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The Lean Startup: How Today's Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses Hardcover – 13 Sep 2011
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"The Lean Startup has a kind of inexorable logic, and Ries’ recommendations come as a bracing slap in the face to would-be tech moguls: Test your ideas before you bet the bank on them. Don’t listen to what focus groups say; watch what your customers do. Start with a modest offering and build on the aspects of it that prove valuable. Expect to get it wrong, and stay flexible (and solvent) enough to try again and again until you get it right. It’s a message that rings true to grizzled startup vets who got burned in the Great Bubble and to young filmgoers who left The Social Network with visions of young Zuckerberg dancing in their heads. It resonates with Web entrepreneurs blessed with worldwide reach and open source code. It’s the perfect philosophy for an era of limited resources, when the noun optimism is necessarily preceded by the adjective cautious." —Wired
“I make all our managers read The Lean Startup.” —Jeffery Immelt, CEO, General Electric
"Eric has created a science where previously there was only art. A must read for every serious entrepreneur—and every manager interested in innovation."
—Marc Andreessen, co-founder of Andreessen Horowitz, Opsware Inc. and Netscape
“This book should be mandatory reading for entrepreneurs, and the same goes for managers who want better entrepreneurial instincts. Ries’s book is loaded with fascinating stories—not to mention countless practical principles you’ll dearly wish you’d known five years ago.” —Dan Heath, co-author of Switch and Made to Stick
“Ries shows us how to cut through the fog of uncertainty that surrounds startups. His approach is rigorous; his prescriptions are practical and proven in the field. The Lean Startup will change the way we think about entrepreneurship. As startup success rates improve, it could do more to boost global economic growth than any management book written in years.” —Tom Eisenmann, Professor of Entrepreneurship, Harvard Business School
“The Lean Startup is the book whose lessons I want every entrepreneur to absorb and apply. I know of no better guide to improve the odds of a startup's success."
—Mitchell Kapor, Founder, Lotus Development Corp.
"At Asana, we've been lucky to benefit from Eric's advice firsthand; this book will enable him to help many more entrepreneurs answer the tough questions about their business."
—Dustin Moskovitz, co-founder of Facebook and Asana
“Ries' splendid book is the essential template to understand the crucial leadership challenge of our time: initiating and managing growth!” —Warren Bennis, Distinguished Professor of Business, University of Southern California and author of the recently published, Still Surprised: A Memoir of a Life in Leadership.
"The Lean Startup isn't just about how to create a more successful entrepreneurial business, it's about what we can learn from those businesses to improve virtually everything we do. I imagine Lean Startup principles applied to government programs, to healthcare, and to solving the world's great problems. It's ultimately an answer to the question 'How can we learn more quickly what works, and discard what doesn't?'"
— Tim O'Reilly, CEO O'Reilly Media
“Eric Ries unravels the mysteries of entrepreneurship and reveals that magic and genius are not the necessary ingredients for success but instead proposes a scientific process that can be learnt and replicated. Whether you are a startup entrepreneur or corporate entrepreneur there are important lessons here for you on your quest toward the new and unknown.” —Tim Brown, CEO of IDEO
“The roadmap for innovation for the 21st century. The ideas in The Lean Startup will help create the next industrial revolution.” —Steve Blank, lecturer, Stanford University, U.C. Berkeley Haas Business School
"The key lesson of this book is that start-ups happen in the present—that messy place between the past and the future where nothing happens according to PowerPoint. Ries's ‘read and react’ approach to this sport, his relentless focus on validated learning, the never-ending anxiety of hovering between ‘persevere’ and ‘pivot’, all bear witness to his appreciation for the dynamics of entrepreneurship." —Geoffrey Moore, Author, Crossing the Chasm
"If you are an entrepreneur, read this book. If you are thinking about becoming an entrepreneur, read this book. If you are just curious about entrepreneurship, read this book. Starting Lean is today's best practice for innovators. Do yourself a favor and read this book." —Randy Komisar, founding director of TiVo and author of the bestselling The Monk and the Riddle
“How do you apply the 50 year old ideas of Lean to the fast-paced, high uncertainty world of Startups? This book provides a brilliant, well-documented, and practical answer. It is sure to become a management classic.” —Don Reinertsen, author of The Principles of Product Development Flow
