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lean Startup
A startup is a human institution
designed to create a new
product or service under
conditions of extreme
uncertainty.
Product/Market Fit
If you are asking ...
What's our biggest RISK?
Leap-of-faith assumptions
Entrepreneurship is a kind of management.
Could the success rate of innovative products be
improved?
The lean startup methods
Validated learning
Build - Measure - Learn
Innovative Accounting
Lean Manufacturing
Knowledge and accountability of individual
workers
The shrinking of batch sizes
Just-in-time production...
Validated learning
The most vital function of startup is learning
What does it cost to learn something
Positive improvemen...
Experiment
Think big, Start small
For long-term change, experiment immediately
Break it down. Value/Growth hypothesis
An e...
MVP
Minimum waste
Measure it's impact
Vanity/Actionable
metrics
Pivot or Persevere
Facebook
Value and Growth
Value & Growth
value-creating vs value-destroying
value vs waste
manufacture: profitability of each customer,
cost of acqu...
Engine of Growth
Paid: Customer Lifetime Value deducted by
Cost per Acquisition
Sticky: Rate of Acquisition over Churn Rat...
Get out of the building
Genchi Gembutsu
Go and See for yourself
whether I was in manufacturing, product development, sales...
Go thru the feedback loop
with minimum effort
Early adopter
Quality?
When in doubt, simplify!
Any thing beyond what is req...
Case study:
Food on the Table
An elaborate service
FotT's MVP
Inefficient? Or Progressing?
Automate the overhead
The role of quality and
design
High-quality exp - the principle
If t do not know who the customer is, we do not
know what ...
Case study:
IMVU
Problem: Moving around your 3D avatar.
They kind of "cheated"
Which version is low quality?
(natural sele...
A Disciplined, Systematic
Approach
Innovative accounting
What about traditional accounting
3 steps of innovation
accounting
Establish baseline (current status)
Tune the engine toward the ideal
Pivot or Persevere
T...
Measure
What metrics(data) to use
and how to interpret
Cohort Analysis
(on $5 a day)
Day in and day out
Performance of indie
groups
Funnel / Flow
Hard facts to learn
Optimization vs Learning
Downward spiral follows
energy that could have been invested to help build a
sustainable business...
Caution: Vanity metrics
Isn't it exciting?
Driven by past initiatives
Irrelevant to the efficacy
of the team
Gross numbers...
Case study: Grockit
Lead by a visionary
Agile, process-oriented, disciplined
Efficiency, morale - learning culture
A/B tes...
Kanban
Capacity Constraint
4 states: product backlog, actively being built,
done(from a technical perspective), or in the
...
Three A's of metrics
Actionable
Accessible
Auditable
Pivot or Persevere
A challenge everyone entrepreneur faces eventually
Pivot or Persevere
Land of living dead
A sustainable business that creates value and
drive growth
Improve human faulty jud...
Case: Votizen
USA.gov, social network of verified voters, attracted early
adopters who love the concept, in the face of mo...
Iterate
Initial MVP Optimization
Registration 5% 17%
Activation 17% 90%
Retention 5%
Referral 4%
Revenue n/a n/a
Optimize
Before Opt. After Opt.
Registration 17% 17%
Activation 90% 90%
Retention 5% 8%
Referral 4% 6%
Revenue n/a n/a
Success might be just around the corner
Leap-of-faith questions identified, tested, and with
quantitative predictions made...
Zoom In Pivot
Before Pivot After Pivot
E. of growth Sticky Paid
Registration 17% 42
Activation 90% 83
Retention 8% 21
Refe...
Customer Segment Pivot
B2C > B2B: Political campaigning.
Companies/organizations showed extreme eager to
use and pay.
Sale...
Platform Pivot
Before Pivot After Pivot
E. of growth Paid Viral
Registration 42 51
Activation 83 92
Retention 21 28
Referr...
A startup's runway is the
number of pivots it can still
make
Raise money or Cut costs
/ 
Waste or Ability to B.M.L
Q: How ...
A catalog of Pivots
Zoom in
Zoom out
Customer segment
Customer need
Platform
Business architecture
Value capture
Channel
E...
Pivot or Persevere meeting
Courage
A emotionally charged decision to make, so
schedule it in advance
Failure to pivot
One ...
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Promoting Lean Startup at Zhihu in 2012

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The slide show I used to promote Lean Startup at Zhihu in 2012.

