Sell First, Build Later with the Lean Startup: Fundamentals, Tools, Methods and Ten-Steps

2. 2 / 113 Who am I? İsmail BERKAN: • Startup advisor, mentor and entrepreneur • Early stage startup specialist • Management consultant • International and diverse industry experience • Total of 18+ years experience: • 13 years of corporate IT • 3+ years of management consultancy • 2+ years of startups • Computer Science + MBA © Copyright 2013 İsmail Berkan 19 September 2013

9. 9 / 113© Copyright 2013 İsmail Berkan What is a Startup? "A startup is a temporary organization in search of a scalable, repeatable, profitable business model." 2010, Steve Blank "A startup is a human institution designed to create a new product or service under conditions of extreme uncertainty." 2010, Eric Ries 1: Fundamentals 19 September 2013

12. 12 / 113© Copyright 2013 İsmail Berkan Scalable Startup Large Company Transition The Execution of the Business Model The Search for the Business Model Startups versus Companies Startups Search Companies Execute 1: Fundamentals Source: Steve Blank (The Startup Owner's Manual) 19 September 2013

15. 15 / 11319 September 2013© Copyright 2013 İsmail Berkan Are You an Entrepreneur or a Wantrepreneur Entrepreneur Wantrepreneur Committed Only Involved Self-Reliant Dependent Self Starter Procrastinator Risk Taker Risk Averse Highly Optimistic Pessimistic Lives life with reckless abandon Stays safe and alive Loves being busy Loves feeling busy Loves result-based strategies Loves couch-potato strategies Sees failure as opportunity Sees failure as end of the world 1: Fundamentals

16. 16 / 113 What’s Your Purpose? "Purpose acts as a guiding light, it gives you the motivation to work through the tough times. Importantly it helps you say “No” to stuff."—Tom Holme, IDEO © Copyright 2013 İsmail Berkan 19 September 2013

17. 17 / 113 Passion What do you love to do? Strengths What are you awesomely good at? Values What is important to you? Founder(s) True Purpose (Destiny) Business Idea Do you have a big "why" for doing this? What problems do you want to solve? What people will pay you to do? Are you willing to commit your next 5 to 10 years on this idea? Founder / Idea Fit © Copyright 2013 İsmail Berkan 1: Fundamentals “Don’t start a company unless it’s an obsession and something you love.” Mark Cuban 19 September 2013 Happy Spot

18. 18 / 113 “Simply put: we don’t build services to make money; we make money to build better services. And we think this is a good way to build something.” Mark Zuckerberg letter to shareholders Facebook’s Purpose: give people the power to share and make the world more open and connected. © Copyright 2013 İsmail Berkan 19 September 2013

19. 19 / 113 Steve Jobs explains the rules for success Click the link below to watch the video (1m29s) http://youtu.be/KuNQgln6TL0 © Copyright 2013 İsmail Berkan 1: Fundamentals 19 September 2013 WATCH THE VIDEO CLICK TO

22. 22 / 11319 September 2013© Copyright 2013 İsmail Berkan 90% LOSERS 100% WINNERS Traditional Startup (talent / guesses based) Lean Startup (science / facts based) You Normal People Average people Me Me You Average people Normal People Bill Gates Gifted/ Talented people Steve Jobs Marck Zuckerberg Lucky people genius 10% WINNERS 1: Fundamentals Source: http://LeanSteps.co

23. 23 / 113 80% of the software developed is being wasted IAG Consulting, 2008CHAOS Report Standish Group, 2002 & 2006 Source: http://LeanSteps.co © Copyright 2013 İsmail Berkan 1: Fundamentals 19 September 2013

24. 24 / 113 "More startups fail from a lack of customers than from a failure of product development." Steve Blank #1 Startup Risk = Customers © Copyright 2013 İsmail Berkan 1: Fundamentals Customer Risk + Market Risk + Product Risk + … 19 September 2013

25. 25 / 113 The #1 Reason Why Products Fail It is because we waste time, money, and effort building the wrong product. Source: Ash Maurya © Copyright 2013 İsmail Berkan 1: Fundamentals 19 September 2013

