October 25, 2012
As a prudent Startup Investor, reading the book "The Lean Startup" is important. The next several posts will give an overview of the Lean Startup Methodology and can act as a quick reference guide to the Lean Startup Method. This quick reference guide is taken from my reading of the Lean Startup book, from www.readitfor.me – Effective and Engaging Book Summaries – my studying and applying the methodology in my own investments and from my interaction with the community.
1.) How did the Lean Startup Movement Start?
a) The founder of the Lean Startup Movement is Eric Reis, a successful Startup Entrepreneur who comes from the system engineering side / product development world.
b) Eric gives full credit to many influences but most particularly Steve Blank, the Stanford professor/legend who is the founder of the Customer Development Model and Author of the Four Steps to the Epiphany, (highly recommended reading for a Lean Startup Investor).
c) The Lean Startup Movement has grown to a global scale and meet-up's and conferences and courses are widely available. For more info see www.theleanstartup.com.
2.) Five Principles of a Lean Startup:
a) Entrepreneurs are everywhere, they are anyone working on the next big idea.
b) Entrepreneurship is management, and thus a disciplined approach must be taken within a proven framework.
c) Startups do not exist to make money or even serve customers but to learn how to build a sustainable business, (This point is key in understanding how to invest generate ROI and exit a lean startup).
i. This point does not suggest that Startups should not or do not make money – in fact done right they make boatloads of cash and create tremendous prosperity. It is just saying that in order to make money they need to be a learning organization first.
d) Build, Measure, Learn. Repeat, Repeat, Repeat. Build a Minimum Viable Product, (more on this later as it is a key aspect of the methodology), get it into customer's hands, learn what does and does not work, and repeat the process as fast as possible (i.e. daily if possible).
e) Innovation accounting, which is determining and measuring good, not vanity metrics for success. Setting and hitting good, not vanity milestones and prioritizing you're your work.
As an investor, if you can understand those five principles you're giving yourself an immediate leg up. Not only will you be miles ahead of the majority of traditional private investors, but you will actually understand how the startups you're investing in function.
Technology changes at such a rapid pace that you can be out of the game for a month and the entire landscape has changed, being a one-time entrepreneur no longer guarantees you understand the way the market works. Understanding the principles of a lean startup and applying them to your investment strategy helps keep you on pace with the change rate of technologies.