Tech Entrepreneurship – Course Overview

Prepared by: Ken Mulligan July 20th , 2017

Entrepreneurship is a process which takes a new idea or innovation under conditions of

uncertainty and searches for a scalable and repeatable business model. In this course you will

apply Lean Startup, an approach to finding this business model, based on the scientific-method

that can successfully create and deliver the value your target customers are seeking in the most

efficient way. It favors experimentation over detailed planning, customer feedback over intuition,

and iterative design over traditional “big design up front” development.

"An entrepreneur is someone who can take any idea, whether it be a product and/or service, and

have the skill set, will and courage to take extreme risk to do whatever it takes to turn that concept

into reality and not only bring it to market, but make it a viable product and/or service that people

want or need."

Startups are not smaller versions of big businesses. One of the critical differences is that while

existing companies execute a business model, start-ups look for one. The ones that ultimately

succeed go quickly from failure to failure, all the while adapting, iterating on, and improving their initial

ideas as they continually learn from customers. Startups are about finding customers, getting outside

the building to observe what the real customer problems are and not about building finished

products. That comes later after you’ve gathered sufficient evidence through testing of multiple

MVPs- Minimum Viable Products. You use these MVPs (rough study models) to test your

hypotheses about the market, and your customers, before you spend too much time creating

and shipping the product. Your primary focus is on learning and discovery. Unlike a traditional

prototype, the idea is to build something you can use to test your hypothesis, rather than a fully

featured version. It doesn’t need to be something you could go to market with, but it needs to

be good enough to show potential customers and accurately gauge their reactions to it.

This requires that you and your team go out and ask potential users, purchasers, and partners for

feedback on all elements of the business model, including product features, pricing, distribution

channels, and affordable customer acquisition strategies. The emphasis is on nimbleness and

speed: New ventures rapidly assemble minimum viable products and immediately elicit customer

feedback. Using customers’ input to revise your assumptions, you start the cycle over again,

testing redesigned offerings and making further small adjustments (iterations) or more

substantive ones (pivots) to ideas that aren’t working.

Steve Blank, a Silicon Valley serial-entrepreneur and academician, who is recognized for

developing the Customer Development methodology, which launched the Lean Startup

movement defines a startup this way:

“A startup is a temporary organization in search of a scalable, repeatable, profitable business

model.”

It’s counter-intuitive. This approach to entrepreneurship is evidenced-based. Every assumption

you make in your Business Model and Value Proposition is tested and validated through the Build-

Measure-Learn loop which is at the core of Lean Methodology. You run experiments to validate

the assumptions you make in your Business Model. It’s all about learning and discovering from

customers. Our focus is maximized learning.

Lean Startup has three components:

1. Business Model Design – Collects all of the hypotheses you make about how your startup

will create value for your target customer, deliver that value to them through your sales

and distribution channels, and capture value through your cost and revenue models.

The Business Model Canvas provides a framework and a scorecard to see how your

founding team is progressing in the process of developing a scalable and profitable

business model. It is continuously updated as you test and validate your core hypotheses

for value creation. The ultimate goal of a startup is to find a validated Business Model

which can grow and be profitable. The Business Model canvas is the means to document

results of your test and validation.

2. Customer Discovery/Development – This is the means by which you will gather the data

you will need to know if you actually have a problem worth solving. Where is this data for

validation to be found? Outside the building and the

laboratory. There are no facts about real customer

problems inside. You must meet and observe real people

who are experiencing the problem. This iterative approach

engages feedback from the customer and informs the

direction of the design of your solution and the validity of

your Business Model. Through multiple iterations of this

feedback loop we systematically discover the product

design that solves the customers’ problem in the way that real customer’s actually want.

The validation of this iterative design loop is a product that customer’s will actually pay

for.

3. Agile Engineering - Agile development works hand-in-hand with customer development.

Unlike typical yearlong product development cycles that presuppose knowledge of

customers’ problems and product needs, agile development eliminates wasted time and

resources by developing the product iteratively and incrementally. It’s the process by

which your startup will create the minimum viable products you will test through well

designed customer experiments.

