The Lean Entrepreneur: How Visionaries Create Products, Innovate with New Ventures, and Disrupt Markets

Special Thanks

Without our early adopters, who believed enough in The Lean Entrepreneur to pre-order a book when it was merely a landing page with a silly video, we might not have survived the process of writing this book and seeing it published.

Their early feedback on content and exercises forced us to simplify, focus, and home in on how to move the needle for them.

            Thank you.

Brant and Patrick

The Lean Entrepreneur Early Adopters*:

*To view this list of names online, please visit http://leanentrepreneur.co/earlyadopters.

Foreword

When I first started blogging in August 2008, I had no idea what to expect. Startup blogging was hardly cool back then. Plenty of venture capitalists advised me against it.

My personal background was as an engineer, and my companies had been web-based startups, so that is what I wrote about. Struggling to explain the successes and failures of those companies, I discussed principles like continuous deployment, customer development, and a hyper-accelerated form of agile. When I delved into lean manufacturing, I discovered that the concepts and terminology dovetailed. The result: a new idea I called the Lean Startup.

I started with some basic theory: that a startup is an institution designed to thrive in the soil of extreme uncertainty, and that traditional management techniques rooted in forecasting and planning would not work well in the face of that uncertainty. Therefore, we needed a new management tool kit designed explicitly for iteration, scientific learning, and rapid experimentation.

At the time, I viewed it as incidental that the theory might be tied to a particular industry, such as high-tech startups or web-based environments. Lean, after all, emerged from Toyota, a huge automobile manufacturing company. I simply stated my belief that Lean Startup principles would work in other types of startups and in other areas of business where uncertainty reigned.

Boy, was I unprepared for what happened next. I was hopeful that we would change the way startups are built—but I didn’t know.

Fast-forward more than seven years, and I’m astounded by what has emerged. A nascent community has blossomed into a full-fledged movement. Entrepreneurs, both new and experienced, proudly share their Lean Startup learning in case studies, conferences, and many, many blogs. Books, workshops, and courses written and led by passionate practitioners relate experiences, share insights, and create tools to teach students ways to make Lean Startup principles their own. Many investors, advisors, mentors, and even celebrity entrepreneur icons speak the Lean Startup language.

It’s a big tent. We stand on the shoulders of giants: customer development, the theory of disruptive innovation, the technology life-cycle adoption theory, and agile development. Complementary lines of thinking, such as that of user experience professionals, design thinking practitioners, and the functional disciplines of sales, marketing, operations, and even accounting, come together to share practices that lift us all.

Lean Startup has gone mainstream. I wish I could say that this was all part of some master plan, that I knew all along that companies of all sizes—even those far outside the high-technology world—would embrace Lean Startup. I wish I had foreseen that within a year of publishing The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses, many large organizations, including such monsters as the U.S. federal government (!), would have recognized that to cope with today’s world—faster, more competitive, and inundated with data—new methods are needed to keep up. The truth is that all of this change has happened faster and more thoroughly than any of us imagined. And—as you’re about to see—we’re just getting started.

That’s why I am so excited by this book you hold in your hands. The Lean Entrepreneur is about these new methods. Brant Cooper and Patrick Vlaskovits are among the earliest adopters of new ideas such as Lean Startup and customer development. Their new work turns their lens on three primary focal points: how to interact with customers, run experiments, and use actionable data to move the needle of any uncertain business endeavor.

As with all of their work, theirs is not just a book of theory. Brant and Patrick provide great tactical depth in each of these areas.

They endeavor to answer the question: No matter where you are as an organization, how do you know where to focus your Lean Startup activities? The Lean Entrepreneur offers new thinking, tools, and activities that help organizations identify and act upon business model challenges in a waste-eliminating manner. Following the precepts of traditional lean thinking, Brant and Patrick introduce the Value Stream Discovery process, which helps organizations hypothesize what they must do, including product development, marketing, and sales, in order to create value. These business model assumptions are then ripe for testing, measuring, and iterating upon.

Further, the value you create is meaningless without a customer who needs, wants, desires, and, ultimately, determines the final value of your creation. Brant and Patrick spend considerable time helping you think through your customer segments. Cleverly, and in the spirit of the scientific method, they even help you discover where your customer theory is wrong.

