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The Goal of This Stage: Get Feedback to Make Decisions

Now that you’ve identified your leap-of-faith assumptions (Chapter 5), it’s time to TEST them systematically. Eric Ries emphasizes that the goal of testing is NOT to prove you’re right – it’s to LEARN whether you’re right or wrong, so you can make informed decisions.

The Purpose of Testing

Testing serves ONE primary purpose:

To gather evidence that helps you decide: Should I PIVOT or PERSEVERE?

• Pivot: Make a fundamental change to your product, strategy, or target customer
• Persevere: Continue with your current approach and optimize

Key insight: Testing is about LEARNING, not about being right!

☕ Hamed’s Analysis: The Most Expensive Mistake

The most expensive mistake I see founders make is this: They test their idea, get negative results, but IGNORE the data because it doesn’t match what they want to hear!

Real example – Food Delivery for Students:

My client tested a food delivery service targeting university students. After 3 weeks:

• Only 12% of students who signed up actually ordered
• Average order value was too low to be profitable
• Most students said “it’s too expensive compared to campus food”

What he wanted to do: Keep marketing to students, maybe offer discounts

What the data said: PIVOT to a different customer segment!

Result: We pivoted to busy professionals near universities. Same product, different customer. Within 2 months, order rate jumped to 45% and average order value tripled!

Lesson: The purpose of testing is to LISTEN to the data, not to confirm your existing beliefs!

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What is a Minimum Viable Product (MVP)?

Eric Ries defines the MVP as the simplest version of your product that allows you to start the Build-Measure-Learn feedback loop with the minimum effort.

The Formal Definition of MVP

“The Minimum Viable Product is that version of a new product which allows a team to collect the maximum amount of validated learning about customers with the least effort.”

Key components:

• Minimum: The smallest version that can test your assumption
• Viable: Functional enough that people can actually use it
• Product: Something people can interact with (even if it’s just a landing page or a manual service)

The Three Learning Milestones (Innovation Accounting)

Eric Ries introduces a framework called Innovation Accounting to measure progress during MVP testing. There are three stages:

Stage 1: Establish the Baseline

• Launch your MVP to early adopters
• Measure current performance (e.g., 5% conversion rate, 20% retention after 1 week)
• This is your starting point

Stage 2: Tune the Engine

• Make small improvements to the product
• Measure if the changes move the metrics in the right direction
• Example: Improve onboarding, and retention goes from 20% to 35%

Stage 3: Pivot or Persevere

• After tuning, if metrics are improving → Persevere!
• If metrics remain flat or decline → Pivot!

☕ Hamed’s Analysis: What MVP is NOT

Most founders misunderstand MVP. Let me clarify:

MVP is NOT:

• ❌ A crappy version of your final product
• ❌ A product with bugs that you launch to “test the market”
• ❌ Something you build in 1 day and hope it works

MVP IS:

• ✅ The smallest experiment that tests your riskiest assumption
• ✅ A learning tool, not a sales tool
• ✅ Something you iterate on AFTER getting feedback

Example – Testing Pricing for a SaaS Product:

My client wanted to launch a project management tool for freelancers. His leap-of-faith assumption: “Freelancers will pay $29/month for this tool.”

His original plan: Build the full product with all features, then launch and see if people pay.

Our MVP approach:

• Created a simple landing page describing the tool
• Added a “Subscribe Now – $29/month” button
• When people clicked, they saw: “Thanks for your interest! We’re launching in 2 weeks. Enter your email to get early access.”
• Tracked: How many people clicked the button?

Result: Only 3% of visitors clicked the button. This told us: Either the price is too high, OR the value proposition isn’t clear.

Cost: Just the landing page (1 day of work). Learning: We need to test different price points or improve messaging BEFORE building the product!

Lesson: MVP is about testing your assumptions, not about launching a “minimum product”!

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Types of MVPs You Can Build

Eric Ries describes several types of MVPs, each designed to test different assumptions. Here are the most common:

1. The Video MVP (Dropbox Example)

What it is: A video demonstrating your product idea before building it.

Example: Dropbox created a 3-minute video showing how file syncing would work. They posted it on Hacker News.

Result: Their beta waiting list went from 5,000 to 75,000 people overnight!

What it tested: Value Hypothesis – Do people want this solution?

Cost: Less than $1,000 to produce the video.

2. The Concierge MVP

What it is: You manually deliver the service to customers instead of automating it.

Example: Food on the Table (mentioned in the book) – the founder personally met with customers to plan their meals and shopping lists, before building any software.

What it tested: Value Hypothesis – Is this service valuable enough that people will use it?

Advantage: You learn EXACTLY what customers need by doing the work yourself!

3. The Wizard of Oz MVP

What it is: Customers think they’re using an automated product, but you’re doing the work manually behind the scenes.

Example: Zappos (mentioned in previous chapters) – they posted shoe photos online, but when someone ordered, Nick Swinmurn bought the shoes from a local store and shipped them himself!

What it tested: Value Hypothesis – Will people buy shoes online without trying them on?

Advantage: Customers get a “real” experience, but you haven’t built any technology yet!

