Lean Startup Basics

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

Evidence-Based EntrepreneurshipTM

By Kelly Schwedlandkellys@elevateventures.com

~Drew Houston, CEO Dropbox

Key Points

1. A Business Model, Not a Business Plan

2. Fast Learning Loops: Build-Measure-Learn

3. Business Model Validation:Get Out of the Building!

4. MVP - It’s Not What You Think

5. The Lean Startup Path

1. A Business Model, Not a Business Plan

No business plan

survives the first

customer contact

If you build it, they will not come.

9 Out of 10 Startups

Fail!

•Building on Invalid Assumptions

•Premature Scaling

•Lack of Customers and Markets

•Change Your Business Model at Scale

•Run Out of Money

The Path to Disaster

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

(Nail it, then Scale it.)

Your Job as an Entrepreneur:

Questions• Is this problem worth solving?

• Who’s 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?

• What’s 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?

• What’s your unit cost model? Unit revenue model?

Enter the Lean Startup

2. Fast Learning Loops

The “Lean Startup” Model

But this is still Chaotic!

• How can we organize these loops into an orderly process?

Business Model Canvas

http://www.businessmodelgeneration.com/downloads/business_model_canvas_poster.pdf

Steve Blanks online course: udacity.com/course/ep245

3. Business Model Validation:

(Get Out of the Building)

The Lean Launchpad /I Corp Approach

Get Out of the Building

Go To The Source

Get Pupil Dilation

(Not surveys or focus groups, Talk to customers)

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 customer’s

problems are we helping to solve?

What bundles of products and

services are we offering to each

Customer Segment?

Customer Relationship

s

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

?

?

?

?

??

??

?

Customer Interviews

• Customer Demographics (Discover Subsegments)

• Validate Their Top Three Problems

• Discover New Problems

• Rank the Problems

• How Do They Solve Them Now?

• Document existing workflow.

1

2

3

4

5

How to do customer interviews videos: http://vimeo.com/groups/204136/videos/

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 customer’s

problems are we helping to solve?

What bundles of products and

services are we offering to each

Customer Segment?

Customer Relationship

s

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

Solution Interviews• Recap Demographics and

Problem

• Describe and Show Solution (don’t sell it!)

• Does it Resonate?

• What’s most important, what’s missing, what can you take away?

• How do they find out about solutions to this problem?

• Will they pay $X?

1

2

3

4

5

6

Problem/ Solution Validation

Drill down to Minimum Viable Product

(MVP)1

2

3

4

5

XX

6

4. MVP - It’s Not What You Think!

More on MVP• Not one snapshot, but a progression of experiments

• Early experiments have no product.

• At some point, you need to start development. That’s where Agile comes in

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 MVPs

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 customer’s

problems are we helping to solve?

What bundles of products and

services are we offering to each

Customer Segment?

Customer Relationship

s

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 Hypotheses

7

8

1

4

23

59

6

Use Canvas As a Weekly Scorecard

Week 3

Week 2

Week 1

Useful tool for tracking weekly updates: https://www.launchpadcentral.com/

5. The Lean Startup Path

Lean Startup: Two Fast Feedback Loops

Launch?

Validate Business Model

You Need to Get Here!Replicable/Scalable Fit:

LTV/3 >= CAC

You Are Here

You’ve only just begun

Metrics that Matter

Post Launch Goal:Decrease CAC and Increase LTV

Post Launch Fast Feedback Loops

You 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 Products

Metrics that Matter

Investment Readiness Level

Mkt Size/Competitive analysis

Complete first-pass canvas

Problem/Solution Validation

Low Fidelity MVP Experiments

Validate Product/Market fit

Validate right side of canvas

Prototype High-Fidelity MVP

Validate left-side of canvas

Validate metrics that matter

Friends and Family

Angel investors

Venture Capital

None

Validation Stage Investment Type

$1B+ Market? Scalable Solution? Recurring Revenue?Past Successes? Full team? (Hipster, Hacker, Hustler)Traction?

Investment Interest Level

What 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/signups

• Marketplace: $50,000 revenue/mo.

• E-Commerce: $50,000 revenue/mo.

LTV > 3X CAC?

Common Mistakes• Too Broad a Segment

• Not a Big Enough Problem

• Surveys Instead of Interviews

• Conflate Problems and Solutions

• Confuse Users and Customers

• Build Too Much (Fat Experiments)

• Don’t Test Revenue Model Early Enough

• Stop Experimenting When You Have Customers (No Metrics)

• No UX and No Agile

Summary

1. A Business Model, Not a Business Plan

2. Fast Learning Loops: Build-Measure-Learn

3. Get Out of the Building!

4. MVP - It’s Not What You Think

5. The Lean Startup Path

Questions?

slideshare.net/KellySchwedlandKellyS@elevateventures.com

Resources

steveblank.comudacity.com/course/ep245

Customer DevelopmentSearch Execution

Get/Keep/Grow – Customer Relationships

Physical Products