“The Lean Startup is a foundational must-read for founders, enabling them to reduce product failures by bringing structure and science to what is usually informal and an art. It provides actionable ways to avoid product-learning mistakes, rigorously evaluate early signals from the market through validated learning, and decide whether to persevere or to pivot, all challenges that heighten the chance of entrepreneurial failure.” —Professor Noam Wasserman, Harvard Business School
“One of the best and most insightful new books on entrepreneurship and management I’ve ever read. Should be required reading not only for the entrepreneurs that I work with, but for my friends and colleagues in various industries who have inevitably grappled with many of the challenges that The Lean Startup addresses.” —Eugene J. Huang, Partner, True North Venture Partners
"What would happen if businesses were built from the ground up to learn what their customers really wanted? The Lean Startup is the foundation for reimagining almost everything about how work works. Don't let the word startup in the title confuse you. This is a cookbook for entrepreneurs in organizations of all sizes." —Roy Bahat, President, IGN Entertainment
“Every founding team should stop for 48 hours and read Lean Startup. Seriously stop and read this book now.” —Scott Case, CEO Startup America Partnership
“In business, a ‘lean’ enterprise is sustainable efficiency in action. Eric Ries’ revolutionary Lean Startup method will help bring your new business idea to an end result that is successful and sustainable. You’ll find innovative steps and strategies for creating and managing your own startup while learning from the real-life successes and collapses of others. This book is a must read for entrepreneurs who are truly ready to start something great!” —Ken Blanchard, coauthor of The One Minute Manager® and The One Minute Entrepreneur
“Every entrepreneur responsible for innovation within their organization should read this book. It entertainingly and meticulously develops a rigorous science for the innovation process through the methodology of “lean thinking”. This methodology provides novel and powerful tools for companies to improve the speed and efficiency of their innovation processes through minimum viable products, validated learning, innovation accounting, and actionable metrics. These tools will help organizations large and small to sustain innovation by effectively leveraging the time, passion, and skill of their talent pools.” —Andrea Goldsmith, professor of Electrical Engineering at Stanford University, and cofounder of several startups
“Business is too important to be left to luck. Eric reveals the rigorous process that trumps luck in the invention of new products and new businesses. We've made this a centerpiece of how teams work in my company . . . it works! This book is the guided tour of the key innovative practices used inside Google, Toyota, and Facebook, that work in any business.” —Scott Cook, Founder and Chairman of the Executive Committee, Intuit
About the Author
Eric Ries, an entrepreneur from San Francisco. is well-known for his Lean Startup methodology. It has been written about in famous newspapers and blogs, like the New York Times, the Wall Street Journal, the Harvard Business Review, and the Huffington Post. He is asked to speak publicly on various important business events, and he also has a popular blog of his own, called Startup Lessons Learned.
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Unfortunately, the book is hard to read, specifically the first half, which could be condensed to half its length, because there's too much repetition. The author leaves you to figure out what a term means from reading an anecdote spread over two pages rather than defining it explicitly and clearly defining it. Some chapter names are meaningless, like "Leap", and give you no indication of what to expect. Some case studies are not obviously connected to the point the author is trying to make — you scratch your head and try to figure out what it means, and what the point must have been, and what the moral of the story must have been.
But, stick with it, and you'll be rewarded with a solid, well thought-out, evidence-based method on running a startup with less risk, stress, time, money and effort.
Here's a summary of the book:
The lean startup method has five principles:
1) Entrepreneurs are everywhere.
2) Entrepreneurship is management, albeit a form of management that applies under the conditions of extreme uncertainty in a startup. If you think management is not cool and reject it, you'll have chaos and failure.
3) Validated Learning. Startups exist not to just make things, serve customers, or make money. They exist to learn how to build a sustainable business.
4) Build - measure - learn: Startups should go through this loop, as fast as possible.
5) Innovation Accounting is needed to measure a startup's progress, set up milestones, prioritise work, and for the people in it to hold themselves accountable.
- The lean startup draws from related fields like lean manufacturing and design thinking.
- If a company commits itself to the wrong plan and executes that plan excellently at a big scale, it may not be able to pivot in time, because it has committed all its resources and time to the wrong vision. It will achieve failure.
- Startups can exist as islands of independence within big companies.
