lean startup basics - evidence based entrepreneurship

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Lean Startup Basics © Are held by their respective owners, Eric Reis, Steve Blank, David Skok, Dave McClure and others Evidence-Based Entrepreneurship TM By Kelly Schwedland [email protected]

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Introduction and overview to the lean process for startups. An evidence based approach to validate early hypothesis and develop a solid Business Model before launch. Involving Customer Development, Hypothesis testing, Minimum Viable Product, (MVP) to get to Product/ Market fit and ultimately A replicable scalable business model. This simple but disciplined approach takes the guess work out of taking an idea and turning it into a viable company. Based on Eric Reis, Steve Blank and Alex Osterwald's work with Lean Startup, Lean launchpad, customer development and Business Model Canvas. Now in practice by multiple Incubators, Accelerators, Universities and now the National Science Foundation through ICorp to validate business ideas with before investing.

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Lean Startup 101

Lean Startup Basics Are held by their respective owners, Eric Reis, Steve Blank, David Skok, Dave McClure and others

Evidence-Based EntrepreneurshipTMBy Kelly [email protected]~Drew Houston, CEO Dropbox

Key PointsA Business Model, Not a Business PlanFast Learning Loops: Build-Measure-LearnBusiness Model Validation:Get Out of the Building!MVP - Its Not What You ThinkThe Lean Startup Path1. A Business Model, Not a Business Plan9 out of 10 startups, 9 out of 10 new products. Its risky.

No business plan survives the first customer contactYouve got a startup, or a new product. Your assumptions in your business plan are wrong. So dont waste time doing a long business plan yet. Its based on very incomplete information.If you build it, they will not come.

Build what you think is right and then get it out in the market?9 Out of 10 StartupsFail!9 out of 10 startups, Its risky.Building on Invalid AssumptionsPremature ScalingLack of Customers and MarketsChange Your Business Model at ScaleRun Out of MoneyThe Path to DisasterSo theyre inherently risky, and in most cases startups fail because of a lack of customers and markets - that is, enough people willing to buy your product at more than it costs you produce it, service it and acquire customers.

Discover a Business Model that works before you run out of Money and Time.

(Nail it, then Scale it.)Your Job as an Entrepreneur:Startup uncertaintyPlus, as a startup, you have limited time to figure it out. No results, no job, no funding.So theres an approach for this called customer development. QuestionsIs this problem worth solving?Whos problem are you solving?How are they solving it now?Does anyone care about your solution?Will they buy it?How do you create value for your customers?How will you grow?Whats your unfair advantage?What channels will you use to get to your customers?What are your acquisition costs per customer?What is the lifetime value of your customer?Whats your unit cost model? Unit revenue model?So theres another diagnosis. Maybe no one cares about the problem or your solution. It doesnt matter how usable it is if the problem its addressing isnt big enough. Enter the Lean StartupLean Startup is a concept coined by Eric Ries to describe an approach. He didnt invent it, but came up with some key descriptions. You don't have all the answers. But you have a really quick way of finding out if your answers are valid, and what to do if they're not.2. Fast Learning Loops

The Lean Startup ModelBut this is still Chaotic!How can we organize these loops into an orderly process?

Business Model Canvashttp://www.businessmodelgeneration.com/downloads/business_model_canvas_poster.pdf

Business Model - ComplicatedMaking a Business work is a complicated thing. Rationale - how you create, deliver and capture value. Its interrelated. There's lots of moving parts that need to work together. Usually, there's lot's of ways to approach it. [business model canvas]

Steve Blanks online course: udacity.com/course/ep2453. Business Model Validation:(Get Out of the Building)The Lean Launchpad /I Corp ApproachGet Out of the Building

Go To The Source

Get Pupil Dilation(Not surveys or focus groups, Talk to customers)This comes from Lean Manufacturing, the Toyota production system. Go to the source, go there yourself. Pupil Dilation- Talk to customers in person see how they react to questions, frustrations, work flows.

Validating Product/Market Fit

Key Partners

Who are our Key Partners?

Who are our key suppliers?

Which Key Resources are we acquiring from partners?

Which Key Activities do partners perform?Key Activities

What Key Activities do our Value Propositions require?

Our Distribution Channels?

Customer Relationships?

Revenue streams?Value Propositions

What value do we deliver to the customer?

Which one of our customers problems are we helping to solve?

What bundles of products and services are we offering to each Customer Segment?Customer Relationships

What type of relationship does each of our Customer Segments expect us to establish and maintain with them?

