WHAT IS A STARTUP?• A startup is a human institution designed to deliver a new product or service under conditions of extreme uncertainty.• Nothing to do with size of company, sector of the economy or industry
WHY DO STARTUPSFAIL• Rarely fail because the product doesn’t work• Usually fail because there are no customers• Quality of the initial idea is not correlated with success• Startups that succeed are those that manage to iterate enough times before they run out of resources• Time between these iterations is fundamental
THE LEAN STARTUP• Anything we can do to shrink the time between major iterations will increase the likelihood of success.• Speed is the Startup competitive advantage.
LEAN STARTUPS GOFASTER• Commodity technology stack, highly leveraged (free/openSource, user‐generated content, SEM).• Customer development – find out what customers want before you build it.• Agile software development – but tuned to the startup condition.
WHAT’S WRONG WITH THIS? Product Development Concept/ Product Dev. Alpha/Beta Launch/ Seed Round Test 1st Ship - Create Marcom - Hire PR Agency - Create DemandMarketing Materials - Early Buzz - Launch Event - Create Positioning - “Branding” Customer Development in the High-Tech Enterprise September 2008 9
BUILD IT AND THEYWILL COMEOnly true for life and death products • i.e. Biotech Cancer Cure • Issues are development risks and distribution, not customer acceptanceNot true for most other products • Software, Consumer, Web • Issues are customer acceptance and market adoption
CUSTOMERDISCOVERY: STEP 1 Customer Customer Customer Company Discovery Validation Creation BuildingStop selling, start listening • There are no facts inside your building, so get outsideTest your hypotheses • Two are fundamental: problem and product concept
CUSTOMERVALIDATION: STEP 2 Customer Customer Customer Company Discovery Validation Creation Building• Develop a repeatable sales process• Only earlyvangelists are crazy enough to buy
CUSTOMERCREATIONSTEP 3 Customer Customer Customer Company Discovery Validation Creation Building • Creation comes after proof of sales • Creation is where you “cross the chasm” • It is a strategy not a tactic
COMPANY BUILDING:STEP 4 Customer Customer Customer Company Discovery Validation Creation Building • (Re)build your company’s organization & management • Re look at your mission
GENCHIGEMBUTSUGO AND SEE FOR YOURSELF“GET OUT OF THE BUILDING” STEVE BLANK
JUST IN TIME The right material At the right time At the right place In the exact amount
STOP THE LINE “stop and fix problems as they occur rather than pushing them down the line to be resolved later” Jeffrey Liker and David Meier, Toyota Way Fieldbook
THE ESSENCE OF LEAN IS ENGAGINGEVERYONE IN IDENTIFYING ANDSOLVING PROBLEMS
REDUCE ALL FORMS OF WASTE Waste Un-EvennessActivities that do workload that is not not balanced add value Overburden work that creates burden for thePicture Source – Toyota Motor Company team members or processes Australia
8 WASTESIn LEAN 8 types of waste have been identified Waiting Not using All of these 8 can be either Over- People production Resource “Necessary Waste” or “Un-necessary Waste” Transport or Motion Conveyance Depending on circumstance Stock & Over- Materials processing Rework
COMMODITYTECHNOLOGY STACK• Leverage = for each ounce of effort you invest in your product, you take advantage of the efforts of thousands or millions of others.• It’s easy to see how high‐leverage technology is driving costs down.• More important is its impact on speed.• Time to bring a new product to market is falling rapidly. •
BUSINESS PLAN VS JUSTDO IT SCHOOL OFENTREPRENEURSHIP• Business Plan • A business plan never survives a client first contact • A bad plan greatly executed = dead company• Just do it • Have you ever cut a chicken’s head? (you got the picture)
VALIDATED LEARNINGFocus energies on validated learning, learning where andwhen to invest energy results in saving time and moneyTo apply scientific method, we need to identify whichhypotheses to test.
MINIMIZE TOTAL TIMETHROUGH TOTAL J me through the loop Minimize THE LOOP IDEAS LEARN BUILD DATA CODE MEASURE
LEARNINGMILESTONESPlanned the opposite way:• What do we need to learn?• Use Innovation accounting to figure out what needs to be measured to know if we are gaining validated learningWhat product needs to be built to run the experiment andmeasure?
