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LEAN STARTUP

WORKSHOP

AGENDA
1. Intro 2. Overview of the bases of Lean Startup 1. Lean Manufacturing 2. Customer Development 3. Agile Development 3. Entrepreneurship is Management 4. Validated Learning 5. Build - Measure Learn 6. Innovation Accounting

INTRO

WHAT IS A STARTUP?
A startup is a human institution designed to deliver a new product or service under conditions of extreme uncertainty. Nothing to do with size of company, sector of the economy or industry

WHY DO STARTUPS FAIL


Rarely fail because the product doesnt work Usually fail because there are no customers Quality of the initial idea is not correlated with success Startups that succeed are those that manage to iterate enough times before they run out of resources Time between these iterations is fundamental

THE LEAN STARTUP


Anything we can do to shrink the time between major iterations will increase the likelihood of success. Speed is the Startup competitive advantage.

LEAN STARTUPS GO FASTER


Commodity technology stack, highly leveraged (free/open Source, usergenerated content, SEM). Customer development find out what customers want before you build it. Agile software development but tuned to the startup condition.

CUSTOMER DEVELOPME NT
BASES OF LEAN STARTUP

WHATS WRONG WITH THIS?


Product Development
Concept/ Seed Round Product Dev. Alpha/Beta Test
- Hire PR Agency - Early Buzz

Launch/ 1st Ship


- Create Demand - Launch Event - Branding

Marketing

- Create Marcom Materials - Create Positioning

Customer Development in the High-Tech Enterprise September 2008

BUILD IT AND THEY WILL COME


Only true for life and death products i.e. Biotech Cancer Cure Issues are development risks and distribution, not customer acceptance Not true for most other products Software, Consumer, Web Issues are customer acceptance and market adoption

CUSTOMER DISCOVERY: STEP 1


Customer Discovery Customer Validation Customer Creation Company Building

Stop selling, start listening


There are no facts inside your building, so get outside

Test your hypotheses


Two are fundamental: problem and product concept

CUSTOMER VALIDATION: STEP 2


Customer Discovery Customer Validation Customer Creation Company Building

Develop a repeatable sales process Only earlyvangelists are crazy enough to buy

CUSTOMER CREATION
STEP 3
Customer Discovery

Customer Validation

Customer Creation

Company Building

Creation comes after proof of sales Creation is where you cross the chasm It is a strategy not a tactic

COMPANY BUILDING:
STEP 4

Customer Discovery

Customer Validation

Customer Creation

Company Building

(Re)build your companys organization & management Re look at your mission

GENCHI GEMBUTSU
GO AND SEE FOR YOURSELF GET OUT OF THE BUILDING STEVE BLANK

LEAN MANUFACT URING


BASES OF LEAN STARTUP

JUST IN TIME
The right material At the right time At the right place In the exact amount

STOP THE LINE


stop and fix
problems as they occur rather than pushing them down the line to be resolved later Jeffrey Liker and David Meier, Toyota Way Fieldbook

THE ESSENCE OF LEAN IS ENGAGING EVERYONE IN IDENTIFYING AND SOLVING PROBLEMS

REDUCE ALL FORMS OF WASTE


Waste

Un-Evenness

Activities that do not add value


Overburden

workload that is not balanced

work that creates burden for the Picture Source Toyota Motor Companyteam members or processes Australia

8 WASTES
In LEAN 8 types of waste have been identified

Not using People Resource

Waiting Overproduction

All of these 8 can be either Necessary Waste or Un-necessary Waste Depending on circumstance

Motion

Transport or Conveyance Overprocessing Rework

Stock & Materials

AGILE DEVELOPMENT
BASES OF LEAN STARTUP

AGILE DEVELOPMENT

Solution: Unknown

COMMODITY TECHNOLOGY STACK


Leverage = for each ounce of effort you invest in your product, you take advantage of the efforts of thousands or millions of others. Its easy to see how highleverage technology is driving costs down.

More important is its impact on speed.


Time to bring a new product to market is falling rapidly.

ENTREPRENEUR SHIP IS MANAGEMENT


THAT SOUNDS BORING

BUSINESS PLAN VS JUST DO IT SCHOOL OF ENTREPRENEURSHIP


Business Plan A business plan never survives a client first contact A bad plan greatly executed = dead company Just do it Have you ever cut a chickens head? (you got the picture)

STARTUP = EXPERIMENT

VALUE OF A STARTUP = VALIDATED LEARNING


What products do customers really want? How will the product grow? Who is our customer? Which customer should we listen to and which should we ignore?

VALIDATED LEARNING

VALIDATED LEARNING
Focus energies on validated learning, learning where and when to invest energy results in saving time and money

To apply scientific method, we need to identify which hypotheses to test.