Using these three components of Lean Methodology helps your startup discover a scalable and

profitable Business Model which minimizes required resources and maximizes learning of what

customers want and will pay for. It’s a process that allows you to rapidly learn what customers

want and need by getting out of the building and in front of real potential customers.

Management icon and Guru Peter Drucker made this poignant yet simple observation about

business: “The purpose of a business is to get a paying customer.” Lean Startup is the lowest cost

means to accomplish this goal at scale.

Through this process of discovery we will look for and validate three kinds of fit:

Problem-Solution Fit: This is initially a paper

validation of which shows how your proposed

solution aligns with your target market

segment’s pains, gains and jobs.

Product-Market Fit: This stage of fit shows

evidence of demand. People actually want

and will pay for your product or service.

Business Model Fit: Your business model has

sufficient evidence that it will scale and be

profitable.

“The safest bet about your new business is that you’re wrong... A startup is not about executing a

series of knowns. Most startups are facing a series of unknowns — unknown customer segments,

unknown customer needs, unknown product feature set, etc.” – Steve Blank

There Are Four Types of Markets Your Startup Can Enter: Market type influences everything a

company does. Each has its own risks and opportunities. Choose wisely.

1. Existing Market: Users, Sales Channels, Competitors already exist. There are known ways

of creating customer demand. Well defined and difficult to succeed in.

2. New Market: No current users, No competition. No known demand. Customer Discovery

much harder to do. This is the where many startups get their starts.

3. Resegmented Market: Also known as low-cost or niche market segment. You know

something about this dimension of the market that allows you to win.

4. Clone Market: You redeploy a successful market model used in other countries for your

own country.

The Process We Use:

Step 1. Find a problem worth solving.

We use Design Thinking to find

customer problems worth solving.

The #1 reason a Startup fails is that

they build a product that nobody

wants or will pay for. Finding a

problem worth solving means

knowing the facts about your

customer and understanding their

real pain points. Therefore, we start

with a target customer in mind.

Design Thinking helps you identify

problems worth solving, generate

design options, hypothesize possible

solutions and develop prototypes or rough study models that encourages low-cost failures and

learnings. They can be as simple as a napkin sketch, landing page or cardboard mockup.

At its core, it is a mind-set — a way of thinking and acting. It is about imagining new ways to solve

problems and create value."

We start with these low-fidelity prototypes to allow us to explore multiple alternatives quickly.

The beauty of these rough study models is that they can be thrown away easily and new

alternatives can be rapidly explored until we can develop our Minimum Viable Product (MVP).

How Do You Know You Have Problem Worth Solving?

• You know who your customers are • You know what their problem is. • You know how they are currently solving this

problem. • You know what solutions they tried in the

past. • You know the seriousness of the problem to

your customer. • You know how much they would spend to fix

this problem.

The real question is not “Can we

build it?” but “should we build it?”

This can be readily answered by

understanding your customer

needs. Design Thinking connects

you with the customer pain points

through empathy and focuses the

development of your hypothesized

solutions to align with your real

customer’s needs.

Through direct observations and

interviews, we can determine what

really matters to our customer.

From these detailed observations we can accurately describe their pain points and needs.

Through the process of Ideation we can begin to formulate possible solutions to their problems.

These “hypothesized” solutions are the early stages of what will become your value proposition.

Your initial hypothesized solution will take the following form:

“We will help our target market segment solve their problems causing them serious pain by

delivering a unique solution which solves their pain points, delivers new benefits and makes

their lives easier.”

This hypothesized solution will become the basis for your initial value proposition and will begin

the process of Value Proposition Design and aid in your efforts to find problem-solution fit.

Step 2. Form a problem-solution team.

