Lean Startup 101 for IIT Entrepreneurship Program

Lean Startup 101Rocket FuelFor Your ProductGrowth Todd Wyder Bernhard KappeLean Startup Strategy CEO, Broker Savant Founder and CEOUser Experience Design toddwyder@brokersavant.com bkappe@pathf.com @toddwyder @bernhardkappeAgile Software DevelopmentCustomer Acquisition and Retention http://pathﬁndersoftware.com Lean Building Blocks

A Startup Success Story ... Lean Building Blocks

A Great Idea Lean Building Blocks

4 MBAs ... Lean Building Blocks

Lot’s of Brainstorming Lean Building Blocks

Lean Building Blocks

Investor Presentations Lean Building Blocks

Cha-Ching! Lean Building Blocks

Hire a Killer Team Lean Building Blocks

Build the Most Awesome Software (in Stealth Mode) Lean Building Blocks

Launch (Big PR) Lean Building Blocks

Go Public! Lean Building Blocks

9 Out of 10Startups/New Products Fail Lean Building Blocks

No business plansurvivesthe ﬁrstcustomercontact Lean Building Blocks

The Path to Disaster• Building on Invalid Assumptions• Premature Scaling• Lack of Customers and Markets• Change Your Business Model at Scale• Run Out of Money Lean Building Blocks

Your Job as an Entrepreneur: Discover a Business Model that works before you run out of Money and Time. (Then scale it.) Lean Building Blocks

Business Model “A business model describesthe rationale of how an organizationcreates, delivers and captures value” Lean Building Blocks

Startup Scoreboard How do investors, employees, advisors and partners evaluate a startup?Prioritized Criteria Risk Traction Metrics Value Low Proﬁt High1.Traction Revenues2.Team Pilot Customers3.Social Proof Non-Paying Customers4.Model High Validated Hypothesis Low Idea/Non-Validated Too Hypothesis High Lean Building Blocks

Lean Canvas Problem Solution Unique Value Unfair Customer Proposition Advantage Segments Top 3 Problems Top 3 features that address the problem Single, clear, Can’t be easily Target Customers compelling message copied or bought why you are different and worth buying Key Activities Channel Activity that drives Path to customers acquisition/revenue for marketing and sales Cost Structure Revenue Model• Customer acquisition costs • Revenue Model• Distribution costs • Lifetime Value• Hosting • Revenue• People, etc. • Gross Margin Lean Building Blocks

Create A Business Canvas• If you don’t know, guess or leave it blank. There is no “right” answer at this stage• Experiment and build at least 3 - 5 canvases Lean Building Blocks

Problem Solution Unique Unfair Customer Value Advantage Segments Proposition Key Channel Activities Cost Structure Revenue Model Problem/Customer SegmentsWhat Problem do you solve and for whom do you solve it? Lean Building Blocks

Problem and Customer Segments Problem Customer Segments What are the top 1 - 3 Who you think needs these problems you are solving? problems solved most? Use separate canvases for each problem/customer pair if the buyer is •Who are your early different •What are the existing adopters? alternatives? •Who are the buyers? •How do people solve these •What characteristics do problems now? the buyers have? •How do your target them? Lean Building Blocks

Problem and Customer Segments Example Problem Customer Segments • Difﬁcult to manage churn SaaS (Software as a Service) • Cohort analysis is very time companies consuming • Need to write code to redirect user to loyalty behaviors • Patchwork of analytics software (Google Analytics), platform based • Startups personalization, Excel • Entrepreneurial web companies • Email Autoresponders • Do nothing Lean Building Blocks

Problem Solution Unique Unfair Customer Value Advantage Segments Proposition Key Channel Activities Cost Structure Revenue Model The SolutionHow do you solve your customer’s problem? Lean Building Blocks

SolutionExisting Alternatives: • How do your early adopters address these problems today? • Doing Nothing?Your Solution: • Top features or capabilities you need to deliver to solve the problems. Lean Building Blocks