26. 26 / 113 • New Product Uncertainty: • Unknown Problem • Unknown Solution • Unknown Customer • The Path to Disaster • Business model built on untested assumptions • Market research serves to support your assumptions rather than validate them • Scale based on the business plan • Lack of customers and markets • Change business at scale (slow and expensive) • Run out of money • Poor execution due to lack of right skills • Flawed business model • External threats • and many more… • A Problem Not Worth Solving • Building the Wrong Solution • Can't Get Customers to Pay • Can't Get Customers Cheaply Enough More… Why They Fail © Copyright 2013 İsmail Berkan 1: Fundamentals 19 September 2013

27. 27 / 113© Copyright 2013 İsmail Berkan 1: Fundamentals 19 September 2013 Steve Blank on Silicon Valley and Failure Click the link below to watch the video (1m22s) http://www.flickr.com/photos/osterwalder/6787544663/ WATCH THE VIDEO CLICK TO

28. 28 / 113© Copyright 2013 İsmail Berkan Most Entrepreneurs Mis-Prioritizing Their Activities Entrepreneurs are doing good things, but not doing them in the right order. More than 80% of the time entrepreneurs are ignoring customer demand in the right product mix until after they have started to scale their business. Harvard Business Review, Beating the Odds When You Launch a New Venture by Clark G. Gilbert and Matthew J. Eyring 19 September 2013

30. 30 / 113 Techies: Try it! Skeptics: No way! Visionaries: Get ahead! Pragmatists: Stick with the herd! Conservatives: Hold on! Early Markets Mainstream Markets Late Market Relative%ofCustomers © Copyright 2013 İsmail Berkan 1: Fundamentals The Early Stage "Black Hole" 19 September 2013

31. 31 / 113 The Five Why's Technique It helps to determine a root cause of a problem. This technique was developed as a systematic problem-solving tool by Taiichi Ohno, the father of the Toyota Production System. © Copyright 2013 İsmail Berkan 1: Fundamentals 19 September 2013

32. 32 / 113 Problem — A new release disabled a feature for customers. 1st Why? — Because a particular server failed. 2nd Why? — Because an obscure subsystem was used in the wrong way. 3rd Why? — The engineer who used it didn’t know how to use it properly. 4th Why? — Because he was never trained. 5th Why? — Because his manager doesn’t believe in training new engineers because he and his team are “too busy.” (a root cause) Solution — Management will dedicate time and budget in training new engineers. What began as a purely technical fault is revealed quickly to be a very human managerial issue. Five Why Example Source: Eric Ries (The Lean Startup) © Copyright 2013 İsmail Berkan 1: Fundamentals 19 September 2013

33. 33 / 113© Copyright 2013 İsmail Berkan 1: Fundamentals 19 September 2013 Eric Ries: Entrepreneurship Can Be Learned Click the link below to watch the video (1m16s) http://youtu.be/gJOz6a1JvPs WATCH THE VIDEO CLICK TO

35. 35 / 113© Copyright 2013 İsmail Berkan History of Management Tools 1602 19081700 20121800 The Dutch East India Company, 1602- 1798. First «modern company» issued first stock certificates. First MBA program was designed in 1908 for big businesses by Harvard. 300 years start, build and grow without formally trained executives. Formal management tools are more than 100 years old. 2010 The Lean Startup – "Creating Value" (2001-2010) The Dot.com Bubble – "Making Money" (1995-2000) 2000 Source: Adapted from Steve Blank (The Startup Owner's Manual) 2: New Toolset for Startups 19 September 2013

36. 36 / 113 Get out of the building! Genchi Genbutsu (現地現物) = Go and See for Yourself = Go to the Source = Get out of the Building (GOOB) & Talk to People © Copyright 2013 İsmail Berkan 2: New Toolset for Startups 19 September 2013

37. 37 / 113 Customer Development Model Customer Discovery Customer Validation Company Building Customer Creation Pivot Turn hypotheses into facts Identify scalable and repeatable sales model Iteration Execute © Copyright 2013 İsmail Berkan 2: New Toolset for Startups The Search for a Business The Growth for a Business Product/Market Fit 19 September 2013

42. 42 / 113© Copyright 2013 İsmail Berkan 2: New Toolset for Startups 19 September 2013 The Customer Development Process by Steve Blank Click the link below to watch the video (3m34s) http://youtu.be/NXR_O_Hwuws WATCH THE VIDEO CLICK TO

