Replication was definitely the first step. Indeed, it is a determining factor of life.
In an environment with the composition and conditions the primordial earth is thought to have had, compounds like amino acids, nucleotides, and other simple organic molecules can be spontaneously formed. This has been demonstrated in the lab. It is also known (or strongly suspected – it’s been a while since I had this class) that certain RNAs possess self-replicatory abilities. Now, if, in a global ocean filled with a soup of these organic preliminaries for millions of years, just one of these self-replicating RNAs develops – and remember that an RNA is just a polymer of simple organic molecules – then you’re set. It will, by definition, replicate, and soon you’ll have an ocean full of these suckers.
And they don’t have to be particularly good at their job, either. At this early stage, they have no competitors or predators, so if they only do a fairly good job of replicating themselves, their population will grow larger. And, of course, since they’re so poor at their job, there will be mistakes in the replication. Most of the mistakes will be much worse at their job, but a small few will be better. Once again, by definition of their nature as replicators, those that do a better job of reproduction will come to dominate the environment. And as things start to get more complex, you can start incorporating other aspects. As has been mentioned, it is a natural process of phospholipids to form membranes. No work has to be done to achieve this, it is a natural low energy state. So replicator RNAs can start incorporating lipid membranes with very little work, they just have to start utilizing something already present in the environment. Also, amino acids are naturally present, and could be utilized by the RNAs to make proteins – molecules that are much more flexible and efficient at catalyzing reactions for the replicators. Eventually, most of the replication jobs are handed off to the proteins (although RNAs are still vital components in replication – rRNA, tRNA, etc.), and the genetic material changed from RNA to DNA, a more stable material. Then about a zillion other complicated chemical processes have to occur to form your modern cell, which is why, although it’s expected that life formed 3.5 billion years ago, complicated organisms didn’t form until 550 million years ago. I.e., for three billion years, life was made of simple cells working out the complicated steps necessary to accomplish things like photosynthesis, the Krebs cycle, the electron transport chain, the genetic code, etc. and etc. and etc. Before even attempting to do simple things like slap a few cells together into an organism. Modern cells are truly remarkably complicated and intricate machines.