Customer Segments

For whom are we creating value?

Who are our most important customers?Key ResourcesDo our Value Propositions require?Distribution Channels, Customer Relationships,Revenue Streams?Channel

Through which Channels do our Customer Segments want to be reached?Cost Structure

What are the most important costs inherent in our business model? Which Key Resources are most expensive? Which Key Activities are most expensive?Revenue Streams

For what value are our customers really willing to pay?For what do they currently pay? How are they currently paying? How would they prefer to pay?How much does each Revenue Stream contribute to overall revenues?Customer/Value Hypotheses?????????At the start, we tackle the big problems Business Model HypothesesAttack them by greatest risk and easiest to figure out. Different, but often: So if you take these two together - go to the source, and minimal experiments ...Customer InterviewsCustomer Demographics (Discover Subsegments)Validate Their Top Three ProblemsDiscover New ProblemsRank the ProblemsHow Do They Solve Them Now? Document existing workflow.12345How to do customer interviews videos: http://vimeo.com/groups/204136/videos/

go to the source, the customer and find out. Its about as fast and easy a way to find out if youre solving a problem worth solving. You interview them on their problems. Demographic questions let you find subsegments of earlyvangelists. Validate, ask them if there are problems you havent mentioned, have them rank the problems. If youve nailed the problems, youll know. If its not a top 3 problem, problem $10.Solution HypothesesKey Partners

Who are our Key Partners?

Who are our key suppliers?

Which Key Resources are we acquiring from partners?

Which Key Activities do partners perform?Key Activities

What Key Activities do our Value Propositions require?

Our Distribution Channels?

Customer Relationships?

Revenue streams?Value Propositions

What value do we deliver to the customer?

Which one of our customers problems are we helping to solve?

What bundles of products and services are we offering to each Customer Segment?Customer Relationships

What type of relationship does each of our Customer Segments expect us to establish and maintain with them?

Customer Segments

For whom are we creating value?

Who are our most important customers?Key ResourcesDo our Value Propositions require?Distribution Channels, Customer Relationships,Revenue Streams?Channel

Through which Channels do our Customer Segments want to be reached?Cost Structure

What are the most important costs inherent in our business model? Which Key Resources are most expensive? Which Key Activities are most expensive?Revenue Streams

For what value are our customers really willing to pay?For what do they currently pay? How are they currently paying? How would they prefer to pay?How much does each Revenue Stream contribute to overall revenues?Online model tool http://canvanizer.com/new/business-model-canvas

Solution Design

In solution design, youre using information from customer interviews to put together personas, workflows, and low fi wireframes (hand sketched, paper is usually good enough to start. Youre designing a high level solution to show to customers. By the way, when youre doing problem interviews, solution design and customer interviews, you know whos good to have involved? User Experience Designers.Solution InterviewsRecap Demographics and ProblemDescribe and Show Solution (dont sell it!)Does it Resonate?Whats most important, whats missing, what can you take away?How do they find out about solutions to this problem?Will they pay $X?123456So again, usually the easiest thing to do is to take these hand sketched wireframes to prospective customers and get their feedback. Does it solve their problem? If they need a feature, ask them wy - drill down further on the problem, dont just take the answer at face value. If youre on the right track, youll know from the feedback. Whats most important, whats missing, what can you take away?Problem/ Solution Validation

Drill down to Minimum Viable Product (MVP)12345XX6What you can take away is really important. Remember, youre trying to run the minimal experiment that validates or invalidates your hypotheses. 4. MVP - Its Not What You Think!More on MVP

Not one snapshot, but a progression of experimentsEarly experiments have no product.At some point, you need to start development. Thats where Agile comes in The main point here is that mvp isnt a snapshot - its a progression of experiments to validate hypotheses, and the early experiments often dont involve building software. Pricing. Final MVP - first one you roll out - get actual, live paying customers.Groupon: Wordpress Blog, Widget from The Point, PDF Coupons via email.Foursquare used Google Docs to collect customer feedback. No code, no maintenance.Grockit puts up a notify-me-when-you-release form on steroids.Auto e-commerce site uses manualation and flintstoning for their backend.Allicator uses Facebook ads: Ditch Digger? Feeling spread thin? Click here to complete a survey and tell us about it.ManyWheels uses Microsoft Visio to build clickable web demos for prospective customers.Cloudfire uses a classic customer development problem presentation.Example MVPsKey Partners

Who are our Key Partners?

