The Lean Startup: How Today's Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses

The engine of growth comprises new products, new features, new marketing programs, and new business strategies that increase the production and revenue of the company. There are three engines of growth: sticky, viral, and paid. Sticky growth refers to customer retention while viral growth spreads through word of mouth. Paid growth is any form of paid advertising that leads to new customers. Ries recommends that new startups focus on one engine of growth at first and use validated learning to assess the method’s efficacy before expanding to other growth engines.

Innovation accounting allows startups to measure validated learning. The validated learning needs to prove that the company is moving towards sustainable growth. This type of accounting begins by changing the leap-of-faith assumptions about a product or customer base into quantitative financial models. Rate of growth is tracked as quantitative data and periodically referenced to ensure the maintenance of growth. Ries cautions against using vanity metrics, like a large number of users or large amounts of feedback, and focus instead on how users are interacting with products and what can be done to enhance that experience.

The minimum viable product (MVP) is a simple, cheap, and low-quality product or service that is developed and launched to test a hypothesis about its feasibility and appeal for a select group of customers. The MVP functions as an experiment to collect empirical and quantitative data about customer behaviors and the viability of the product on the market. The analysis of the data from the MVP test provides startups with feedback that can direct the next innovations and or adjustments for the next iteration of the product. MVPs reduce waste by saving companies time and money while gathering valuable data for product improvements.

The pivot is a sharp turn in the direction of startup’s product development, marketing, rollout, and redesign. A pivot is energy devoted into a strategic hypothesis that changes the direction of product development, marketing, and/or business practices. There are ten types of pivots:

• Zoom-in
• Zoom-out
• Customer segment
• Customer need
• Platform
• Business architecture
• Value capture
• Engine of growth
• Channel
• Technology

To persevere is to continue using the methods that work and appeal to customers until a pivot is necessary. These terms apply to how a startup responds to stagnation. Ries recommends that developers and managers look at all the data before deciding whether to pivot—change course—or persevere—stick with the same model until product performance improves.

A startup is a “human institution designed to create a new product or service under the conditions of extreme uncertainty” (27). Ries points out that an important part of this definition is what it omits; there’s no mention about the size of the company, the industry, or the sector of the economy. Any entrepreneur who is creating a new product or business under extreme uncertainty is working on a startup.

Tuning the engine is the process of optimization when a product needs adjustment. Tuning the engine differs from a pivot, in that the former changes a feature of the product or service, whereas a pivot changes the business strategy. Ries uses the metaphor of tuning an engine because each element of an automobile accords to precise mechanics that function in a series of cascading operations to move the vehicle. Likewise, each feature in a product must follow the precise mechanics of the business strategy to make the vision of the company grow. When disruption occurs to one element in the product or service, experimentation and feedback loops determine how to fix the issue and resume a smooth process of product development.

Validated learning is a unit of progress for startups. Using scientific methods, validated learning measures the progress of a specific aspect of the company: “vision and concept, product development, marketing and sales, scaling up, partnerships and distribution, and structure and organizational design” (19). This method uses learning milestones captured in quantitative data to hold cross-functional teams accountable. Validated learning also seeks to identify, diminish, and eliminate waste in all processes of a company.