LEAN STARTUPWORKSHOP

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 doesn’t 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, user‐generated content, SEM).

• Customer development – find out what customers want before you build it.

• Agile software development – but tuned to the startup condition.

CUSTOMER DEVELOPMENTBASES OF LEAN STARTUP

9

WHAT’S WRONG WITH THIS?

Customer Development in the High-Tech Enterprise September 2008

Concept/Seed Round

Product Dev.

Alpha/Beta Test

Launch/1st Ship

Product Development

- Create Marcom Materials- Create Positioning

- Hire PR Agency- Early Buzz

- Create Demand- Launch Event- “Branding”

Marketing

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

Stop selling, start listening• There are no facts inside your building, so get outside

Test your hypotheses • Two are fundamental: problem and product concept

CustomerDiscovery

CustomerValidation

CompanyBuilding

CustomerCreation

CUSTOMER VALIDATION: STEP 2

• Develop a repeatable sales process

• Only earlyvangelists are crazy enough to buy

CustomerDiscovery

CustomerValidation

CompanyBuilding

CustomerCreation

CUSTOMER CREATIONSTEP 3

• Creation comes after proof of sales

• Creation is where you “cross the chasm”

• It is a strategy not a tactic

CustomerDiscovery

CustomerValidation

CompanyBuilding

CustomerCreation

COMPANY BUILDING: STEP 4

• (Re)build your company’s organization & management

• Re look at your mission

CustomerDiscovery

CustomerValidation

CompanyBuilding

CustomerCreation

GENCHI GEMBUTSUGO AND SEE FOR YOURSELF

“GET OUT OF THE BUILDING” STEVE BLANK

LEAN MANUFACTURINGBASES OF LEAN STARTUP

JUST IN TIMEThe 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

WasteUn-Evenness

Overburden

Activities that do not

add value

workload that is not balanced

work that creates burden for the

team members or processes Picture Source – Toyota Motor Company Australia

REDUCE ALL FORMS OF WASTE

8 WASTES

In LEAN 8 types of waste have been identified

Over-production

Waiting

Transport or Conveyance

Rework

Motion

Stock &Materials

Over- processing

All of these 8 can be either

“Necessary Waste” or “Un-necessary Waste”

Depending on circumstance

Not usingPeopleResource

AGILE DEVELOPMENT

BASES OF LEAN STARTUP

AGILE DEVELOPMENT

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.

• It’s easy to see how high‐leverage technology is driving costs down.

• More important is its impact on speed.

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

•

ENTREPRENEURSHIP 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 chicken’s 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 THE LOOP

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 doesn’t belong in your MVP

• Video MVP – Make a video how it works as if it’s already done

• The Concierge MVP – Do it by hand, customer by customer

• Wizard of Oz MVP – 8 people behind a curtain

QUALITY IN AN MVPIF WE DON’T KNOW WHO THE CUSTOMER IS, WE DON’T KNOW WHAT QUALITY IS

STARTUP’S 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 MEASURELEARN

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 it’s 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

• Don’t 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 METRICSUSE 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 we’ve 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