Solution• Problem: Difﬁcult to measure churn/loyalty• Existing alternatives: Google Analytics, Homegrown Solution, BI tools, Mixpanel, Inaction.• Solution: Instant, one-click cohort reporting• Problem: Need to write code to redirect user to loyalty behaviors.• Existing Alternatives: Homegrown solution. Inaction.• Solution: Point and click to set up an intervention that any marketing analyst can use Lean Building Blocks

Problem Solution Unique Unfair Customer Value Advantage Segments Proposition Key Channel Activities Cost Structure Revenue Model Unique Value Proposition A single, clear compelling message thatstates why you are different and worth buying Lean Building Blocks

Unique Value Proposition• Problem from the canvas - “It’s difﬁcult to manage churn”• Feature is how you solve the problem - “Easy personalization”• Beneﬁt is the gain the customer derives from your product - “Lower churn”• Finished story is the result your customer feels from their point of view - “Easily create loyal customers” Lean Building Blocks

Unique Value Proposition Examples Finished Product Problem Feature Beneﬁt Story Companies don’t have the expertise The fastest way to QuickStart launch Shorter time to Pathﬁnder or staff to launch launch your process market products quickly product Eye catching Hard to write a Professionally landing your dreamResume Builder resume that stands resume designed templates job out Lean Building Blocks

Problem Solution Unique Unfair Customer Value Advantage Segments Proposition Key Channel Activities Cost Structure Revenue Model ChannelHow do you connect with your customers? Lean Building Blocks

Channel• Channel is how your customers get to you• Cost• Push vs. Pull• Sales method• Direct vs. Indirect• Viral Lean Building Blocks

Channel ExampleArea Channel(s)Free & Inbound SEO, Blogs, Speaking, Twitter,YouTube SEM, NewsletterPaid & OutboundSales Method AutomatedIndirect No Lean Building Blocks

Problem Solution Unique Unfair Customer Value Advantage Segments Proposition Key Channel Activities Cost Structure Revenue Model Revenue Streams Cost StructureWhat is your pricing and how much does it cost to deliver to the customer? Lean Building Blocks

Cost Structure• Costs • Personnel • Hosting • Marketing• How much will it cost to get to Problem solution ﬁt? • To MVP (launch)? • Ongoing? Lean Building Blocks

Revenue Streams• Revenue Streams • Start with price • Units of measure • KISS • Freemium • Free trial • Ad supported• How much cash do you need to breakeven?• NO CREs!!! Lean Building Blocks

Example• Revenue Streams • 14 day free trial • $48/user/month subscription • Breakeven at 275 customers• Cost Structure • 1 Developer @8K/month • 1 Customer Developer @ $5K/month • $5K/month marketing • $100/month hosting costs @ Heroku (free inititally) • $100/month software costs (Chargify, LeanKanban, etc.) Lean Building Blocks

Problem Solution Unique Unfair Customer Value Advantage Segments Proposition Key Channel Activities Cost Structure Revenue Model Key ActivitiesHow do you know your customer isgoing to buy or is using your app? Lean Building Blocks

Key Activities Examples• Key activities are how you know • Create an intervention customers are using your solution • View cohort analysis• For instance for Flickr, key activities are: • Uploading photos • Tagging Photos • Sharing Photos Lean Building Blocks

Problem Solution Unique Unfair Customer Value Advantage Segments Proposition Key Channel Activities Cost Structure Revenue Model Unfair AdvantageWhat do you do that cannot be easily bought or copied? Lean Building Blocks

Unfair Advantage Examples*• Insider Information• Single-minded, uncompromising obsession with one thing• Personal Authority• Dream Team• (The right) Celebrity Endorsements• Existing customers• Real IP * A Smart Bear (Jason Cohen) Lean Building Blocks