4. The Landing Page MVP

What it is: A simple one-page website explaining your product with a call-to-action (e.g., “Sign up for early access” or “Pre-order now”).

What it tested: Value Hypothesis and Growth Hypothesis – Do people want this? Will they take action?

Example: Tim Ferriss tested the title of his book “The 4-Hour Workweek” by running Google Ads with different titles and measuring click-through rates!

Advantage: Extremely cheap and fast to build (1-2 days max).

☕ Hamed’s Analysis: Which MVP Type Should You Choose?

Here’s my framework for choosing the right MVP type:

Use a Landing Page MVP if:

• You’re testing demand for a NEW idea
• You want to validate pricing
• You have no customers yet

Use a Concierge MVP if:

• You’re offering a SERVICE (not a product)
• You need to deeply understand customer needs
• You want to learn what features matter most

Use a Wizard of Oz MVP if:

• You’re building a tech product but want to test demand first
• You want customers to experience the product as if it were automated
• You need to validate that the core value proposition works

Use a Video MVP if:

• Your product is complex and hard to explain in words
• You want to go viral (like Dropbox)
• You’re targeting tech-savvy early adopters

Example – Meal Prep Service (again):

Remember my client with the meal prep service? We used a Concierge MVP:

• Week 1: Posted in Facebook groups offering free meals
• Week 2: Personally delivered meals to 15 people
• Week 3: Asked for feedback and iterated
• Week 4: 12 people said they’d pay!

Why Concierge? Because we needed to learn EXACTLY what kind of meals people wanted, how much they’d pay, and how often they’d order. We couldn’t learn that from a landing page!

Lesson: Choose your MVP type based on WHAT you need to learn, not what’s easiest to build!

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How to Design Your First MVP

The 5-Step MVP Design Process

Step 1: Identify your riskiest assumption
Review your leap-of-faith assumptions from Chapter 5. Pick the ONE that, if wrong, would kill your business.

Step 2: Choose the right MVP type
Based on what you need to learn, choose: Landing Page, Concierge, Wizard of Oz, or Video.

Step 3: Define success criteria
Before you launch, decide: “What result would prove my assumption is correct?” Example: “If 10% of visitors sign up, my assumption is validated.”

Step 4: Build the MVP in 1-2 weeks MAX
Don’t overthink it! The faster you test, the faster you learn.

Step 5: Launch to 10-50 early adopters
Don’t launch to the world! Start small, learn fast, iterate.

Example: Designing an MVP for a Freelance Marketplace

Let’s say you want to build a marketplace connecting freelance graphic designers with small businesses.

Step 1: Riskiest assumption
“Small businesses will pay for professional design work through an online platform.”

Step 2: Choose MVP type
Wizard of Oz MVP – Create a simple landing page where businesses can “request a designer,” but you manually match them with freelancers.

Step 3: Success criteria
“If 20% of businesses who request a designer actually pay for the work, my assumption is validated.”

Step 4: Build in 1-2 weeks

• Week 1: Build landing page with a form
• Week 2: Manually reach out to 5 freelance designers to partner with

Step 5: Launch to early adopters
Post in local business Facebook groups: “Need a logo or flyer designed? We’ll match you with a pro designer in 24 hours!” Target 20 businesses.

Measure: How many businesses sign up? How many actually pay?

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End of Part 1
In Part 2, we’ll cover: What to measure in your MVP, how to avoid vanity metrics, and how to use the Three Engines of Growth to guide your testing!

📖 Chapter 6: Test – PART 2

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What to Measure in Your MVP

Eric Ries emphasizes that once you launch your MVP, you MUST measure the right things. Measuring the wrong metrics will lead you to make bad decisions!

Actionable Metrics vs. Vanity Metrics

Eric Ries makes a critical distinction:

• Vanity Metrics: Numbers that look good but don’t help you make decisions (e.g., total signups, page views, social media followers)
• Actionable Metrics: Numbers that directly inform your decisions (e.g., retention rate, conversion rate, customer lifetime value)

Key principle: If a metric doesn’t change your behavior, it’s a vanity metric!

Examples of Vanity vs. Actionable Metrics

Vanity Metric: “We have 10,000 users!”

• Why it’s useless: Are those users active? Do they pay? Did they come back after the first visit?

Actionable Metric: “30% of users who sign up are still active after 1 month”

• Why it’s useful: This tells you if your product is actually valuable! If retention is low, you need to pivot or improve the product.

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Vanity Metric: “We got 50,000 page views last month!”

• Why it’s useless: Page views don’t equal engagement or revenue. People might visit once and never come back.

Actionable Metric: “5% of visitors convert to paying customers”

• Why it’s useful: This tells you if your value proposition is working! If conversion is low, you need to improve messaging or pricing.

☕ Hamed’s Analysis: The Retention Rate is King

In all my years of consulting, I’ve learned one truth: Retention Rate is the most important metric for early-stage startups!

Why?

