hello and welcome to this book summary where we're looking at the Lean Startup by Eric rice now most startups fail but most of those failures could have been prevented if the Lean Startup methodology had been followed now Lean Startup is about learning what your customers really really want and learning it quickly now you might think that startups progress steadily towards success over time but this isn't the case take a look at this diagram most new startup founders believe that progress will follow the diagram on the left hand side they think they will release their prototype and move forward from there the reality though is very different and more like the diagram on the right founders must get used to failure and starting again from zero but this is nothing to get depressed about because whoever fails and learns the fastest will win now Reese has organized the book into three sections there is vision and this lays the foundation for you to understand Lean Startup it explains what an entrepreneur is and how startups experiment to learn next we have steer and that covers the meat of the Lean Startup process including the build measure learn feedback loop and finally we have accelerate and that covers how to progress through the build measure learn loop faster even as you start to grow and scale now the most useful part of the book which includes the Lean Startup process is section to steer so this is where we're going to be spending most of our time in this summary so although the book is organized into three sections there are five critical Lean Startup principles relevant to all parts of the book and the first is that entrepreneurs are everywhere so entrepreneurs don't just exist in garages but also in large corporations and even in government organizations secondly entrepreneurship is management now although it's not like traditional management such as you might learn on an MBA entrepreneurship is still management one where the management approach must be tailored to the specific needs of a start-up namely an environment of extreme uncertainty the third principle is validated learning so the job of your startup is to learn what your customers want in such a way that you can build a sustainable business the fourth principle is build measure learn and this loop is the fundamental activity of a startup iterating through this loop helps you learn the faster you iterate through it the faster you learn and make progress and finally we have innovation accounting and this gives you the tools to measure if your startup is making progress so let's take a look at the build measure learn feedback leap now our goal is to progress through the entire loop as quickly as possible by learning as quickly as we can we avoid wasting time and wasting money so let's go through a single iteration of this loop to see how it works in practice all startups have hypotheses on which they are born so these are the opinions or the assumptions about what your customers will want so you want to begin by selecting some of your more risky or even your riskiest or most critical assumptions to test first and once you've selected an hypotheses to test the next step is to build what's called your minimal Viable Product or MVP for short and your MVP allows you to test your hypothesis with the minimum amount of time and effort so it's really the minimum you need to build to enable you to test your hypothesis no more so once you have your MVP you enter the measure part of the loop by running your experiment and this means exposing customers to your product and collecting data on their behavior and finally you enter the learn part of the loop so here it's all about analyzing the data you've collected and trying to answer important questions so for example was your hypothesis correct if it was off by how much what have we learned and do we need to change an element of the strategy or even do we need to change our entire strategy now the faster you get through the entire loop the faster you learn now one thing to be aware of is that sometimes MVPs cost more than just simply building a feature so why is that well it's because in many ways it's more work to build an MVP that's because you have to not just build at the feature but you have to build in the capability to measure its success and you have to find customers to actually use that feature so the beauty of the MVP is that it tests real behavior so for example if you ask potential customers to complete a survey maybe 100 percent of them might tell you they'll buy your product when it's ready but that story often changes when you actually ask them to reach into their wallets and pay for it and that's the real power of the MVP now let's take a look at the different types of MVP available so the first is the video MVP and this works in spy instead of building a functioning prototype you simply create a video showing how your product will work and you then show that video to potential customers to see if it meets their needs and if they want the product when you build it and also it's a good idea here to ask them to pay for it up front usually enticing them to pay for it with a substantial discount now the most famous example of an MVP video is Dropbox and Dropbox is founder drew Houston he used a four minute video to explain what is a really complex product and based on that video he received some positive feedback and some funds for development and by using a video who knew that there was demand for his product rather than hoping that there was demand for his product next we have the concierge MVP and this is based on the idea that when you're just starting out you don't need to be able to handle thousands of customers you just need to make one customer happy servicing the customer is actually done manually now that's obviously not scalable but the point here is to prove the merit of your service before you invest the money and the time to build it another type of MVP is called the Wizard of Oz MVP and in a Wizard of Oz MVP customers believe they're interacting with your technology product but they're not the reality is that behind the scenes a human is actually doing the work now an example of a real company that started using a Wizard of Oz MVP is Zappos and before Zappos started the conventional wisdom or assumption at the time was that people wouldn't buy shoes online because they want to try them on so Zappos founder decided to test this hypothesis that people actually would buy shoes online and to do this he simply took photos of shoes and built a simple site selling them and when a customer purchased some shoes he went back to the store and bought them at retail price and then mailed them to the customer himself now eventually enough people bought shoes in this way and he was able to prove that there was indeed a market of people who wanted to buy shoes on line now there are also other types of every piece and in fact you're only limited by your imagination in how you create your MVP but two of the more popular are firstly a landing page MVP and suppose you have a great idea for some software so you start to think about your MVP now you might begin this process by trying to design the most critical value adding part of the software in the simplest way possible but with a landing page MVP you even need to do that you only build a web page describing your product and at the bottom of that page you simply add a Buy button now if people are trying to purchase the product then maybe you're onto something but if low or no numbers are trying to buy the product then perhaps it's time to think again now the key thing to remember with a landing page MVP is that you can use it to test whether customers want to buy your product without having to build a single line of code for your product finally the crowdfunding MVP now crowdfunding platforms such as Kickstarter or IndieGoGo not only allow you to validate your idea but also to receive payment before you've built your product