46. 46 / 113© Copyright 2013 İsmail Berkan 2: New Toolset for Startups 19 September 2013 The Lean Startup in 150 Seconds by Joone Studios Click the link below to watch the video (2m30s) http://youtu.be/WAdikBfKeD8 WATCH THE VIDEO CLICK TO

48. 48 / 113 What are the Lean Startup Principles? • Nail it then scale it • Rapid hypothesis testing about market, pricing, customers (customers & markets unknown) • MVP (minimum viable product) • Low burn by design (no scaling until revenue) • Metrics, iteration, agile development • Learn fast (fail fast), pivot or persevere © Copyright 2013 İsmail Berkan 2: New Toolset for Startups 19 September 2013

49. 49 / 113 The Startup Build-Measure-Learn Loop LEARN BUILD MEASURE IDEAS PRODUCT Minimize TOTAL time through the loop DATA IDEAS • Experiments • Validated learning © Copyright 2013 İsmail Berkan 2: New Toolset for Startups (The Startup OODA Loop) 19 September 2013

50. 50 / 113 There’s much more… IDEAS PRODUCTDATA BUILDLEARN MEASURE Code Faster Unit Tests Usability Tests Continuous Integration Incremental Deployment Free & Open-Source Components Cloud Computing Cluster Immune System Just-in-time Scalability Refactoring Developer Sandbox Minimum Viable Product Measure Faster Split Tests Clear Product Owner Continuous Deployment Usability Tests Real-time Monitoring Customer Liaison Learn Faster Split Tests Customer Interviews Customer Development Five Whys Root Cause Analysis Customer Advisory Board Falsifiable Hypotheses Product Owner Accountability Customer Archetypes Cross-functional Teams Semi-autonomous Teams Smoke Tests Funnel Analysis Cohort Analysis Net Promoter Score Search Engine Marketing Real-Time Alerting Predictive Monitoring© Copyright 2013 İsmail Berkan 2: New Toolset for Startups 19 September 2013

51. 51 / 113 What is an Minimum Viable Product (MVP) ? "The minimum amount of effort you have to do to complete exactly one turn of Build-Measure-Learn feedback loop." Eric Ries © Copyright 2013 İsmail Berkan 2: New Toolset for Startups 19 September 2013

54. 54 / 11319 September 2013© Copyright 2013 İsmail Berkan PRODUCT Minimum Viable Product and Pareto Principle MAIN PROBLEMS (80%)20% MAIN CAUSES SMALL PROBLEMS (20%) MVP "For many events, roughly 80% of the effects come from 20% of the causes." (Pareto Principle) 2: New Toolset for Startups

57. 57 / 113© Copyright 2013 İsmail Berkan Traditional Product Development Unit of Progress: Advance to Next Stage Waterfall Requirements Specification Design Implementation Verification Maintenance Problem: known Solution: known 19 September 2013 2: New Toolset for Startups Source: Eric Ries

58. 58 / 113© Copyright 2013 İsmail Berkan Product Development at Lean Startup Unit of Progress: Validated Learning About Customers ($$$) Problem: unknown Solution: unknown Customer Development Hypotheses, Experiments, Insights Data, Feedback, Insights Agile Development (XP) 19 September 2013 2: New Toolset for Startups Source: Eric Ries

61. 61 / 11319 September 2013© Copyright 2013 İsmail Berkan Piano Stairs by TheFunTheory.com Click the link below to watch the video (1m48s) http://youtu.be/2lXh2n0aPyw WATCH THE VIDEO CLICK TO 2: New Toolset for Startups

64. 64 / 113 "No business plan survives first contact with customers." Steve Blank "Burn your business plan before it burns you." Alexander Osterwalder Business Model versus Business Plan 20 minutes A single diagram of your business Several weeks or months A document investors make you write that they don't read © Copyright 2013 İsmail Berkan 2: New Toolset for Startups 19 September 2013

68. 68 / 113 A step-by-step blueprint that puts ideas into action © Copyright 2013 İsmail Berkan 2: New Toolset for Startups 19 September 2013 Running Lean is systematic process for iterating from Plan A to a plan that works, before running out of resources. —Ash Maurya

