The Lean StartupCalvin Chin

@calvinwuchinchen@qifang.cn

Intro

social entrepreneur

geekABC

husband

father

Qifang

学校Schools

学生Students

Qifang is a web service for students and schools to find funding and recipients for loans and scholarships, manage relationships and data, and share in a community of borrowers, lenders and donors.

qifang.cn

资金Funding

social change profitability

SocialVenturesnon-

profits&

NGOscorporations

technology

profitabilitysocial change

SocialInnovation

Agenda

• the bad news

• the good news

the bad news

startups fail

Source: Source: Zider, B., Harvard Business Review

Probability of Success

Individual Event Probability

Company has sufficient capital 80%

Management is capable and focused 80%

Product development goes as planned 80%

Production and component sourcing goes as planned 80%

Competitors behave as expected 80%

Customers want product 80%

Pricing is forecast correctly 80%

Patents are issued and are enforceable 80%

Combined Probability of Success 17%

If just one of the variables falls to 50%, the overall probability goes to 10%.

common mistakes

1. team

team

• only one founder

• vote of no confidence

• thought partnership

• moral support

• fights between founders

• usually due to people not situation

• face conflicts and misgivings early

• lack of documentation

• bad engineers

• business people have difficulty judging who is a good product developer

Source: Paul Graham

2. location

location

• startup hubs

• experts

• resources: supporting industries

• sympathy

• serendipity

Source: Paul Graham

3. flawed concept

flawed concept

• Marginal niche

• avoid competitors, end up avoiding customers

• intimidated by big ideas

• Derivative

• limited by who you are derivative of

• feature not a product not a company

• solve a problem no one is solving

Source: Paul Graham

3. timing

timing

Source: Joel Spolsky

Error Result

revenue grow faster than employees inadequate customer service

revenues grow slower than employees burn rate too high, run out of cash

PR grows faster than quality of code (product) bad early customer experience, first impressions

employees grow faster than code (product) too many cooks; culture of slowness and low effort

4. funding

funding• Expensive

• time consuming to raise

• time consuming after, investor management

• Raising too little

• distractions: keeping day jobs

• lack of effort

• Raising too much/spending too much

• hiring too many people

• corrupts company culture

• harder to change direction

Source: Paul Graham

5. launch

launch

• launch too late

• perfect is the enemy of the good

• afraid of customer rejection

• chase customers with customization and features

• launching without customer understanding

• not getting hands dirty

• sacrificing customers for profit maximization

Source: Paul Graham

How do you lower your risks?

the good news

new models

new funding models

Capital

Risk (ß)

Valuation (Adoption Curve)

FCSAccelerating

AdoptionModel defined

and proven

Seed(angels?) Series A Expansion

(or founder liquidity)

< ? >Time

Low-burnexperimentationphase

new funding models

Source: Benchmark Capital

accelerators

• Incubator 2.0

• Funding+ model

• Mentorship

• NetworkSource: ReadWriteWeb

social venture capital

• Multiple Priorities

• Single bottom line:

• Double-bottom line:

• Triple-bottom line:

Social & Environmental

Returns

FinancialReturns

PhilanthropyFoundations

Government Grants

Angel InvestorsVenture CapitalBank Financing

social venture capitalpatient capital

economic returns

economic returns

economic returns

social returns

social returns ecological returns

+

+ +

new operating model

The Lean Startup

large company = ⨏( )large company

many think startups are just small large companies

“if you want your company to be big, act like it is big...”

large companies...

have culturehave customers

have departmentshave meetings

have moneyhave time

Concept Product Development

Alpha/Beta Test

Launch

product development model

Source: Steve Blank

Large Company

Concept Product Development

Alpha/Beta Test

Launch

product development model

Source: Steve Blank

Marketing- create marketing/comunications materials- create positioning

- hire PR agency- generate early buzz

- create demand- launch event- branding

Concept Product Development

Alpha/Beta Test

Launch

product development model

Source: Steve Blank

Marketing- create marketing/comunications materials- create positioning

- hire PR agency- generate early buzz

- create demand- launch event- branding

Sales - hire sales VP- hire first sales staff

- build sales organization

Concept Product Development

Alpha/Beta Test

Launch

product development model

Source: Steve Blank

Marketing- create marketing/comunications materials- create positioning

- hire PR agency- generate early buzz

- create demand- launch event- branding

Sales - hire sales VP- hire first sales staff

- build sales organization

Business Development

- hire first biz dev - do deals for FCS

startup large company≠ ≠ ⨏( )large company

startups are not small big companies

market

startup

∉?