Ideally a founding team at this stage of a startup (pre product-market fit) has these three skills;

Strong Product Developer, a Designer Who Can Deliver the Right UX (user experience) and a

Marketer – Everything Else Is Marketing. In most cases, your problem-solution team will likely be

a group of your peers with similar skills and training. It’s okay to start with a team of inspired

innovators, however, it is essential to the long term success of your startup to recruit these

additional skillsets as quickly as possible.

Investors look for a team with these skillsets and the ability and experience to advance your tech

innovation from an interesting idea to a commercially viable product or service.

Step 3. Design an innovative technological solution.

We use the Value Proposition Design tool (VPD tool), the 4 Lenses of Innovation and Customer

Discovery to properly tailor the solution to meet the actual needs of real customers. We ensure

technical feasibility through analysis and testing.

Imagination and innovation work together to fuel new insights in value creation:

“Imagination is more important than knowledge. For knowledge is limited to all we now know

and understand, while imagination embraces the entire world, and all there ever will be to know

and understand.” --- Albert Einstein

Our Lenses of Innovation:

In this course your imagination will be fueled and informed through the 4 lenses of Innovation

and Design Thinking.

The 4 Lenses of Innovation:

1. Challenging Orthodoxies – Breaking the chains of precedent and challenging

conventional thinking.

2. Harnessing Trends – It’s about seeing the future in the present. Innovation is the race for

tomorrow. It asks the question; “What will be the next big thing in our market?” What’s

new and what’s next.

3. Leveraging Resources – Making connections available in the world around you using

unrelated skills, processes, technologies and assets to piece together your innovative

solution.

4. Understanding Needs – An insatiable curiosity about your customer, their problems and

your unshakable belief that you can make their lives better with your solutions.

Step 4. Engage potential customers to discover their real

needs.

In Step 4 we apply the rigor of Lean Startup and the Scientific Method to test our core

assumptions and hypotheses and gather evidence which either validates or invalidates the

assumptions we have made in our Business Model. Remember what your mission is; Find

sufficient evidence for a Business Model that delivers the value promised in your Value

Proposition and that is both scalable and sustainable.

We use the lens of Understanding Needs, along with Customer Discovery and the Build-

Measure-Learn loop to ensure commercial feasibility through testing and validation of your

Business Model Canvas. Your objective is to gather sufficient evidence which validates the key

hypotheses and assumptions you made in the development of your Business Model. These three

tools allow your startup to focus on the parts of an early stage venture that matter the most:

problem/solution fit, the product, product/market fit, customer acquisition, revenue and cost

model, channels and partners.

We use the scientific method to gather evidence for our assumptions and to ensure that our key

assumptions are validated through experimentation and testing. This evidence-based approach

to developing and testing our business innovation reduces the risk of failure and helps in finding

a scalable and sustainable business model. In it we emphasize that a) the data needed exists

outside the building, b) teams use the scientific method of hypothesis testing c) teams do this

process of discovery on an ongoing basis.

• Hypothesis – Here’s What We Thought, Assumed or Believed

Customer Development says “Glad you have these hypotheses about your startup. All of them

are probably wrong.” – Steve Blank

• Experiments – Here’s What We Did. This is part of our risk mitigation strategy. We

are looking to test these key assumptions that if proven untrue will invalidate our

business model. We use the Test Card to organize our experiments. This approach to

experimental design provides a cohesive structure for testing our key assumptions.

Our strategy for value creation is built upon a set of assumptions that must be tested

and validated. The usefulness of our business model depends upon these key

assumptions being true.

The core of Lean Startup is the Build-Measure-Learn Loop. We

use the Test and Learning cards to organize our hypotheses for

testing. For our purposes, the “Build” portion of the loop will

be your Test card and any associated rough study models or

prototypes. The “Measure” piece will be your observations

with associated data collected and the metrics you gathered in

the experiment, and the “Learn” piece will be the

consolidation of what decisions you will make and what

actions you will take. These experiments will provide you with evidence that will determine the

validity of your Business Model.

Using the Test and Learning cards provides you with a structured approach to Business Model

validation.