Who are our key suppliers?

Which Key Resources are we acquiring from partners?

Which Key Activities do partners perform?Key Activities

What Key Activities do our Value Propositions require?

Our Distribution Channels?

Customer Relationships?

Revenue streams?Value Propositions

What value do we deliver to the customer?

Which one of our customers problems are we helping to solve?

What bundles of products and services are we offering to each Customer Segment?Customer Relationships

What type of relationship does each of our Customer Segments expect us to establish and maintain with them?

Customer Segments

For whom are we creating value?

Who are our most important customers?Key ResourcesDo our Value Propositions require?Distribution Channels, Customer Relationships,Revenue Streams?Channel

Through which Channels do our Customer Segments want to be reached?Cost Structure

What are the most important costs inherent in our business model? Which Key Resources are most expensive? Which Key Activities are most expensive?Revenue Streams

For what value are our customers really willing to pay?For what do they currently pay? How are they currently paying? How would they prefer to pay?How much does each Revenue Stream contribute to overall revenues?Continue Validating Hypotheses781423596At the start, we tackle the big problems Business Model HypothesesAttack them by greatest risk and easiest to figure out. Different, but often: So if you take these two together - go to the source, and minimal experiments ...

Use Canvas As a Weekly ScorecardWeek 3Week 2Week 1 Useful tool for tracking weekly updates: https://www.launchpadcentral.com/

5. The Lean Startup Path9 out of 10 startups, 9 out of 10 new products. Its risky.Lean Startup: Two Fast Feedback Loops

Lean Startup takes the customer development fast feedback loop for hypothesis testing and couples that with another fast feedback loop - agile development. As an aside, customer development is the approach we use for new products. We use pragmatic marketings product management approach.

Launch?

So you launch your MVP - its time for the team to wave bye bye and move on to something else. Validate Business Model

You Need to Get Here!Replicable/Scalable Fit: LTV/3 >= CAC

You Are HereYouve only just begun

Metrics that MatterWrong. Youve only just started. Youre trying to get to Validate Business Model - Replicable and scalable - a point where you can scale and make money. A rough measure for Validate business Modelis LTV 3x or more of CAC. Your job after MVP is to get to Validate the Business Model.

Post Launch Goal:Decrease CAC and Increase LTVPost Launch Fast Feedback LoopsYou have real users and precise usage data - Analyze it! (By cohort) Make small changes fast (hours, not weeks to get into production) When you make changes - A/B test (or multivariate w/ traffic.)Get/Keep/Grow Customer Relationships

Web/Mobile ProductsMetrics that MatterInvestment Readiness Level

Mkt Size/Competitive analysisComplete first-pass canvasProblem/Solution ValidationLow Fidelity MVP ExperimentsValidate Product/Market fitValidate right side of canvasPrototype High-Fidelity MVPValidate left-side of canvasValidate metrics that matterFriends and FamilyAngel investorsVenture CapitalNoneValidation StageInvestment Type

$1B+ Market? Scalable Solution? Recurring Revenue?Past Successes? Full team? (Hipster, Hacker, Hustler)Traction?Investment Interest LevelWhat Does Traction Look Like?*cost of acquisition is less than 1/3 lifetime value; $1 in, $3+ out

Typical AngelList Investments $1M raise (2013)Enterprise: 1000 seats @ $10/seat/mo., Big Enterprise: 2 pilot contracts and some $Social: 100,000 downloads/signupsMarketplace: $50,000 revenue/mo. E-Commerce: $50,000 revenue/mo.LTV > 3x CAC?

Common MistakesToo Broad a SegmentNot a Big Enough ProblemSurveys Instead of InterviewsConflate Problems and SolutionsConfuse Users and CustomersBuild Too Much (Fat Experiments)Dont Test Revenue Model Early EnoughStop Experimenting When You Have Customers (No Metrics)No UX and No AgileSummaryA Business Model, Not a Business PlanFast Learning Loops: Build-Measure-LearnGet Out of the Building!MVP - Its Not What You ThinkThe Lean Startup Path

Questions?slideshare.net/[email protected]

Resources

steveblank.comudacity.com/course/ep245

Customer Development

SearchExecution

understand the customers, earlyvangelists, problem, solution, what youre mvp might be like, how you might acquire them. No funding beforehand, dont know if you can bootstrap, etc. going into incubators: at or ready to cross the line. dont have a business until youve done that.

Get/Keep/Grow Customer Relationships Physical Products