LEAN METHODOLOGY FOR STARTUPS: INTRO Lecture prepared by Dr Gregory Prokopski (Montreal / Canada) for EFYI 2016, Lódź, Poland Conference organized by Poland Innovative

About Dr Gregory Prokopski •  PhD from McGill University, Montreal •  MSc, Eng. Computer Sciene Wroclaw Univeristy of

Technology •  MSc, Eng. Marketing and Business Administration from

Wroclaw University of Technology

•  Independent consultant since 1999 •  Prof. at McGill University, Montreal •  Interested in Internet-based startups •  Practical, non-academic – real results orientation •  Currently on his 5th startup

Content of this Workshop • Pareto efficiency

•  20% of knowledge that gives 80% of results •  What counts is application, not just knowledge •  Knowledge is just potential power, it must be

used to become actual power

• Core ideas and tools • Practical examples of Lean methodology

application

WHAT DOES *NOT* LEAD TO SUCCESS In business and beyond – review of common, ineffective ways of thinking that prevent success.

Overconfidence in intuition •  If success was a simple matter of

intuition we’re born with then everyone would just achieve it

• We can train our intuition •  How to do it? •  What to do if you don’t have it yet?

Conceit and being full of yourself • On some level, internally most people (you and I) think they’re smarter than everyone else

• This leads to failure

Secret projects •  Mindset of scarcity tells us to

keep our “best idea” secret •  Cuts us off from knowledge,

coaching and mentoring of other people

•  What counts is not the idea but realization and iteration

•  Only exception: if your solution is patentable. But you still need a team.

Myth of “Aviator” – lonely genius •  He had an idea for a novel movie and a plane •  He had no experience. He just was stubborn,

he put it all in, and… he won.

•  This is romantically very alluring, but IT IS A LIE

•  We don’t know what people want – which product or service

•  As scientists we must first say “We don’t know”

PRINCIPLES, METHODS OF THINKING AND TOOLS OF LEAN METHODOLOGY

Mastery is practicing fundamentals “Get the fundamentals down and the level of everything you do will rise” -- Michael Jordan

Lean Startup* •  Is a set of such fundamentals •  Is a way of thinking and acting when

managing a startup (as opposed to chaos)

•  It is an effective methodology tested by hundreds of thousands of startups around the world

•  Created and documented in widely publicized book “The Lean Startup” by Eric Ries

•  *) Lean Startup is a trademark registered by Eric Ries and is used throughout this presentation for identification purposes only

The Lean Startup - System • Systematic approach to managing startups •  Instead of chaos (usual in startups) – order

• You can learn this system – today! • Next, we will take a closer look at the main components of

this system

Build, Measure, Learn loop •  Iterative innovation model • Every iteration begins with an

idea

In our simulation, after this lecture, we will perform two iterations (turns) of that loop

Idea is a hypothesis • Create a hypothesis, e.g.

“People need to communicate and we can facilitate that”

• We need to test it

• We also need to know what we will measure to find out if hypothesis is true or not

Co zbudowac? MUP / MVP • MVP – Minimum Viable

Product

• Minimal time, money, effort spent to create it

• Only good enough to test the hypothesis and measure results

Our MVP

COMMON TYPES OF MVP

Real companies and products

Video explaining a product • Dropbox used a video to

get VC funding to build a product

• Even before alpha version of Dropbox software was built it already had 5000 registered users

Landing Pages, AdWords, A/B tests •  Timothy Ferriss had ~100

different ideas for the title

• His metric was AdWords clicks statistics

• Owing it (mainly?) to the title the book sold over 1 million copies worldwide and made the author famous

More about A/B split tests •  To product versions

• We measure how customers react to each version (at the same time)

•  In this example conversion rate is a metric

Wizard of Oz • User thinks that everything

is automated

•  In reality everything is done “behind the curtain” and “by hand”

Private Concierge •  We give users (the initial

adopters) VIP treatment

•  Individual attention

•  Few clients

•  Service is cheap but clients take time to provide feedback

•  In such case feedback will be our set of metrics

Many other types of MVP are possible • Piecemeal MVP • Collecting funds from future clients, e.g. Kickstarter or

IndieGoGo • MVP with just one function – Google initially only was

good to find information related to Linux OS • Blogs – measure post popularity and engagement •  Interviews with potential customers • Make up your own!

Build, Measure, Learn loop •  Iterative innovation model • Every iteration begins with an

idea

[ slide repeated ]

METRICS What to measure and what not to

Vanity metrics vs. Actionable metrics •  Today we can measure just

about anything •  But not measurements obtained

are useful

•  Some metrics are fantastic for a press conference (vanity metrics)

•  Other metrics can indicate a direction in which to take a product (actionable metrics)

Vanity Metrics – Examples 1.  Our page was visited 100000 times last

week alone!

2.  Our product was downloaded 763 thousand times this year

3.  We have 1 million registered users

Purpose of a metric • You can’t select the correct

metric if you don’t know first WHY you want to measure something

• Closely related to the hypothesis • We measure that, which will

allow us to prove that the hypothesis was true or not

What to measure and why (1/2) •  If the hypothesis was that the new version of the product

will be used more often… •  Then we need to measure the engagement, e.g. how many times

per day users log into the site and perform actions, in comparison with the existing version (simultaneous A/B test)

•  If the hypothesis was that the new packaging of the product will attract new customers… •  Then we need to measure how many new clients are coming in per

day (or week) compared to the previous version (cohorts)

What to measure and why (2/2) •  If the hypothesis was that the new pricing strategy will

increase lifetime customer value… •  Then we need to measure that value as A/B test

SECRET TO REMEMBER: pricing strategy is usually the most important element you should be testing. Most startups fail because they are not able to begin generating profits in the short time before their funding runs out.

LEARN AND MAKE DECISIONS Stay the course or change direction

Metrics results analysis (1/2) •  If we chose correct metrics then we will be able to take

action – make a decision

• E.g. in A/B test new internet site structure resulted in lower user engagement •  In such case we’ll keep the existing solution

Metric results analysis (2/2) •  E.g. we increased the product price from 0 (free) to 10 Euro

and only 0.5% of our users bought the new product. Consider: •  Does the product provide a real value to the customer? •  Is the value communicated effectively? •  Do we need a different product? •  Do we need to find different customers with a different profile? •  Should we focus on customers with the existing profile and find many

more of them?

•  Often, to answer that you will need a new thesis and new iteration

Stay the course or change it? •  “Persevere” or “Pivot”?

•  The reason why we did the test and collected results (metrics) was so that we can make a decision about future direction

About direction change “Its ok to pivot and its equally ok to persevere, we just need to know our reasons for doing so.”

– Dr Bridget

SUMMARY

Loop – small steps

Recommended book • Discusses many topics we

haven’t addressed in this talk

•  In particular the concept of Engine of Growth is worth examining and applying

Other Lean Startup book •  Lean Analytics by Alistar Croll i Benjamin Yoskovitz •  Lean UX by Jeff Gothelf • Running Lean by Ash Maurya • UX for Lean Startups by Laura Klein •  Lean Enterprise by multiple authors

See http://theleanstartup.com/the-lean-series

THANK YOU QUESTIONS PLEASE After that – time for the workshop