The Lean Start Up


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Introduction to the concept of the lean start-up at the University of Kent

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The Lean Start Up

  1. 1. THE LEAN START-UP G.T. Viki (2011)
  2. 2. The Lean Thinkers <ul><li>Steve Blank </li></ul><ul><li>( / ) </li></ul><ul><li>Eric Ries </li></ul><ul><li>( http:// ) </li></ul><ul><li>Ash Maurya </li></ul><ul><li> </li></ul><ul><li>Brant Copper </li></ul><ul><li>(http :// / ) </li></ul><ul><li>Alexander Osterwalder </li></ul><ul><li>( / ) </li></ul>
  3. 3. Your Business Idea Sucks! <ul><li>LET ME SAVE YOU FUTURE PAIN AND JUST TELL YOU NOW…. </li></ul><ul><li>Your Business Idea SUCKS </li></ul><ul><li>Your Start-Up Will Probably Fail </li></ul>
  4. 4. Your Business Idea Sucks! <ul><li>Most start-ups fail. </li></ul><ul><ul><li>Over 90% of start-ups fail early (1-5 years). </li></ul></ul><ul><ul><li>Of the successful ones, over two thirds report changing their initial idea to another one. </li></ul></ul><ul><li>Why do start-ups fail? </li></ul><ul><ul><li>Most people cite things like, bad leadership, bad teamwork, poor marketing. </li></ul></ul><ul><ul><li>While this might be true, the answer to this question can come as surprise to some. </li></ul></ul>
  5. 5. Your Business Idea Sucks! <ul><li>Most start-up actually fail because they built something nobody wants!!! </li></ul><ul><ul><li>There is no amount of leadership, team work and marketing that can save a start-up selling stuff that nobody wants! </li></ul></ul><ul><ul><li>Not because of bad technology (only 10%), but because there in no sustainable business model (over 90%). </li></ul></ul><ul><li>Most entrepreneurs have great vision. </li></ul><ul><ul><li>Most of us get sucked into this reality distortion field. </li></ul></ul><ul><ul><li>This is great, and is responsible for a lot of innovation. </li></ul></ul>
  6. 6. Start-up Vs. Established Company <ul><li>But there is a difference between a start-up and an established business </li></ul><ul><ul><li>A Start-up is: </li></ul></ul><ul><ul><ul><li>Unknown problem, Unknown Solution, Unknown Customer. </li></ul></ul></ul><ul><ul><li>An Established Business is: </li></ul></ul><ul><ul><ul><li>Know Problem, Known Customer, Known/Unknown Solution. </li></ul></ul></ul><ul><li>Also important to distinguish between start-ups going into established markets. </li></ul><ul><li>Versus those creating a new market or selling a radical innovation. </li></ul>
  7. 7. A Start-up Is An Experiment <ul><li>The effectively means a start-up is an experiment: </li></ul><ul><ul><li>The founders’ vision is the hypothesis. </li></ul></ul><ul><ul><li>Validating this hypothesis is the task for a start-up. </li></ul></ul><ul><ul><ul><li>i.e. Is what we are proposing to build/sell what people want? </li></ul></ul></ul><ul><ul><li>Only when this hypothesis is validated, should money be invested in scaling the start-up. </li></ul></ul>
  8. 8. A Start-up Is An Experiment <ul><li>This means that start-ups need different management principles from established businesses. </li></ul><ul><li>Interestingly, most start-ups follow the canonical model: </li></ul><ul><ul><li>Build in stealth, alpha test, beta test, launch party! </li></ul></ul>
  9. 9. A Start-up Is An Experiment <ul><li>If the start-up has VC money, they hire staff (marketing, sales, managers, etc etc… ). </li></ul><ul><ul><li>May be even move into new premises! </li></ul></ul><ul><li>Everybody wants to be Facebook or Google… </li></ul><ul><ul><li>The ratio of companies like FB and Google to other start-ups is 1/1000. </li></ul></ul>
  10. 10. A Start-up Is An Experiment <ul><li>The business plan, in its conventional form is not a good idea for start-ups. </li></ul><ul><ul><li>Remember, A Start-up is: </li></ul></ul><ul><ul><ul><li>Unknown problem, Unknown Solution, Unknown Customer. </li></ul></ul></ul><ul><ul><li>So lets just call it what it is… A Business Guess! </li></ul></ul>
  11. 11. A Start-up Is An Experiment <ul><li>Heresy: Business plan competitions (LOL!!) </li></ul><ul><li>Heresy: Business idea competitions (LOL!!) </li></ul><ul><ul><li>Why would you give money to people on the basis of their guesses? </li></ul></ul><ul><ul><li>Winner of these competitions are people who are best at selling their sucky ideas! </li></ul></ul><ul><ul><ul><li>In year one, I will make £300K. In year two, I will make £1 million (LOL!!!!!!!!!!!!) </li></ul></ul></ul>
  12. 12. Is there a better way? <ul><li>What if we made explicit it that your business idea is a guess. </li></ul><ul><ul><li>Then developed a rigorous methodology for testing this. </li></ul></ul><ul><li>This is what a Lean Start-up is. </li></ul><ul><li>It is a method for iterating from Plan A , to a plan that works . </li></ul><ul><ul><li>The speed with which a company can do this is critical for success. </li></ul></ul>
  13. 13. Customer Development <ul><li>Document your Plan A </li></ul><ul><ul><li>This is NOT a Business Plan. </li></ul></ul><ul><ul><li>It is a way to capture your businesses hypotheses. </li></ul></ul><ul><ul><ul><li>Who are the customers, what problems do they have, what solution are you proposing. </li></ul></ul></ul><ul><ul><ul><li>What is the path to your customers, marketing channels, what is your revenue model and cost structure. </li></ul></ul></ul><ul><ul><ul><li>What key metrics are you going to use to measure success. </li></ul></ul></ul><ul><ul><li>All these are hypotheses that will need to be tested and validated. </li></ul></ul>
