Run Pathfinder, Chicago Lean Startup Circle, Lean Startup Challenge, work with a number of companies on innovation and new product development.
You need to come up with a plan that works before you can execute that plan
So you start with business model (which we’ll talk about a little later -
Great book by Alexander Osterwalder that talks about business models.
Two phases – a search phase, and an execution phase
I’m going to show you a couple of examples of startups that participated in this summer’s lean startup challenge.
Here’s a company 8 weeks in from their idea. The first two minutes are their pitch, so you get a sense, and the next 8 minutes describe their hypotheses and the experiments they ran. By the way, this company is profitable, has employees, and is growing nicely.
Another company in our competition last summer – Unbranded designs. Think of them as Threadless for furniture.
Their low fidelity MVP was just a clickable prototype on an iPad – walking consumers and designers through the process. When they got to the end, people pulled out their credit card, and they had to take the order off line. From that validation, they built a high-fidelity mvp.
GastroHubs was going to be like Mint.com for restaurants. Users enter in their menu items and break them down to the ingredient level. From there, they upload all of their food expenses and see how much each of their menu items cost them. This builds awareness and helps them manage their internal food costs.
But we didn’t build this product, we got out of the building and started talking to customers.We talked to restaurant owners, mangers, and executives to understand who are customers were, how much of a problem cost management was, and how they would use a solution like this.
In addition to this, we gauged interest by building a marketing site that represented the product, as if it actually existed. This site pitched the value propositions, how the product would work and allowed users to sign up.Then, we ran search-engine-marketing and email campaigns targeting our potential customers.
We learned quickly that this wasn’t a viable business. Through interviews, we learned that cost management was a concern, but it wasn’t a dire problemNot to mention that this was a crowded market with a lot of competitionAnd our marketing site only managed to get 1 restaurant to sign upHowever, we learned about their real concerns:Mainly, if they are getting a fair price on their food. This told us that it was time to pivot
It was time to pivot (and change our name)
So we became Cardoona
Cardonna originally was like GlassDoor.com for restaurantsUsers upload their invoices, telling us how much they paid for food.From there, they receive feedback telling them if they were paying too much.This builds awareness and gives them the information they need to better negotiate with their vendors.
Once again, we started by getting out of the building and interviewing more restaurant owners, managers, and executives.
In addition to this, we gauged interest by building another marketing site.And we kept the experiments the same, so we could measure our progress through cohort analysis.
And we were onto something. We learned that food costs were not only a dire problem, to some it was their top problem. We also learned that many restaurants wasted time determining the true cost of food themselves.AND, our marketing site was able to sign up 12 restaurants in one week!However, even though we gave them the information they wanted, they still needed to do negotiationsSo we would just be another step in what we learned was an arduous processSo we were on the right track, but…
It was time to iterate!
So we shifted our model to be likeOrbitz for restaurantsWith this model, we would partner with vendors and gather prices and product information.So, restaurants could discover new vendors, compare prices, and place orders from our site.Saving them from further negotiations and getting them the best price.
So we tested this idea by not only interviewing restaurants, but also vendors, to understand if they would be willing to partner with us.
In addition to this, we gauged interest by building another marketing site.But this time we were pitching our value propositions to vendors to see if they were interested in this idea.
In short, restaurants loved this idea, but vendors did not. They were notcomfortable giving out prices to just anybody. Our marketing verified this by not signing up a single vendor. And that’s because they needed to know more about the restaurant and wanted to quote them specifically.So we were getting closer, but once again…
It was time to iterate!
Which brought us to our current solution, which is a marketplace where restaurants specify what they want, how much they need, and when they want it. From there, they begin to receive quotes from multiple food vendors and can compare prices, make a choice, and place an order directly online.
And we have begun pitching this solution and so far the results look promisingRestaurants still likeVendors like itBoth sides are willing to pay for itAnd we are very excited about this…. Why?
You can apply the basic build-measure-learn loop anywhere you have uncertainty – where you have hypotheses and want to validate or invalidate them. Think about a technical spike – throwaway code …
Lots of ways of looking at innovation. We like to look at it this way. Opportunities for innovation and growth in all of these areas. But the biggest reward and biggest risks are in the top quadrant.
Collaborate and advise a couple of these. Largest scale process we’re involved with is at United Healthcare, where we’re implementing the model we’ve developed.
Using this approach inside the enterprise can be dangerous.
Startups are inherently high risk
Think about this as management of a portfolio. You invest some of your portfolio in new projects, and some for follow on.