76. 76 / 113 Founder/ Idea Fit Customer/ Problem Fit Problem/ Solution Fit Product/ Market Fit Bus. Model / Scale Fit Brainstorming Idea Evaluation Purpose Founder(s) Founding Team Lean Canvas Eco-System Primary Users Primary Payers Target Problem Customer Interview Value Proposition Low -fidelity MVP Value Proposition 1-Page Sketching Risky Hypotheses Lean Experiments Early Adopters Blog Features Hi-fidelity MVP Development Team Mature MVP Key Metrics Satisfaction Brand Business Model Revenue Referrals Bootstrap Fund Team Product Dev. Social Media Promotion Profit START INTERVIEW EXPERIMENT SCALEBUILD FOUNDER / MARKET FIT Step 1: Understand the Startup Milestones Source: Adapted from http://LeanSteps.co© Copyright 2013 İsmail Berkan 19 September 2013

79. 79 / 113 Step 3: Validate Founder/Idea Fit • Check if you and team fit with "purpose/idea" • Be passionate about the idea (love what you do) • Have the right skills set to do the job • Other:  Have the right people on your team who shares the same vision  Don't try to do it all by yourself  Dedicate 100% of your/team time to a startup  No parallel jobs or projects – one startup at a time  Say no, if you’re not 100% excited  Get out of your comfort zone  Understand market and users before building anything  Learn quickly from customers to build your product  Get rid of any ego that may damage your startup  Adopt and use the agile and lean tools © Copyright 2013 İsmail Berkan 3: Ten Steps for Tech Startups 19 September 2013

80. 80 / 113 Step 4: Solve a Painful Problem Vitamin Pain Killer Addictive Drug Are we solving a BIG customer problem? Magnitude of a pain/need Rateofcustomerdelight © Copyright 2013 İsmail Berkan 3: Ten Steps for Tech Startups 19 September 2013

81. 81 / 113© Copyright 2013 İsmail Berkan Pain Pays "Any big problem is a big opportunity… No one will pay you to solve a non-problem." —Vinod Khosla (Kleiner Perkins) Shark Bite VS. Mosquito Bite 3: Ten Steps for Tech Startups 19 September 2013

83. 83 / 113© Copyright 2013 İsmail Berkan Understand the Problem and Customer • Who has the problem? • What is the top problem/pain? • How is it solved today? "Customers don’t care about your solution. They care about their problems." Dave McClure, 500 Startups "Customers don't want software; they want their problems solved." Mary Poppendieck 3: Ten Steps for Tech Startups 19 September 2013

85. 85 / 113© Copyright 2013 İsmail Berkan 3: Ten Steps for Tech Startups 19 September 2013 Finding the Problem is the Hard Part by Kevin Systrom, CEO of Instagram Click the link below to watch the video (3m28s) http://youtu.be/XETaA1b6ep4 WATCH THE VIDEO CLICK TO

86. 86 / 113 Step 5: Build a Killer Startup Team Startups with multiple founders have a greater chance of success than single-founder startups. © Copyright 2013 İsmail Berkan 3: Ten Steps for Tech Startups "Great things in business are never done by one person, they’re done by a team of people." Steve Jobs 19 September 2013

87. 87 / 113 The Startup Team: Must Have Skills © Copyright 2013 İsmail Berkan 3: Ten Steps for Tech Startups Most people are good at one or maybe two of these, but it’s extremely rare to find someone who can wear all the hats. The ideal team size is two or three people. Vision (Search for the business model + Customer Dev.) Sales & Marketing (Position & Sell it) Product (Frame it/define it) Technology (Build it) 19 September 2013

90. 90 / 113 Step 7: Get Out of the Building (GOOB) © Copyright 2013 İsmail Berkan 3: Ten Steps for Tech Startups 1. Talk to potential customers 2. List your assumptions 3. Test the riskiest ones 4. Design experiments 5. Evaluate results 6. Change plans based on evidence 7. Launch small proof-of-concept products 8. Get a few paying customers 9. Make them really happy 10.Repeat, as needed. 19 September 2013 Source: Adapted from Luxr.co