Chapter 3: Learn:
- Which actions are value-creating and which are wasteful? This question is at the heart of lean manufacturing as well.
- Validate your assumptions more cheaply than building the entire product.
- But not by asking people what they want — most of the time, they don't know in advance.
- People who fail often give the excuse that they learnt a lot.
- It's easier to raise money when you have zero revenue and users. Zero invites imagination. A small number invites questions about whether big numbers will ever materialise.
- So, it's tempting to postpone getting any idea until you are sure of the success. But don't do that.
- Early in a startup's life, revenue growth happens slowly. But the real progress is in validated learning.
- Don't fall prey to vanity metrics, which are numbers that look good but are not the best indicators of your company's health. For example, if you have a web site that encourages people to download an app, page views on the web site is a vanity metric, because there are better metrics, like downloads of the app, signups, active users, etc.
- Don't waste money on PR and buying media attention and getting written up in magazines. Focus on learning.
Chapter 4: Experiment
- The founder of Zappos first tested his e-store for shoes by fulfilling orders manually — going to a nearby physical shop, buying the shoes, and shipping them. After a month, a thousand orders were placed, validating his idea.
- He observed real customer behaviour, interacted with them, and learnt about their needs, not asked hypothetical questions.
- Customers react in unexpected ways, revealing information you might not have known to ask about, like returning shoes.
- Startups have a value hypothesis and a growth hypothesis.
- The value hypothesis is that customers derive value from the product or service once they start using it.
- The growth hypothesis is about how new customers will discover a product or service.
- Give your first few users wonderful attention, as if you're a concierge.
- An experiment is actually a startup's first product, not just a theoretical enquiry.
- Startups have a build - measure - learn feedback loop.
- The learning is how to build a sustainable business.
- This learning is more important than revenue.
- Minimise the time it takes for you iterate through this loop.
- People are often trained and specialised in one aspect of this loop, like engineers trained to build. What matter is not one part, but how fast you can iterate through the entire loop.
- Startups should use a scientific method.
- To do so, they should know what hypotheses to test.
- The two most important hypotheses are the value hypothesis and the growth hypothesis.
- Every startup is based on assumptions, often not recognised as such by founders.
- Some assumptions are validated by the existence of other products. For example, when Apple built the iPod, one assumption was that people want to listen to music in public places using earphones. But the popularity of the walkman validated that assumption.
- "Leap of faith" assumptions are trickier, like saying that people want to pay $399 for a portable music player.
- You want to validate them ASAP.
- The riskiest ones first.
- You do so by building one or more MVPs. An MVP lacks features that are needed later, but its purpose is to validate assumptions with as little time and effort as possible.
- You should identify and list assumptions before, not after, building the MVP. Ideally give quantitative estimates like 20% of people will be interested in our service, and 5% will be willing to pay. That way, you can't claim later on that you succeeded, by defining the goal as what you actually achieved.
- You actually run the build - measure - learn loop in reverse: start with what you want to learn (assumptions to validate), then think about what to measure to validate those assumptions, and then build that MVP.
- Don't act as if your assumptions are true. Validate them. Otherwise your startup will fail.
- You can look for analogs and antilogs.
- An analog is a similar situation that validates your assumption, as with people listening to music in public using earphones.
- An antilog is something that goes against your assumption. For example, an assumption behind the iTunes Music Store was that people are willing to pay for music, but Napster was an antilog.
- Get out of the building and talk to users. Don't theorise.
Chapter 6: Test
- Start with a quick, crappy implementation.
- Groupon began as a themed Wordpress blog with the coupons being PDFs mailed by Apple's Mail app to 500 people.
- An MVP is not necessarily the smallest product to build, but the quickest to build.
- It's hard for entrepreneurs to launch an MVP, because the vision they have of themselves is launching high-quality, polished products, not crappy ones. Overcome that hesitation.
- If you don't know who the customer is, you don't know what quality is.
- Users may be fine with what you think is low-quality stuff, and may actually find it better, disagreeing with your opinion as to what constitutes high or low quality.
- Low quality is a problem only if it slows down the build - measure - learn feedback loop.
- An MVP can also be a marketing pitch accompanied by a sign up page to gauge interest.
- Or a video, in Dropbox's case.
- You can have humans substitute for an algorithm.
