Everything You Need to Know About Lean Startup in 12 Minutes

Summary

The video script discusses the core concept behind the Lean Startup movement, emphasizing that startups are not smaller versions of large companies but are instead in a constant search for a viable business model. It introduces the idea of turning entrepreneurial faith into facts through customer development and agile engineering. The script highlights the importance of finding product-market fit and using minimum viable products (MVPs) to test hypotheses and maximize learning, aiming for a repeatable and scalable business model.

Takeaways

• 🚀 The core idea of The Lean Startup movement is that startups are not smaller versions of large companies but are in the process of searching for a viable business model.
• 📈 Traditional large companies are successful because they execute known business models, whereas startups are in the discovery phase, trying to define their business model.
• 🛠 Startups have historically been burdened with the expectation to execute business plans similar to large companies, which often leads to high failure rates.
• 🌟 Entrepreneurs are driven by passion and faith in their vision, but to succeed, they must quickly turn that faith into tangible facts through customer validation.
• 📝 The Lean Startup methodology emphasizes the importance of writing down hypotheses and testing them, rather than assuming they are correct.
• 📈 The Business Model Canvas by Alexander Osterwalder is a tool that helps articulate the various aspects of a business model on a single diagram.
• 🔍 Customer development is a key component of the Lean Startup, urging founders to get out of the building and test their hypotheses with real customers.
• 🛑 Agile engineering and the creation of minimum viable products (MVPs) allow for iterative and incremental product development based on customer feedback.
• 🔗 The concept of Product-Market Fit is crucial for startups, signifying that customers are actively seeking and engaging with the product.
• 🤖 Technologists often start with a product and then search for customers, which can be a challenge, highlighting the importance of the customer development process.
• 🔑 A startup is defined as a temporary organization designed to search for a repeatable and scalable business model, not just a place for innovation or free food.

Q & A

What is the core idea that initiated the Lean Startup movement?

The core idea is that a startup is not a smaller version of a large company. Instead, startups are in the process of searching for a business model, unlike large companies that execute known business models.

Why did traditional methods of business planning often fail for startups?

Traditional methods like writing a business plan and making 5-year forecasts were designed for large companies with known business models. Startups, however, need to validate their assumptions and search for a viable business model, which these methods do not facilitate.

What is the significance of the business model canvas in the Lean Startup methodology?

The business model canvas is a tool that helps articulate and write down the startup's hypotheses about their business model, including customers, value propositions, channels, and revenue streams, all on a single diagram.

What is the role of customer development in the Lean Startup movement?

Customer development involves getting out of the building to test hypotheses about the business model by interacting with real customers, which is crucial for validating assumptions and finding product-market fit.

How does agile engineering fit into the Lean Startup approach?

Agile engineering is about building minimum viable products (MVPs) that allow for iterative and incremental product development. This enables startups to test their ideas and gather customer feedback early and continuously.

What is the primary goal of a startup in its early stages according to the Lean Startup philosophy?

The primary goal is not to execute a business plan like a large company, but to search for a repeatable and scalable business model by testing hypotheses and learning from customer interactions.

What is the definition of a startup as per the Lean Startup movement?

A startup is defined as a temporary organization designed to search for a repeatable and scalable business model.

Why is it crucial for startups to find product-market fit?

Product-market fit is essential because it indicates that customers are genuinely interested in and value the product. Without it, a startup cannot grow or succeed in the market.

What is the purpose of a minimum viable product (MVP) in the context of Lean Startup?

An MVP is used to maximize learning by testing hypotheses about the product and business model with the least amount of development effort. It is not necessarily a defeatured version of the product but could be anything from a PowerPoint slide to a wireframe.

How should founders approach their assumptions and beliefs about their startup?

Founders should test their assumptions and beliefs as quickly as possible by getting outside and gathering facts from customers. This helps in turning faith into facts and making informed decisions about the business model.

What is the importance of learning and adapting in the Lean Startup process?

Continuous learning and adaptation are key to a startup's success. Founders should focus on the velocity and trajectory of their learning, adjusting their strategies based on customer feedback and market realities.

Outlines

00:00

🚀 The Birth of Lean Startup Philosophy

This paragraph introduces the foundational concept of the Lean Startup movement, which challenges the traditional belief that startups are simply smaller versions of large companies. It emphasizes the unique challenges startups face in searching for a viable business model rather than executing one. The speaker reflects on past entrepreneurial experiences where investors pressured startups to mimic large companies' practices, leading to high failure rates. The paragraph highlights the importance of testing hypotheses outside the building through customer development and agile engineering to iteratively build and validate products. The Lean Startup movement encourages founders to turn passion and faith into facts by getting early customer feedback and adjusting their business models accordingly.

