This document provides an overview of frameworks and strategies for startups, including Lean Startup, Business Model Canvas, Customer Development, and Service Design. It discusses validating problems and solutions with customers through iterative testing of minimum viable products and pivoting based on feedback. Key aspects of startups mentioned include achieving product-market fit, lowering costs and churn while growing new customers over time through compelling products people love. Revenue streams and costs are also briefly covered.

1. S³
Startup Strategy Stuff
Draft 0.3 – 24.11.2012
Jan-Hendrik Adolphs
T @twabou

2. Overview
• This presentation is about frameworks, ideas
and ideologies about startup and ideation
strategies.
• It gives a short introduction to:
– Lean Startup
– Business Modelling
– Customer Development
– Service Design

3. What is a startup?
• A startup is a human institution that desires
to create value for customers in an
environment of high uncertainty and risk.
• Therefore:
– Test, iterate, try someting

4. Problem
• Who are your customers and what prouct do they
need/want?
• P/M vs. P/S fit

5. So why try it then? And how?
• Because its fun, creative, challenging and
fulfilling! => And it‘s YOU!
• There are strategies and frameworks that can
lower the chance of failing and wasting your
time … but it‘s a lot of work …

6. Big Picture
• Business Model Canvas* (Alexander Osterwalder)
– Visual presentation of end-to-end business model
– Focuses on the internal of a business model (no
PESTIELD**!)
– Separated in creation and consumption side
– Excelent for group discussion and brainstorming
– Don‘t get to excited about massive planning, focus on few
details and keep it high-level!
A good foundation for business model discussion and
enhancement with additional models / frameworks /
tools
* Business Model Generation (Osterwalder, A.; 2010) / http://www.businessmodelgeneration.com
** External factors = political, economic, social, tax, international, ecological, legal, demographic (can be
mission critical)

8. Other Frameworks
• Strategy Diamond
• Porters 5 Forces
• Porters Generic Strategies
• PESTIELD
• Bowman’s Strategy Clock
• SWOT/TOWS
• These and more can be found at
http://www.mindtools.com/pages/main/newMN_STR.htm
(check back-up slides for few examples)

9. • Remember: Its mostly business internal stuff. Also consider external factors
• Work with it from right to left and keep it simple
• Start with customer segment and value proposition (or CPS)
• Leave costs and revenues for the end

10. Focus
• CPS Hypothesis
– Who? Is there a customer & scalable market?
– Why? Is there a problem/need/desire that can be
solved?
– How will we solve this? With what?
• What you want is a product/service that serves a
customer as a solution to a problem/need that is
perceived as a desirable value-creation.

11. „Create something people love!“*
• Compelling product that people love to use more than
once and recommend to others
make it contagious and sticky!
activation / retention / referral
• Product / market fit
Right set of features (not more than necessary)
for identified customer segment
• Customer Value Canvas (Link)
– Pain => Gain
* Service design and entrepreneurial mantra

12. Economic Logic
• A happy user..
– Is willing to pay for your product (revenue)
– Talks good about your product (referral)
– Sticks with your product (customer lifetime value
up)

13. Source:
http://www.businessmodelalchemist.com/2012/01/the-customer-value-canvas-v-0-8.html

14. Service Design Thinking
• A multidisciplinary approach to design better
user-centered services/products
• Service-dominant logic (Stephen Vargo and
Robert Lusch)*
=> There is no sole product or service, always
look at product & service as one for better
user experience! (gives you higher retention
and refferal)
Source:
http://courses.ischool.berkeley.edu/i210/f07/readings/VargoLusch.pdf

15. Service Design Tools*
• Always ask for the ultimate solution for a
customer – not the product (there is a
difference!) Explore it!
– 5 Why‘s Root Cause Analysis
– User Journey / User Day Walkthrough
– Stakeholder Maps / Decision Maker Analysis
– Customer Lifecylce Map
– Design Scenarios
...
Source:
This is Service Design Thinking: Basics, Tools, Cases (Schneider, D.; Stickdorn, M.; 2011)

16. How (not) to waste time…
• You don’t want to build a product for a market
that does not exist or is not willing to pay for
your product.
• Gather feedback from customers as early as
possible.
• Iterate as often as possible in small
measurable steps.
• Customer Development vs. Product
Development

17. Customer Development vs. Product
Development
• Why startups fail*: consistent vs. inconsistent
– Scalation before proven CPS / MVP / business
modell
– Waste time on product development instead of
unterstanding customers
Source:
http://visual.ly/why-startups-fail

18. Customer Development
• Talk, listen, research, refine, talk, listen, research, refine … do,
refine … do, refine … tune, talk, tune … profit
• Steve Blank: 4 Phases
– Customer Discovery
– Customer Validation
– Customer Creation
– Business Creation
• Its all about product / market fit and proving assumptions /
hypothesis
• Don’t burn marketing/sales budget on unproven products
Source:
http://www.amazon.com/The-Four-Steps-Epiphany-Successful/dp/0976470705

20. MVP
• Minimum Viable Product = minimum set of
features of a product or service for that a user
is willing to pay (best is money, time also good
for hypothesis validation hint)
• Philosophy: Adress only one specific problem
that is solved by your solution for províng your
problem / solution hypothesis
• 80:20 rule -> spent 80% of your time on
existing features and 20% on new ones

21. A-B / Split Testing
• Marketing and product development term for
improving / refining a component
– Can be color of design element, wording, feature, tag
• Two alternatives run and tested at the same
time by the same targeted audience
• Whichever shows better results will be used in
the future
• The other one is abandoned (BUT not forgotten!)
validated learning