- Don't worry that an established company will copy your idea. Try pitching it to the managers there. They will do nothing, partly because they're already overwhelmed with good ideas.
- MVPs often result in bad news. Or, rather, they bring it out. You're better off facing reality.
Chapter 7: Measure
- If you're making changes to your product resulting in more users, that's not good enough. It's storytelling. How do you know that your changes are causing the results? How do you know that you're drawing the right lessons from your changes?
- You need innovation accounting.
- Innovation accounting works in three steps:
1) Use an MVP to establish real data on where you are. Without a clear-eyed picture of your current status — no matter how far from the goal you may be — you cannot begin to track your progress.
2) Tune the engine to move towards the ideal.
3) Decide whether to continue on your current course or pivot.
- An MVP gets you real baseline data — conversion rates, sign-up rates, trial rates, customer life-time value, and so on.
- Don't optimise something (like making your app easier for new users to use) until you know that it's a driver of growth and is less than what you'd like.
- Putting all these together, start with a baseline metric, then form a hypothesis as to what will improve that metric, and then perform a set of experiments designed to test that hypothesis.
- Metrics about the customer acquisition funnel are important.
- Running Adwords ads, even on a low budget is important, because it gives you critical data.
- Cohort analysis is important. Here, you define a cohort, such as people who signed up during a given week, or those who used a certain feature. Then you track the performance of your app for that group of users.
- Cohort analysis lets you prove or disprove theories like, if your number of users is declining, that people who signed up recently are abandoning the app while old users continue to use it.
- Cohort analysis can point out problems when other metrics are all up and to the right (hockey sticks).
- When you get poor quantitative results, they force you to declare failure and create the motivation, context and space for more qualitative research.
- If you pivot, and the experiments you run afterward are more productive than the ones before, that's the sign of a successful pivot.
- Don't focus on optimising, whether the conversion rate or the performance of your app, because you may be building the wrong thing, in which case no amount of optimisation will help.
- A startup has to measure progress against a high bar: evidence that a sustainable business can be built. This is possible only if you've made clear, verifiable predictions ahead of time.
- Sometimes, when you make changes and launch them, it's hard to look for cause-and-effect relationships after the fact. In that case, do an A/B test.
- A/B testing can also tell you things like whether the social features you've added to a product matter.
- Hypothesis testing can require you to build new infrastructure. For example, if you're testing delayed sign-up, you'll need to support a state where users have their data in the system but haven't yet signed up.
- Industry norms like delayed sign-up helping may not be true in your case.
- That may, in turn, reveal an insight, such as: customers were not basing their decision on whether to use your product on your demo. Maybe on positioning and marketing.
- Good metrics must follow the three As: Actionable, Accessible, and Auditable.
- Go by actionable metrics, not vanity metrics. Vanity metrics are those where the cause and effect relationship isn't clear. You don't know what change you made that led to an increase (or decrease) in this metric, like page views. Or maybe it has nothing to do with you, like a mention in a popular blog. An actionable metric is the number of customers. If it decreases by 50K, you know something is wrong. You can work on it and hopefully fix it. That's actionable.
- Accessible means that you can understand what it means, like a "customer" as opposed to a "hit on your web site".
- Auditable means that if a question arises as to the validity of the metrics, you should be able to verify it. The best way is to talk to customers, who will also tell you why something is happening, not just that it is. In addition, the mechanism that generates the results must not be too complex for the metric to be auditable.
Chapter 8: Pivot
- Companies that can't pivot may be stuck in the land of the living dead, neither growing quickly enough nor dying, consuming the time and money of the people involved.
- Launching early and iterating means that if you pivot, you waste less time, energy and money. If you drag it on, you won't want to pivot because of sunk costs.
- Go by actionable metrics, rather than vanity metrics that can give a feeling of false success.
- A startup's runway is conventionally defined as the number of months, but it should be defined as the number of pivots it can make.
- Don't cut costs by slowing down the build - measure - learn loop. Then you're just going out of business slowly.
- Two telltale signs that you need to pivot are the decreasing effectiveness of product experiments and the general feeling that product development should be more productive.
- Not having PR and media attention on you is good, because you can pivot without drama.