Everyone likes a good story; Brant and Patrick interviewed dozens of entrepreneurs and documented numerous case studies both inside and outside of high technology, in both startups and large enterprises. There’s even a classic Wizard of Oz minimum viable product that dates back to 1998!

Make no mistake: Brant and Patrick have been here since the beginning. They self-published The Entrepreneur’s Guide to Customer Development in April 2010.

From the outset, they were both practitioners and mentors, urging entrepreneurs not to follow a paint-by-numbers approach, but rather to think lean: fast, agile, and continuously learning. Over the past two years they’ve traveled around the world speaking, advising, and teaching Lean Startup.

The Lean Entrepreneur is an important addition to the growing library of principles and practices designed to improve how we tackle innovation and uncertainty, be it in high-tech startups, Fortune 100 companies, nonprofits, or government offices.

I consider myself lucky to count Brant and Patrick as friends and colleagues. It is my hope that from this book you will gain valuable insights, that you make Lean Startup your own, and—much more important—that you are successful in changing the world for the better.

Eric Ries

San Francisco

January 2013

Introduction

WHAT IS THE LEAN ENTREPRENEUR?

It’s hard to know where you live on the curve. As far as we can tell, the arrow of time moves in one direction. You can never step in the same river twice (Heraclitus), and all that.

Change isn’t constant. We change constantly, but at different rates, depending on where we are on the curve. Fast change comes in times of cheap experimentation. Massive new life emerged on Earth during time periods in which a convergence of foundational platforms, like the different aspects of Earth’s biosphere, favored the emergence of diverse species, most of which failed. Massive new technologies emerge when the discovery and extraction of massive amounts of resources (water, minerals, fuel) provide low-cost industrial experiments, most of which fail.

Although our narratives of the past reveal eras of big change, those who lived during those times likely didn’t see it that way:

Hey bro, pretty cool, we’re living in the Age of Renaissance, yeah?

Beats the Middle Ages, dude.

Word.

The life you live defines normalcy.

Is change big or little? Dramatic or incremental? Permanent or cyclical? Disruptive or sustaining?

No one can pinpoint where we exist on the curve. Is change over or just beginning? Are we at an inflection point? Up or down? Is the end nigh, or is the Age of Aquarius approaching?

A broken clock is right twice a day.

How can we know when we are amid big change? Listen to experts and incumbents. If you hear a lot of this, then be forewarned—The times, they are a-changin’ :

Don’t worry, it’s just the business cycle; or, in other words, the next bus to pick us up will be by in five minutes.

"Will x be ubiquitous? Oh that’s ridiculous; x is exactly what is already consuming your market. ‘It’s just a normal cycle, we’ll be back.’ "

Piracy is killing us!

The Lean Entrepreneur is about navigating change.

Whether what’s emerging is considered the postindustrial age, an information society, or an experience economy, The Lean Entrepreneur aims to help you create products people want, innovate with new ventures, and disrupt markets. With big change comes big opportunity. We’ll provide you with grounded ways to market-test your ideas with the right market segment; we’ll give you real, tangible examples of how successful entrepreneurs are applying lean innovation principles; and we’ll get you started right now and get you up to speed quickly.

We think of The Lean Entrepreneur as a field guide because it is designed to be brought into the field, whether that is your office, the local co-working space, your client’s place of business, or the local coffee shop as you surf cyberspace, planning your conquest. Whereas a traditional naturalist field guide helps outdoorsmen identify the plants and animals of a certain geography, our field guide will help you identify concepts and ideas in the geography of innovation. At first blush, some of these ideas may not appear to be applicable to your business, but with an open mind and a spirit of creativity, we will demonstrate how these concepts can and will radically reshape how you bring products to market and, ultimately, success to your business.

The Lean Entrepreneur is a book of synthesis, of recombination, and, we hope, of inspiration. It is a synthesis in that we will show where several preexisting ideas about how to innovate, which initially appear to be virtual islands strewn across a sea, actually share connections and complement each other. And if we have done this well, a larger, more complete, and more comprehensive map of the changes coming and how to innovate now will have emerged for you.

