Lean Principles and Fractal Modeling in 4D

  • 344 views
Uploaded on

 

  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Be the first to comment
    Be the first to like this
No Downloads

Views

Total Views
344
On Slideshare
0
From Embeds
0
Number of Embeds
0

Actions

Shares
Downloads
1
Comments
0
Likes
0

Embeds 0

No embeds

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
    No notes for slide
  • Key Topics:Needs vs. Wants?What is a market?Competing vs. status quo – switching costsLooking out to the future, competing against what WILL beNo “me too” productsHow do you make your differentiator/advantage “unfair”?

Transcript

  • 1. ©2013 Fractal River LLC. Roberto Moctezuma roberto@fractalriver.com @rmoctezuma Lean Principles Fractal Modeling in 4D
  • 2. ©2013 Fractal River LLC. Roberto Moctezuma @rmoctezuma roberto@fractalriver.com Lean Principles
  • 3. ©2013 Fractal River LLC. What is Lean? Lean eliminates waste: 無駄 (muda)
  • 4. ©2013 Fractal River LLC.
  • 5. ©2013 Fractal River LLC. Waste kills startups “Achieving failure”
  • 6. ©2013 Fractal River LLC. Ideas Business Plan Investors / Incorporate Product Planning Form teams Build Feature 1 Build Feature 2 Build Feature 3 Build Feature 4 Build Feature 5 Deploy User Testing Market Press Releases Sell Customers & Users Measure Learn From this...
  • 7. ©2013 Fractal River LLC. Ideas Business Plan Investors / Incorporate Product Planning Form teams Build Feature 1 Build Feature 2 Build Feature 3 Build Feature 4 Build Feature 5 Deploy User Testing Market Press Releases Sell Customers & Users Measure Learn … to this.
  • 8. ©2013 Fractal River LLC. Build – Measure - Learn Minimize total time through the loop Build Measure Learn Ideas Data Code
  • 9. ©2013 Fractal River LLC. Value is what benefits the customer. Everything else is waste. Can this product be built? Should this product be built?
  • 10. ©2013 Fractal River LLC. Time ValueCreation Learning reduces risk Risk
  • 11. ©2013 Fractal River LLC. Time Series A Series B or Early Exit ValueCreation Bootstrap capital Seed funding Angel round Learning reduces risk Risk drives inflection points Inflection points Ideal funding events Risk
  • 12. ©2013 Fractal River LLC. The goal: Iterate quickly to the next inflection point before cash runs out (or opportunity closes) “The goal of a startup is to figure out the right thing to build – the thing customers want and will pay for – as quickly as possible.” – Eric Ries
  • 13. ©2013 Fractal River LLC. Build – Measure - Learn Minimize total time through the loop Build Measure Learn Data Code Plan
  • 14. ©2013 Fractal River LLC. Learn: Start with the end in mind What are the riskiest assumptions of your business? What is your value hypothesis? What is your growth hypothesis? the purchasing process is a key pain point for midsize companies. People are willing to trade their used goods online. 50% of Customers will tell their friends about my product
  • 15. ©2013 Fractal River LLC. Measure: science vs. alchemy Make a hypothesis. Establish a baseline. Test it to prove/disprove it. Metrics define actions.
  • 16. ©2013 Fractal River LLC. Build: The MVP Get it in front of customers. If possible, try to sell it. “Genchi gembutsu”: See for yourself. “If we don’t know who the customer is, we don’t know what quality is.” - Ries
  • 17. ©2013 Fractal River LLC. Extreme MVP The video: Dropbox. The concierge: Food on the Table. Wizard of Oz: Aardvark. “Remove every feature, process or effort that does not contribute to the learning you seek.” – Eric Ries
  • 18. ©2013 Fractal River LLC. Optimizing vs. pivoting If you are building the wrong thing, optimizing is not good enough (tweaking does not deliver 10x)
  • 19. ©2013 Fractal River LLC. Pivot or persevere What parts of your strategy are brilliant? Which ones you need to throw away? “A pivot requires that we keep one foot rooted in what we’ve learned so far, while making a fundamental change in strategy.” – Eric Ries
  • 20. ©2013 Fractal River LLC. Product Strategy (Business Model) Vision Optimization Pivot *Source: “The Lean Startup” – Eric Ries Definition Hierarchy
  • 21. ©2013 Fractal River LLC. Vanity vs. actionable metrics How do you measure your business? How do you know you are setting the right priorities? Vanity Metrics Look at the results of the engine. Example: sales, customers, etc. Actionable Metrics Look at drivers to improve the engine. Example: referrals, conversion, etc. Use cohort metrics and split testing to pinpoint precisely what’s happening