05:01

🔍 The Quest for Product-Market Fit

The second paragraph delves into the critical search for product-market fit, a concept central to the success of any startup. It discusses the historical tendency of technologists to first develop products and then seek customers, which led to the creation of the customer development process. The speaker stresses the importance of understanding why customers behave in ways that may differ from expectations, as this is where true learning occurs. The paragraph also addresses the common misconception of what a minimum viable product (MVP) is, explaining that it is not merely a 'stripped-down' version of the final product but a tool designed to maximize learning about customer segments, revenue models, and other business aspects. The speaker advocates for a learning-centric approach rather than focusing solely on a polished presentation or product.

10:03

🛠 Defining and Scaling the Startup

In the final paragraph, the speaker provides a clear definition of a startup as a 'temporary organization designed to search for a repeatable and scalable business model.' It clarifies the misconception that the goal of a startup is to remain a startup, when in fact, the objective is to grow into a larger entity. The speaker emphasizes the importance of answering key questions about the business model early on and using MVPs to gather evidence that supports the chosen model. The paragraph concludes by reiterating the goal of finding a business model that is both repeatable and scalable, which is essential for the long-term success and growth of the startup.

Keywords

💡Lean Startup

The Lean Startup is a methodology for developing businesses and products, which emphasizes rapid iteration, validated learning, and efficient resource use. It was introduced in the script as a movement that fundamentally changed how startups are viewed, moving away from the idea that they are just smaller versions of large companies. Instead, it focuses on the search for a viable business model, which is central to the startup's success.

💡Business Model

A business model is a conceptual framework that outlines how a company creates, delivers, and captures value. In the context of the video, it is crucial for startups to define their business model early on, as it guides their strategy and operations. The script mentions that large companies execute known business models, whereas startups are in the process of searching for one.

💡Customer Development

Customer development is a core component of the Lean Startup methodology. It involves getting out of the building to validate assumptions about customers and their needs. The script highlights the importance of testing hypotheses about customers, which is essential for startups to understand their target market and adjust their product or service accordingly.

💡Hypotheses

In the script, hypotheses refer to the initial assumptions or guesses that startups make about their business, such as who their customers are, what they need, and how they will price their product. These hypotheses need to be tested and validated through customer development and other means to ensure they are grounded in reality.

💡Business Model Canvas

The Business Model Canvas is a strategic management tool used to describe, design, and analyze new or existing business models. It was mentioned in the script as a tool that helps startups articulate their hypotheses in a visual format, covering aspects like customer segments, value propositions, revenue streams, and more.

💡Agile Engineering

Agile engineering is a set of principles and practices for software development that emphasizes flexibility, collaboration, and customer feedback. In the video, it is connected with the Lean Startup approach, suggesting that startups should build and test their products iteratively, using minimum viable products to gather feedback and make improvements.

💡Minimum Viable Product (MVP)

An MVP is a product with just enough features to satisfy early customers and provide feedback for future development. The script explains that an MVP is not necessarily a 'defeatured' version of the final product but rather a tool for maximizing learning. It can be as simple as a PowerPoint slide or a wireframe, designed to test assumptions about the product and the market.

💡Product Market Fit

Product market fit is a term used to describe a situation where a product is well-matched to the needs of its target market. The script emphasizes that finding product market fit is critical for startups, as it indicates that customers are genuinely interested in and value the product being offered.

💡Execution

Execution in the context of the video refers to the act of implementing a business plan or strategy. The script contrasts this with the exploratory nature of startups, suggesting that while large companies focus on execution, startups need to focus on searching for a viable business model and testing their assumptions.

💡Temporary Organization

The term 'temporary organization' is used in the script to describe startups, emphasizing that their primary goal is not to remain a startup but to grow and evolve. This highlights the dynamic and transitional nature of startups, which are designed to search for a repeatable and scalable business model and then scale up.

💡Repeatable and Scalable

In the script, 'repeatable and scalable' describes the ideal characteristics of a business model that a startup is searching for. A repeatable business model is one that can be consistently replicated, while a scalable model can grow in proportion to increased inputs, such as resources or customers.

Highlights

A startup is not a smaller version of a large company.

Large companies execute known business models, while startups search for a business model.

The Lean Startup movement emphasizes the need for tools and language to describe the search for a business model.

Founders are driven by passion and faith, which can lead to success or failure.

