Lean Analytics

Preface

The Lean Startup movement is galvanizing a generation of entrepreneurs. It helps you identify the riskiest parts of your business plan, then finds ways to reduce those risks in a quick, iterative cycle of learning. Most of its insights boil down to one sentence: Don’t sell what you can make; make what you can sell. And that means figuring out what people want to buy.

Unfortunately, it’s hard to know what people really want. Many times, they don’t know themselves. When they tell you, it’s often what they think you want to hear.^[1] What’s worse, as a founder and entrepreneur, you have strong, almost overwhelming preconceptions about how other people think, and these color your decisions in subtle and insidious ways.

Analytics can help. Measuring something makes you accountable. You’re forced to confront inconvenient truths. And you don’t spend your life and your money building something nobody wants.

Lean Startup helps you structure your progress and identify the riskiest parts of your business, then learn about them quickly so you can adapt. Lean Analytics is used to measure that progress, helping you to ask the most important questions and get clear answers quickly.

In this book we show you how to figure out your business model and your stage of growth. We’ll explain how to find the One Metric That Matters to you right now, and how to draw a line in the sand so you know when to step on the gas and when to slam on the brakes.

Lean Analytics is the dashboard for every stage of your business, from validating whether a problem is real, to identifying your customers, to deciding what to build, to positioning yourself favorably with a potential acquirer. It can’t force you to act on data—but it can put that data front and center, making it harder for you to ignore, and preventing you from driving off the road entirely.

Who This Book Is For

This book is for the entrepreneur trying to build something innovative. We’ll walk you through the analytical process, from idea generation to achieving product/market fit and beyond, so this book both is for those starting their entrepreneurial journey as well as those in the middle of it.

Web analysts and data scientists may also find this book useful, because it shows how to move beyond traditional “funnel visualizations” and connect their work to more meaningful business discussions. Similarly, business professionals involved in product development, product management, marketing, public relations, and investing will find much of the content relevant, as it will help them understand and assess startups.

Most of the tools and techniques we’ll cover were first applied to consumer web applications. Today, however, they matter to a far broader audience: independent local businesses, election managers, business-to-business startups, rogue civil servants trying to change the system from within, and “intrapreneurs” innovating within big, established organizations.^[2]

In that respect, Lean Analytics is for anyone trying to make his or her organization more effective. As we wrote this book, we talked with tiny family businesses, global corporations, fledgling startups, campaign organizers, charities, and even religious groups, all of whom were putting lean, analytical approaches to work in their organizations.

How This Book Works

There’s lots of information in this book. We interviewed over a hundred founders, investors, intrapreneurs, and innovators, many of whom shared their stories with us, and we’ve included more than 30 case studies. We’ve also listed more than a dozen best-practice patterns you can apply right away. And we’ve broken the content into four big parts.

• Part I focuses on an understanding of Lean Startup and basic analytics, and the data-informed mindset you’ll need to succeed. We review a number of existing frameworks for building your startup and introduce our own, analytics-focused one. This is your primer for the world of Lean Analytics. At the end of this section, you’ll have a good understanding of fundamental analytics.

• Part II shows you how to apply Lean Analytics to your startup. We look at six sample business models and the five stages that every startup goes through as it discovers the right product and the best target market. We also talk about finding the One Metric That Matters to your business. When you’re done, you’ll know what business you’re in, what stage you’re at, and what to work on.

• Part III looks at what’s normal. Unless you have a line in the sand, you don’t know whether you’re doing well or badly. By reading this section, you’ll get some good baselines for key metrics and learn how to set your own targets.

• Part IV shows you how to apply Lean Analytics to your organization, changing the culture of consumer- and business-focused startups as well as established businesses. After all, data-driven approaches apply to more than just new companies.

At the end of most chapters, we’ve included questions you can answer to help you apply what you’ve read.

The Building Blocks

Lean Analytics doesn’t exist in a vacuum. We’re an extension of Lean Startup, heavily influenced by customer development and other concepts that have come before. It’s important to understand those building blocks before diving in.

Customer Development

Customer development—a term coined by entrepreneur and professor Steve Blank—took direct aim at the outdated, “build it and they will come” waterfall method of building products and companies. Customer development is focused on collecting continuous feedback that will have a material impact on the direction of a product and business, every step of the way.

Blank first defined customer development in his book The Four Steps to the Epiphany (Cafepress.com) and refined his ideas with Bob Dorf in The Startup Owner’s Manual (K & S Ranch). His definition of a startup is one of the most important concepts in his work:

A startup is an organization formed to search for a scalable and repeatable business model.

Keep that definition in mind as you read the rest of this book.

Lean Startup

Eric Ries defined the Lean Startup process when he combined customer development, Agile software development methodologies, and Lean manufacturing practices into a framework for developing products and businesses quickly and efficiently.

First applied to new companies, Eric’s work is now being used by organizations of all sizes to disrupt and innovate. After all, Lean isn’t about being cheap or small, it’s about eliminating waste and moving quickly, which is good for organizations of any size.

One of Lean Startup’s core concepts is build→measure→learn—the process by which you do everything, from establishing a vision to building product features to developing channels and marketing strategies, as shown in Figure P-1. Within that cycle, Lean Analytics focuses on the measure stage. The faster your organization iterates through the cycle, the more quickly you’ll find the right product and market. If you measure better, you’re more likely to succeed.

Figure P-1. The build→measure→learn cycle

The cycle isn’t just a way of improving your product. It’s also a good reality check. Building the minimum product necessary is part of what Eric calls innovation accounting, which helps you objectively measure how you’re doing. Lean Analytics is a way of quantifying your innovation, getting you closer and closer to a continuous reality check—in other words, to reality itself.

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Thanks and Acknowledgments

This book took a year to write, but decades to learn. It was more of a team effort than most, with dozens of founders, investors, and innovators sharing their stories online and off. Our personal blog readers, as well as the hundreds of subscribers to our Lean Analytics blog who gave us feedback, deserve much of the credit for the clever parts; we deserve all of the blame for the bad bits.

Mary Treseler was the voice of our readers and called us out when we strayed too far into jargon. Our families stayed amazingly patient and helped with several rounds of reading and editing. We sent early copies of critical chapters to reviewers, who verified our assumptions and checked our math, and many of them contributed so much useful feedback that they’re practically co-authors. Sonia Gaballa of Nudge Design did great work with our website, and the production team at O’Reilly put up with our unreasonable demands and constant changes. And folks at Totango, Price Intelligently, Chartbeat, Startup Compass, and others all dug into anonymized customer data to enlighten us on things like Software as a Service, pricing, engagement, and average metrics.

But most of all, we want to thank people who challenged us, shared with us, and opened their kimonos to tell us the good and bad parts of startups, often having to fight for approval to talk publicly. Some weren’t able to, despite their best efforts, and we’ll leave their stories for another day—but every piece of feedback helped shape this book and our understanding of how analytics and Lean Startup methods intertwine.

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^[1] http://www.forbes.com/sites/jerrymclaughlin/2012/05/01/would-you-do-this-to-boost-sales-by-20-or-more/

^[2] An intrapreneur is an entrepreneur within a large organization, often fighting political rather than financial battles and trying to promote change from within.