The Lean Startup methodology dictates that a startup enterprise should experiment and pressure test it’s service/product as soon as possible, as opposed to focusing solely on hypothetical market research surveys. Such an experiment is rooted in feedback on what is working today rather than in anticipation of what might work tomorrow.
A startup experiment can be broken down into two component parts:
- VALUE hypothesis: Tests if a product/service really delivers value to customers
- GROWTH hypothesis: Tests how new customers will discover a product/service.
Let’s look at the Facebook story to demonstrate the above hypotheses:
With just 150,000 registered users and very little revenue stream, the Facebook guys raised their first $500,000 in venture capital. Less than a year later, they raised an additional $12.7 million. How did Zuckerberg, Moskovitz and Hughes raise so much money when, for a social network, Facebook’s usage was so small?
Now this is where the Value/Growth hypotheses feature. Investors were spellbound by two main facts about Facebook’s early growth:
Fact 1: Facebook’s active users spent an enormous amount of time on the site. More than half the users came back to the site every single day. Thus Facebook had validated its Value hypothesis: Customers found the product valuable.
Fact 2: Facebook’s early rate of growth was staggering. “The Facebook” launched on February 4, 2004, and by the end of the month almost three-quarters of Harvard’s undergraduates were using it, without a dollar of marketing/advertising having been spent. Facebook had validated its Growth hypothesis: The product spread like wildfire (without even paying for customer acquisition)
The above content is sourced from “The Lean Startup: How Constant Innovation Creates Radically Successful Businesses” by Eric Ries.