What do PayPal, Flickr, Blogger and Twitter have in common, other than being successful and on the web?

They all started as something else first, something which was a failure.

The founders of these companies found ways to pivot from what they were doing to what they needed to do to succeed. Plus, they managed to do this before running out of money!

One of the few people who deeply understand this process is Eric Ries, the former CTO of IMVUand former Venture Advisor at Kleiner Perkins Caufield & Byers. Eric coined the term “Lean Startup” to describe startups that can successfully apply principles from agile software development and Steve Blank’s Customer Development process to the process of building a startup which is both low-burn and ferociously customer-focused.

This isn’t just theory for Eric: this is what IMVU did — the process has been described as “How IMVU learned its way to $10M a year.”

If you want to understand how to iteratively build a lean startup, you need to understand what Eric understands. This includes:

• how to increase your runway without getting more cash
• how to properly do split testing
• how to collect real metrics, not vanity metrics
• how and why to do continuous deployment (IMVU managed to deploy an average of 50 times per day!)

This knowledge, when presented in workshop form, costs $2000 for one day—and it’s worth every penny.

However, for under $30 today, you can download and read a PDF book of Eric’s wisdom about Lean Startups. The PDF is over 700 pages and is a pleasure to read. No, it’s not the same as a one day workshop—but at less than 2% of the cost, it’s a steal.

Eric Ries’s Startup Lessons Learned is in many senses the spiritual successor of Paul Graham’s Hackers and Painters:

• Both Paul Graham and Eric Ries are technologists, successful entrepreneurs and compelling writers.
• Both books are collections of essays which were first published on the authors’ respective blogs, and which are still freely available on their blog archives.
• Both collections of essays have been extensively read on the internet and have influenced many startup founders.

If you are doing a startup today you absolutely need to read Eric’s book.

As Eric says,

A startup is a human institution designed to deliver a new product or service under conditions of extreme uncertainty. (Lean Startup webcast postgame – p. 361)

If you are building any new product or service in these uncertain times, you can learn a great deal from the wisdom contained in this book—whether you are at a startup or a big company.

(If you’re not doing this, but you know someone who is, you can buy the PDF for them as a gift.)

Continue below for some of what you’ll learn, or click the buy button on the right of this page to buy the PDF of Startup Lessons Learned now.

Customer Development vs. Stealth Mode

Startups operate in stealth mode, right? According to Eric Ries, however, there are rare times when stealth is a good strategy, but it amplifies risks without necessarily improving rewards.

Stealth is a customer-free zone. (p. 435)

Validated Learning About Customers

If you’re a startup founder you’re probably pretty good at keeping people busy—but are you sure you’re making progress? Getting clear about what constitutes progress is probably the biggest shift in mindset required to build a lean startup.

What’s the difference between a vision and a delusion? The vision is grounded in reality.

Three types of people have reality distortion fields: good startup founders, bad startup founders, and crazy people. (Lean Startup fbFund wrap-up – p. 438)

Is your startup based on a delusion or vision? They often get blurred by entrepreneurs!

OK, let’s talk about the vision thing. It’s so important, and also so dangerous. Being able to convince other people around you (those within the “reality distortion field”) is necessary to sustain the passion and energy that a startup needs. But it can also be used for evil – to convince people to abandon their senses and work on something that nobody will ever want. How can we tell the difference? I saw a lot of people stealing glances at someone else in the room while I was talking about this. I’ve been there: is it me or my cofounder that’s crazy? What if it’s both of you? Use some customer development to find out. (p. 438)

Split (A/B) Testing

One specific way to differentiate between vision and delusion is to use Split Testing, a.k.a. A/B Testing.

The power of A/B testing is so under-exploited in product development, that I’m trying new ways to explain its benefits. Remember that we can use split-testing for both the problem team and solution team, and that causes a lot of confusion. Split-testing is great for linear optimization; making our landing pages, conversion rates, and retention metrics incrementally better day-in day-out. But it’s also amazing for testing big hypotheses, like what our customers really want to get out of our product. If you’re not doing both, you’re missing out. (p. 439)

Continuous Deployment

Although there is cost and overhead associated with continuous deployment, the benefits are immense. One such benefit is that, when combined with A/B testing, you can try out small features in less than the amount of time it takes to argue or prioritize them. Nothing is more demoralizing to an engineering team. Prioritizing in a vacuum is a leading source of waste.