  • 22. ©2013 Fractal River LLC. Votizen Product: A social network for causes Customer: political activists Hypothesis: 1. Customers are interested enough to sign up (Registration) 2. The site would be able to verify them as voters (Activation) 3. Verified customers would engage with the site’s tools over time (Retention) 4. Engaged customers would enroll their friends in their causes (Referral) Split testing Split testing
  • 23. ©2013 Fractal River LLC. Votizen @2Gov Product: A network for causes social lobbying platform Customer: political activists Learning: Customers interested in voter registration technology, not in the social part. Change: Use the site to bridge high-tech to low-tech world (printed letters/petitions)
  • 24. ©2013 Fractal River LLC. @2Gov Product: A social lobbying platform Customer: political activists large companies Learning: Revenues were still minimal – political activists willing to pay were <1%. Change: Focus on large companies who want to lobby for changes.
  • 25. ©2013 Fractal River LLC. @2Gov Product: A social lobbying platform Customer: large companies individual self-serve model Learning: Large companies signed letters of intent, but didn’t actually purchase. Change: Focus on self-serve model for individuals, @2Gov helps you find new people.
  • 26. ©2013 Fractal River LLC. @2Gov Product: A social lobbying platform Customer: individual self-serve model Outcome: • Raised $1.3M from Peter Thiel. • Expanded to process voter identity in real time for 47 states, delivered thousands of messages to Congress. • Was acquired by Causes on January 10th, 2013 (Sean Parker + Joe Green). • At the time, it had over 200 million voters registered and had rallied over 5,000 campaigns. “A startup’s runway is the number of pivots it can still make…get to each pivot faster!” – Eric Ries
  • 27. ©2013 Fractal River LLC. Types of Pivots • Zoom-in: A feature becomes the product. • Zoom-out: The whole product becomes a feature. • Customer segment: same need, different customers. • Customer need: different needs, same customers. • Platform: application to platform or vice-versa. • Business model: high margin/low volume or reverse. • Value capture: different revenue streams/monetization. • Engine of growth: paid, sticky, viral. • Channel: sales and distribution. • Technology: same solution, different product/technology
  • 28. ©2013 Fractal River LLC. Exercise 1. What defines your next inflection point? 2. What are the riskiest assumptions you have? 3. What do you need to do to test them? 4. When and how are you going to measure them?
  • 29. ©2013 Fractal River LLC. Product Vision Definition Hierarchy Strategy (Business Model) Business Modeling
  • 30. ©2013 Fractal River LLC. Business Modeling – Why? My Startup The Investors The Customers
  • 31. ©2013 Fractal River LLC. The Wrong Approach Can I Show You My Huge Business Plan?
  • 32. ©2013 Fractal River LLC. The Right Approach: Fractal Style! start simple always consider the complete model validate critical points first add complexity gradually
  • 33. ©2013 Fractal River LLC. CustomersInvestors Internal: Employees & Partners Process/Go-to-market View Structural/Capabilities View Modeling your startup in 4D Value Prop View Financial View
  • 34. ©2013 Fractal River LLC. Business Modeling – Why? 1. A holistic view to identify potential problems early. 2. Ensures coherency across different perspectives. 3. Enables “4D” strategy planning and pivoting. 4. Is easy to communicate internally and externally.
  • 35. ©2013 Fractal River LLC. The 4D Model Customer View: Value Proposition (or, “what?”) Process View: Go-To-Market (or, “how?”) Financial View: The Money View (or, “$$$!”) Structural View: Capabilities (or, “who?”)
  • 36. ©2013 Fractal River LLC. Customer View Value Proposition What? what is the solution? how do they solve it today? what is the need? who has this problem? why you? what’s unique? market: customer segments competition: existing solutions your unique solution differentiator: unique value problem
  • 37. ©2013 Fractal River LLC. Start with needs Are you a solution looking for a problem?
  • 38. ©2013 Fractal River LLC. Needs vs. Wants
  • 39. ©2013 Fractal River LLC. The Need Scale If nobody’s too hot on your product… well…
  • 40. ©2013 Fractal River LLC. What is your market size? “If we only get 1% of the market…”
  • 41. ©2013 Fractal River LLC. What market are we talking about? Total market Potential Available Addressable Target Market Have common interest (“and”, not “or”) Can buy your product Reachable by your GTM Actively pursued