22. Pivots
• Pivot: A switch from on X to another where X can
be a market, distribution channel, revenue
channel, partner, business modell, etc
• Generally a replacment or change of a larger
business modell component
• Often occurs when a business model doesn‘t
seem to be working or other option is more
profitable or customer oriented

23. Startup Feedback Loop
• Mantra: everything is
beta, get to market
asap for customer
feedback and refine
• Continuous iterative
process for product
refinement to achieve
and enhance
product/market fit
• One change per iteration so you don‘t mess up cause and effect
• Keep changes small and effects measurable (right KPI!)
Source: http://blog.octo.com/5-bonnes-raisons-de-deployer-en-continu/

24. Funnel Analysis
Your goal:
Customer uses/orders
product/feature you are trying
to sell.
Your task:
– Visualize / separate process steps
on getting there
– Use available tools to track user
journes, e.g. KISS metrics
Maximize step-to-step conversion
and minimize drop-rate
Understand what is important to Source:
customer and what is not => http://www.volacci.com/blog/ben-
finklea/2010/february/08/social-web-analytics-
simplify (don‘t make customer part-1

25. Cohort Analysis
• A cohort group is a group of people with
similar characteristics
• Dont‘t just look at your usergroup as a whole
but at subgroups at different stages of their
lifecycle
http://blog.kissmetrics.com/wp-
content/uploads/2012/01/cohort-
analysis.png

26. How can You grow?
1. increase new customers per month (obvious!)
2. decrease churn rate
2nd should be prio 1 because
– already using your product so no additional COAcq
– and this seems to be your target market
– and (once again) you want a compelling/sticky product
=> Once you achieved product/market fit and
decreased churn rate go back to 1 => SCALE!

27. Scaling customer considerations
• Different kind of users
– Visitor, no use of product
– One-time-user, no retention, no referral
– X-time-user, low retention, no referral
– X-time-user, high retention, no referral
– X*Y-time-user, retention, referral
=> You want the last type for scaling your business
for exponential growth (viral! = free marketing)
Source:
http://www.seedcamp.com/resources/startup-metrics-for-pirates-by-dave-mcclure

28. Measuring improvement over time
• Look at # of new customers per period
• NOT # of total customers
Increased # of marginal customers tells you if your
iteration was good for your business
It‘s nice to increase your total # of customers but
you want to find out if a certain product change is
worth keeping or reverting to original.

29. So how do I make money?
• 7 basic revenue streams on the internet *,**
– Service Sales (skype) scalable?
– Retail (amazon) warehouse/returns?
– Subscription (WOW) compelling offering?
– Commission (ebay) side deals/rate?
– Ads (google) annoying?
– License Sales (apple) quality content
– Financial (still emerging) trust
• Freemium and 5/95 rule
– On the internet it is possible to create a sustainable
business with only 5% of paying customers (-> the
long tail)
• Combinations and derivates possible
• Source: Simply Seven: … (Schlie, E et al, 2011)

30. Basic Revenue Calculation
• M Market Size (# of potential customers)
• m Market Share (your estimate, compare with competition)
• X Purchases per Period (month, year, day?)
• Y Periods (how often will one customer buy)
• P Price
R=m*M*X*Y*P
(very basic but a quick and dirty way to show revenues)
(when calculating revenue over time consider churn rate of 25%)

31. So what about costs?
• Fixed costs
– Not dependent on size/number of business output
– Capacity costs, Idleness costs, step costs
– Necessary for keeping the business operable at a minimum scale
– E.g. rent, administrative/general expenses, long term wages
• Variable costs
– Dependent on size/number of business output
– Economics of scale
– E.g. material, wages, traffic, storage, short term wages
• Generally C = Cf + n * Cv
– Where Cf = sum of fixed costs and Cv = variable costs per business
output

32. Other Frameworks
• Strategy Diamond
• Porters 5 Forces
• Porters Generic Strategies
• PESTIELD
• Bowman’s Strategy Clock
• SWOT/TOWS
• These and more can be found at
http://www.mindtools.com/pages/main/newMN_STR.htm
• Following are a basic complement to BMC

33. Strategy Diamond
• “Strategy is about what to do and what not to do”
Highlights choices and choice-gaps to str. Goals
• Arenas: Where will we compete? (external environment)
– Products, customer / geographic market, technologies, value creation stages
• Vehicles: With what we get there? (ratio internal activities /partners)
– Internal development, JV / M&A
• Differentiators: Why will WE be successful?
– UVP, value prop, brand, price, customization
• Staging & Pacing: How will we get there? What’s our actionplan?
– Sequence and speed of strategy implementation, decision points
• Economic Logic: R – C = $$$
– Lowcost (scale/scape), premium price (service quality / product features)
Sources:
http://www.strategyhub.net/2012/07/framework-of-week-84-strategy-diamond.html
http://www.provenmodels.com/598/strategy-diamond/donald-c.-hambrick--james-w.-fredrickson/
http://www.nwcor.com/NWCOR/Content/Readings/Chapter%2013-%20Strategy-%20AME%20CLassic.pdf

34. Porters 5 Forces
Source:
http://www.mindtools.com/pages/article/newTMC_08.htm

35. Book Recommendations
• Business Model Generation
• The Lean Startup
• Four Steps to Epiphany
• The Startup Owner’s Manual
• The Tipping Point
• From Good to Great
• Don’t make me think
• This is Service Design Thinking
• Venture Deals: Be smarter than your lawyer and
VC