Unfair Advantage• An unfair advantage cannot be copied or bought Be Sticky Example • Thought Leadership • Outstanding ease of use • Focus on retention Lean Building Blocks

Everything on your canvas is an assumption: It needs to be validated (or invalidated) Lean Building Blocks

Fast Learning Loops Lean Building Blocks

Customer/Problem Hypotheses Problem Solution Unique Value Unfair Customer Proposition Advantage Segments Top 3 Problems Top 3 features that address the problem Single, clear, Can’t be easily Target Customers compelling message copied or bought ? why you are different and worth buying ? ? Key Activities Channel ? Activity that drives acquisition/revenue ? Path to customers for marketing and sales ? ? Cost Structure Revenue Model• Customer acquisition costs • Revenue Model• Distribution costs • Lifetime Value• Hosting• People, etc. ? • Revenue • Gross Margin ? Lean Building Blocks

Genchi Genbutsu = Go To The Source(Get Out of the Building) Lean Building Blocks

The Problem Interview• Validate your hypotheses around the customer-problem pair• Customer segments: Who has the pain?• Problem: What are you solving? Lean Building Blocks

Plan• For each item in Customer Segments and Problems, create one or more hypothesis statements• Write statements that are testable Lean Building Blocks

Problem Solution Unique Value Unfair Customer• Difﬁcult to manage • Easily redirect users to Proposition Advantage Segments high loyalty behaviors churn • Instant, one-click • Startups• Cohort analysis is cohort reporting Easily create loyal • Thought Leadership very time consuming • Point and click to set customers • Outstanding ease of • Entrepreneurial web• Need to write code up an intervention that companies use to redirect user to any marketing analyst loyalty behaviors can useHow they are solving it Key Activities Channelnow •Create an intervention• Patchwork of • View cohort analysis analytics software • SEO, Blogs, (Google Analytics), Speaking, Twitter, platform based YouTube personalization, Excel • SEM, Newsletter• Email autoresponders • Automated Sales• Do nothing Cost Structure Revenue Model • 1/2 time product manager • $49/user/month • 320 hours development • Heroku @ $100/month (free initially)

Plan Example: Be Sticky• Problems • Difﬁcult to manage churn• Hypotheses • Managing churn is a top 3 priority. Lean Building Blocks

Plan Example: Be Sticky• Problems • Customer retention analysis is very time consuming• Hypotheses • Customer retention analysis is a must have Lean Building Blocks

Plan Example: Be Sticky• Problems • Need to write code to redirect user to loyalty behaviors• How they are solving it now • Email autoresponders• Hypotheses • Customers are writing personalization code or using email autoresponders to drive loyalty behaviors Lean Building Blocks

Plan Example: Be Sticky• Customer Segments • Startups • Entrepreneurial web companies• Hypotheses • Revenue stage startups and web companies are actively managing churn through a patchwork of tools Lean Building Blocks

Do - ConductCustomer Interviews• Stick to a script• Document immediately after an interview Lean Building Blocks

Problem Interview - Welcome (2 minutes)• Thank them for the interview• Explain that you are doing research on a new product idea.• Outline the process Lean Building Blocks

Problem Interview - CollectDemographics (2 minutes)• Ensure they are in your target group• How long has your company been around?• Are you at revenue stage?• Tell me about your product Lean Building Blocks

Problem Interview -Problem Ranking (4 minutes)• Summarize the top 3 problems• Do these problems resonate with you?• Are there other problems that I didn’t talk about?• How would you rank these problems?• Tip: use index cards to present and rank Lean Building Blocks

Problem Interview -Customer Understanding (15 minutes) • Start with the #1 problem • How do you deal with this problem today? • Repeat with other problem questions Lean Building Blocks

Problem Interview - Wrap up (2 minutes)• Ask if you can follow up once you have a solution• Ask who else they know that you could interview Lean Building Blocks

Problem Interview -Document the Interview (5 minutes)• Immediately document the results• Create a template• Use a CRM system Lean Building Blocks