  • 42. ©2013 Fractal River LLC. Adoption curve The MVP MVP Target Tolerance
  • 43. ©2013 Fractal River LLC. Target Market Penetration What is your target after 3-5 years?
  • 44. ©2013 Fractal River LLC. Target Market Penetration What is reasonable? Too Small! Why not Focus?? Too Big! Why not Expand??
  • 45. ©2013 Fractal River LLC. Adoption curve Sub-segments & versions Single offering Fragmentation Consolidation
  • 46. ©2013 Fractal River LLC. What is your competition? How are your customers addressing the need today? “You DO have competition,… including the Status Quo”
  • 47. ©2013 Fractal River LLC. Your Solution Your Product Features Customer Need Factual characteristics
  • 48. ©2013 Fractal River LLC. Your Solution Your Product Features Benefits Customer Need How features help solve the customer’s problem Can be subjective but better if quantifiable
  • 49. ©2013 Fractal River LLC. Your Solution Your Product Value Features Benefits Customer Need Customer viewpoint: “I bought this because…”, or, “By using this I will…” Ties directly to the need Can normally be quantified by savings, revenue, speed, risk, quality, etc.
  • 50. ©2013 Fractal River LLC. Your Solution Your Product Value Features Benefits Customer Need Factual characteristics Customer viewpoint: “I bought this because…”, or, “By using this I will…” Ties directly to the need Can normally be quantified by savings, revenue, speed, risk, quality, etc. How features help solve the customer’s problem Different features/benefits can be useful to different audiences Can be subjective but better if quantifiable
  • 51. ©2013 Fractal River LLC. How are you different? How do you win?
  • 52. ©2013 Fractal River LLC. Shooting ahead of the duck Competing against what WILL be
  • 53. ©2013 Fractal River LLC. Differentiators vs. Competitive barriers What is your unfair advantage?
  • 54. ©2013 Fractal River LLC. Validating your value hypothesis How do you know your customers’ need is real? How do you know your solution is valuable to them? Have you considered switching costs?
  • 55. ©2013 Fractal River LLC. Lean Canvas market: customer segments competition: existing solution solution unique value proposition differentiator: unfair advantage problem PROBLEM List your top 1-3 problems. SOLUTION Describe your solution. UNIQUE VALUE PROPOSITION Single, clear, compelling message that turns an unaware visitor into an interested prospect. UNFAIR ADVANTAGE Something that can’t be easily copied or bought. CUSTOMER SEGMENTS List your target customers and users. EXISTING ALTERNATIVES List how these problems are solved today. HIGH-LEVEL CONCEPT List your X for Y analogy (e.g. YouTube = Flickr for videos). CHANNELS List your path to customers. EARLY ADOPTERS List the characteristics of your ideal customers COST STRUCTURE List your fixed and variable costs. REVENUE STREAMS List your sources of revenue. KEY METRICS List the key metrics that tell you how your business is doing. MVP targetX for Y
  • 56. ©2013 Fractal River LLC. Process View Go-To-Market How? key drivers? friction sources? how do we make money? how do we generate demand? how do we sell & deliver? how do we make the product? key metrics customer acquisition strategy revenue streams sales and distribution model MVP key feature list
  • 57. ©2013 Fractal River LLC. “If you build it, they will come…?” The web’s siren song
  • 58. ©2013 Fractal River LLC. How do you generate demand? Paid model: focus on cost of acquisition 2,500 visitors =1 customer What is your demand funnel?
  • 59. ©2013 Fractal River LLC. How do you generate demand? Sticky model: focus on attrition Attrition limits the total size of the customer base
  • 60. ©2013 Fractal River LLC. How do you generate demand? Viral model: focus on referrals Viral coefficient
  • 61. ©2013 Fractal River LLC. How do you generate demand? Indirect model: focus on channel share Manage conflict, mix and profit pools Mitigate risk of customer relationship
  • 62. ©2013 Fractal River LLC. How do you close sales? Impact of sales complexity
  • 63. ©2013 Fractal River LLC. What are your revenue streams? Source: • Direct: from your customers • Indirect: from other sources (i.e. ads) Recurrence: • Percentage of revenue from earlier sales • Customer Lifetime Value Metrics: • Sensitivity analysis • Key drivers and key assumptions
  • 64. ©2013 Fractal River LLC. Friction slows down growth Product: • High: services or custom products • Low: standard products • Frictionless: downloadable software Sales: • High: direct sales force with a complex product • Low: marketing-driven or indirect sales • Frictionless: viral sales driven by your customers Capital: • High: requires expensive infrastructure upfront • Low: inventory/capital needs grow with sales • Frictionless: positive cash cycle, virtual goods