product

product/market fit

Source: Marc Andreesen

market

product

product/market fit

Source: Marc Andreesen, Sean Ellis

Depends on your model- market traction

- 40% of customers “must have” your product- means being in a good market with a product that

can satisfy that market

before product/market fit after product/market fit

You can always feel when product/market fit isn't happening. The customers aren't quite getting value

out of the product, word of mouth isn't spreading, usage isn't growing that fast, press reviews are kind of "blah", the sales cycle takes too long, and lots of

deals never close.

The customers are buying the product just as fast as you can make it -- or usage is growing just as fast

as you can add more servers. Money from customers is piling up in your company checking

account. You're hiring sales and customer support staff as fast as you can. Reporters are calling

because they've heard about your hot new thing and they want to talk to you about it. You start getting entrepreneur of the year awards from

Harvard Business School. Investment bankers are staking out your house...

scalable startup transition large company

search for a business model

execution of a business model

Startup problems- will people buy?- how do we market?- how do we pay our bills?

Scaling problems- how do we make enough product?

- how do we keep inventory?- how do we maintain quality?

- how do we find enough good people?- etc...?

problems/worries

market

product

scalable startup transition large company

Source: Steve Blank

search for a business model

execution of a business model

Startup Accounting- customer acquisition cost- viral coefficient- customer lifetime value- average selling price/order size- monthly burn rate- etc...

Traditional Accounting- balance sheet

- cash flow statement- income statement

- predictable forecasting

operations/metrics

market

product

customer development model

Source: Steve Blank

Customer Discovery

Customer Validation

Customer Creation

Company Building

Customer Development: Key Concepts

• Parallel/integrated process to Product Development

• Measurable Checkpoints

• Customer milestones, not product milestones

• Pragmatic view on market types

• Emphasis on learning and discovery (before execution)

Source: Steve Blank

Customer Development: Heuristics

• Inside your building, opinions; outside of the building, facts

• Develop for the Few, not the Many

• ‘Earlyvangelists’ make your company and know more than you

• Focus Groups are for big companies

• Minimum viable product

Source: Steve Blank

Source: Steve Blank

has a problem

is aware of having a problem

actively looking for solution

put together a makeshift solution

has or can acquire budget

Hierarchy of Earlyvangelists

customer development model

Source: Steve Blank

Customer Discovery

Customer Validation

Customer Creation

Company Building

- Stop selling, start listening- Test your assumptions, hypotheses

- Customer Problem, Customer Solution (your product concept)

Customer Discovery: Exit Criteria• What are your customers top problems?

• How much will they pay to solve them

• Does your product concept solve them?

• Do customers agree?

• How much will they pay?

• Draw a day-in-the-life of a customer

• before and after your product

• Draw the org chart of users and buyers

Source: Steve Blank

Chinese Social Startups Specifics:

• What is the government view on your project/issue?

• What structure/registration should your project take?

• Are you in the right location?

customer development model

Source: Steve Blank

Customer Discovery

Customer Validation

Customer Creation

Company Building

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

Customer Validation: Exit Criteria

• Do you have a proven sales roadmap

• Org chart? Influence map?

• Do you understand the sales cycle?

• ASP, ROI, etc...

• Do you have a set of orders validating the roadmap

• List price

• Does the financial model make sense?

