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Last updated on 8/6/19

The Lean Startup cycle

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Eric Reis, author of the definitive text "The Lean Startup", defines a startup as follows:

A startup is a human institution designed to create a new product or service under conditions of extreme uncertainty

The most important part of this definition is the "extreme uncertainty" part.  When working on a new product/service, there may be uncertainty that:

  • there is a demand for this product

  • customers will behave as we expect

  • we can attract customers to our store/website

  • our target customer segments will buy the product

  • our costs will be low enough to make profit

  • customers will understand our marketing message

  • customers will change their behavior (even if we think it would benefit them greatly).

Certainty vs Uncertainty

When a project can be approached with a high degree of certainty, the best activity is to plan. As we have high confidence that the plan is likely to succeed, the best strategy is to execute what we know will work well. The focus can therefore be on executing the plan and monitoring progress.

When a project carries a high degree of uncertainty, the best activity is to learn. As any plan would make too many assumptions that would be hard to justify. The best strategy is to increase the speed at which we learn until we have discovered which plan would work the best. The focus must be on learning and discovery and checking any assumptions that we have.

 

HIGH CERTAINTY

HIGH UNCERTAINTY

IMPACT OF PLANNING

High impact - the plan can guide us

Low impact - any plan is not likely to yield good results because there is too much we don't know

BEST STRATEGY

Plan carefully and stick to the plan

Systematically identify the areas where our knowledge is not sufficient. Quickly learn more.

FOCUS

Plan and monitor progress

Discovery of the best plan by learning more about what would work. 

The true value of Lean Startup is when we are operating in terms of extreme uncertainty. It provides a methodology we can use to accelerate our learning: start with a list of things we would like to learn, some ideas for how we can learn quickly, and a process for measuring data and analyzing results.

The Product Development Sequence

The product development sequence that dictates the process for building a product is as follows:

  1. Identify a problem and a set of potential users who have this same problem.

  2. Conduct product research to learn more about the intricacies of the problem, as well as the solutions that already exist today and how they might be implemented better.

  3. Validate a potential solution through carefully designed experiments and obtain data of the solution achieving traction on a small scale.

  4. Implement a full solution, working with the tech team, to build the right set of features that will delight customers.

It is important to respect this sequence because doing the activities for a given step without successfully completing the previous steps will reduce your chances of building a product that customers love. ❤️

This course will help you to learn about step 3 - how to validate your ideas.

The Validation step of the Product Development sequence
The Validation step of the Product Development sequence

Our main goal during the validation step (of the Product Development sequence) is to reduce uncertainty through verifying our assumptions. We want to move from a position of 'extreme uncertainty' to 'some certainty'. Our goal in this step of the Product Development sequence is to maximize learning and increase the speed of learning (i.e. reduce the amount of time it takes us to get data and insights). We do this by adopting an experiment-driven approach.

If the product research phase yields valuable insights, the validation phase should yield proof in terms of data (on a small scale) of key activities being done successfully with our product.

The Zappos story

Nick Swinburn is the founder of online retail company Zappos. Back in 1999, Nick felt that there was a huge opportunity to sell shoes online yet few retailers were doing so. Nick decided to validate this hypothesis using a lean approach. 

One approach to discovering if the 'online shoe sales' business would be profitable would be to invest a lot of money in inventory, buy a factory and distribution centre, hire staff, spend money on a large advertising campaign to get brand recognition and then hope that customers buy shoes on your site.

Nick took a lean approach instead. He approached local shoe stores and asked if he could take pictures of their shoes. In return, he promised that if anyone bought online, he would return to the store to buy the shoes. Then using these pictures, he set up an website offering these shoes for sale. Nick used a small budget to buy ads on Google to generate some visitors to his new website. He saw that these visitors did buy shoes from his site. Nick then went back to the store to buy the shoes and sent them to the customer who ordered.

Nick didn't make any money. In fact, he spend several hundred dollars in Google Ads, and spent days taking photos of shoes and then sending the shoes that customers had bought. However, the cost of Nick's time and small advertising budget was tiny compared to the cost of setting up a real factory with real inventory and hired staff. Not only was the cost of this learning tiny, but Nick was able to validate his idea in a couple of days, instead of the months or years it would have taken if he had set up the full retail delivery operation. 

Validation in Lean Startup is about learning very quickly and at a fraction of the cost of traditional approaches.

The Lean Cycle

The core flow of Lean Startup can be seen in the Lean Cycle below.

The Lean Cycle
The Lean Cycle

The Lean Cycle is a set of steps that you can use to take a Lean Approach to validating your assumptions (or hypothesis)

  • Decide what you want to learn. Be very clear on your hypothesis and come up with an idea for how you can validate this hypothesis on a small scale in a short timeframe. 

  • Build something that will allow you to test this idea. Your goal is to build something that gets you results quickly. Think about what this "minimum" product  is.

  • Now watch users interact with this product. Measure these interactions. The result is some data that you can analyze. Based on this analysis, you need to learn whether your idea-product-data validated or failed to validate your original hypothesis. If it failed, do we have any ideas of what might work next time?

Mapping the Zappos story to the Lean Cycle

Let's take a closer look at how Nick Swinburn of Zappos' approach maps to the Lean Cycle

  1. Ideas - Nick's hypothesis was that shoes would sell online. His idea was to test this using photos of shoes taken from local shoe stores.

  2. Build - Nick built a simple website with these photos

  3. Product - Nick's product was a basic eCommerce site listing these shoes as products

  4. Measure - Nick spend some money on Google Ads to drive traffic and he tracked what visitors did on his site

  5. Data - This visitor behavior is the data that Nick analyzed to determine the behavior of visitors

  6. Learn - Nick used this data to determine that customers were willing to buy shoes online and which factors were important to those customers making purchases.

Additional Resources

Example of certificate of achievement
Example of certificate of achievement