  • 65. ©2013 Fractal River LLC. Lean Canvas market: customer segments competition: existing solution solution unique value proposition key metrics fixed and variable costs differentiator: unfair advantage problem customer acquisition strategy sales model revenue streams PROBLEM List your top 1-3 problems. SOLUTION Describe your solution. UNIQUE VALUE PROPOSITION Single, clear, compelling message that turns an unaware visitor into an interested prospect. UNFAIR ADVANTAGE Something that can’t be easily copied or bought. CUSTOMER SEGMENTS List your target customers and users. EXISTING ALTERNATIVES List how these problems are solved today. HIGH-LEVEL CONCEPT List your X for Y analogy (e.g. YouTube = Flickr for videos). CHANNELS List your path to customers. EARLY ADOPTERS List the characteristics of your ideal customers COST STRUCTURE List your fixed and variable costs. REVENUE STREAMS List your sources of revenue. KEY METRICS List the key metrics that tell you how your business is doing.
  • 66. ©2013 Fractal River LLC. Financial View Financial View $$$! inflection points and capital strategy? what is the cash flow plan? what are the key financial drivers? what is the revenue plan & projected p&l? what is the IP strategy? projected p&l key metrics projected cash flow & burn rate unique advantage funding strategy
  • 67. ©2013 Fractal River LLC. The basic equation Customer acquisition cost $X Customer lifetime value $Y If X>=Y, it’s bad. If X<Y, it’s good.
  • 68. ©2013 Fractal River LLC. Cash flow projections and burn rate Search for product/market fit Search for repeatable & scalable sales model Scale the business Conserve cash Invest aggressively Q: “What’s my marketing budget?” A: “If it makes sense, infinite. Otherwise, a learning budget.”
  • 69. ©2013 Fractal River LLC. What is your target P&L structure? The financial X-Ray of your business Gross revenue 100 Contra-revenue -10 Net revenue 90 Direct costs (COGS) -20 Gross margin 70 Indirect costs (SG&A) - Marketing programs -5 - Sales -10 - R&D -5 - Admin -10 Total SG&A -30 Operating profit 40
  • 70. ©2013 Fractal River LLC. Financial View • What is our funding strategy? – Debt – Equity – Royalty Capital – Cash cycle: vendors and/or customers – Partners • What is our asset/IP protection strategy? – What can we protect? – Will this add value to our company?
  • 71. ©2013 Fractal River LLC. The Back of the Lean Canvas VALUE CHAIN List key value chain partners and service providers. THE TEAM List key members of the team and their roles. CAP TABLE Describe ownership structure of the company. SKILLS List any key missing skills and your “next hire”. GOVERNANCE List how key decisions are made. CORE COMPETENCIES List strategic competencies (i.e. what cannot be outsourced). Financial View KEY FINANCIAL DOCUMENTS projected p&l key financial drivers projected cash flow & burn rate funding strategy
  • 72. ©2013 Fractal River LLC. Structural View Capabilities View Who? what skills are missing or needed? what is the right organizational structure? what is the ecosystem value chain? what competencies are core? infrastructure requirements? org chart value chain map strategic competency list capital expense plan hiring plan partner plan training plan cap table governance model
  • 73. ©2013 Fractal River LLC. What is your value chain map? Map product, revenue and information flows. Identify profit pools. Highlight strategic strengths & weaknesses. Map upstream as well as downstream partners.
  • 74. ©2013 Fractal River LLC. What does your team look like? Create an org chart and assign roles. What are your core competencies? What skills are you missing? Who is your next hire? Do you have a candidate? How do you reward and motivate the team? Don’t waste equity: bonuses vs. stock. Use variable comp to increase revenue resilience.
  • 75. ©2013 Fractal River LLC. Establish clear governance Directors vs. Advisors vs. Staff vs. Shareholders
  • 76. ©2013 Fractal River LLC. The Back of the Lean Canvas org chart value chain map strategic competency list hiring plan partner plan training plan cap table VALUE CHAIN List key value chain partners and service providers. THE TEAM List key members of the team and their roles. CAP TABLE Describe ownership structure of the company. SKILLS List any key missing skills and your “next hire”. GOVERNANCE List how key decisions are made. governance model CORE COMPETENCIES List strategic competencies (i.e. what cannot be outsourced). Financial View KEY FINANCIAL DOCUMENTS projected p&l key financial drivers projected cash flow & burn rate funding strategy
