How To Build A Lean Startup

The document outlines key principles of building a lean startup as popularized by Eric Ries, including releasing a minimum viable product quickly to validate customer demand before investing heavily. It discusses how Ryan Holmes applied these principles when founding Hootsuite by initially releasing a basic version and continuously gathering feedback to refine the product. Data-driven decision making is emphasized, such as testing monetization strategies by first trying them on new users before rolling out more broadly. Applying lean startup principles rigorously can help validate business ideas and optimize products to meet customer needs.

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How To Build A Lean Startup

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Reeghesh Juleemun

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How to build a lean startup

By Ryan Holmes
Dec 30 2014
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Say you want to start a bottled water company. You could get started by spending
months, years even, sourcing the perfect water, designing killer labels,
experimenting with different bottle shapes and materials, finding a bottling facility,
researching pricing and finding distributors. By then, youd be out tens of thousands
of dollars before the first bottle hit the shelves. No biggie, right? But then would come
the waiting game of finding out: Did the venture pay off? Did you pick the right design,
price point, mineral content? Only time will tell.
Orinstead of all thatyou could just create a one-page website (sites
like Landerapp.com make it easy) and splash a simple mockup of your product on it.
You pick a reasonable selling price: enough to cover production costs and make, say,
a 50-cent profit per bottle. Then invest $100 or so in Google AdWords (the little
blurbs of ad copy that show up alongside search results.) And thats it.
Over the next week, you sit back and watch the numbers. If, say, the ads end up
driving a total of 1000 people to your site, 100 of whom click the buy button, youre in
trouble. Youve spent $100 on ads and only made $50 in return. For a few bucks,
youve learned that your business plan needs to be seriously tweaked. (You wouldnt
need to actually fulfill those buy ordersProspective customers might get an error
message saying product isnt yet available.)
Which approach makes more sense to you? The former startup strategy (or lack
thereof) is the way far too many people approach entrepreneurship. The latter
strategywhich I wish I could take credit foris an expression of lean startup
philosophy. The concept was first shared by Silicon Valley entrepreneur Eric Ries in
2008 and expanded on in his 2011 best seller The Lean Startup.
I built my own company around lean startup principles, which emphasize, above all,
the importance of gauging customer demand and startup viability early on, before
laying out lots of money. Ries had learned these lessons firsthand. From 2001-2004,
he worked as a software engineer with There.com, a 3D virtual online social network
that cost $40 million over five years to bring to market. Never heard of There.com?
Upon release, the site failed to attract users and quickly faded into obscurity.
To Ries, the problem was crystal clear, a case of working forward from the
technology instead of working backward from the business results. Translation: Far
too many entrepreneurs try to impose their vision on the world, rather than listening

carefullyand responding nimblyto what the world really wants. To address this,
Ries went on to outline a series of principles designed to eliminate waste and
increase value during the product development phase. In the startup community, and
at Hootsuite, these have become virtual commandments:
Lean Startup Hack #1
The spaghetti principle: Understanding minimum viable product
Central to lean startup philosophy is the premise that its OK to release a work in
progress, orto borrow an overused tech phrasethrow spaghetti at the wall and
see what sticks. The idea is to get a basic, functioning version of your offeringa
minimum viable productout there as quickly as possible, then gather feedback and
tweak it accordingly. This was the approach we took with Hootsuite when we were
getting off the ground in 2008. The tool we initially hacked together was, well, pretty
basic. It allowed users to log into multiple social media accounts from one web page
and people at companies to easily share access to accounts. It worked but it wasnt
pretty. But just months after release, we had tens of thousands of users.
Once we knew we were onto something, I dedicated one-third of our 21-person team
to the project. We went to work fixing the user interface, souping up features,
developing marketing plans, strategizing about how to expand our user base and
exploring financing options. But, importantly, all this happened only after we had
proof that Hootsuite was viable.
Lean Startup Hack #2
Build-measure-learn: Creating a feedback loop
Another key element of the lean startup ethos is continuously gathering and
responding to data and feedback from customers. One of the first things we did at
Hootsuite was set up a dedicated forum where users could propose and vote for
changes to our product. Based on early suggestions, we developed an Android app,
added new social networks, beefed up security for corporate users, changed fonts
and background colors and modified hundreds of other elements big and small.
Changes went live as fast as we could write new code. (Just a quick sidenote: This
process continues today. After a profanity-laced outcry recently about our user
interface, we revamped things from the ground up.)
As we implemented new features, we obsessively tracked the impact on user signups and attrition. Features that created a net gain in users we kept. The rest, we
ditched. This build-measure-learn looprepeated endlesslyis a major tenet of
lean startup methodology.
Lean Startup Hack #3
Crunching the numbers: Data-driven decision making
When the critical time came to start monetizing Hootsuite in 2010, we used a similar
data-driven approach. Our research suggested a freemium model was best way
forward: Basic users could keep using our app for free; more advanced users who
wanted special features would pay. But there were lots of questions: what features
should we charge for; how much should we charge; should we have multiple pricing
tiers; etc. So we dug into our database. We discovered that 5 percent of our users
managed four or more social networks with Hootsuite. On paper, it made a lot sense

to build our paywall around that criteria, charging just these power users and
leaving the rest of our base unaffected. But would our customers revolt?
To play it safe, we decided to test things out first on brand-new sign ups. After a few
nervous months, we concluded that having a paywall did nothing to slow the rate at
which we added users. Armed with that data, we rolled out the paid plan to our
existing base. While there was some resistance, the results were overwhelmingly
positive. Many of our corporate clients actually expressed relief. Prices were fair and
they now knew we had a sound business model and would be around for the long
haul to support their efforts.
More than five years on, the tool we hacked together in our office is used by more
than 10 million people globally and supported by a staff of over 700. Its evolved
continuously from its first iteration, which would be barely recognizable to many of
todays users. And thats the way it should be. We could have spent those five years,
and untold millions of dollars, slowly developing the perfect social media tool in
secret before springing it on the worldand it might have been a complete flop.
Instead we went live early, we measured customer demand and we adapted, over
and over (and over) again. The lean startup approach is hardly rocket science but,
applied rigorously, it can turn a good business into a great one and help a nonstarter pivot to viability.
This article is published in collaboration withLinkedIn. Publication does not imply end
orsement of views by the World Economic Forum.
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Author: Ryan Holmes is CEO at Hootsuite
Image: Workers from the financial sector walk on a tram track. REUTERS/Bobby
Yip