Make a list of all the key assumptions used in your Business

Model. Prioritize testing based on the assumptions which are

most important for your Business Model to work. Use the Test

Card to capture any unproven hypotheses and assumptions

in your Business Model.

Design a series of experiments to test your key assumptions

using the Test Card (Build and Measure) and Learning Card

(Learn) to capture learnings and validate your hypotheses

with real customers.

Data – Here’s What We Learned. We use the Learning Card

to capture our experimental results and data.

Insights and Action – Here’s What We Are Going to Do

Next. We use Step 4 of the Learning Card; “Decisions and

Actions” to determine if we should “Pivot or Persevere”

with our business model. From these experiments we will

make adjustments to our business model based on this

evidence-based approach and make decisions about what

next actions we should take.

We repeat these experiments until we have gathered

sufficient evidence to validate the key assumptions made

in our Business Model. Build-Measure-Learn-Repeat.

Eventually we will have the evidence we need to determine

if our Business Model is both scalable and sustainable.

Once we have the evidence which validates our Business

Model we can begin to prepare our pitch to potential

investors.

Problem / Solution Fit happens as a part of the customer discovery phase. You test it via

customer interviews and MVPs. You must demonstrate problem-solution fit with solid evidence

gathered through your experiments. Your team will use the Value Proposition Design canvas to

show alignment of your hypothesized solution with your target customer’s gains, pains and

jobs.

Product / Market Fit is stage in which your MVP is now ready for sale and you have customers

who are ready to make a purchase of your early product design. The result of this fit should be

the best evidence for a repeatable and scalable business model. This evidence of demand is the

best early indicator that you have a viable business model.

Step 5. Prepare a pitch for potential investors.

This requires that you have completed the previous 4 steps and have sufficient evidence for

investors to evaluate the merits of your team, timing, hypothesized solution and business model.

You will need to tell a compelling story about who has the problem, what their pain points are,

and why your technological solutions solves it better. You’ll need to present evidence for

problem-solution fit, market size, product-market fit and data which demonstrates both

technical and business feasibility.

Here’s how:

1. Write your five minute pitch narrative.

2. Develop your five minute pitch deck.

3. Video record your presentation.

Begin Here:

Write your five minute pitch narrative.

Here are some prompts to consider:

1. Introduce the problem or opportunity as described by actual users or consumers within a

specific business, home, or institutional setting. One minute = approximately 150 words.

2. Describe or demonstrate your novel solution with a focus on how the product or service

works in 3 steps or less. One minute = approximately 150 words.

3. Describe the competitive landscape and your competitive advantage. What similar

solutions or status quo behaviors currently exist? Why will customers/ users choose your

solution over other options? Is your solution protected or protectable via a patent,

trademark, etc.? One minute = approximately 150 words.

4. Describe your current or planned business model. Who pays for your solution, how much,

how often, and where do these transactions occur? In other words, describe your first

sale or a typical sale. One minute = approximately 150 words.

5. Introduce your team and key mentors with a focus on their extraordinary

accomplishments and/or unique ninja skills. Why is your team uniquely qualified to bring

this product or service to market? What does your team need to reach the next milestone

(e.g., money, strategic introductions, etc.)? If money, how much, what will it be spent to

accomplish, and by when? One minute = approximately 150 words.

Next:

Develop your five minute pitch deck.

Templates and examples may be accessed here: http://links.asu.edu/EBPDTools

Finally:

Record the presentation of your five minute pitch narrative with an accompanying pitch deck.

The best pitch recording format is “picture-in-picture” style. In other words, you should aim to

record your slide deck being shown on your desktop while also recording your face(s) and voice(s)

with a webcam as you advance through each slide. Here are two good examples:

• Swift Coat: https://youtu.be/AM8jBOrGUZE

• Curio: https://youtu.be/1J-ASpENThw

In order to record your pitch using these formats, please consider the following options:

• Use http://screencast-o-matic.com/home

• Use an unlisted Google Hangout On Air with YouTube Live. Here are instructions:

http://bit.ly/2f057jN

• If you are aware of any other useful recording tools, please go ahead and use them.

