieces of t
Page 109 and 110: we are not even sure who the custom
Page 111 and 112: quality products, but only in servi
Page 113 and 114: of these cases, there is an easy so
Page 115 and 116: 7 MEASURE A t the beginning, a star
Page 117 and 118: changes we’ve made are related to
Page 119 and 120: For example, a startup might create
Page 121 and 122: INNOVATION ACCOUNTING AT IMVU Here
Page 123: This graph represents approximately
Page 127 and 128: When I meet with those teams, there
Page 129 and 130: much more exciting. That’s why I
Page 131 and 132: important connection: “I have thi
Page 133 and 134: equirements of the product owner (t
Page 135 and 136: was judged by its ability to improv
Page 137 and 138: The questioning inspired the team t
Page 139 and 140: I have implemented this system with
Page 141 and 142: Even more important than reducing w
Page 143 and 144: from their actions. Human beings ar
Page 145 and 146: metrics, “auditable,” is so ess
Page 147 and 148: 8 PIVOT (OR PERSEVERE) E very entre
Page 149 and 150: 1. Customers would be interested en
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Page 153 and 154: @2gov had a slightly dierent set of
Page 155 and 156: leap-of-faith questions, David conc
Page 157 and 158: the U.S. population and has deliver
Page 159 and 160: pivot or persevere, whether to chan
Page 161 and 162: THE PIVOT OR PERSEVERE MEETING The
Page 163 and 164: 2. The game would grow using the vi
Page 165 and 166: not launched its current product, t
Page 167 and 168: A customer segment pivot is an espe
Page 169 and 170: incorrectly as a synonym for change
Page 171 and 172: Value Capture Pivot There are many
Page 173 and 174: similar to that of a successful com
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Part Three
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Start Your Engines Most of the deci
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accounting method described in Part
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is so named because it has a batch
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producers. Over time, that capabili
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they immediately would release a ne
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in consumer electronics. The latest
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Small Batches in Education Not ever
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change, you could roll it out immed
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The original version had been years
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warehouses immediately shrink, as t
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This has enabled Alphabet Energy to
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THE STARTUP WAY
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companies had used their early succ
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We saw in Part Two how important it
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suited to testing the value hypothe
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and its speed is determined by a si
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Imagine that the rst company uses G
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those were all services the company
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ying out of the factory as fast as
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Chapter 6 emphasized the importance
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11 ADAPT W hen I was the CTO of IMV
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eward extreme polarization, that’
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what we have learned to get to work
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3. Why was it not lubricated sucien
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I used the example of engineering t
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When blame inevitably arises, the m
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sometimes will devolve into the Fiv
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game players in the world. More tha
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Tony relates, “As the new master
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and installation into Continuous In
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planning. In other words, it is com
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problems that aict large-batch deve
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Historically, QuickBooks had been b
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successful startup expect to have y
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Scarce but Secure Resources Divisio
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development.1 On the ip side, I kno
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spent debating the data because, in
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can we protect the internal startup
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are considered real and the innovat
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Once the market for the new product
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to train new team members in the ne
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It took a constant eort to consider
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online, and suggestions for how you
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extremely harmful and required the
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century, too, before people knew ab
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good system must be that of develop
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spawned to correct those deficienci
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test the impact of those factors on
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vision but not to abandon it. We wo
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yourself. The Lean Startup Wiki Not
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• Ash Maurya has emerged as a lea
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The idea of the Build-Measure-Learn
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350000-downloads-for-snapt
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93% log in at least once a month.
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more on Dropbox’s success, see
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you move the pile around between st
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article2/0,2817,35549,0
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Acknowledgments I owe a tremendous
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Telepathy, designed and built the w
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About the Author ERIC RIES is an en
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Acclaim for THE LEAN STARTUP

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