The Book That Made Me Millions…

– Welcome back to the channel. Today, we’re gonna go through one of my favorite books, “The Lean Startup” by Eric Ries. This book changed my life. This is part of our new series, “The Million Dollar Book Club.” In this series, we’re gonna discuss the top selling books for business and learning.

I was failing so many startups, burning a lot of money and just couldn’t find success. It was only until I read this book, did I launch The Oodie. We’re gonna do today in five main parts. Firstly, we’re gonna talk about how all startups need to adapt a build, measure, learn feedback loop. Secondly, we’re gonna talk about how to conduct experiments and why they’re so important to startups.

Then you might have heard the term MVP before, we’re gonna break it down.

We’re also gonna discuss when to pivot and when to persevere, which is a really important thing to know. And finally, the engines of growth for your business in the early days of your startup, you really need to focus on validated learning and learning very, very quickly. The more validated lessons that you can learn, the quicker you can get to your goal, which is basically trying to find out if anyone wants your product. In order to achieve these validated learnings, we can set up a build measure, learn, feedback loop.

The first step of this loop is creating a hypothesis. A hypothesis is basically an idea that we can test. To explain this properly, let’s chat about a business idea and a potential hypothesis that we could create for it.

Imagine a drone delivery network. Our business idea is basically we are going to ship products to our customer via a drone.

Our first hypothesis could simply be are people willing to pay for extremely fast delivery for any product? Once you’ve created this hypothesis, you can create a MVP to serve it, which is a minimum viable product. Basically it’s creating the leanest version of your business to test the hypothesis.

This is the build portion of your build, measure, learn feedback loop. DoorDash is a very correlated example to the business that I just pitched.

When they first started, there’s stories of the founder simply creating a website, not even signing up restaurants, putting up their products. And whenever someone ordered through the website, they would just go themselves, pick up the food and deliver it to the customer to try to get some actual learnings about the product. If we wanted to create a similar MVP, rather than buying 100 drones and signing up a lot of restaurants and hiring employees, we could simply get one drone, get approval and then actually go deliver the products.

But then we need to measure the results from that. What does success look like?

And that comes back to the hypothesis that we set in the beginning. Sure, you can ask friends and family about your idea, but the truth is they’re always gonna say it’s great, and it’s always genius. But until someone’s willing to pull out their credit card and pay you for the service, it’s very hard to know if you are onto something. Plus there’s a ton of challenges that you’re gonna come up against that you probably didn’t think of in the early stages. For example, some of the learnings that you might have around this drone delivery network is that you need a bigger drone to deliver bigger goods, or the drone might run out of battery or doesn’t have enough range.

It might be that you just get heaps of complaints about the noise and people just don’t wanna adapt the service. At this point, when you start getting feedback about the business, you can actually decide to pivot or persevere, which we’ll get into in a little bit. In short, the build, measure, learn feedback loop is really about answering does someone want your product? It’s a great mental model for you to take away to your startup. Are you hiring people that aren’t actually helping accelerate the learnings?

Are you trying to scale things that might not actually be there in a year’s time when your business model changes? One example where I failed to do this was my seasoning business.

I had over 600,000 followers on Instagram on a range of niche pages, mainly based around nutrition. My theory was that I could create a seasoning brand and sell it to those followers. I spent all weeks grinding up seasonings and packaging them.

I invested a lot of money, but I didn’t actually ever try to post that kind of product and sell it on the page. When it came to launching, I launched on the Instagram and barely got any sales. I didn’t have product, channel fit. That could have all been avoided if I just created a couple of products and tried to sell them really simply through a Shopify store. The other takeaway that I got from this book is how to run an experiment.

All the biggest brands out there and the best websites out there have had hundreds of experiments run on their products and services. They’re constantly tinkering how to increase customer satisfaction and profits. Startups really need to apply this logic, but they need to do it in a way of finding product, market fit. Remember, when you’re running an experiment, you’re basically testing one hypothesis, which is the riskiest and the one that you need to prove the most.

If you’re working in eCommerce or SaaS, basically it is does someone want to pay for your product?

