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LEAN FROM THE START
LEAN FROM THE START Lean is about solving problems through continuous experimentation.
▪ We ask: what is our purpose as an organization? What value to create or what problem are we trying to solve?
▪ Then, how do we improve the work and how do we develop the people?
Do startups face problems that are different from those of established enterprises?
▪ More uncertainty?
▪ Greater risk?
▪ Fewer resources?
Lean, Whether Startup or Established…
• Engage Everyone in Problem Finding and Continuous Experimentation
• Give Everyone Permission to Fail and Ability to Succeed
WHAT IS LEAN THINKING?
Path to Lean
▪ Stanford, Harvard using lean (engineering, business schools)
▪ Created out of their experiences
▪ Builds on other management methods/tools (lean manufacturing, boot strapping, software development)
▪ Customer focused
• Principle of “Just Enough” • Practice of Questioning and
Experimenting • A personal transformation
WHAT IS LEAN THINKING?
Author Eric Ries (“Lean Startup”)
▪ Experienced team, strong market = failure
▪ Hypotheses about customers, markets, partners
▪ Build, measure, learn – feedback loop
▪ Experiment, multiple attempts, fast iterations
Author Steven G. Blank (“Four Steps to the Epiphany”)
▪ Stanford/Berkeley
▪ Startup Handbook now out (apparently easier to read)
Ries & Blank Rethink the Startup
▪ Human institution designed to deliver a new product or service under conditions of extreme uncertainty. (Ries)
▪ Nothing to do with size of company, sector of the economy, or industry
WHAT IS A LEAN ENTERPRISE?
Transformation Questions
• What’s the PURPOSE? What value? What problem to solve?
• How to improve the work?
• How to develop the people?
• What leadership role and management system?
• What’s the BASIC THINKING?
To Do
• Define Your purpose
• Improve the work
• Develop the people
The product and customer are unknown.
If truly innovative, even more uncertainty
HOW TO BUILD A LEAN STARTUP What is it about?
• Idea
• Sizing the Opportunity
• Business Models
• Customer Development
As a startup:
• Understand the real world aspects of Entrepreneurship by getting out of the building
• Analyze and assess an opportunity
• Build the product
• Get orders
• Work with a team
Then:
• Opportunity evaluation
• Search for a Business Model
• Customer Discovery and Validation
• Operating and decision making in chaos with insufficient data
HOW TO BUILD A LEAN STARTUP Innovators use business models to sketch out quick and dirty conceptual prototypes of a business around the product (not just the product itself) in a format that is generally understandable and generates dialogue with others.
“Business models...are the managerial equivalent of the scientific method. You start with a hypothesis, which you then test in action and revise when necessary”. Magretta, Why Business Models Matter. Harvard Business Review, May 2002.
HOW TO BUILD A LEAN STARTUP
• Idea
• Size Opportunity
• Business Model
• Customer Development
HOW TO BUILD A LEAN STARTUP
Idea Size of the Opportunity
Business Model(s)
Customer Discovery
Customer Validation
HOW TO BUILD A LEAN STARTUP
Idea Size of the Opportunity
Business Model(s)
Customer Discovery
Customer Validation
Theory Practice
HOW TO BUILD A LEAN STARTUP
Idea Size of the Opportunity
Business Model(s)
Customer Discovery
Customer Validation
• Web startups get the product in front of customers earlier
HOW TO BUILD A LEAN STARTUP
Idea Size of the Opportunity
Business Model(s)
Customer Discovery
Customer Validation
What is Engineering about?
▪ Aren’t companies all about product?
▪ I have a great technology idea
▪ Teach me how to make a company around it
▪ Just like Facebook and Google (or Intel or Apple) Sources of Startup Ideas: • Technology shifts
– Moore’s Law – Disruptive tech – Research
• Market changes – Value chain disruption – Deregulation
• Societal changes – Changes in ways we live, learn, work, etc. – The world is flat (outsourcing)
• Dinosaur factor – Arrogance – Deadened reflexes
HOW TO BUILD A LEAN STARTUP
▪ Not all startups are designed to scale
▪ Small business startups have different goals
▪ They are done by normal people
▪ Scalable startups are designed to grow big
▪ Typically require venture capital
▪ This means the size of the opportunity needs to be $100’s of millions to billions
SCALABILITY
Small Business Startup
- Business Model found - Profitable business - Existing team < $1M in revenue
SMALL BUSINESS STARTUPS
Small Business Startup
- Business Model found - Profitable business - Existing team < $10M in revenue
• 5.7 million small businesses in the U.S. <500 employees • 99.7% of all companies • ~ 50% of total U.S. workers http://www.sba.gov/advo/stats/sbfaq.pdf
SMALL BUSINESS STARTUPS
Scalable Startup
Large Company >$100M/year
- Total Available Market > $500m - Company can grow to $100m/year - Business model found - Focused on execution and process
SCALABLE STARTUP
Scalable Startup
Large Company >$100M/year
- Total Available Market > $500m - Company can grow to $100m/year - Business model found - Focused on execution and process - Typically requires “risk capital”
• In contrast a scalable startup is designed to grow big • Typically needs risk capital • What Silicon Valley means when they say “Startup”
SCALABLE STARTUP
Small Business Startup
- Business Model found - Profitable business - Existing team < $10M
Scalable Startup
Large Company
- Total Available Market > $500m - Company can grow to $100m/year - Business model found - Focused on execution and process - Typically requires “risk capital”
VERY DIFFERENT STARTUP GOALS
Small Business Startup
Scalable Startup
Large Company
VENTURE FIRMS INVEST IN SCALABLE STARTUPS
How Big is It?: Market/Opportunity Analysis ▪ Identify a Customer and Market Need
▪ Size the Market
▪ Competitors
▪ Growth Potential
MARKET/OPPORTUNITY ANALYSIS
HOW BIG IS THE PIE? TOTAL AVAILABLE MARKET
• How many people would want/need
the product?
