Hey, Nick here! In this newsletter, I curate insights and timeless principles on how to build great products. You’ll improve your product skills with every issue.

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The Lean Startup

The Lean Startup is a book by Eric Ries that has gained popularity over the last decade. Reis joined venture capital firm Kleiner Perkins as venture adviser. During this time he developed the lean startup methodology which borrows from the lean manufacturing process. The aim us to eliminate waste and increase value added processes. 

Here are 5 insights.

The Build-Measure-Learn Feedback Loop

Planning and forecasting are useful when operations are stable and the environment is static. Startups aren’t stable or static. This doesn’t mean that a plan shouldn’t be formed for a startup, it means that different types of management are required. Reis suggests using the Build, Measure, Learn feedback loop to get work done. 

“The goal of a startup is to figure out the right thing to build that customers want and will pay for as quickly as possible.”

In order to implement the feedback loop, you first start with what you want to learn. Create a hypothesis that will be tested. 

Examples:

• “Commuters want to be able to order food from their cars” - McDonalds

• “People are willing to assemble their own furniture at home” - Ikea

• “People are willing to pay monthly for being able to stream unlimited music online” - Spotify

Figure out what to measure and then build the product. See how the product does compared to the measurements. Check your measurements compared to your hypothesis and change as necessary. The loop starts again after changes are made.

Everything is a Grand Experiment

Experimentation occurs to figure out if the hypothesis is correct and if people are willing to pay for the product. Customers don’t usually don’t know what they want, so it’s amazing to create a product that they don’t even know they need.

In order to experiment, a Minimum Viable Product (MVP) is created to test the hypothesis. Everything that doesn’t lead to validated learning is waste. The MVP should only contain the features of most importance to prove or reject the hypothesis 

Different Types of MVPs

There are three different types of MVPs:

• Video MVP

  • Dropbox started off by posting a video of what Dropbox could look like

  • The product wasn’t built, it was all fake

• Concierge MVP

  • Focus on a few customers and develop product according to their preferences

  • Solving manually and then automate

• Wizard of Oz MVP

  • Pretending that a fancy solution is developed, but it’s all operated by humans in the background 

The Engines of Growth

Once there is confirmation the product creates value for someone, then thought needs to switch on how to scale. 

There are three different growth engines to scale

• Sticky engines 

  • Repeat purchase companies that attract customer for the long term (e.g., razorblade model)

    • Key success metrics:

      • Customer acquisition rate 

      • Churn

• Viral engine

  • For every new customer joining, they should invite one or more people (e.g., social networks)

    • Key success metrics:

      • Viral coefficient - how many new customer can a current customer

• Paid engine

  • Has to focus on advertising to get customers (e.g., e-commerce)

    • Key success metrics:

      • Cost per acquisition

      • Lime time value of the client 

        • This is difference on how much value a customer brings compared to the cost it takes to acquire the customer

Pivot or Persevere 

Nothing will go according to plan in a startup. The founders can’t give up after facing some challenges, but need to be flexible on the feedback the market is giving. It’s hard to when to pivot, but Reiss gives the following advice: 

• How to know when to pivot:

  • Establish a baseline of the current MVP

  • Attempt to tune the MVP based on feedback

  • Pivot or persevere based on adjustment 

    • If attempt changing the MVP isn’t looking like it’s working, then a pivot could be necessary 

    • Persevere if the change improved the MVP

He also lists some of the most common pivots.

• Types of pivots

  • Customer segment pivot - change the customer base to another group

  • Value capture pivot - give it away for free and get money from ads

  • Engine of growth pivot - change the growth engine

You can find a link to the full video here.

End Note

Thank you for reading!

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Have a great day,

Nick