MINIMIZE TOTAL TIME THROUGH TOTAL J me through the loop THE LOOP Minimize
IDEAS

LEARN

BUILD

DATA

CODE

MEASURE

LEARNING MILESTONES
Planned the opposite way: What do we need to learn? Use Innovation accounting to figure out what needs to be measured to know if we are gaining validated learning What product needs to be built to run the experiment and measure?

MINIMUM VIABLE PRODUCT


If you say this feature should be there, it doesnt belong in your MVP Video MVP Make a video how it works as if its already done The Concierge MVP Do it by hand, customer by customer Wizard of Oz MVP 8 people behind a curtain

QUALITY IN AN MVP
IF WE DONT KNOW WHO THE CUSTOMER IS, WE DONT KNOW WHAT QUALITY IS

STARTUPS JOB
Measure where it right and wrong Confronting hard truths Devise Experiments to learn how to move the real numbers closer to the ideal reflected in the business plan

BUILD MEASURE LEARN

BUILD MEASURE LEARN

EXPERIMENTS
Do them with early adopters, not average customers GOAL: Measure what customers did (unlike focus groups)

An experiment is a PRODUCT

YOUR TWO MOST IMPORTANT ASSUMPTIONS


Value Hypothesis Growth Hypothesis

INNOVATION ACCOUNTING

INNOVATION ACCOUNTING
1. Baseline - Use MVP to establish real data on where the company is right now 2. Tuning the engine - Fine tune from baseline towards ideal 3. Pivot or persevere

BASELINE
Test riskiest assumptions first Careful with vanity metrics (up and to the right) Use Learning milestones P.e. conversion rates Sign up and trial rates Customer lifetime value

TUNING THE ENGINE


Work towards second learning milestones Every prod. Dev, marketing should be targeted at improving one of the drivers of its growth model

PIVOT OR PERSEVERE
Schedule a regular meeting (every 6 weeks, for instance)

Startups that fails to converge to something like the ideal: time to pivot

FUNNEL METRICS
Behaviors critical to engine of Growth (specific to each business) Customer registration Downloads Trials Repeat Usage Purchase

COHORT ANALYSIS
One of the most important tools of Startup Analysis Dont look at cumulative totals or gross numbers like total revenue and total number of customers Look at performance of each group of customers Each group is called a Cohort

VANITY METRICS
Gross Metrics Total Registered User Total Paying customers, etc

INSTEAD OF VANITY METRICS


USE COHORT ANALYSIS AND SPLIT TESTS

THE 3 AAA OF METRICS


Actionable Must demonstrate clear cause and effect Accessible Make reports as simple as possible so that everyone understands them Auditable Ensure data is credible

PIVOT
Structured Course Correction designed to test a new fundamental hypothesis about a product, strategy and engine of growth. A pivot requires that we keep one foot rooted in what weve learned so far, while making a fundamental change in strategy

CATALOG OF PIVOTS
Zoom-in refocus on what was before a feature Zoom-out what was once the product becomes a feature Customer Segment changing the target audience Customer need change to a higher customer need Platform from product to platform and viceversa Business Architecture From high margin, low volume to low margin high volume or vice versa Value Capture Change the way company captures value

Engine of Growth change Viral, sticky or paid


Channel change sales channel Technology deliver the same in different technology

BATCH
A CAUTIONARY TALE ABOUT LETTERS

SINGLE PIECE FLOW FASTER THAN BATCH


No sorting/stack/move around Batch more efficient per step but less as a system Faster to catch mistakes with little to no impact

Overall performance of system more important than individual performance

ENGINE OF GROWTH

HOW CUSTOMERS DRIVE GROWTH


1. Word of Mouth 2. Side effect of product usage 3. Funded Advertising 4. Repeat purchase or use

STICKY ENGINE OF GROWTH


Designed to attract and retain customers for the long term Relies on having a high customer retention rate Tracks churn rates very carefully

VIRAL ENGINE OF GROWTH


Quantified by viral loop Speed determined by viral coefficient Viral Coefficient = how many new customers will use the product as a consequence of each new customer that signs up Viral coefficient higher than 1 = exponential growth

PAID ENGINE OF GROWTH


Revenue from customers fuels cost of acquiring new customers Customer lifetime value determines how much to spend per new customer Cost of Acquisition (CPA) Money spent versus new customers that signed up

FIVE WHYS ROOT CAUSE ANALYSIS


A technique for continuous Improvement of company Process. Ask why five times when Something unexpected happens. Make proportional investments in prevention at all five levels of the hierarchy.

Behind every supposed technical problem is usually a human problem. Fix the cause, not just the symptom.

AN EXERCISE BMC OF TASK RABBIT

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