Source: Steve Blank

customer development model

Source: Steve Blank

Customer Discovery

Customer Validation

Customer Creation

Company Building

- Creation comes after proof of sales- ‘Cross the chasm’- Strategy not a tactic

Customer Creation: Key Concepts

• Grow customers from few to many

• Four customer creation activities

• Year One objectives

• Positioning

• Launch

• Demand creation

• Creation is different for different market types

Source: Steve Blank

customer development model

Source: Steve Blank

Customer Discovery

Customer Validation

Customer Creation

Company Building

- (re)build your company’s organization and management- review your mission

Company Building: Key Concepts

• Management needs to change as the company grows

• Founders are casualties

• Sales Growth to match market type

Source: Steve Blank

Development-orientation

Mission-orientation

Process-orientation

Company Building: Exit Criteria

• Does sales growth plan match market type?

• Does spending plan match market type?

• Does the Board agree?

• Is your team right for the stage of the company?

• Have you built a mission-oriented culture?

Source: Steve Blank

Customer Development || Product

Development

Source: Steve Blank

product development

the fundamental startup loop

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Source: Eric Ries

Continuous Deployment

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Source: Eric Ries

Continuous Deployment

• Deploy new software quickly

• Tell a good change from a bad change quickly

• Revert a bad change quickly

• Work in small batches

• Break large projects down into small batches

Source: Eric Ries

Rapid Split Tests

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Source: Eric Ries

Split-testing all the time

• A/B testing is key to validating your hypothesis

• Has to be simple enough for everyone to use and understand

• Make creating a split-test no more than one line of code

• AAA: actionable, accessible, auditable

• Measure the macro: split-test the small, measure the large

Source: Eric Ries

Five Whys

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Source: Eric Ries

Five Whys Root Cause Analysis

• 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.

Source: Eric Ries

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questions

appendix

Source: Steve Blank

Problem: known Solution: known

Waterfall

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Traditional Product DevelopmentUnit of progress: Advance to next stage

Source: Eric Ries

AgileUnit of progress: a line of working code

Problem: Known Solution: Unknown

“Product Owner” or

in-house customer

Source: Eric Ries

Lean Product DevelopmentUnit of progress: validated learning about customers ($$$)

Problem: Unknown Solution: Unknown

Source: Eric Ries

Source: April Dunford

More on Earlyvangelists1 Value your key differentiators – Your product will have benefits that only it can deliver along with benefits

that customers can get elsewhere.  For example you are offering a product where the key benefits are related to simplicity, scale and cost reduction. Your customer research has validated that all three of these are important to customers in the space.   You think you beat the other products in your market when it comes to simplicity and cost reduction but nobody else offers scale.  The easiest segment you could go after is one where scale really matters because even though you think you might be better at simple, the difference between you and the alternatives might not be meaningful for customers.

2 Don’t care much about the stuff you aren’t good at – In the early stages there will be gaping holes in your product and other things that your product just doesn’t do all that well.  Your best segment doesn’t care too much that those things (at least not at the beginning).

3 Risks of adopting your product are lower for them – There will be reasons why customers will not adopt your product related to the risk in doing so.  For example some segments will have to migrate off of another product in order to adopt yours or customers will have to trust that you can do what you say you can do.  It’s often a useful exercise to document all of the reasons people won’t adopt your product and then map that our against your potential customer segments. Choose a segment that has the least barriers to adopting your product.

4 Segment is big enough or is a gateway to a big enough segment – Make sure that the segment you end up with is big enough to get your business to where it needs to go.  If it isn’t quite big enough then it should at least be a good, clear pathway to a bigger segment.  For example, having a beachhead of customers in mid-sized services businesses might be enough to help you get into the market for independent consultants (where having that base would address some of their concerns).

• Customer Discovery – Achieve Problem/Solution Fit

• Customer Validation – Achieve Product/Market Fit

• Customer Creation – Drive Demand

• Company Building – Scale the Company

Source: Ash Maurya

Depending on your business:

Minimum Viable Product

Distribution, Revenue, Business model

Minimum Feasible Product

Transistors/inch, Power usage, Cures cancer

Minimum Desirable Product

Engagement, Sustainable growth, Love <3

Test the Riskiest Thing First

Source: IDEO, Andrew Chen