The Lean Startup movement focuses on turning faith into facts as rapidly as possible.

The importance of getting outside and gathering facts early in the startup process.

The use of the business model canvas by Alexander Osterwalder to articulate startup hypotheses.

Customer development involves getting out of the building to test hypotheses.

Agile engineering and building minimum viable products (MVPs) are key components of the Lean Startup.

MVPs are not just defeatured versions of the product but are designed to maximize learning.

Product Market Fit is essential for a startup's success and involves customers actively wanting the product.

Entrepreneurs should focus on learning and adapting based on customer behavior, not just executing a plan.

Investors should be interested in founders who learn rapidly and can match the market.

A startup is defined as a temporary organization designed to search for a repeatable and scalable business model.

The goal of a startup is not to stay as a startup but to grow and become a large company.

The early phase of a startup is about answering questions about the business model, not just executing.

MVPs can be simple, like a PowerPoint slide or a conversation, and change over time to maximize learning.

The journey of a startup is more interesting in terms of learning and adapting than just presenting a smart idea.

Investors should value founders who can demonstrate learning and adaptation over time.

Transcripts

and this big idea actually is what

kicked off The Lean Startup movement is

that a startup is not a smaller version

of a large company this is a huge idea

nowadays it's kind of like well we kind

of understand that but when I was an

entrepreneur that was not the case our

investors taught us to do everything a

large company did a large company wrote

A business plan we wrote A business plan

a large company did a 5-year forecast

they made us do a 5-year forecast

large company hired sales marketing you

know Business Development VPS on day one

they told us to do that and more

importantly our investors assumed that

all we needed to do was execute the

business plan just like a large company

yet they were surprised when 90 some odd

percent of us would fail and they blamed

it on us as the

entrepreneurs the big idea that kicked

off The Lean Startup movement was not

only startups aren't smaller versions of

large companies is that large companies

execute known business models what's a

business model who's my customer how do

I price the product who's my competitors

what's my distribution Channel how do I

get keep and grow customers in that

large company you're large because you

know that and therefore you hire people

to execute but in a

startup the thing that you're all doing

you're actually searching for a business

model and that's the core distinction in

The Lean Startup Movement we built tools

for 100 years for execution but we had

no tools we didn't even have a language

to describe that what we're actually

doing is searching for a business model

so one of the biggest both benefits and

problems with being a founder of a

company is a Founder is driven by

Passion and faith and in fact on day one

a startup is closer to a religious

organization than anything else um

you're actually driven by your belief

that you see something that no one else

does and in fact that is not only the

reason that you will succeed that's also

the reason why you will fail because

very quickly for a startup to succeed

you need to turn that faith into facts

as rapidly as possible the mistake is

simply thinking that just because you

believe then therefore it exists and the

whole idea about the Lean Startup

movement says you know there are no

facts inside your building so why don't

you get outside and try to get some

facts as early as possible and that was

my contribution in this portion called

customer development and so the Lean

Startup movement actually does three

things it says let's take all your

hypothesis and by the way I use this

word hypotheses because that's Stanford

where I teach the students pay $50,000 a

year and their parents want to know

they're learning very big

words but outside of Stanford the word

hypothesis means guess and if you really

think about it most of your startups are

based around a series of untested

guesses though you might believe and you

might have convinced other employees to

join and you might have convinced even

investors to give you some money the

odds are most of what you have are a

series of untested guesses and what

we're going to do is have you write down

those guesses and we're going to use

something called the business model

canvas by someone named Alexander

osterwalder I would have added Alex's

book to your reading list this book is

called business model generation and in

one single diagram one piece of paper we

could put all your guesses all your

guesses who are the customers what am I

building for them what's the

distribution Channel how do I get keep

and grow them what are the profits and

losses and costs Etc and then the second

thing we're going to do is get out of

the building physically and sometimes

virtually and test those hypotheses by

doing the third thing agile engineering

and building minimum viable products and

so the Lean Startup consists of those

three pieces business model designed to

articulate or write down your hypothesis

customer development to get out and test

them and actual engineering to

physically build iterative and

incremental versions of the product

before you ever do what we used to call

first customer ship in a lean method

you're continually testing the product

almost from day one and it's not just

code it could be a PowerPoint slide

could be wireframe could be just data to

get some early customer feedback again I

want to emphasize if you're doing the

same thing you would have done in a

large company you are going to go out of

business

big idea don't believe that just because

you think so it's going to happen if

you're a technologist and in Silicon

Valley our history is we started with

products and search of customers in fact