no examples of super successful crowdfunding campaigns include the pebble smartwatch and also a card game called exploding kittens now it can be really scary launching your MVP you might be scared that someone is going to steal your idea you might be scared that it's embarrassingly simple and doesn't showcase your true vision for the future it might dent your pride to launch something that isn't fully ready or has a few quality issues and these feelings often lead to founders launching their MVP much later than they really need to get results so innovation accounting is about measuring progress and this is important because many people put so much effort into the MVP that they forget to really think about what they should be measuring they only measure vanity metrics or just plain bad metrics now a classic example of a lousy metric is measuring the total number of anything so total number of sales total number of users for example useful metrics should always have three characteristics known as the three A's and that means they should be actionable so your metrics should show clear cause and effect so if you perform an experiment you must understand how that experiment affected your metric otherwise how will you know if you're making progress the metric should accessible so make your metric as simple for everyone in the company to understand as possible and finally it should be auditable so it should be possible to dig into the data and see how a particular metric is put together and that's going to stop your team arguing about how the metric was constructed in the first place so so far we've only given examples of bad metrics so let's take a look at a few examples of good metrics so things like registration rate percentage activation rate percentage the customer lifetime value and the customer acquisition cost now an excellent way to measure progress is by looking at cohorts and a cohort is simply a group of people with some shared characteristic so in the table here you can see an example that should show you the benefits of using cohorts now as you can see from this table whatever changes you made to the platform on Friday seem to be working with the registration rate increasing from 3% to 9% now if you were looking at a vanity metric of total registrations then you wouldn't be able to see this improvement now some of you already might have spotted the potential problem with simple cohort test testing and that is namely but there might be something special about Friday that makes a higher percentage of people register on that day now another way to say this is that users might have some bias towards registering on a Friday so to overcome this problem we can use what's called a B testing now a B testing is simply an experiment whereby you show users two or more versions of a page at random during the same period of time so in this lower table you can see what might have happened had we run a B testing rather than cohort testing for our experiment and as you can see when the experiment is controlled in this way it transpires that test B was performing and that means in our original experiment there was indeed some bias towards users registering on a Friday and a kind of silence lies behind the Lean Startup and using a B testing it's a process that allows genuine good ideas to win rather than politics hunches opinions or market trends now in Lean Startup a pivot means to change direction but to stay grounded in what you've learned now to build a thriving business you're going to need a clear vision you also need a strategy to realize this vision and that's going to consist of things like a business model a product plan types of customers you want to attract etc and changing your strategy is known as a pivot but that doesn't mean that your vision changes so as you can if you look at this diagram what you'll find is that your product changes all the time as you update your MVP to test your latest hypothesis and get feedback and only if your metrics aren't making progress so your innovation accounting isn't moving you forward then you pivot by changing your strategy but your vision never changes so with that here's a couple of examples of some famous pivots can you guess who they are so this startup have found that their social check-in app was actually mostly used for photo sharing so they decided to focus on that and do that one thing well well that company became Instagram and this second company found that nobody was using their mobile app for shopping but they did discover that they were creating and sharing wish lists well that company became Pinterest so deciding when to pivot is a really tough decision and one reason for this is that startups seldom encounter of total failure when they test a new idea and you may feel like your startup is chugging along but not really gaining any traction now the number one sign that you need to pivot is that your metrics aren't good enough and that your experiments aren't making any progress towards moving the needle now in all likelihood you're going to pivot later than you should have and that's because as an entrepreneur you're probably an optimist and you think that maybe the next experiment will be the one that finally moves the needle and for this reason the book recommends a regular pivot or persevere meeting to specifically discuss if you should pivot or not and in the diagram here you can see that our initial attempts at an MVP eventually lead to a bit of a breakthrough and some improved maturity but after that although things are ticking along at this new level we can't figure out how to improve metrics further and it's eventually decided to pivot and as you can see this took our maturity back to zero but we did keep the valuable lessons we learned along the way from our previous experiments and you shouldn't think of pivots as a bad thing you're almost certainly going to experience that users don't respond as well to your ideas as you'd hoped and if you can't improve your metrics through experiments then you'll need to pivot or risk running out of cash or drifting along going nowhere fast so before we wrap up let's take a look at some common misconceptions about lean startups so the first one is that lean startup is cheap well the reality is that lean startup is not about money it's actually about speed mostly in start-up companies can deploy large amounts of capital when they need to the second misconception is that lean startup is only for technology and Internet companies well the reality is that lean startup can be used for all startups that face uncertainty about what potential customers want and the third misconception is that lean startups used data rather than having a vision well the reality is that their vision and drives lean startups but they test every element of that vision and every element of their belief so in summary the Lean Startup is designed for any startup or business that has to manage uncertainty a core principle of lean startup is that the faster you learn the faster you succeed and the only way to learn is to get the product or service in front of real paying customers now taking your ego out of the equation as a founder is essential and that's because with lean startup what you believe about your customers is going to be proved wrong and it's going to be proved wrong a lot but it's better to learn that quickly as that way you'll have the best chance of building a sustainable business the alternative is to yes be comfortable and happy but on a more or less guaranteed path to failure so overall this book contains loads of really useful information but one problem I found with with it was it didn't flow all that well so I think in terms of content it's a definite 10 out of 10 go out and buy this book but overall I have to give it a 9 out of 10 because I think it could have been much better structured so that's it for me really hope you enjoyed this summary and I look forward to speaking to you again soon