2010 01 11 Lean Startup Cohort meeting #2

Eric Ries
Eric RiesEric Ries
Lean Startup Cohort #2Customer Development ,[object Object],WIFI,[object Object],SSID:  westinsf_conf,[object Object],Username: lean2010,[object Object],Password: westin10,[object Object]
From vision to MVP,[object Object],The goal of customer development is to find a market for the product as currently specified,[object Object],Have a strong vision, be prepared to learn whether it makes sense,[object Object],Feedback from customers tells you about them not you,[object Object],No focus groups,[object Object]
Major Sources of Waste,[object Object],Building something nobody wants,[object Object],Adding features your current customer doesn’t want,[object Object],AKA adding features that don’t validate/refute current hypothesis,[object Object],Arguing about product priorities,[object Object],Flip-flopping between plans (iterating in a circle),[object Object],(these are in order of costliness),[object Object]
Problem team, Solution team,[object Object],Problem team: working on customer discovery,[object Object],Solution team: working on Minimum Viable Product (MVP),[object Object],Both teams are cross-functional,[object Object],Commitment from solution team leader to be personally involved with customer discovery,[object Object],Metrics are people, too,[object Object]
Today’s Agenda,[object Object],Develop deep customer insight: problem presentation, “day in the life”,[object Object],Translate that insight into actionable per-user metrics,[object Object],Build a model of how those metrics lead to massive success,[object Object],Establish a baseline measurement using a minimum viable product,[object Object],… and then move to Customer Validation,[object Object]
Deep Customer Insight (Problem),[object Object],Get out of the building and meet real and potential customers,[object Object],Figure out what problems they have,[object Object],Where does your problem rank on the hierarchy of pain?,[object Object],Figure out the how, what, where, and why of customers using a product like yours,[object Object],How do they describe the category, problem, and competitors – learn their language,[object Object],Learn to tell an early adopter from a mainstream customer,[object Object]
Deep Customer Insight (Solution),[object Object],Learn how to describe your solution to potential customers,[object Object],Find out if they agree it solves the problem, assuming it works “by magic”,[object Object],Discover barriers to adoption (would they start using a magic product right away?),[object Object],Offer to pre-order to discover barriers to actual purchase (and to qualify early adopters),[object Object]
Customer Archetype,[object Object],Succinct description of insights,[object Object],Designed to be actionable for whole team,[object Object],If more than one, pick one target,[object Object],Rule: always build for the target archetype without humiliating any other archetype,[object Object],Big savings: avoid building features outside archetype description,[object Object]
Actionable Metrics,[object Object],Assume everything you learned in discovery is true – how would you know?,[object Object],Use customer insight to plot out the specific funnel for your customers: ,[object Object],how they find out about your product,[object Object],how they acquire/try/adopt it ,[object Object],how they pay for it,[object Object],how they engage over time,[object Object],Establish per-customer metrics for this funnel,[object Object],Most important: How do you know you’re making the product better?,[object Object]
Gross metrics don’t work,[object Object],Why not focus on gross revenue, profit, or growth rate?,[object Object],Impossible to predict,[object Object],Keeps team working on high-ROI activities, but innovation tends to be low-ROI (at first),[object Object],Focus on gross numbers tends to erode differentiation (as everyone does the same “obvious” stuff),[object Object]
Engine of Growth,[object Object],The goal of actionable metrics is to establish a working and growing business model,[object Object],Need to understand the “ecosystem” of your business at the per-customer level, and make sure it’s value-creating,[object Object],Marginal revenue > marginal cost,[object Object],High volume, low margin,[object Object],Low volume, high margin,[object Object],Need to understand how this ecosystem supports one of three drivers of growth:,[object Object],Paid (CPA < LTV),[object Object],Viral (Viral coefficient > 1),[object Object],Sticky (customer retention extremely high),[object Object]
Build the model,[object Object],Create the usual spreadsheet model of your business, but,[object Object],Focus on inputs instead of outputs,[object Object],Come up with reasonable assumptions, and make sure that the outputs are sufficient,[object Object],Recognize that the model will probably change, so relationships are more important than specific numbers,[object Object]
Establish a baseline,[object Object],Minimum viable product: that version of a new product which allows a team to collect the maximum amount of validated learning about customers with the least effort.,[object Object],Each input in the model represents one key hypothesis about the business,[object Object],Use the MVP to measure each input. Eliminate any features that do not pertain to one of the key inputs.,[object Object],Work on the riskiest hypotheses first,[object Object]
Baseline,[object Object],Once you have baseline numbers for your business, you are ready for customer validation,[object Object],Probably, the numbers will look terrible – that’s OK,[object Object],Figure out what the deltas are between baseline and a good outcome,[object Object],Figure out which numbers are movable and which are fixed,[object Object]
Customer Validation,[object Object],Once you have a MVP, become more dynamic,[object Object],Shift from one-time activities to continuous flow, measured by validated learning,[object Object],As you learn, you will be able to influence the actual customer behavior in your model,[object Object]
Validated Learning,[object Object],It’s as important to know why a metric changed as to be able to show change,[object Object],Growth in gross metrics is always ambiguous, too many external factors,[object Object],Key validation techniques:,[object Object],Revenue per customer,[object Object],Cohort analysis,[object Object],Split-testing,[object Object]
BOD accountability ,[object Object],Use validated learning to demonstrate shared sense of progress among:,[object Object],Founders,[object Object],Board of directors,[object Object],Investors/outside stakeholders,[object Object],Each baseline step is progress,[object Object],After baseline, each pivot is progress,[object Object]
Team accountability,[object Object],Charter semi-autonomous cross-functional teams, starting with just one solution team ,[object Object],Select a mutually-agreed goal,[object Object],Team agrees to hit the goal or die trying,[object Object],Team has representatives from all functions ,[object Object],Owns product, marketing, deployment decisions,[object Object],At the end of a cycle, team can achieve success by:,[object Object],Hitting the actionable-metric target,[object Object],Demonstrating deep learning about what went wrong,[object Object],Over multiple cycles, must show this learning is improving chances of hitting targets,[object Object]
Pivot,[object Object],When customer validation fails, it’s time to pivot,[object Object],Most pivots originate in the solution team: they cannot find a way to make the current hypothesis work.,[object Object],Can’t hit actionable targets,[object Object],Don’t improve on those targets over time,[object Object],Each team must bring key data to a pivot meeting:,[object Object],Solution team must have data about what’s not working,[object Object],Problem team must have evidence for a next hypothesis,[object Object],Both teams must have spent time with current customers,[object Object],Pivot: keep most of the business model the same, change one key part at a time,[object Object]
Types of pivots,[object Object],Customer need pivot: same customer segment, different need/problem,[object Object],Customer segment pivot: same problem, different segment,[object Object],Business architecture pivot: ie from enterprise to consumer,[object Object],Zoom-in feature pivot: remove features to focus on just one key feature,[object Object],Zoom-out feature pivot: add features to become more of a holistic solution,[object Object],Technology pivot: solve same problem but with different technology stack,[object Object],Channel pivot: same problem, same solution, different path to customers,[object Object],Platform pivot: open up an application to third-parties to become a platform (or vice-versa),[object Object]
Today,[object Object],Develop deep customer insight: problem presentation, “day in the life”,[object Object],Translate that insight into actionable per-user metrics,[object Object],Build a model of how those metrics lead to massive success,[object Object],Establish a baseline measurement using a minimum viable product,[object Object],First up: KISSmetrics,[object Object]
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2010 01 11 Lean Startup Cohort meeting #2

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