Of all the tactics I have advocated as part of the lean startup, none has provoked as many extreme reactions as continuous deployment, a process that allows companies to release software in minutes instead of days, weeks, or months. My previous startup, IMVU, has used this process to deploy new code as often as an average of fifty times a day. This has stirred up some controversy, with some claiming that this rapid release process contributes to low-quality software or prevents the company from innovating. If we accept the verdict of customers instead of pundits, I think these claims are easy to dismiss. Far more common, and far more difficult, is the range of questions from people who simply wonder if it’s possible to apply continuous deployment to their business, industry, or team.

The goal of continuous deployment is to help development teams drive waste out of their process by simultaneously reducing the batch size and increasing the tempo of their work. This makes it possible for teams to get – and stay – in a condition of flow for sustained periods. This condition makes it much easier for teams to innovate, experiment, and achieve sustained productivity. And it nicely compliments other continuous improvement systems, such as Five Whys. (p. 410)

Five Whys

Whenever something unexpected happens, ask “why” five times: behind every technology problem is a human one. This kind of Five Whys root cause analysis is essential to improvement.

I have come to believe that this technique should be used for all kinds of defects, not just site outages. Each time, we use the defect as an opportunity to find out what’s wrong with our process, and make a small adjustment. By continuously adjusting, we eventually build up a robust series of defenses that prevent problems from happening. This approach is a the heart of breaking down the “time/quality/cost pick two” paradox, because these small investments cause the team to go faster over time. (p. 145)

Once this type of process takes root in your company, an amazing improvement feedback loop can set in.

Over time, here’s my experience with what happens. People get used to the rhythm of five whys, and it becomes completely normal to make incremental investments. Most of the time, you invest in things that otherwise would have taken tons of meetings to decide to do. And you’ll start to see people from all over the company chime in with interesting suggestions for how you could make things better. Now, everyone is learning together – about your product, process, and team. Each five whys email is a teaching document. (p. 145)

Lean Startup

But what does it mean to build a Lean Startup?

In a typical lean company, waste is defined as “every activity that does not create value for the customer.” And this is 100% correct. By driving this kind of waste out of your company, you actually boost creativity by eliminating bureaucracy, busy work, unnecessary hierarchy, and, of course, excess inventory. … But startups require a special kind of creativity: disruptive innovation. … By the standard of “customer value,” most innovation-seeking experiments are waste. Lean startups operate by a different standard. I suggest they define waste as “every activity that does not contribute to learning about customers.” (aka “how you get to product/market fit.”) (p. 105)

What happens as your company grows?

You don’t get a memo that tells you that things have changed. If you did, it would read something like this: “Dear Eric, thank you for your service to this company. Unfortunately, the job you have been doing is no longer available, and the company you used to work for no longer exists. However, we are pleased to offer you a new job at an entirely new company, that happens to contain all the same people as before. This new job began months ago, and you are already failing at it. Luckily, all the strategies you’ve developed that made you successful at the old company are entirely obsolete. Best of luck!” (p. 136)

Pivot, Don’t Jump, to a New Vision

What if you’re going in the wrong direction? Or how do you know if you are?

Increasing iterations is a good thing – unless we’re going in a circle. The hardest part of entrepreneurship is to develop the judgment to know when it’s time to change direction and when it’s time to stay the course. That’s why so many lean startup practices are focused on learning to tell the difference between progress and wasted effort. One such practice is to pivot from one vision to the next. (p. 418)

Cash is Not King

In a startup, cash is oxygen, right?

Cash on hand is just one important variable in a startup’s life, but it’s not necessarily the most important. What matters most is the number of iterations the company has left. While some cost-cutting measures reduce that number, others increase it. In lean times, it’s most important to focus on cutting costs in ways that speed you up, not slow you down. Otherwise, cutting costs just leads to going out of business a little slower.

The full formula works like this:

runway = cash on hand / burn rate

# iterations = runway / speed of each iteration

(p. 328)

To read more, click the buy button on the right of this page to buy the PDF of Startup Lessons Learned now.