One thing that’s really important in this stage is communication with your team, or at least getting really structured if you’re a solo founder. You need to write down these hypotheses. You need to write down how you are running the test, and you need to revisit your assumptions ongoing. Survey your customers during the experiment so you can get as many learnings as possible. Once you feel like you’ve completed the experiment, go onto the next one and keep iterating.

And don’t forget, remember to learn from your failures as well as your successes. If you are struggling with the experiment stage and how to set one up, take a look around at all the products and services that exist. Everything from their website, their customer experience and their product has been tested and iterated on hundreds of times. These brands are massive. They have huge teams on it, and that is why their products are so perfect.

As a founder in a startup, you don’t have that luxury. You need to prioritize your testing and where you are running experiments. The first step of the build, measure, learn feedback, as we just talked about, is building the MVP. You need to build this as lean as possible. These lean concepts were actually created by Toyota in the ’80s and ’90s.

They revolutionized the production line, reducing a ton of waste. Waste back then was defined as something that doesn’t contribute to the customer experience. Eric defines ways differently in a startup. He defines waste as something that doesn’t actually increase the learnings for the startup. Basically things that aren’t confirming hypotheses.

This is why you need to build this MVP. The good news is since Eric has written this book, there are so many better ways of testing MVPs. There’s actually whole startups designed around it. For example, Kickstarter is a great way to test your physical and digital products. Or if you need to test your SaaS product, you can create a simple landing page and run digital ads very, very easily.

If you’re struggling to conceptualize what your MVP should be, you’re gonna love this next takeaway. There are so many different types of MVPs out there nowadays, however I really wanna double click on the ones that Eric talked about in his book. Today, it may seem really obvious to just create a video for your product, but back then when Dropbox did it, it was quite rare. They created a simple video, how to use the product, which they served to early adopters. It took their waiting list from 5000 to 75,000 really quickly.

One thing to note here is that when you’re pushing customers to a landing page, remember that’s not a purchase. Getting a signup doesn’t mean people are willing to spend for the product, but it’s a good start. One of the most awesome things about having an organic YouTube channel is that you can actually promote these products without spending money. I’m so excited to start presenting some of my ideas like Trend Rocket, our new SaaS tool to get the feedback of our viewers.

The second type of MVP that Eric talks about is the concierge MVP.

This is what the CEO of Food on the Table did. They were trying to deliver recipes and food to customers. At the risk of sending them things that they didn’t like, what the CEO did was actually go to the customer’s house, learn exactly what they liked and the recipes that they were already cooking. He could then provide the premium service for this customer. Over time, obviously they hit scale problems with that method and they needed to go to a more algorithmic method.

However, by doing this, they got so many learnings about what to do. For example, with Trend Rocket, what I could do is I could find one eCommerce entrepreneur that is just starting up and I could literally build a full service software around how they can find their first million dollar product. Another form of MVP is referred to as the “Wizard of Oz” MVP. This is exactly what the founder of Zappos did. Before anyone thought that it was possible to sell shoes online because you needed to try them on, he decided to test the idea.

What he did was basically set up a website and not buy any shoes. As soon as he sold one, he would race to the retailer, buy it and deliver it. This is basically what drop shipping is. You only need to pay for the stock when someone buys it. The main thing here is to remember don’t spend too much time on your MVP.

It should be quick and cheap. When running experiments, it’s really important to understand what metrics can you trust. My role of thumb is you wanna be finding data that is closest to your ideal outcome, which is generally a purchase.

Followers are referred to as vanity metrics. They don’t actually help.

Same with impressions. It’s only when people show real buying intent can you confirm that your experiment is being a success. The fourth thing that you really take away from “The Lean Startup” is whether to persevere or to pivot. The explanation of these two things are quite obvious. Pivot is to change direction.

Persevere is to keep going in a similar direction. Eric argues that when doing a pivot, it’s really important to stay on course with the initial vision you had. I technically don’t agree with that.

I think there are lots of examples of brands that actually changed their vision and their strategy. For example, did you know YouTube started as a dating site?