- Some types of pivots are:
+ Zoom-in pivot (where you focus on a subset of your original product)
+ Zoom-out pivot
+ Customer segment pivot (where you realise that you're more successful with different customers from the ones you expected)
+ Customer need pivot (where you discover that the customer has more important needs than the ones you thought they had)
+ Platform pivot (where an app becomes a platform or vice-versa)
+ Value capture pivot (commonly called monetisation, but monetisation is more like a feature while value capture is more central to the product)
+ Engine of Growth pivot (moving between viral, sticky and paid engines of growth)
+ Channel pivot (moving between sales channels)
+ Technology pivot
+ A pivot is a hypothesis; we don't know ahead of time whether it will succeed.
Chapter 9: Small Batch Sizes:
- Optimise the entire system, not a piece of it.
- Have a small batch size: deliver work in smaller units.
- Launch each feature independently.
- Continuous deployment. Launch many times a a day.
- Have lots of automated tests.
- Have your designer sit with the engineer and have them design and implement each screen together. As opposed to your designer working by herself for weeks and then delivering the entire result at once.
- Smaller batch sizes are actually more efficient, despite our intuition.
- Quality problems can be identified much sooner. If you make something no one wants, you'll learn sooner.
- Large-batch systems tend to malfunction, and when they do, people blame themselves.
- Large batches lead to multiple rounds of rework.
- ... and to still larger batches, which becomes a death spiral.
- And to interruptions, people being blocked on others, communication gaps, scheduling problems, and so on.
- The longer a project takes, the more bugs, problems and conflicts it has.
- Have minimum work in progress.
- Pull, don't push. Start from the hypothesis that needs to be validated or the experiment that needs to be run, and pull work from product development in the smallest batch size to validate that hypothesis.
- Small batches will also let you work with less capital.
- Companies can stay lean as they grow. They don't need to become bureaucratic.
Chapter 10: Engines of Growth:
- New customers come from the actions of past customers. This happens in four ways:
1) Word of mouth.
2) As a side effect of product usage
3) Through advertising
4) Through repeat purchases (sticky)
- Each of these engines has a feedback loop that leads to success.
- One of the most expensive forms of potential waste for a startup is spending time arguing about prioritisation of new features.
- The engines of growth help you prioritise better.
- There are always a zillion new ideas about how to make the product better floating around, but most make a difference only at the margins. They are merely optimisations.
- If you're using the sticky engine of growth, you will grow if the rate of new customer acquisition exceeds the churn rate. Track both.
- The metric to focus on is the compound growth rate. If it's high, you're doing well.
- Activation rate and revenue per customer have little impact on growth. (They're better suited to testing the value hypothesis)
- If the churn rate and customer acquisition rate are the same, then the standard intuition to invest in sales and marketing doesn't work, because you will lose your new customers as well.
- This is an example of vanity metrics misleading you.
- The viral engine of growth depends primarily on people sharing it with friends, as a central feature of the app, not an afterthought.
- The metric to focus on is the viral coefficient, which determines how quickly your app spreads. If it's 0.1, it means one of ten people using the app are referring a friend.
- If the coefficient is less than one, the cycle of growth fizzles: if you start with 100 users, they refer 10 more, who refer one more, at which point the loop ends.
- Exactly 1 gives you linear growth: if you gain 10 new users this week, you will gain 10 the week after that, 10 the third week, and so on. That's not good enough.
- The coefficient needs to be > 1 for exponential growth.
- Tiny changes in this number cause dramatic changes. If it's 1.01 per week, you end the year with twice as many users as you began.
- If it's 1.1, you end the year with 140 times as many users as you began.
- These are often free and ad-supported because being asked to pay comes in the way of viral growth.
- The paid engine of growth relies on more paid sales. It's different from the sticky engine, which relies on repeat sales to the same customers.
- If one company earns a revenue of ₹10 per user, and another earns ₹100, and they both reinvest their profit in acquiring new users, which one grows faster? A: It depends on the Cost Per Acquisition (CPA). If they are proportional, like ₹2 and ₹20, both grow at the same rate.
- For faster growth, you need to reduce CAC or increase revenue.
- The lifetime value (LTV) of a customer is the total revenue they generate over their lifetime, minus variable costs.
- If LTV > CPA, the company will grow.
- If < it won't, despite one-time tricks like using invested capital or publicity stunts.