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  • A startup is an institution, not just a product, and so it requires a new kind of management specifically geared to its context of extreme uncertainty.
    Startups exist not just to make stuff, make money, or even serve customers. They exist to learn how to build a sustainable business.
    how to measure progress, how to set up milestones, and how to prioritize work. This requires a new kind of accounting designed for startups 不挣钱
  • allure of a good plan, a solid strategy, and thorough market research. do not yet know who their customer is or what their product should be.
    Planning and forecasting are only accurate when based on a long, stable operating history and a relatively static environment. Startups have neither.
  • the moment when a startup 􏰥nally finds a widespread set of customers that resonate with its product
    search keyword advertising, Internet auctions, and TCP/IP routers. Conversely, in a terrible market, you can have the best product in the world and an absolutely killer team, and it doesn’t matter—you’re going to fail.
    Ford’s Model T, iphone
  • thrown up their hands and adopted the “Just Do It” school of startups. This school believes that if management is the problem, chaos is the answer.
    something as disruptive, innovative, and chaotic as a startup can be managed or, to be accurate, must be managed. Most people think of process and management as boring and dull, whereas startups are dynamic and exciting.
    职业棒球运动员的工作 取胜
  • Vision - Steer - Accelerate
  • difference between value-creating activities and waste - eliminating waste
    manufacturing is measured by the production of high-quality physical goods. the Lean Startup uses a different unit of progress, called validated learning.
  • cross-functional vs departments. going back to 8-hour straight of coding. code is tangible, learning is not.
    Because startups often accidentally build something nobody wants, it doesn’t matter much if they do it on time and on budget. 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
    driving a car vs rocket. steering vs planning. learning vs making assumptions
  • Zappos’ hypothesis, buying shoes online.
    1. It had more accurate data about customer demand because it was observing real customer behavior, not asking hypothetical questions.
    2. It put itself in a position to interact with real customers and learn about their needs. For example, the business plan might call for discounted pricing, but how are customer perceptions of the product affected by the discounting strategy?
    3. It allowed itself to be surprised when customers behaved in unexpected ways, revealing information Zappos might not have known to ask about. For example, what if customers returned the shoes?
    Village Washing Machine
  • break down into value hypothesis and growth hypothesis:
    50% daily retention rate,
    dot-com failures were little more than middlemen, effectively paying money to acquire customers’ attention and then planning to resell it to others.
    apply the lessons of Facebook: is it startups should not charge customers money in the early days? Or is it that startups should never spend money on marketing?

  • value has two aspects!! value-creating vs value-destroying & value vs waste
    Value-destroying kind of growth & machines in a factory

    the majority of my team’s efforts were wasted. Why? - IM interoperability of IMVU. network effects and viral growth

    The ENGINE metaphor.
  • paid. $1 each vs $100000 each, subject to competition.
    sticky. rate of compounding, which is simply the natural growth rate minus the churn rate. total customer, ARPU are irrelevant. 61% retention and 39% growth.
    viral. different from word-of-mouth, p2p transmission is innate. Hotmail, 6 mon 1M, 5 weeks 2M, 18 mon 12M. sold to MS for $400M. though, value exchange is the confusion
    draw the coefficient chart: 0.9/1.0/1.1
  • Toyota sienna minivan 2004 model.
    unusual amount on internal deco. 60% boost. sustaining innovation.

    Scott Cook, Intuit, 1982, calling random people, questions designed to answer the leap-of-faith assumption.
    America’s largest producer of finance, tax, and accounting tools for individuals and small businesses. With
    and accounting tools for individuals and small businesses. With more than 7,700 employees and annual revenues in the billions,
  • Sign up for a one-month free trial
  • “We have failed to meet the growth targets we predicted. In fact, we have almost no new customers and no new revenue. However, we have learned an incredible amount and are on the cusp of a breakthrough new line of business. All we need is another year.”
  • Compare two companies. 5% vs 10%
    When a company pivots, it starts the process all over again, reestablishing a new baseline and then tuning the engine from there. The sign of a successful pivot is that these engine-tuning activities are more productive after the pivot than before.
  • The first company sets out with a clear baseline metric, a hypothesis about what will improve that metric, and a set of experiments designed to test that hypothesis. The second team sits around debating what would improve the product, implements several of those changes at once, and celebrates if there is any positive increase in any of the numbers. Which startup is more likely to be doing effective work and achieving lasting results?
  • lack of sales was related to the low quality. board meeting, last-minute analytics, more depressing
    failure on the legacy of previous customers who were resistant to change, external market conditions, or any other excuse.
  • failure on the legacy of previous customers who were resistant to change, external market conditions, or any other excuse. As long as we are executing the plan well, hard work yields results. Machines in a factory.
    our team is not working hard, not working effectively, or not working efficiently.
    consultant - Every new insight became an emergency that had to be addressed immediately. As a result, long-term projects were hampered by constant interruptions. Even worse, the team had no clear sense of whether any of the changes they were making mattered to customers.
  • success was driven by decisions the team had made in the past. None of its current initiatives were having any impact. But this was obscured because the company’s gross metrics were all “up and to the right.”
  • Farbood Nivi, spent a decade working as a teacher at two large for-profit education companies, Princeton Review and Kaplan, helping students prepare for standardized tests such as the GMAT, LSAT, and SAT.