As Henry Ford recombined existing technologies from different domains (interchangeable parts, the assembly line, the electric motor) into a wholly novel and disruptive set of innovations resulting in the manufacture and distribution of the first durable, mass-market automobile, we hope to inspire vis-à-vis our interpretations of several big ideas, which will result in a new approach that scales well for disruptive innovators and entrepreneurs—from small, value-producing businesses to the Fortune 500.

The product development methodologies and innovation frameworks espoused by The Lean Entrepreneur are heavily influenced by truly big thinkers, such as Steve Blank and Eric Ries, creators of Customer Development and The Lean Startup, respectively. However, other, rather similar, innovation methodologies such as design thinking and discovery-driven planning also exist.

All the aforementioned frameworks tend to be driven by principle rather than by a set of cut-and-dried tactics, and are typified by iterative, customer-centric, data-informed approaches resembling the scientific method; and we, as natural-born bricoleurs, happily borrow from ideas that we deem appropriate as well as discard or ignore what we deem unhelpful.

We urge you, the reader, to do the same with ideas and approaches presented in this book.

WHY READ (BE) THE LEAN ENTREPRENEUR?

Our mission in writing The Lean Entrepreneur is threefold:

To describe why our economy is primed for a new wave of entrepreneurship using new methods of disruptive innovation.

To provide real-world examples of how entrepreneurs are creating new markets and disrupting others.

To show you how you can get started creating value.

The context of The Lean Entrepreneur is an iterative, customer-centric, data-informed business development approach in the face of market uncertainty. Although, to some degree, all businesses operate in conditions of market uncertainty, all such conditions are not created equal. Market uncertainty can be described by an innovation spectrum stretching from lesser market uncertainty when undertaking sustaining innovation to greater market uncertainty when pursuing truly disruptive innovation.

Uncertainty and innovation are a duality. Without the former, there is no opportunity for the latter. True disruptive innovation can only happen in environments in which the final product, and its value proposition, price, marketing, sales channels, and, most importantly, its customer are, at best, educated guesses but, more than likely, almost completely unknown.

The inverse is also true: If one is developing products for which the value proposition, price, marketing, sales channels, and market segments are known or very likely to be known, then iterative, customer-centric, data-driven approaches as espoused by The Lean Entrepreneur may be suboptimal.

Suffice it to say that when the value proposition is known and successfully delivered by a business to a known customer, the methods of execution used by its owners and employees are good enough, at least for now. Perhaps they could become more efficient or less wasteful, but to instruct successful businesses on how to be more efficient is not our ambition.

As you read The Lean Entrepreneur, we’ll make the case that innovating in uncertainty requires a highly iterative approach. We’ll also make the case that a disproportionate part of your business model is ultimately determined not by command-and-control diktats from the executive offices of your company or even your own personal desires but implicitly by the market segment you hope to provide value for. The sooner you grok that your customers have significant de facto control over the destiny of your business, the better it is for you, your customers, your employees, your colleagues, your shareholders, and other stakeholders in your business.

To belabor the point, it is your market segment, not you, that determines how you distribute your product, how much customers are willing to pay, what sort of messaging they respond to, and for what job they are in need of hiring a product. In other words, other than the fact that you can choose whether to serve a particular segment, it is up to the segment to decide whether you should be given a shot.

Since iterative, customer-centric, data-informed product development approaches to creating value predate this book, is this simply a gussied-up rehash of previous thinking?

Short answer: No.

We hear time and time again that the greatest contribution made by Eric Ries and the Lean Startup is the lexicon. It provides a language for anyone practicing entrepreneurship to talk about how to do meaningful innovation. The point has never been about who came up with what, but, rather, how we can learn from past successes to make future endeavors more predictable.

We feel that we are now witnessing a phase marked by radical disequilibrium and fundamental changes in innovation and entrepreneurship enabled by a juggernaut of technological and cultural trends.

The best way to navigate the near future is to hyperfocus on creating value for customers and moving at the speed of the Internet. We’ll show you how.

WHO IS THE LEAN ENTREPRENEUR?