  • 77. ©2013 Fractal River LLC. Think in 4D. Value Proposition What? what is the solution? how do they solve it today? what is the need? who has this problem? why you? what’s unique? market competition solution differentiator: unique value problem Go-To-Market How? key drivers? friction sources? how do we make money? how do we generate demand? how do we sell & deliver? key metrics revenue streams customer acquisition Structural View Who? needed skills? organizational structure? what is the value chain? core competencies? infrastructure requirements? cap ex plan team & partners cap table & governance value map core capabilities Financial View $$$! inflection points capital plan? cash flow plan? key financial drivers? revenue plan & projected p&l? what is the IP strategy? key metrics profit & loss cash flow funding strategy unique advantage org chart sales model how do we make the product?
  • 78. ©2013 Fractal River LLC. Iterate through each view Customer View: Value Proposition (or, “what?”) Process View: Go-To-Market (or, “how?”) Financial View: The Money View (or, “$$$!”) Structural View: Capabilities (or, “who?”)
  • 79. ©2013 Fractal River LLC. Thinking in 4D: Examples 1.Enterprise to SMB 2.Viral to paid engine 3.Add a service offering
  • 80. ©2013 Fractal River LLC. The 4D Model Value Proposition What? what is the solution? how do they solve it today? what is the need? who has this problem? why you? what’s unique? market competition solution differentiator: unique value problem Go-To-Market How? key drivers? friction sources? how do we make money? how do we generate demand? how do we sell & deliver? key metrics revenue streams customer acquisition Structural View Who? needed skills? organizational structure? what is the value chain? core competencies? infrastructure requirements? cap ex plan team & partners cap table & governance value map core capabilities Financial View $$$! inflection points capital plan? cash flow plan? key financial drivers? revenue plan & projected p&l? what is the IP strategy? key metrics profit & loss cash flow funding strategy unique advantage org chart sales model how do we make the product?
  • 81. ©2013 Fractal River LLC. The Lean Canvas Customer View: Value Proposition (or, “what?”) Process View: Go-To-Market (or, “how?”) Financial View: The Money View (or, “$$$!”) Structural View: Capabilities (or, “who?”)
  • 82. ©2013 Fractal River LLC. The Back of The Lean Canvas Customer View: Value Proposition (or, “what?”) Process View: Go-To-Market (or, “how?”) Financial View: The Money View (or, “$$$!”) Structural View: Capabilities (or, “who?”)
  • 83. ©2013 Fractal River LLC. Lean Canvas market: customer segments competition: existing solution solution unique value proposition key metrics fixed and variable costs differentiator: unfair advantage problem customer acquisition strategy sales model revenue streams PROBLEM List your top 1-3 problems. SOLUTION Describe your solution. UNIQUE VALUE PROPOSITION Single, clear, compelling message that turns an unaware visitor into an interested prospect. UNFAIR ADVANTAGE Something that can’t be easily copied or bought. CUSTOMER SEGMENTS List your target customers and users. EXISTING ALTERNATIVES List how these problems are solved today. HIGH-LEVEL CONCEPT List your X for Y analogy (e.g. YouTube = Flickr for videos). CHANNELS List your path to customers. EARLY ADOPTERS List the characteristics of your ideal customers COST STRUCTURE List your fixed and variable costs. REVENUE STREAMS List your sources of revenue. KEY METRICS List the key metrics that tell you how your business is doing.
  • 84. ©2013 Fractal River LLC. The Back of the Lean Canvas org chart value chain map strategic competency list hiring plan partner plan training plan cap table VALUE CHAIN List key value chain partners and service providers. THE TEAM List key members of the team and their roles. CAP TABLE Describe ownership structure of the company. SKILLS List any key missing skills and your “next hire”. GOVERNANCE List how key decisions are made. governance model CORE COMPETENCIES List strategic competencies (i.e. what cannot be outsourced). Financial View KEY FINANCIAL DOCUMENTS projected p&l key financial drivers projected cash flow & burn rate funding strategy
  • 85. ©2013 Fractal River LLC. It’s Your Turn!