    teacher-led lectures, individual homework, and group study, student-to-student peer-driven learning method
    bring social peer-to-peer learning to people who could not a􏰅ord an expensive class from Kaplan or Princeton Review
    “Let’s forget educational design up until now, let’s forget what’s possible and just redesign learning with today’s students and today’s technology in mind. There were plenty of multi-billion-dollar organizations in the education space, and I don’t think they were innovating in the way that we needed them to and I didn’t think we needed them anymore. To me, it’s really all about the students and I didn’t feel like the students were being served as well as they could.”

    Was the increase in their numbers actually caused by their development efforts? Or could it be due to other factors, such as mentions of Grockit in the press? When I met the team, I asked them this simple question: How do you know that the prioritization decisions that Farb is making actually make sense?
    “How confident are you that you are making the right decisions in terms of establishing priorities?”
    A disciplined team may apply the wrong methodology but can shift gears quickly once it discovers its error.
  • knowing whether the story was a good idea to have been done in the first place.
    initial result is always frustrating: each bucket fills up, starting with the “validated” bucket and moving on to the “done” bucket, until it’s not possible to start any more work. Teams that are used to measuring their productivity narrowly, by the number of stories they are delivering, feel stuck.
    often requires nonengineering e􏰅orts: talking to customers, looking at split-test data,
    why build a new feature that is not part of a split- test
    junior engineer face down a senior executive. A solid process lays the foundation for a healthy culture, one where ideas are evaluated by merit and not by job title.
    begin to measure their productivity according to validated learning, not in terms of the production of new features.
  • For a report to be considered actionable, it must demonstrate clear cause and e􏰅ect. Otherwise, it is a vanity metric.
    now it’s somebody else’s fault. Thus, most team members or departments live in a world where their department is constantly making things better, ... from their actions. Human beings are innately talented learners when given a clear and objective assessment.

    Departments too often spend their energy learning how to use data to get what they want rather than as genuine feedback to guide their future actions. as simple as possible so that everyone understands them. 10,000 conversations in a period. Is that good? Is that one person being very, very social, or is it 10,000 people each trying the product one time and then giving up?
    widespread access to the reports. Every day well laid out and easy to read, a document containing the latest data for every single one of their split-test experiments and other leap-of- faith metrics.
    our reporting data and its infrastructure were considered part of the product itself and were owned by the product development team. The reports were available on our website, accessible to anyone with an employee account.

    First, remember that “Metrics are people, too.” We need to be able to test the data by hand, by talking to customers. Second, those building reports must make sure the mechanisms that generate the reports are drawn directly from the master data

    Only 5 percent of entrepreneurship is the big idea, the business model, the whiteboard strategizing, and the splitting up of the spoils. The other 95 percent is the gritty work that is measured by innovation accounting: product prioritization decisions, deciding which customers to target or listen to, and having the courage to subject a grand vision to constant testing and feedback.
  • the most difficult, the most time-consuming, and the biggest source of waste for most startups. We all must face this fundamental test: deciding when to pivot and when to persevere.
    a misconception that it offers a rigid clinical formula for making pivot or persevere decisions. This is not true. There is no way to remove the human element—vision, intuition, judgment—from the practice of entrepreneurship, nor would that be desirable.
  • have a remarkable ability to see the signal in the noise. In fact, we are so good at this that sometimes we see signals that aren’t there. The heart of the scientific method is the realization that although human judgment may be faulty, we can improve our judgment by subjecting our theories to repeated testing.
  • initial cohorts: 3 months, $1.2k. 5% signup, 17% verified.
    social network of verified voters, a place where people passionate about civic causes could get together, share ideas, and recruit their friends.
  • next: 2 month, $5k. messaging, design.