We’d like to answer that question like most entrepreneurs who are asked to define their market: Everyone! However, in order to demonstrate that we drink our own Kool-Aid, we have spoken to and worked with many different individuals as we wrote this book. Here are our market segments:

Scalable startup founders—If you are hoping to build the next big thing.

Lifestyle business founders—We don’t think the term is derogatory in the least. If you’re trying to build a real business that provides value to customers, we’re talking to you.

Intrapreneurs—If you are trying to change your business, whatever size, to move at the speed of the Internet, read on.

Educators—You recognize that entrepreneurship needs to be taught differently.

Government change agents—If, like entrepreneurs trying to drive change inside big businesses, you are trying to drive change in how governments operate, we’re here to help.

Investors—You could use help finding and providing assistance to the right startups.

Although we’d like to think this book will benefit everyone to some degree, this book is likely less than optimal for these market segments:

Small-business founders who are starting companies for which there is already a known model—Typically these are the types of businesses found in malls: dry cleaners, retailers, franchises, and so forth.

Lifestyle business owners—If you’ve already built your business and are generally satisfied with what you’ve achieved, congratulations! You probably don’t need us.

Solo practitioners—If you’re trying to generate a personal or family income stream via projects or small-scale products or services, we think that’s great! There are probably better books for that.

Generally speaking, if you’ve read Eric Ries’s The Lean Startup and are looking for more tactical application of the principles espoused there, this is the right book for you. If you haven’t read it and need convincing that a lean startup is the right thing for you and your organization, we will make the case—but you really should read Eric’s book.

If you’ve read The Four Steps to the Epiphany, our Entrepreneur’s Guide to Customer Development, or Blank’s The Startup Owner’s Manual, you will find new tools and methodologies for applying the principles you already believe in. There is not a lot of duplication here.

If you are well into the lean startup movement, a heavy reader of Ash Maurya, Cindy Alvarez, Sean Murphy, and others, we firmly believe we have exciting new material you can use to grow your business.

HOW TO USE THE LEAN ENTREPRENEUR

With this book, we hope to not only teach you and inspire you, but also to show you some fun along the way.

To that end, we’ve engaged a talented entrepreneur and artist who goes by the name of Fake Grimlock. Fake Grimlock has created an expressive set of illustrations just for The Lean Entrepreneur. The illustrations tell a story and serve to amplify concepts from the book.

You’ll find them a bit whimsical at times, but be prepared to think deep thoughts as you take them in.

We’ve made them available for you for reuse and remix, subject to the Creative Commons license.

If you want to download the illustrations to use them in your presentations or blog posts or in other interesting ways, please do.1 You can access them at http://LeanEntrepreneur.co/illustrations or e-mail us at pics@leanentrepreneur.co.

Our writing style aims to get to the heart of the matter quickly. Experts in specific domains will notice, probably much to their irritation, that we intentionally gloss over some of the finer points we discuss. This is not because we don’t think the details matter; they do, but they don’t matter for the context of this book.

The New and Improved Lean Entrepreneur is divided into seven chapters:

Startup Revolution—A brief redux on what’s going on now that makes lean innovation the right methodology to apply to your business, regardless of size or sector.

Lean into Change—We describe what vision, values, and culture have to do with innovation.

All the Fish in the Sea—We help you figure out what customers fish for.

Wading in the Value Stream—We bring you a framework to establish new value to be created for customers.

Core Lean Entrepreneur—We introduce the 3Es of lean innovation—empathy, experiments, and evidence.

The Lean Journey—We describe how you apply the 3Es over the innovation lifecycle.

The Final Word—We end with a call to action.

Throughout, we include examples of real companies applying lean startup principles and succeeding. We hope you gain learning and inspiration from these companies, many of whom don’t use the term lean to describe themselves.

Each chapter also includes exercises and templates you can use to help you think through your business model. Although we don’t believe a step-by-step approach to success exists, we think many will find our exercises beneficial.

Learn the craft, then make it your own.

True visionaries relentlessly pursue the change they want to see.

NOTE

1 We’ve licensed the illustrations with http://creativecommons.org/licenses/by-sa/3.0/. We’d love for you to use and share them, just remember to attribute "The Lean Entrepreneur