The Lean Startup by Eric Ries is one book that you must read whether you are in the process of building a startup or investing in one. This is a book that is taken seriously by all new entrepreneurs, especially those involved in internet entrepreneurship, app development or creation of software products.
It is a book that has achieved great fame in a short time and has spawned many success stories, such as Dropbox, AirBnB, TechCrunch, Aardvark, FriendFeed, Omnisio, and EtherPad. Of course, Dropbox is the most successful enterprise of the lot. We shall soon be blogging more about Dropbox and talk about how it has incorporated the Lean Startup methodology so successfully.
The whole idea behind The Lean Startup is to create a business, validate it, test the products, bring it to the even before you invest in the inventory and invest all your savings in it. The goal is to start small, get the product out at the earliest, constantly test and iterate the product based on how it is received by customers.
If the customers or the early adopters take to the product in a big way, then invest more on the inventory; release the product to a bigger market. Constantly test the product and find what works and what doesn’t. Eric Reis introduces concepts such as “Split Testing” and “Cohort Analysis” – which means testing two versions of the product or a solution on a select group of customers and finding out what sells better and what doesn’t.
Eliminate the product or solution that doesn’t sell, and stick to the one that does. This way, run continuous split tests on products or solutions and do the Cohort analysis simultaneously. The easy way to split test is to market the product on Google AdWords, using two different AdWord campaigns, testing the product on customers, finding out which of the two AdWord campaigns is more successful. Then, fine tune the successful marketing campaign, and eliminate the one that doesn’t quite work out well with customers.
The most important lesson one learns from Eric Reis’s book is that while starting a business is truly exciting, it is a fact that 80% of the new startups fail to achieve success in the first five years and are indeed doomed to fail. The reason for this is that the founders – who are likely to be engineers – fall too much in love with their product, while ignoring the fact that customers may not feel the same way about it.
A business grows only by winning customers and by ensuring a positive cash flow from the very first day it is open. The goal of a business is to offer value to customers and to generate money. If a business fails to make customers enthusiastic about its products or solutions and fails to generate a positive cash flow, regardless of how much time, money and effort has been spent on the product, it is unlikely to achieve any amount of success.
Now that we have addressed the basic idea expounded by The Lean Startup, let’s talk about who it is for. If you are simply starting a business based on an old and established business model, such as restaurant or a travel agency, we don’t think this book is for you. Because if your business is based on an old idea or business model, its success depends largely on how you execute the established and well known business model, and does not require any real innovative thinking from your side.
But if you are the owner of a startup that introduces new ideas or aims to shake up the existing business ecosystem, much like Mark Zuckerberg of Facebook or the founders of Dropbox, then you are reaching out to a customer base that you have no idea exists. You have no idea if your product or solutions will have buyers or not.
It is for founders of businesses such as these, which are on the cutting edge of both business and technological innovation that we believe Eric Ries’s The Lean Startup is most useful and is indeed, a must read.
This blog post is a part of our series on the book “The Lean Startup – How Constant Innovation Creates Radically Successful Businesses” by Eric Reis. We believe that reading this book would help you a great deal not only in your business, but also in identifying the right business partners. As always, we look forward to your comments and suggestions, so keep them coming. Ciao!