that's why I invented the customer

development process because every

startup I ever did was semiconductors or

supercomputers or we had some great

technology invention and then they said

let's go find some business other people

actually might come out of a based where

they actually understood the customers

and are looking for products that could

serve them in either case the two most

important things you're searching for as

entrepreneurs as the founding team is

this fit between product and customer

and this fit is called Product Market

fit you can't go further in your startup

unless you have found product Market fit

and product Market fit is very simple

are people grabbing the product out of

your hands and saying I want it or I'm

using it or I'm buying it or I've given

you email addresses or I'm downloading

it or or some evidence that people

actually like what your vision is every

once in a while I get a student who

taken my class does a startup and then I

have coffee with them and they say

Professor blank the the customers aren't

behaving as I I think and so sometimes I

just kind of get exasperated and say

well maybe we should sh a copy of your

plan you know with the product and they

write down ship copy of plan with

product and I go no no no that's not

what you should be doing you should be

finding out why they're not behaving as

you expect and by the way customers

never never behave as you expect never

what I'm really interested in and so

should you is not how blib or how easy

you could describe your company I'm

really interested in what did you think

you know what did you find then what did

you do and then where are you now I want

to understand where did you start from

and what's how much did you

learn these 30 second pitches just tell

me that here's how smart you think you

are right now I'm really interested is

you if you didn't learn anything in the

last six months I'm running away because

I don't think you actually learned

anything I want to understand well

here's what I thought when I started the

company here's what happened when we Shi

some minimum viable products here's what

happened when the customers didn't work

the way we thought they would or pricing

or competitors Etc and so here's what

we're doing that journey is actually a

lot more interesting because it teaches

me the velocity and trajectory of the

teams now that scares some investors but

to be honest I wouldn't want to take

money from people who are interested in

a fancy PowerPoint slide I'd be

interested in people who are want to

invest in somebody who learns rapidly

and is able to actually match the market

you know um this word MVP

is overused but very relevant a minimum

viable product is whatever you could

building the most at a certain point of

time and if you're an engineer the

immediate reaction is oh I get it it's a

de featured version of the product it's

you know some of the features are

missing and that just misses the point

that's not what an MVP is an MVP on day

one could be a PowerPoint slide to the

UI or it could be a spreadsheet with the

data you're going to provide a customer

or it could be a wireframe or it could

be even a conversation and MVP changes

over time and what you're trying to do

is maximize learning it could simply be

different price points it could be AB

testing and pricing which has nothing to

do with the product that is what I'm

trying to do is learn about custom

customer segments Revenue model customer

acquisition cost volume Etc correct

channel right partners and so the

minimum viable product is not a smaller

version of the finished product it could

it might be but almost often is not in

the beginning of the company and and in

fact um it's almost worth reminding

people what a startup is you know when I

was an entrepreneur I always thought a

startup was the things I did which is I

woke up in the morning and figured out

how I was going to take over the entire

world if not the entire universe and

that's what a startup was but I realized

that there were a variety of definitions

in silan Valley a startup is the place

where you get free food and get to bring

your dog but you're not allowed to bring

your children I I never figured that one

out but so I came up with a definition

which might be helpful a startup is a

temporary

organization designed to search for a

repeatable and scalable business model

it was designed to be like you could say

it in a sentence so number one is I used

to love startups I did eight of them um

mostly because I was unemployable in a

large company so I I had to do

startups startup is a temporary

organization which means the goal of a

startup is not to become a startup

what's the goal of a startup to grow to

grow to become a large company so I put

the word temporary organization just to

remind ourselves that the goal is not to

stay as a startup designed to search boy

that's interesting I thought the goal of

a startup is to to grow and sell stuff

or get sold or whatever actually the

goal of a startup that early phase is to

answer a bunch of questions about your

business

model it's a big idea the goal in the

early days is not to hire people and

execute like you think you're

correct in fact the data says while you

think you're a Visionary there's enough

data across the world now to say you're

not a Visionary you're hallucinating big

idea and so therefore instead of wasting

your time we want you to search for a

business model who are the customers

what's the right price what's the right

feature set what's the right product

Market

fit and the way I want to do this is I

want to get some evidence that this

thing is the right business model and

I'll use MVP to do that um but I'm

looking for something that's repeatable

that is I could do the same thing on

Monday that works on Wednesday that

works next week and scalable that means

for an input of you know a 100 L I might

get 200 a back or for an input of a

certain amount of dollars I'll acquire

so many customers uh and so that's what

the definition means a startup is a

temporary organization designed to

search for repeatable and scalable

business model