The initial name was Tune In & Hook Up. They’re about to give up, and then one of the founders posted the now famous “Me at the Zoo” video. Just a year later, Google bought YouTube for $1.65 billion. Another famous example is Instagram, formally known as Bourbon.

They thought it would be a great check-in app, but then they realized by surveying customers and monitoring them that the actual photo sharing element was far more used.

They ended up selling Instagram to Facebook for $1 billion. Even Airbnb started as a very boring business idea, selling mattresses in the San Francisco Bay area. They realized they could pivot to an accommodation provider, and the rest is history. Hardest part about being an entrepreneur and whether to pivot or persevere is we’re generally resilient and optimistic people.

Just because you can make something work to a degree, doesn’t mean that you actually should persevere with it. There are so many challenges in startups, and you really wanna get product market fit to a high degree so you can scale to the moon. You don’t want a basic product that is okay. You want the best product in the world. To really understand whether you should pivot or persevere, you need to conduct regular meetings or regular self-reflections.

What am I doing? One thing you do need to realize with a pivot is that it might actually not progress you.

It might actually send you backwards if you don’t plan the right hypothesis, and that’s okay. We all make mistakes. Don’t get discouraged, and try to find incremental improvements.

To make sure you get lots of practical tips from this video, here are 10 types of pivots that Eric talks about in his book. First is a zoom in pivot. This is focusing on a feature that customers really like and just focusing there. This is similar to the Instagram pivot. Second is a zoom out pivot.

This is where you are adding more features that your customers may like to give you a competitive advantage. If you have a good product but it’s just not getting product, market fit, you may need to try a whole new demographic for the product. This is what YouTube did. It’s called a customer segment pivot. A customer need pivot is where your product is really struggling to address your customer’s needs.

So you really focus on what that problem is and pivot towards that direction to solve it in a different way. A platform pivot is where you change the actual platform where your product is. This is very applicable to SaaS. If it’s a website application, maybe it needs to be a mobile application. A business architecture pivot is where you change the fundamentals of your business.

Rather than selling high volume products at low margin, perhaps you sell low volume products at high margin, such as going luxury and high end. A value capture pivot is simply where you change how you monetize your product. There’s also an engine of growth pivot. We talk about engines of growth in our final takeaway, but basically this pivot is where you change that method of growth. This could be a different marketing channel or trying to focus on guerilla marketing tactics.

There’s also a channel pivot, which is basically changing how your product is delivered to your customers.

And finally, a technology pivot, which is basically when a new technology is created, and that technology helps us serve the customer in a different way. And you pivot towards utilizing it. Oh, it’s just “Lean Startup.” Don’t lick at it.

The final takeaway that is absolutely gold in this book is talking about engines of growth. In the third section of Eric’s book, he titles it “Accelerate.” He dives deep into how you can actually acquire customers for different types of startups. The first engine of growth is arguably the most powerful. And if you can crack it, you can make millions.

It’s called the viral growth engine. This is exactly what Hotmail did. With every email that they sent, they simply put a little sign off down at the footer that encouraged people to create a Hotmail account themselves. While really simple, this technique allowed Hotmail to get 12 million users and end up selling to Microsoft for $400 million. Even Apple now use this technique with a sent by iPhone on their email footers.

This viral growth engine was one of the main reasons that Oodie became successful. People would buy the product, and it was so soft and warm, they would tell their friends. The best measurement for the viral growth method is the viral coefficient, which you can Google how to calculate. The second growth engine that Eric talks about is the sticky growth method, which is basically getting customers coming in and staying around for a long period of time. This is largely what you’ll see with social media networks and subscription platforms.

A good balance of measurements for this engine is customer acquisition rate and churn rate. Monitoring how many people you’re bringing in, but also not losing. The third growth engine is the paid growth engine. This is one of my favorites as well because it’s so controllable and so scalable.

It’s so easy to set up a Facebook or TikTok Ad account and start buying ads and measuring your customer acquisition cost for your product.

You can then measure that to lifetime value and really understand if you have a viable business. If you liked this video and want us to do more book reviews, leave a comment below. Don’t forget to like and subscribe. Thanks.

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