Finding Folks to Interview Lean Building Blocks

Finding Folks to Interview• Interview only folks in your target market• Start with ﬁrst degree friends• Ask for introductions• LinkedIn• Twitter• Teaser Site Lean Building Blocks

Create a Teaser Site• Build your channel right from the start• Build a landing page Lean Building Blocks

Collect Email Addresses Lean Building Blocks

Ask Friends for HelpEmail Request TemplateI have a quick favor to ask.I’ve got a product idea that I’m trying to validate with [type of customer]. My goalis for them to visit my splash page at [URL] and indicate their interest (or lackthereof). I will only contact them if they explicitly give me permission to do so.Could you send this message along to people you know who ﬁt this target? (Feelfree to change it a bit if you like):[Message - be sure to include the goal, the URL, and your contact information]Twitter Request TemplateI have a quick favor to ask.I’ve got a product idea that I’m trying to validate with [type of customer]. My goalis for them to visit my splash page at [URL] and indicate their interest (or lackthereof). I will only contact them if they explicitly give me permission to do so.Since you have a number of followers who are the type of customer I’m trying toreach, could you tweet this for me? (Feel free to change a bit if you like):[Message - include the URL, the topic, and keep it under 115 chars so it can beeasily retweeted] Lean Building Blocks

Solution Interviews Lean Building Blocks

The Solution Interview Problem Solution Unique Value Unfair Customer• Difﬁcult to manage • Easily redirect users to Proposition Advantage Segments high loyalty behaviors churn • Instant, one-click • Startups• Cohort analysis is cohort reporting Easily create loyal • Thought Leadership very time consuming • Point and click to set customers • Outstanding ease of • Entrepreneurial web• Need to write code up an intervention that companies use to redirect user to any marketing analyst loyalty behaviors can useHow they are solving it Key Activities Channelnow •Create an intervention• Patchwork of • View cohort analysis analytics software • SEO, Blogs, (Google Analytics), Speaking, Twitter, platform based YouTube personalization, Excel • SEM, Newsletter• Email autoresponders • Automated Sales• Do nothing Cost Structure Revenue Model • 1/2 time product manager • $49/user/month • 320 hours development • Heroku @ $100/month (free initially) Lean Building Blocks

Minimum Viable Product (MVP)• The minimum necessary to explain the solution• Use screenshots or wireframes• Video Lean Building Blocks

Plan Business Canvas HypothesisSolution• Easily redirect users to high loyalty The “Manage Cohorts screen” will be a compelling solution for the behaviors “Difﬁcult to manage churn problem” The “Cohort Report Screen” will be a compelling solution for the “Cohort• Instant, one-click cohort reporting analysis is very time consuming problem”• Point and click to set up an intervention The “Create Intervention Screen” will be a compelling solution for the that any marketing analyst can use “Need to write code to redirect user to loyalty behaviors”Revenue streams • $49/user/month Early adopters will agree to pay $49/month/userChannel• SEO, Blogs, Speaking, Twitter,YouTube Early adopters will ﬁnd Be Stick through search, our blog, from our• SEM, Newsletter speaking engagements, our tweets and through YouTube videos• Automated Sales Lean Building Blocks

Do• Conduct Solution Interviews• Use folks you have already talked to• Mix in some new folks • Referrals • Try to get some interviews through your channel Lean Building Blocks

Interview Script• Welcome and collect demographics are the same as the problem interview• Tell the story about the problem again, but in 2 minutes Lean Building Blocks

Demo (15 minutes)• For each problem: • Show how the mockup solves the problem • Ask if they have questions • Go on to the next problem• Which screenshots resonated the most with you?• Which could you live without?• What is missing? Lean Building Blocks

Test Pricing (3 minutes)• Test the price with your guesstimated pricing• Notice their reaction immediately after you suggested the pricing• If said they would pay it • If they hesitate before answering, its the right price • If they say they would pay it immediately, the price is too low• If they say no • Ask what they would pay • What they say they would is usually less than what the real price is• For things with high switching costs, ask if they would use it if it were free Lean Building Blocks