    dont go into stealth mode.
  • 3 months $13k. countless a/b test
    The goal of creating learning milestones is not to make the decision easy; it is to make sure that there is relevant data in the room when it comes time to decide.
  • launch early and iterate. The more money, time, and creative energy that has been sunk into an idea, the harder it is to pivot.
    focused on actionable metrics for each of his leap-of-faith questions that he was able to accept that his company was failing. had not wasted energy on premature PR.
  • David’s hypothesis was that passionate activists would be willing to pay money to have @2gov facilitate contacts on behalf of voters who cared about their issues.
    4 months, $30k. $50 in total, 12 month.
    He did this not by working harder but by working smarter. Compared with the previous four months.
    age-old entrepreneurial trap. His metrics and product were improving, but not fast enough.
  • Three months later, David had built the functionality he had promised, based on those early letters of intent.
    All this time, David was learning and gaining feedback from his potential customers, but he was in an unsustainable situation. You can’t pay staff with what you’ve learned, and raising money at that juncture.
    decided to reduce staff and pivot again
  • 1 additional month. acceleration?
    It is tempting to credit it to the product development work. much of the product had to be discarded between pivots. Worse, the product that remained was classified as a legacy product, Votizen accelerated its MVP process because it was learning critical things about its customers, market, and strategy.
    $1.5 mil from Peter Thiel. Startup Visa Act (S.565), Washington consultants
  • amount of time remaining in which a startup must either achieve lift-o􏰆 or fail. remaining cash in the bank divided by the monthly burn rate.
  • customer seg: the product it is building solves a real problem for real customers but that they are not the type of customers it originally planned to serve. facebook college to beyond

    customer need: As a result of getting to know customers extremely well, it sometimes becomes clear that the problem we’re trying to solve for them is not very important. However, because of this customer intimacy, we often discover other related problems that are important and can be solved by our team. 味多美

    business architectures: high margin, low volume (complex systems model) or low margin, high volume

    value capture: capturing value is an intrinsic part of the product hypothesis. Often, changes to the way a company captures value can have far-reaching consequences for the rest of the business, product, and marketing strategies.

    channel: internet is disruptive since it destroys former channel for established business.

    technology: an incremental improvement designed to appeal to and retain an existing customer base. Established companies excel at this kind of pivot because so much is not changing.
  • Transcript of "Promoting Lean Startup at Zhihu in 2012"