• How large is the market be (in $’s) if they all bought?
• How many units would that be?
How Do I Find Out?
• Industry Analysts – Gartner, Forrester
• Wall Street Analysts – Goldman, Morgan
Total available market
HOW BIG IS MY SLICE? SERVED AVAILABLE MARKET
• How many people need/can use product?
• How many people have the money to buy the product
• How large would the market be (in $’s) if they all bought?
• How many units would that be?
How Do I Find Out?
• Talk to potential customers
Served Available Market
Total Available Market
HOW MUCH CAN I EAT? TARGET MARKET
• Who am I going to sell to in year 1, 2 & 3?
• How many customers is that?
• How large is the market be (in $’s) if they all bought?
• How many units would that be?
How Do I Find Out?
• Talk to potential customers
• Identify and talk to channel partners
• Identify and talk to competitors
Total Available Market Target
Market
Served Available Market
Total Available Market
SEGMENTATION – IDENTIFICATION OF GROUPS MOST LIKELY TO BUY
25
Served Available Market
Target Market
• Geographic • Demographic • Psychographic variables • Behavioral variables • Channel • etc…
▪ Market Size Questions: ▪ How big can this market be?
▪ How much of it can we get?
▪ Market growth rate
▪ Market structure (Mature or in flux?)
▪ Most important: Talk to Customers and Sales Channel
▪ Next important: Market size by competitive approximation
▪ Wall Street analyst reports are great
▪ And : Market research firms Like Forester, Gartner
MARKET SIZE: SUMMARY
▪ Diagram of flows between company and customers
▪ Scorecard of hypotheses testing
▪ Rapid change with each iteration and pivot
▪ Founder-driven
à Hands-on Planning:
9 Building Blocks of the Business Model Canvas
WHAT IS A BUSINESS MODEL?
* Alex Osterwalder
CUSTOMER SEGMENTS
which customers and users are you serving? which jobs do they really want to get done?
VALUE PROPOSITIONS
what are you offering them? what is that getting done for them? do they care?
CHANNELS
how does each customer segment want to be reached? through which interaction points?
CUSTOMER RELATIONSHIPS
what relationships are you establishing with each segment? personal? automated? acquisitive? retentive?
REVENUE STREAMS
what are customers really willing to pay for? how? are you generating transactional or recurring revenues?
KEY RESOURCES
which resources underpin your business model? which assets are essential?
KEY ACTIVITIES
which activities do you need to perform well in your business model? what is crucial?
KEY PARTNERS
which partners and suppliers leverage your model? who do you need to rely on?
COST STRUCTURE
what is the resulting cost structure? which key elements drive your costs?
customer segments
key partners
cost structure
revenue streams
channels
customer relationships
key activities
key resources
value proposition
SKETCH OUT YOUR BUSINESS MODEL
building block
buildingblock
building block
building block
buildingblock
building
block
building block
building block
building block
building block
building block
building block
SKETCH OUT YOUR BUSINESS MODEL
HOW DO STARTUPS SEARCH FOR A BUSINESS MODEL?
• The Search is called Customer Development • The Implementation is called Agile Development
à More startups fail from a lack of customers than from a failure of product development (focus on “who” more than “what”)
Customer Development
Solving For Customer Risk
HOW DO STARTUPS SEARCH FOR A BUSINESS MODEL?
Concept/ Bus. Plan
Product Dev.
Alpha/Beta Test
Launch/1st Ship
Product Introduction Model
Customer Development
Company Building
Customer Discovery
Customer Validation
Customer Creation
Pivot
CUSTOMER DEVELOPMENT
▪ Stop selling, start listening ▪ Test your hypotheses ▪ Continuous Discovery ▪ Done by founders
CUSTOMER DISCOVERY
Customer Discovery
Customer Validation
Company Building
Customer Creation
Pivot
Test Hypotheses: • Product • Market Type • Competition
TURNING HYPOTHESES TO FACTS
Test Hypotheses: • Problem • Customer • User • Payer
TURNING HYPOTHESES TO FACTS
Test Hypotheses: • Channel
TURNING HYPOTHESES TO FACTS
Test Hypotheses: • Problem • Customer • User • Payer
Test Hypotheses: • Demand Creation
Test Hypotheses: • Channel
Test Hypotheses: Product Market Type Competitive
Test Hypotheses: • Pricing Model / Pricing
Test Hypotheses: • Size of Opportunity/Market • Validate Business Model
Test Hypotheses: • Channel • (Customer) • (Problem)
TURNING HYPOTHESES TO FACTS
Customer Development Team
Agile Development
Test Hypotheses: • Problem • Customer • User • Payer
Test Hypotheses: • Demand Creation
Test Hypotheses: • Channel
Test Hypotheses: Product Market Type Competitive
Test Hypotheses: • Pricing Model / Pricing
Test Hypotheses: • Size of Opportunity/Market • Validate Business Model
Test Hypotheses: • Channel • (Customer) • (Problem)
TURNING HYPOTHESES TO FACTS
THE PIVOT
• The heart of Customer Development
• Iteration without crisis
• Fast, agile and opportunistic
THANK YOU VERY MUCH FOR YOUR ATTENTION!
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