  14. 14. The Lean Canvas
  15. 15. Customer Development <ul><li>Then systematically test this plan… </li></ul><ul><li>You have to leave the building. </li></ul><ul><ul><li>The founders have to do this! </li></ul></ul><ul><ul><li>1) Problem/Solution Fit </li></ul></ul><ul><ul><li>Do you have a problem worth solving? </li></ul></ul><ul><ul><ul><li>Before you build, first find out if there is sufficient pain in your customer base to make your business viable. </li></ul></ul></ul><ul><ul><ul><li>This is where you find out if people are going to want what you are proposing to build. </li></ul></ul></ul><ul><ul><ul><li>It is also a chance to discover a minimal feature set. </li></ul></ul></ul>
  16. 16. Customer Development <ul><ul><li>2) Product/Market Fit </li></ul></ul><ul><ul><li>Have you built something people want? </li></ul></ul><ul><ul><ul><li>Once you have a problem worth solving, you can start building a minimum viable product (MVP). </li></ul></ul></ul><ul><ul><ul><li>You have to take this product, as you are building it , to customers for their feedback. </li></ul></ul></ul><ul><ul><ul><li>This is the time to also test whether your path to customers is scalable. </li></ul></ul></ul><ul><ul><ul><li>This is also the point to test pricing, and actually ask customer to pay for the product. </li></ul></ul></ul>
  17. 17. Problems <ul><li>Remember that at any point in customer development you might run into problems. </li></ul><ul><ul><li>People don’t have the problem you were hypothesising. </li></ul></ul><ul><ul><li>People don’t like the solution you built. </li></ul></ul><ul><ul><li>People don’t want to pay for the solution you develop. </li></ul></ul><ul><ul><li>People use the product once and don’t come back. </li></ul></ul>
  18. 18. The Pivot <ul><li>If you run into any of these problems you don’t quit! </li></ul><ul><li>You also don’t just persevere “the plane into the ground”. </li></ul><ul><li>You have to do a PIVOT. </li></ul><ul><ul><li>Keep one foot in what you have learnt and then change one other thing and test again! </li></ul></ul><ul><ul><li>This is why the companies that can run these tests quickly and get to a plan that works quickly, are more likely to succeed. </li></ul></ul>
  19. 19. After Customer Development <ul><li>After you have problem/solution fit and product/market fit, you are ready to scale. </li></ul><ul><li>This is the point at which the typical business plan makes sense. </li></ul><ul><li>It is also the point when companies should now put in money to hire sales people, marketing people, hr managers, etc etc. </li></ul><ul><li>This is also the best time to seek press attention. </li></ul>
  20. 20. After Customer Development
  21. 21. What About Vision? <ul><li>So are we saying vision is unnecessary? </li></ul><ul><li>Vision in actually critical… customer often don’t know what they what. </li></ul><ul><ul><li>They will ask for a faster horse. </li></ul></ul><ul><ul><li>This is the reason I don’t like focus groups so much. </li></ul></ul><ul><li>Entrepreneurship should be based on vision. </li></ul><ul><li>But this vision has to be validate, before vast resources are poured into the enterprise. </li></ul>
  22. 22. What About Vision? <ul><li>Methods of validation should be business relevant. </li></ul><ul><ul><li>Find out what problems customers have and then use vision to develop solutions. </li></ul></ul><ul><ul><li>Get customers to use the product and see what they struggle with. </li></ul></ul><ul><ul><li>The number one test is get customers to start paying you for the solution. </li></ul></ul><ul><ul><ul><li>This is when you find out if you really have a business! </li></ul></ul></ul>
  23. 23. An Incubator Idea <ul><li>We are already giving students money when they win business plan competitions . </li></ul><ul><li>But imagine a different approach. </li></ul><ul><ul><li>Students win a business model competition instead. </li></ul></ul><ul><ul><li>They attend one or two seminars on the lean method. </li></ul></ul><ul><ul><li>They then go out there and apply these methods as much as they can in two weeks. </li></ul></ul><ul><ul><li>They come back and present their business models to a panel of judges who then pick the winners. </li></ul></ul>
  24. 24. An Incubator Idea <ul><li>These winners then get the initial funding (£2-£3K). </li></ul><ul><li>We then incubate these three or four start-ups here at Kent over the summer. </li></ul><ul><li>In those three months they have to spend all their time on the start-ups. </li></ul><ul><li>They get mentoring and support from various people (we also already do some of this). </li></ul><ul><ul><li>Investors, business support, lecturers, invited guests. </li></ul></ul>
  25. 25. An Incubator Idea <ul><li>At the end of the summer, they have to be ready for launch at the scale/company building phase. </li></ul><ul><li>They then do a demo day for investors. </li></ul><ul><li>The university gets a small non-dilutable share holding in all these companies. </li></ul><ul><li>Currently, the university is giving money for free. </li></ul><ul><li>This makes sense if the companies are going to fail anyway. </li></ul>
  26. 26. An Incubator Idea <ul><li>But the lean method increases chances of success. </li></ul><ul><li>So this might be more viable… </li></ul><ul><li>Check out Y-Combinator for a similar model… </li></ul><ul><li>Check out also FBFund for a similar model… </li></ul>
  27. 27. THANK YOU! twitter: @gtviki