Overview
Presents a framework for building successful startups by emphasizing continuous innovation and resource efficiency. The book advocates for developing a "Minimum Viable Product" (MVP) to test ideas quickly and gather customer feedback. By leveraging principles from lean manufacturing, such as eliminating waste and focusing on value-creating activities, startups can iterate their products based on real-world data and customer insights.
Notes
Validated learning is not after-the-fact rationalization or a good story designed to hide failure. It is a rigorous method for demonstrating progress when one is embedded in the soil of extreme uncertainty in which startups grow.
Validated learning is the 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 is the principal antidote to the lethal problem of achieving failure: successfully executing a plan that leads nowhere.
To apply the scientific method to a startup, we need to identify which hypotheses to test. The riskiest elements of a startup's plan, the parts on which everything depends, are leap-of-faith assumptions. The two most important assumptions are the value hypothesis and the growth hypothesis. These give rise to tuning variables that control a startup's engine of growth.
In a Wizard of Oz test, customers believe they are interacting with the actual product, but behind the scenes human beings are doing the work. Like the concierge MVP, this approach is incredibly inef-ficient. Imagine a service that allowed customers to ask questions of human researchers for free and expect a real-time response. Such a service (at scale) would lose money, but it is easy to build on a micro scale.
Ask most entrepreneurs who have decided to pivot and they will tell you that they wish they had made the decision sooner. There are three reasons why this happens.
First, vanity metrics can allow entrepreneurs to form false conclusions and live in their own private reality. This is particularly damaging to the decision to pivor because it robs teams of the belief that it is necessary to change. When people are forced to change against their better judgment, the process is harder, cakes longer, and leads to a less decisive outcome.
Second, when an entrepreneur has an unclear hypothesis, it's almost impossible to experience complete failure, and without failure there is usually no impetus to embark on the radical change a pivot requires. he failure of the "launch it and see what happens" approach should now be evi-dent: you will always succeed—in seeing what happens. Except in rare cases, the early results will be ambiguous, and you won't know whether to pivot or persevere, whether to change direction or stay the course.
Third, many entrepreneurs are afraid. Acknowledging failure can lead to dangerously low morale. Most entrepreneurs' biggest fear is not that their vision will prove to be wrong. More terrifying is the thought that the vision might be deemed wrong without having been given a real chance to prove itself. This fear drives
Pivot or Persevere: Startups must be willing to pivot when necessary. A pivot involves fundamentally changing one or more aspects of a business based on validated learning. By continuously testing assumptions and monitoring market feedback, entrepreneurs can determine whether to persevere with their current strategy or make strategic shifts to optimize their chances of success.
Zoom Out Pivot
In the reverse altuation, sometimes a single feature is Insuflicient to support a whole produet. In this type of pivot, what was considered the whole produer becomes a single feature of a much larger product
Zoom-in Pivot
In this case, what previously was considered a single feature in a product becomes the whole product. This is the type of pivot Votizen made when it pivoted away from a full social network and toward a simple voter contact product.
Customer Segment Pivot
In this pivot, the company realizes that the product it is building solves a real problem for real customers but that they are not the type of customers it originally planned to serve. In other words, the product hypothesis is partially confirmed, solving the right problem, but for a different customer than originally anticipated.
Customer Need Pivot
As a result of getting to know customers extremely well, it sometimes becomes clear that the problem were trying to solve for them is not very important. However, because of this customer intimacy, we often discover other related problems that are important and can be solved by the team
Platform Pivot
A platform pivot refers to a change from an application to a platform or vice versa. Most commonly, startups that aspire to create a new platform begin life by selling a single application, the so-called killer app, for their platform. Only later does the platform emerge as a vehicle for third parties to leverage as a way to create their own related products. However, this order is not always set in stone, and some companies have to execute this pivot multiple times.
This pivot borrows a concept from Geoffrey Moore, who observed that companies generally follow one of two major business architectures: high margin, low volume (complex systems model) or low margin, high volume (volume operations model). The former commonly is associated with business to business (B2B) or enterprise sales cycles, and the latter with consumer products (there are notable exceptions).
These methods are referred to commonly as monetization or revenue models. These terms are much too limiting. Implicit in the idea of monetization is that it is a separate "feature" of a product that can be added or removed at will. In reality, capturing value is an intrinsic part of the product hypothesis. Often, changes to the way a company captures value can have far-reaching consequences for the rest of the business, product, and marketing strategies.
Engine of Growth Pivot
There are three primary engines of growth that power startups: the viral, sticky, and paid growth models. In this type of pivot, a company changes its growth strategy to seek faster or more profitable growth. Commonly but not always, the engine of growth also requires a change in the way value is captured.
Channel Pivot
In traditional sales terminology, the mechanism by which a company delivers its product to customers is called the sales channel or distribution channel. For example, consumer packaged goods are sold in a grocery store, cars are sold in dealerships, and much enterprise software is sold (with extensive customization) consulting and professional services firms. Often, the requirements of the channel determine the price, features, and competitive landscape of a product. A channel pivot is a recognition that the same basic solution could be delivered through a different channel with greater effectiveness. Whenever a company abandons a previously complex sales process to "sell direct" to its end users, a channel pivot is in progress.
Technology Pivot
Occasionally, a company discovers a way to achieve the same solution by using a completely different technology. Technology pivots are much more common in established businesses.
In other words, they are a sustaining innovation, an incremental improvement designed to appeal to and retain an existing customer base. Established companies excel at this kind of pivot because so much is not changing. The customer segment is the same, the customer's problem is the same, the value-capture model is the same, and the channel partners are the same. The only question is whether the new technology can provide superior price and/or performance compared with the exising technology.
The essential lesson is not that everyone should be shipping 45 times per day but that by reducing batch size, we can get through the Build-Measure-Learn feedback loop more quickly than our competitors can. The ability to learn faster from customers is the essential competitive advantage that startups must possess.
Sustainable growth is characterized by one simple rule: New customers come from the actions of past customers. 4 ways:
word of mouth
As a side effect of product usage
Through funded advertising
Through repeat purchase or use
The Three Engines of Growth: Ries identifies three engines of growth: the Sticky Engine, the Viral Engine, and the Paid Engine. Startups must identify and focus on the engine that aligns with their business model and target market. The Sticky Engine relies on customer retention and loyalty, the Viral Engine leverages customer referrals and word-of-mouth, while the Paid Engine relies on paid customer acquisition.
When confronted with a problem, have you ever sopped and asked why five times? It is difficult to do even though it sounds easy. For example, suppose a machine stopped functioning:
1. Why did the machine stop? (There was an overload and the fuse blew.)
2. Why was there an overload? (The bearing was not suf. ficiently lubricated.)
3. Why was it not lubricated sufficiently? (The lubrication pump was not pumping sufficiently.)
4. Why was it not pumping sufficiently? (The shaft of the pump was worn and rattling.)
5. Why was the shaft worn out? (There was no strainer attached and metal scrap got in.)
Innovation Accounting: Innovation accounting is a method for tracking progress that focuses on actionable metrics rather than vanity metrics. Vanity metrics, such as the number of website visitors or downloads, may give a false sense of progress. Actionable metrics, on the other hand, measure customer behavior and provide insights that help entrepreneurs make data-driven decisions.
Continuous Deployment: Continuous deployment is a practice that involves frequently releasing new versions of the product to customers. This approach allows startups to gather real-time feedback, identify issues early, and make rapid improvements. Continuous deployment enables entrepreneurs to seize market opportunities and stay ahead of competitors.
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