Acclaim for THE LEAN STARTUP

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development team was incredibly productive because the company’s founders had identied a large unmet need in the target market. The initial product, while awed, was popular with early adopters. Adding the major features that customers asked for seemed to work wonders, as the early adopters spread the word about the innovation far and wide. But unasked and unanswered were other lurking questions: Did the company have a working engine of growth? Was this early success related to the daily work of the product development team? In most cases, the answer was no; success was driven by decisions the team had made in the past. None of its current initiatives were having any impact. But this was obscured because the company’s gross metrics were all “up and to the right.” As we’ll see in a moment, this is a common danger. Companies of any size that have a working engine of growth can come to rely on the wrong kind of metrics to guide their actions. This is what tempts managers to resort to the usual bag of success theater tricks: last-minute ad buys, channel stung, and whiz-bang demos, in a desperate attempt to make the gross numbers look better. Energy invested in success theater is energy that could have been used to help build a sustainable business. I call the traditional numbers used to judge startups “vanity metrics,” and innovation accounting requires us to avoid the temptation to use them. VANITY METRICS: A WORD OF CAUTION To see the danger of vanity metrics clearly, let’s return once more to the early days of IMVU. Take a look at the following graph, which is from the same era in IMVU’s history as that shown earlier in this chapter. It covers the same time period as the cohort-style graph on this page; in fact, it is from the same board presentation. This graph shows the traditional gross metrics for IMVU so far: total registered users and total paying customers (the gross revenue graph looks almost the same). From this viewpoint, things look much more exciting. That’s why I call these vanity metrics: they give
much more exciting. That’s why I call these vanity metrics: they give the rosiest possible picture. You’ll see a traditional hockey stick graph (the ideal in a rapid-growth company). As long as you focus on the top-line numbers (signing up more customers, an increase in overall revenue), you’ll be forgiven for thinking this product development team is making great progress. The company’s growth engine is working. Each month it is able to acquire customers and has a positive return on investment. The excess revenue from those customers is reinvested the next month in acquiring more. That’s where the growth is coming from. But think back to the same data presented in a cohort style. IMVU is adding new customers, but it is not improving the yield on each new group. The engine is turning, but the eorts to tune the
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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
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them to dry, which takes two to sev
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and innovation to make the agency m
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
Page 93 and 94: conversations were designed to answ
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 and 124: This graph represents approximately
Page 125 and 126: might, we were getting straight C
Page 127: When I meet with those teams, there
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
Page 151 and 152: easy; it is to make sure that there
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
Page 175 and 176: Part Three
Page 177 and 178: 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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