- Don't pursue multiple engines of growth, since it's complex to model all these effects simultaneously. Startups usually focus on one.
- Product-market fit is the moment when a startup finally finds a widespread set of customers that resonate with its product.
- A great market — a market with lots of potential customers — pulls product out of the startup. In a terrible market, the best product and best team are going to fail.
- When you achieve product-market fit, it's exhilarating.
- If you have to ask, you're not there yet.
- Depending on which engine you're using, look at the appropriate metric, like viral coefficient for a viral engine. If it's 0.9 or more, you're on the verge of success.
- The number doesn't matter as much as the direction and degree of progress.
- Every engine eventually runs out of fuel.
- Moving from early adopters to mainstream users is not automatic. The engine may stop and may require tremendous additional effort.
- Be careful to not confuse growth coming from an engine already working efficiently for growth from product development. It's possible your work has no effect, in which case you can have a sudden stop.
- To prevent this, focus on actionable metrics rather than vanity metrics, and use innovation accounting rather than traditional accounting. In other words, are you making progress on your actionable metrics? Are you running experiments and building MVPs to improve them? Are you verifying that, if you ran an experiment to reduce the churn rate, for example, that it has actually reduced the churn rate, rather than assuming that it did from increased revenue?
Many startups don't have the experience and the data to know what will work and should be ready to change or modify the plan based on the response of the market it's like driving a jeep off-road in a very rough terrain decision need to be made based on immediate feedback in order not to crash in order to be success. Many startup needs a business model that is both profitable and sustainable.
The new needs to find a way to constantly and systematically acquire new customers and find a way to turn their desire into a constant stream of revenue.
In this book author has discussed about 2 principles
what the customers want ???
How to sell it to them???
One of the effective ways to do this is to test your theory in real life scenario.
The good way to test whether something works or not is through "split testing".
Among entrepreneurs we have this mentality that you build a successful business we have to fight through challenges and hardships that entrepreneurs we need a lot of perseverance and unshakable will which can be true way of thinking can also be thinking can also lead to startups to ignore feedback and keep hard selling products.
And also author discussed about fundamental part of business is growth!!
The Lean Startup: How Constant Innovation Creates Radically Successful Businesses
The author introduces the readers to a framework Build-Measure-Learn feedback Loop—an agile product development technique that follows the concept of build faster and ship sooner which is commonly known as Minimum Viable Product (MVP) building methodology. MVP methodology is used to build faster with minimum but crucial features, test those to validate assumptions against the measurable feedback and inputs from the customers. These learnings are subsequently used to build next cycle of MVP by either persevering on the same path or pivoting to a new one. Each concept is further explained with real life experiences and instances from startups and corporate organizations alike, which makes this book very interesting and engaging.
The author has provided insightful learnings on identifying project wastages in terms of time, money and other vital resources. He has provided tools on measuring the feedback/data using what he calls 3 A’s metrics: Actionable, Accessible and Auditable, and warns against the pitfalls of vanity metrics that is loaded with unwanted and useless data. His wisdom on Pivot or Persevere is particularly very useful, he guides the reader on how to identify such stages but also provides an understanding of different flavors of change that can be adopted to redefine the strategy and continue with the loop.
He talks about how to accelerate and grow once we are on the path of perseverance, by fueling the growth engine at necessary intervals aiding us with several tools and framework like sticky, viral and paid engine of growth. He also emphasis on how the companies should continue to build an adaptive organization by continues learning, evolving ideas into innovations that results in developing new sources to fuel the growth engine.
The author is greatly inspired by The Toyota Way by Jeffery K. Liker and The Innovators Dilemma by Clayton Christensen. He has often listed examples and shared his learnings from these books that contributed to this technique. The section on wisdom of Five Why’s and Adapting to smaller batches can be adapted by anyone to quickly adjusts process and performance to grow more effective.
I recommend this book not just to entrepreneurs, but also to managers, leaders, innovators and people who are interested in personal growth. Even large organization can use these methodologies, Eric has very cleverly provided suggestions to build adaptive organization that can oil the growth engine and how to nurture disruptive innovation. One of the most likeable character of the author is that he is very candid on talking about his own failures and short sightedness during his early days as a CTO. And the lessons learnt from others mistakes can be priceless.
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