    1. 1. lean Startup
    2. 2. A startup is a human institution designed to create a new product or service under conditions of extreme uncertainty.
    3. 3. Product/Market Fit If you are asking ...
    4. 4. What's our biggest RISK? Leap-of-faith assumptions
    5. 5. Entrepreneurship is a kind of management. Could the success rate of innovative products be improved?
    6. 6. The lean startup methods Validated learning Build - Measure - Learn Innovative Accounting
    7. 7. Lean Manufacturing Knowledge and accountability of individual workers The shrinking of batch sizes Just-in-time production and inventory control Acceleration of cycle times
    8. 8. Validated learning The most vital function of startup is learning What does it cost to learn something Positive improvements in core metrics (false feedback)
    9. 9. Experiment Think big, Start small For long-term change, experiment immediately Break it down. Value/Growth hypothesis An experiment is a product Vision = hypothesis + prediction
    10. 10. MVP Minimum waste Measure it's impact Vanity/Actionable metrics Pivot or Persevere
    11. 11. Facebook Value and Growth
    12. 12. Value & Growth value-creating vs value-destroying value vs waste manufacture: profitability of each customer, cost of acquiring, repeat purchase marketplace: network effect
    13. 13. Engine of Growth Paid: Customer Lifetime Value deducted by Cost per Acquisition Sticky: Rate of Acquisition over Churn Rate Viral: The Viral coefficient “P.S. Get your free e-mail at Hotmail” and the Feedback Loop behind it
    14. 14. Get out of the building Genchi Gembutsu Go and See for yourself whether I was in manufacturing, product development, sales, distribution, or public affairs. You cannot be sure you really understand any part of any business problem unless you go and see for yourself firsthand. It is unacceptable to take anything for granted or to rely on the reports of others. Case study: Scott Cook, Intuit, 1982.
    15. 15. Go thru the feedback loop with minimum effort Early adopter Quality? When in doubt, simplify! Any thing beyond what is required to learning is a form of waste
    16. 16. Case study: Food on the Table An elaborate service FotT's MVP Inefficient? Or Progressing? Automate the overhead
    17. 17. The role of quality and design High-quality exp - the principle If t do not know who the customer is, we do not know what quality is. To learn instead of to speculate Surprise!
    18. 18. Case study: IMVU Problem: Moving around your 3D avatar. They kind of "cheated" Which version is low quality? (natural selection)
    19. 19. A Disciplined, Systematic Approach Innovative accounting What about traditional accounting
    20. 20. 3 steps of innovation accounting Establish baseline (current status) Tune the engine toward the ideal Pivot or Persevere Text
    21. 21. Measure What metrics(data) to use and how to interpret
    22. 22. Cohort Analysis (on $5 a day) Day in and day out Performance of indie groups Funnel / Flow Hard facts to learn
    23. 23. Optimization vs Learning Downward spiral follows energy that could have been invested to help build a sustainable business were used to resort to the usual bag of success theater tricks: last-minute ad buys, channel stuffing, and whiz-bang demos, in a desperate attempt to make the gross numbers look better.
    24. 24. Caution: Vanity metrics Isn't it exciting? Driven by past initiatives Irrelevant to the efficacy of the team Gross numbers are misleading Lack of cause-and-effect inferences
    25. 25. Case study: Grockit Lead by a visionary Agile, process-oriented, disciplined Efficiency, morale - learning culture A/B tests on customer behavior reveal real customer needs Hypothesis testing for lazy registration
    26. 26. Kanban Capacity Constraint 4 states: product backlog, actively being built, done(from a technical perspective), or in the process of being validated Get the hang of it
    27. 27. Three A's of metrics Actionable Accessible Auditable
    28. 28. Pivot or Persevere A challenge everyone entrepreneur faces eventually
    29. 29. Pivot or Persevere Land of living dead A sustainable business that creates value and drive growth Improve human faulty judgement by subjecting to repeated tests
    30. 30. Case: Votizen USA.gov, social network of verified voters, attracted early adopters who love the concept, in the face of moderate success, a series of pivot/persevere decisions Customers would be interested enough to sign up Able to verify them as registered voters Verified voters would engage with Votizen's activism tools overtime Engaged customer would recruit friends into civic causes
    31. 31. Iterate Initial MVP Optimization Registration 5% 17% Activation 17% 90% Retention 5% Referral 4% Revenue n/a n/a
    32. 32. Optimize Before Opt. After Opt. Registration 17% 17% Activation 90% 90% Retention 5% 8% Referral 4% 6% Revenue n/a n/a
    33. 33. Success might be just around the corner Leap-of-faith questions identified, tested, and with quantitative predictions made Failing business behind positive metrics “I always wanted to get more involved, this makes it so much easier” “The fact that you prove I'm a voter matter” “There's no one here, what's the point of coming back”
    34. 34. Zoom In Pivot Before Pivot After Pivot E. of growth Sticky Paid Registration 17% 42 Activation 90% 83 Retention 8% 21 Referral 6% 54 Revenue n/a < 1 Lifetime Value n/a Minimal @2gov, social lobbying platform, translate twits into paper petitions
    35. 35. Customer Segment Pivot B2C > B2B: Political campaigning. Companies/organizations showed extreme eager to use and pay. Sales didn't materialize. Hypothesis refuted.
    36. 36. Platform Pivot Before Pivot After Pivot E. of growth Paid Viral Registration 42 51 Activation 83 92 Retention 21 28 Referral 54 64 Revenue 1 11 Lifetime Value Minimal $.2 / message Model based on Google Adwords, opinions of verified voters carried weight with elected officials, high referral low marketing cost
    37. 37. A startup's runway is the number of pivots it can still make Raise money or Cut costs / Waste or Ability to B.M.L Q: How to extend our runway?
    38. 38. A catalog of Pivots Zoom in Zoom out Customer segment Customer need Platform Business architecture Value capture Channel Engine of growth Technology
    39. 39. Pivot or Persevere meeting Courage A emotionally charged decision to make, so schedule it in advance Failure to pivot One foot rooted Acceleration Success’ prerequisit
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