Wrapping Up/ Documentation• Ask if they would like to be in a service trial once you build it• Ask for referrals• Be sure to document the interview immediately Lean Building Blocks

Check• Review results weekly• Add/kill features • Keep it to MVP • If you add one, try to kill one• Reﬁne pricing • If there was no resistance, raise the price • Compare your price to the existing solution price• Review all of your hypotheses and revise appropriately Lean Building Blocks

Act• Based on the Check step, you exit Problem/ Solution Fit if you can conﬁdently: • Identify the demographics of an early adopter • Have a must have problem • Can deﬁne the minimum features to solve the problem • Have a price the customer is willing to pay • You can build a business around that price (using back of the napkin calculations) Lean Building Blocks

Solution Interview Summary• Validate solution channel and revenue model• MVP at this stage should not be the product• Determine what the most important screen is• Ask about price Lean Building Blocks

Putting it all together Lean Building Blocks

Customer Development Search Execution Lean Building Blocks

Recommended Reading: Lean Building Blocks

Blogs:Steve Blank: steveblank.comEric Ries: startuplessonslearned.comCindy Alvarez: cindyalvarez.com pathﬁndersoftware.com/Pathﬁnder: blog/ Lean Building Blocks

Next Meeting: 03/29: Groupon’s Suneel Gupta Using Lean Startup Principles to Manage Hypergrowth Members: 2035www.chicagoleanstartup.co m Lean Building Blocks

Questions?Bernhard Kappe Todd Wyderbkappe@pathf.com todd@brokersavant.comTwitter: @bernhardkappe Twitter: @toddwyder Lean Building Blocks

More on MVP• Not one snapshot, but a progression of experiments• At some point, you need to start development. That’s where Agile comes in Lean Building Blocks

Example MVPsDropbox: Smoke TestEgyptian Democracy Movement: Mini DemonstrationsGLIF: Kickstarter Campaign, 3D Print + VideoeSpark: Paper Instructions and Tests (Concierge MVP)Groupon: Wordpress Blog, Widget from The Point, PDFCoupons via email. Lean Building Blocks

5. The Lean Startup Path Lean Building Blocks

Lean Startup: Two Fast Feedback Loops Lean Building Blocks

Product/Market Fit Path to Product Market Fit9000 Customer Acquisition Cos You Are Here Customer Lifetime Value/367504500 You Need to Get Here! Product/Market Fit:2250 LTV/3 >= CAC 0 Month 1 Month 2 Month 3 Month 6 Month 5 Month 6 Month ? Month 8 Month 9 Month 16 Month 11 Month 12 Lean Building Blocks

Post Launch Goal:Increase LTV and Decrease CACDecrease CAC Increase LTV• Changes to messaging • Improve value to customer• Changes to marketing • Add features channels • Improve Features• Does the Experience Match the Marketing? • Remove features• Changes to Optimize • Find and foster loyalty Customer Acquisition Funnel/ behaviors Experience for New Users Lean Building Blocks

Post Launch Fast Feedback Loops• You have real users and precise usage data on individuals - analyze it!• Make small changes fast (hours, not weeks to get into production)• When you make changes - A/B test (or do multivariate if you have big enough volumes.) Lean Building Blocks

Common Mistakes• Too Broad a Segment• Not a Big Enough Problem• Surveys Instead of Interviews• Conﬂate Problems and Solutions• Confuse Users and Customers• Build Too Much (Fat Experiments)• Don’t Test Revenue Model Early Enough• Stop Experimenting When You Have Customers (No Metrics)• No UX and No Agile Lean Building Blocks

Lean Startup 101 for IIT Entrepreneurship Program

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Lean Startup 101 for IIT Entrepreneurship Program Presentation Transcript