The Lean Startup

02Stop Guessing and Start Validating

If traditional financial metrics like profit margin, return on investment, and market share are completely useless for a brand-new startup that has zero revenue and zero customers, how on earth do you measure progress? In a typical corporate environment, progress is measured by execution. Did you finish the project on time? Did you stay under budget? Did you write the required amount of code or manufacture the expected number of units? While these metrics are easy to track, they hide a terrifying reality: you can efficiently build a product on time and under budget that absolutely nobody wants. You have successfully executed a terrible idea. To solve this dilemma, the Lean Startup introduces a radically different way to measure success, known as validated learning. Validated learning is not a vague excuse used to justify a failure, like saying "well, we lost a million dollars, but we learned a lot." True validated learning is a rigorous, empirical process of demonstrating that you have discovered valuable truths about your business's present and future prospects. It is about proving, with real customer data, that your core assumptions are correct. Every business idea is driven by two vital assumptions, which Ries calls the "Leap of Faith" assumptions. The first is the Value Hypothesis: does this product or service actually deliver value to the customer once they start using it? The second is the Growth Hypothesis: how will new customers discover this product or service? If either of these assumptions is wrong, the entire business will collapse, no matter how beautifully designed the product is. Let us look at a famous, brilliant example of validated learning in action. Back in 1999, a man named Nick Swinmurn had an idea. He believed that people would be willing to buy shoes online. At the time, this was a massive leap of faith. The common wisdom was that people needed to try shoes on, walk around the store, and feel the leather before purchasing. If Swinmurn had followed the traditional business model, he would have written a massive business plan, raised millions of dollars, leased a gigantic warehouse in the middle of nowhere, established complex supply chain partnerships with major shoe manufacturers, and spent a fortune on a custom e-commerce platform. It would have taken a year and millions of dollars just to open the virtual doors. Swinmurn did not do that. Instead, he tested his Value Hypothesis with a beautifully simple experiment. He walked into local shoe stores in his neighborhood, approached the owners, and asked if he could take photographs of their inventory. In exchange for permission to take the photos, he promised to buy the shoes at full retail price if a customer bought them online. He then built a very basic, bare-bones website and posted the pictures. When a customer ordered a pair of shoes, Swinmurn literally drove back to the local store, bought the shoes with his own money, carried them to the post office, and shipped them to the customer. This was the birth of Zappos, the company that would eventually be acquired by Amazon for over a billion dollars. Think about the brilliance of that early experiment. Swinmurn's initial business model was entirely unprofitable and impossible to scale. He was losing money on the time and gas required to fulfill the orders. But profitability was not the goal of the experiment. The goal was validated learning. Within a few weeks, he had definitive, empirical proof that human beings were indeed willing to buy shoes over the internet. He did not have to guess, and he did not have to rely on market research surveys where people often say one thing and do another. He had real customers handing over real credit card numbers. This is the essence of validated learning. It is taking your Leap of Faith assumptions and finding the fastest, cheapest way to test them in the real world. Contrast the Zappos story with the spectacular failure of Webvan, a grocery delivery startup from the same era. Webvan's founders believed people wanted groceries delivered, so they immediately spent over a billion dollars building automated warehouses, buying massive fleets of delivery trucks, and building complex logistics software before they even knew if the average consumer would change their weekly supermarket habits. When the customers did not materialize fast enough, the massive infrastructure crushed the company. Webvan tried to build the empire before validating the foundation. How does this apply to your own ambitions? Suppose you want to quit your corporate job and start a specialized dog-training service focused on curing separation anxiety in puppies. The dangerous approach is to spend six months designing a beautiful logo, building a highly optimized website, renting a commercial training facility, and printing expensive glossy brochures. You are assuming people have this problem, are actively looking for a solution, and will hire you. The Lean Startup approach demands that you stop guessing. Instead, post a simple, free advertisement on a community bulletin board or a local social media group offering your specific service. If your phone rings, you have validated the demand. If nobody calls, you just saved yourself six months of wasted effort and thousands of dollars in commercial rent. Validated learning forces you to be brutally honest with yourself. It strips away the comforting illusion of busywork. Spending all day tweaking the color scheme of your website feels like productive work, but if you have not validated that anyone actually wants your product, it is just a comfortable distraction. The faster you can generate real, empirical data about your customers' true behavior, the faster you can steer your startup toward genuine, sustainable success.

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