MINIMUM VIABLEPRODUCTIf you say this feature “should” be there, it doesn’t belong inyour MVP• Video MVP – Make a video how it works as if it’s already done• The Concierge MVP – Do it by hand, customer by customer• Wizard of Oz MVP – 8 people behind a curtain
QUALITY INAN MVPIF WE DON’T KNOW WHO THE CUSTOMERIS, WE DON’T KNOW WHAT QUALITY IS
STARTUP’S JOB• Measure where it right and wrong• Confronting hard truths• Devise Experiments to learn how to move the real numbers closer to the ideal reflected in the business plan
INNOVATIONACCOUNTING1. Baseline - Use MVP to establish real data on where the company is right now2. Tuning the engine - Fine tune from baseline towards ideal3. Pivot or persevere
BASELINE• Test riskiest assumptions first• Careful with vanity metrics (up and to the right)• Use Learning milestones • P.e. conversion rates • Sign up and trial rates • Customer lifetime value
TUNING THE ENGINE• Work towards second learning milestones• Every prod. Dev, marketing should be targeted at improving one of the drivers of it’s growth model
PIVOT OR PERSEVERESchedule a regular meeting (every 6 weeks, for instance)Startups that fails to converge to something like the ideal:time to pivot
FUNNEL METRICSBehaviors critical to engine of Growth (specific to eachbusiness)• Customer registration• Downloads• Trials• Repeat Usage• Purchase
COHORT ANALYSIS• One of the most important tools of Startup Analysis• Don’t look at cumulative totals or gross numbers like total revenue and total number of customers• Look at performance of each group of customers• Each group is called a Cohort
VANITY METRICS• Gross Metrics• Total Registered User• Total Paying customers,• etc
INSTEAD OFVANITYMETRICSUSE COHORT ANALYSIS AND SPLIT TESTS
THE 3 AAA OFMETRICS• Actionable – Must demonstrate clear cause and effect• Accessible – Make reports as simple as possible so that everyone understands them• Auditable – Ensure data is credible
PIVOTStructured Course Correction designed to test a newfundamental hypothesis about a product, strategy andengine of growth.A pivot requires that we keep one foot rooted in what we’velearned so far, while making a fundamental change instrategy
CATALOG OF PIVOTS• Zoom-in – refocus on what was before a feature• Zoom-out – what was once the product becomes a feature• Customer Segment – changing the target audience• Customer need – change to a higher customer need• Platform – from product to platform and viceversa• Business Architecture – From high margin, low volume to low margin high volume or vice versa• Value Capture – Change the way company captures value• Engine of Growth – change Viral, sticky or paid• Channel – change sales channel• Technology – deliver the same in different technology
SINGLE PIECE FLOWFASTER THAN BATCH• No sorting/stack/move around• Batch more efficient per step but less as a system• Faster to catch mistakes with little to no impact• Overall performance of system more important than individual performance
HOW CUSTOMERSDRIVE GROWTH1. Word of Mouth2. Side effect of product usage3. Funded Advertising4. Repeat purchase or use
STICKY ENGINE OFGROWTH• Designed to attract and retain customers for the long term• Relies on having a high customer retention rate• Tracks churn rates very carefully
VIRAL ENGINE OFGROWTH• Quantified by viral loop• Speed determined by viral coefficient• Viral Coefficient = how many new customers will use the product as a consequence of each new customer that signs up• Viral coefficient higher than 1 = exponential growth
PAID ENGINE OFGROWTH• Revenue from customers fuels cost of acquiring new customers• Customer lifetime value determines how much to spend per new customer• Cost of Acquisition (CPA) – Money spent versus new customers that signed up
FIVE WHYS ROOTCAUSE ANALYSISA technique for continuous Improvement of companyProcess.• Ask “why” five times when Somethingunexpected happens.• Make proportional investments in prevention at all fivelevels of the hierarchy.• Behind every supposed technical problem is usually ahuman problem. Fix the cause, not just the symptom.