Fundamental Definitions

These are definitions, terms and activities essential to any Lean Startup.

• Startup
  • A startup is a human institution designed to create a new product or service under conditions of extreme uncertainty.
• A Lean Startup
  • A startup that aims to reduce waste in human capital.
• Product
  • Eric defines this broadly: Any source of value for the people who become customers. Also any touch point with customers is part of the companies product.
• Innovation
  • Eric defines this broadly: Any new or novel thing a startup does.
• Validated Learning
  • Validated Learning is learning that is validated by empirical and concrete data collected from what real customers show you they really want.
• Metrics
  • Broadly, metrics are data points which give insights into different aspects of a business.
• Vanity Metrics
  • Metrics which make it look like the business is making progress - they may look good to investors and may make the business owners feel good - but they do not demonstrate or contribute to fundamental growth of the company.
• Actionable Metrics
  • Metrics which allow the business to make strategic decisions which move the business along.
  • Actionable metrics allow the business to demonstrate sustainable growth of the company at a fundamental level.
  • Metrics which demonstrate fundamental growth or failure of the business.
• Learning Milestones
  • The opportunity to fill in significant validated knowledge gaps.
  • e.g. Demonstrate value and answer value hypotheses through an MVP.
• Pivot
  • A structured change the business makes to test a new fundamental hypothesis about the product, strategy or engine of growth. A fundamental change in the business.
• Persevere
  • To persevere is to run the company with the intention of continuing with the current product, strategy and engine of growth.
• Pivot or Persevere Meeting
  • A regular meeting you have with ALL stakeholders (product develeopment teams, business leadership teams, outside advisers etc…) with the purpose of determining whether to pivot or persevere with the current product, strategy or engine of growth.
• Change vs Pivot
  • A change is a general change to or within the business, whereas a pivot is a change of fundamental hypothesis.
• Early Adopters
  • The customer who most acutely feels the need for your product or service.
  • They are the customers who are willing to work with you to realise the potential of what you are doing - they see the vision as well and are happy to use a sub-par product and take part in additional communication with you.
  • The type of customer that loves being first, would rather a crunchy app or service, they use their imagination to fill in missing features, they love feeling helpful and enjoy the advantage they feel they get form an early version.
• Innovation Accounting
  • Innovation Accounting is a method of verifying if you have or have not innovated in a positive manner with your product, marketing or operations.
  • Core to Innovation Accounting is identifying and tracking the right actionable metrics that will prove whether you're learning meaningful things about your business/product through your experiments.
  • Running experiments through Innovation Accounting consists of:
    • 1 - Developing a set of actionable metrics and measuring your businesses current level of those metrics. That becomes your baseline.
    • 2 - You attempt to tune the engine towards the ideal by making a series of micro changes or optimisations to operations, marketing and product.
    • 3 - Once you have done all you can to tune the engine, you measure your current level of metrics and decide to pivot or persevere by seeing if they have impacted the metrics meaningfully.
• Engine of Growth
  • The engine of growth is the mechanism that startups use to achieve sustainable growth, primarily consisting of the product, marketing and operations functions in a business.
  • There are 3 major growth mechanisms; viral, sticky and paid.
  • You are able to “tune” (make changes to) the engine of growth to improve its efficacy.
  • The engine does not consist of one-time marketing activities, although this may be a kind of “catalyst” to get it kickstarted, but achieving sustainable growth means that new customers will come from the actions of past customers.
• Tuning the engine
  • The act of working to improve product, marketing and operations within the business and subsequently improving the efficacy of the engine of growth.
• The Build-Measure-Learn Feedback Loop
  • The build-measure-learn feedback loop is a core function throughout the Lean Startup. It is where the scientific method meets startup businesses.
  • It works through developing ideas which you build a product from, you release the product and measure actionable metrics, you gather your metrics and use them to learn to gain better ideas of how you can improve the product or pivot into a different direction. Then the loop starts again.