93. 93 / 113© Copyright 2013 İsmail Berkan 3: Ten Steps for Tech Startups 19 September 2013 "How $40 Saved Us 9 Months and $2MM" by Paul Howe, CEO of Need Feed Click the link below to watch the video (5m21s) https://vimeo.com/24749599 WATCH THE VIDEO CLICK TO

94. 94 / 113 Coming Soon Video Explainer MVP Initial MVP • Screen flow movie of mockups • Landing Page – sign up if you are interested • Posted on Hacker News and Digg Result: 90,000 Signups in Three Days © Copyright 2013 İsmail Berkan 3: Ten Steps for Tech Startups 19 September 2013

101. 101 / 113© Copyright 2013 İsmail Berkan 3: Ten Steps for Tech Startups 19 September 2013 How to test & validate a startup in 10 weeks Danbits.com Case Study Click the link below to watch the video (7m04s) http://vimeo.com/64520024 WATCH THE VIDEO CLICK TO

102. 102 / 113 Step 8: Pivot or not Pivot Don’t Let This Happen To You: • Thinking and accepting pivot as a failure • Pivoting away from your goals or purpose • Unwilling to pivot • Pivot too often and too soon • Panic at the pivot "A change in STRATEGY without a change in VISION." Eric Ries 70% of every startup would possibly pivot from the initial idea. © Copyright 2013 İsmail Berkan 3: Ten Steps for Tech Startups 19 September 2013

104. 104 / 113 Fall in love with your customers, market and business model not with your product/service. Step 9: Build the Right Product © Copyright 2013 İsmail Berkan 3: Ten Steps for Tech Startups “You’ve got to start with the customer experience and work back toward the technology – not the other way around.” Steve Jobs 19 September 2013

105. 105 / 113 Discover Your Business Model Problem Solution Customer Segments Channels Revenue Streams Cost Structure Key Metrics Unfair Advantage Unique Value Proposition © Copyright 2013 İsmail Berkan 3: Ten Steps for Tech Startups 19 September 2013

106. 106 / 113 Step 10: Get Funding Only ask for funding when you have a: • Successful customer/problem/solution fit • Validated product with market • Pivot successfully at least one time • Significant traction • Right team with complementary skills • Delightful solution to a painful problem • Scalable and growing market • Repeatable sales and revenue model • Clear and profitable business model • Competitive advantage and it's better than competitors • Marketing plan on how do you get customers • Serial entrepreneur experience with successful exit What do you need from investors: • How much are you raising and how will you spend the money? © Copyright 2013 İsmail Berkan 3: Ten Steps for Tech Startups 19 September 2013

109. 109 / 113© Copyright 2013 İsmail Berkan “Successful startups are the ones who have enough money left over to try their second idea.” —Clayton Christensen, Author and Harvard Professor Change or Fail Fast 19 September 2013

110. 110 / 113© Copyright 2013 İsmail Berkan Summary • Be Honest with Yourself & Discover Truth • Know Your Purpose & Aim to the Happy Spot • Get out of Your Comfort Zone • Be Willing to Search & Discover Your Business Model • Think Big, Start Small & Act Fast • Build a Great Team with Complementary Skills • Be Prepared for the Experiments • Find a Big Customer Pain or Need • Always Get out of the Building (GOOB) • Validate All Unknowns & Assumptions • Maximize Experiments for Focus, Speed & Learning • Focus on the Problems & Customers, Not the Solutions • Nail It, Then Scale It 19 September 2013

111. 111 / 11319 September 2013© Copyright 2013 İsmail Berkan • Stay Lean & Agile • Work on the Business Models not the Business Plans • Code Faster, Measure Faster, Learn Faster & Succeed Faster • Learn Early, Learn Often & Learn Fast • Change (Iterate & Pivot) or Fail Fast & Fail Well • Learn & Be Ready for the Pivot • Don’t be Shy to Feel the Pain • Scale Fast and Smart • Waste No Time, Money or Resources • Approach to the Right Investor at the Right Time • Keep It Simple • Sell First, Build Later • Make Something People Passionately Want Summary (Cont'd.)

Sell First, Build Later with the Lean Startup: Fundamentals, Tools, Methods and Ten-Steps

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