Quotes from Eric Ries

For the growth hypothesis, which tests how new customers will discover a product or service, we can do a similar analysis.

Because startups often accidentally build something nobody wants, it doesn't matter much if they do it on time and on budget. The

the paid engine of growth is powered by a feedback loop. Each customer pays a certain amount of money for the product over his or her "lifetime" as a customer. Once variable costs are deducted, this usually is called the customer lifetime value (LTV). This revenue can be invested in growth by buying advertising.

Here's how to use Five Whys analysis to build an adaptive organization: consistently make a proportional investment at each of the five levels of the hierarchy. In other words, the investment should be smaller when the symptom is minor and larger when the symptom is more painful.

A comprehensive theory of entrepreneurship should address all the functions of an early-stage venture: vision and concept, product development, marketing and sales, scaling up, partnerships and distribution, and structure and organizational design. It has to provide a method for measuring progress in the context of extreme uncertainty.

Metcalfe's law: the value of a network as a whole is proportional to the square of the number of participants.

the first object of any good system must be that of developing first-class men; and under systematic management the best man rises to the top more certainly and more rapidly than ever before.

My goal in advocating a scientific approach to the creation of startups is to channel human creativity into its most productive form, and there is no bigger destroyer of creative potential than the misguided decision to persevere. Companies

In a great market—a market with lots of real potential customers—the market pulls product out of the startup. This is the story of search keyword advertising, Internet auctions, and TCP/IP routers. Conversely, in a terrible market, you can have the best product in the world and an absolutely killer team, and it doesn't matter—you're going to fail.3

I call the riskiest elements of a startup's plan, the parts on which everything depends, leap-of-faith assumptions. The two most important assumptions are the value hypothesis and the growth hypothesis.

Getting a startup's engine of growth up and running is hard enough, but the truth is that every engine of growth eventually runs out of gas. Every engine is tied to a given set of customers and their related habits, preferences, advertising channels, and interconnections. At some point, that set of customers will be exhausted.

Most important, a disciplined team can experiment with its own working style and draw meaningful conclusions.

I have always been a bit of a troublemaker at the companies at which I have worked, pushing for rapid iteration, data-driven decision making, and early customer involvement.

At any time, the company could invest its energy in finding new customers, servicing existing customers better, improving overall quality, or driving down costs. In

The method I recommend is called innovation accounting, a quantitative approach that allows us to see whether our engine-tuning efforts are bearing fruit. It also allows us to create learning milestones, which are an alternative to traditional business and product milestones. Learning milestones are useful for entrepreneurs as a way of assessing their progress accurately and objectively; they are also invaluable to managers and investors who must hold entrepreneurs accountable.

Also, we were lucky to have Steve Blank as an investor and adviser. Back in 2004, Steve had just begun preaching a new idea: the business and marketing functions of a startup should be considered as important as engineering and product development and therefore deserve an equally rigorous methodology to guide them. He called that methodology Customer Development, and it offered insight and guidance to my daily work as an entrepreneur.

A head start is rarely large enough to matter, and time spent in stealth mode—away from customers—is unlikely to provide a head start. The only way to win is to learn faster than anyone else.

Successful entrepreneurs do not give up at the first sign of trouble, nor do they persevere the plane right into the ground. Instead, they possess a unique combination of perseverance and flexibility. The

This led to some frustrating board meetings at which we could show great product "progress" but not much in the way of business results.

Build-Measure-Learn. The fundamental activity of a startup is to turn ideas into products, measure how customers respond, and then learn whether to pivot or persevere. All successful startup processes should be geared to accelerate that feedback loop.

For a report to be considered actionable, it must demonstrate clear cause and effect. Otherwise, it is a vanity metric. The reports that Grockit's team began to use to judge their learning milestones made it extremely clear what actions would be necessary to replicate the results.

exist to learn how to build a sustainable business. This learning can be validated scientifically by running frequent experiments that allow entrepreneurs to test each element of their vision.

This line of thought evolved into the Lean

How do we know that the problem is due to a special cause versus a systemic cause? If we're in the middle of adopting a new way of working, the temptation will always be to blame the new system for the problems that arise. Sometimes that tendency is correct, sometimes not. Learning to tell the difference requires theory. You have to be able to predict the outcome of the changes you make to tell if the problems that result are really problems.