• If people don’t come back, your product doesn’t create value
• If people don’t come back, no amount of marketing will save you
• If people don’t come back, you’ll waste money acquiring users who churn

Real example – Fitness App:

My client built a workout tracking app. After 1 month:

• Total signups: 5,000 (looks great!)
• Active users after 1 week: 800 (16% retention)
• Active users after 1 month: 150 (3% retention)

What this told us: The app is broken! People try it once and never come back. No point in spending money on ads to get more signups!

What we did: Stopped all marketing. Interviewed the 150 active users to understand why THEY stayed. Redesigned the app based on their feedback. After redesign:

• 1-week retention: 45%
• 1-month retention: 25%

Lesson: Focus on retention FIRST, growth SECOND!

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The Three Engines of Growth

Eric Ries introduces a framework called the Three Engines of Growth. Every startup relies on one (or more) of these engines to grow:

Engine 1: The Sticky Engine (Retention-Based Growth)

How it works: You acquire customers, and they stick around for a long time (high retention).

Key metric: Retention Rate or Churn Rate

• Retention Rate = Percentage of customers still active after X days/weeks/months
• Churn Rate = Percentage of customers who stop using your product

Formula for growth:

$\text{Growth Rate} = \text{New Customer Rate} – \text{Churn Rate}$

Example: Netflix, Spotify – they grow by keeping customers subscribed for months/years.

When to use this engine: If your product has recurring use (SaaS, subscription services, social networks).

Engine 2: The Viral Engine (Word-of-Mouth Growth)

How it works: Each customer brings in more customers organically (via referrals, sharing, invitations).

Key metric: Viral Coefficient (K-factor)

• K-factor = Average number of new users each existing user brings in
• If K > 1, your product grows exponentially without marketing spend!

Formula:

$K = i \times c$

Where:

• $i$ = Number of invitations sent per user
• $c$ = Conversion rate (% of invitations that result in a new user)

Example: Dropbox, WhatsApp, Instagram – they grew by users inviting friends.

When to use this engine: If your product becomes more valuable when more people use it (network effects).

Engine 3: The Paid Engine (Advertising-Based Growth)

How it works: You spend money to acquire customers, and the revenue from each customer is higher than the cost to acquire them.

Key metrics:

• CAC (Customer Acquisition Cost): How much you spend to acquire one customer
• CLV (Customer Lifetime Value): How much revenue one customer generates over their lifetime

Formula for profitability:

$\text{CLV} > \text{CAC}$

If CLV is higher than CAC, you can scale profitably by spending more on ads!

Example: E-commerce stores, Amazon, Booking.com – they spend heavily on ads because each customer is worth more than the cost to acquire them.

When to use this engine: If your product has high margins or repeat purchases.

☕ Hamed’s Analysis: Which Engine Should You Focus On?

Here’s my advice for early-stage startups:

Start with the Sticky Engine FIRST!

• If people don’t stick around (low retention), the other engines won’t work
• Viral growth only works if users love your product enough to share it
• Paid growth only works if CLV > CAC, which requires high retention

Example – Social Fitness App (from Chapter 5):

Remember the social fitness app that failed? Here’s what happened:

• They tried the Viral Engine first (invite friends to work out together)
• But 1-week retention was only 10%!
• Result: Users invited friends, but those friends didn’t stick around either

What they should have done: Fix retention FIRST (Sticky Engine), then focus on viral growth.

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My framework:

• Stage 1: Build Sticky Engine (get retention to 40%+)
• Stage 2: Add Viral or Paid Engine to accelerate growth
• Stage 3: Optimize all three engines simultaneously

Lesson: Don’t spend money on growth until retention is high!

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How to Measure Each Engine

Measuring the Sticky Engine

What to track:

• 1-day retention rate
• 7-day retention rate
• 30-day retention rate
• Churn rate (monthly)

How to calculate retention:

$\text{Retention Rate} = \frac{\text{Active Users After X Days}}{\text{Total Users Who Signed Up X Days Ago}} \times 100$

Example:

• 100 users signed up on January 1
• 40 users are still active on January 7
• 7-day retention = $\frac{40}{100} \times 100 = 40\%$

Measuring the Viral Engine

What to track:

• Number of invitations sent per user ($i$)
• Conversion rate of invitations ($c$)
• Viral coefficient ($K = i \times c$)

Example:

• Each user sends 5 invitations ($i = 5$)
• 20% of invitations convert to new users ($c = 0.2$)
• $K = 5 \times 0.2 = 1.0$

If $K = 1.0$, each user brings in 1 new user → Steady growth

If $K > 1.0$, each user brings in MORE than 1 new user → Exponential growth!

Measuring the Paid Engine

What to track:

• CAC (Customer Acquisition Cost)
• CLV (Customer Lifetime Value)
• Payback period (how long until a customer becomes profitable)

How to calculate CAC:

$\text{CAC} = \frac{\text{Total Marketing Spend}}{\text{Number of Customers Acquired}}$

How to calculate CLV:

$\text{CLV} = \text{Average Revenue Per Customer} \times \text{Average Customer Lifespan}$

Example:

• You spend $1,000 on ads and acquire 50 customers → CAC = $20
• Each customer pays $10/month and stays for 6 months → CLV = $60
• $\text{CLV} >