• NOTE: Passwords for password-protected videos must be provided within the submission

form.

Where do we begin?

Understanding customer needs is essential to developing a solution that your target customers will want

and pay for. Start with the pain points of your target customer and hypothesize a solution. This initial

guess will begin the iterative process of testing your assumptions and eliminating those that could kill your

idea.

Your hypothesized solution should be presented in this form:

"We provide/sell X product/service/value to X customers who want X benefit (bug to be solved)."

This is a form of a prototype known as an “Ad-Lib.” They are a quick way to shape alternative directions

for your value proposition and help you pinpoint exactly how you are going to create value for your

customer. Customer Value Creation is our focus.

Use the Value Proposition Canvas (VPC) as your means to capture initial data about your customer and

their frustrations. This link is an excellent resource for understanding the best practices in developing your

value proposition. This is the first step in the design process. Design is the activity of turning your ideas

into value proposition prototypes. The VPC breaks your value proposition down into products and

services, pain relievers and gain creators. It describes how you intend to create value for this customer.

You will likely have multiple value propositions. Each value proposition will need to be tested as you

progress in understanding your target customers’ real needs. These two elements are your starting point

for developing your Business Model, the larger framework for creating, delivering and capturing value.

Who has the problem you want to solve? Understanding the customer’s pain points and problems is

mission critical to defining a solution that can lead to problem-solution fit, and subsequently product-

market fit. Problem-solution fit means full alignment of your target customers’ gains, pains and jobs with

your proposed solution. We work from the right side

to the left side.

Steve Jobs said, “You’ve got to start with the

customer experience and work backwards to the

technology. You cannot start with the technology and

try to figure out where you are going to sell it.”

Without a true problem-solution fit it is unlikely that

your solution will gain meaningful traction commercially. The key is to solve problems your customers are

already experiencing. The best place to begin is with the customers who are in the most pain or have the

greatest frustration around the problem. These customers have the problem, they know they have the

problem and most importantly are actively seeking a solution. These are your best opportunities to gain

early traction and evidence of product-market fit.

The only way to determine if your hypotheses or guesses are correct is to test them in the real world---

outside your lab and outside your head. Don’t waste time debating whether your guesses are right or

wrong. Your experiments will provide the means to test your basic assumptions and to gather data that

will either confirm or deny your hypothesis. This is Science 101. You are not trying to prove your

assumption is correct. A scientific test consists in a persevering search for negative, falsifying instances. If

a hypothesis survives continuing and serious attempts to falsify it, then it has ``proved its mettle'' and can

be provisionally accepted, but it can never be established conclusively. The practical application in testing

your assumptions is to be able to validate the assumptions through multiple experiments.

It is important to keep in mind that the problem you are committed to solving for these targeted

customers has many potential solutions. The solution you should look for is the one that aligns with the

customers’ true needs and wants; their pains, gains and work. If you have started with a solution looking

for someone with the “problem” your solution solves, it will take a lot more exploration to connect the

dots.

Start with the ‘circle”, your customer profile. Look at the assumptions you have made about their

problems. Start with jobs, gains, and pains. Do they actually have the problem you have hypothesized?

What experiment should you “build” to test your hypotheses, measure the results and derive insights?

You need to prove which jobs, gains, and pains matter to customer most by conducting experiments that

produce evidence. Pick the riskiest assumptions first. Do you have evidence to continue or do you have to

pivot? You need this experimental data to validate your value proposition. You cannot find problem-

solution fit if you do not understand your customers’ actual pain points.

Customer Development:

“Unless some of you have been working in a specific domain for the last 20 years or so, the odds are that

anything you’re thinking about customers and markets are nothing more than a guess.” – Steve Blank

Customer Development is a four-step framework developed by serial entrepreneur and business school

Professor Steve Blank for discovering and validating the right market for your idea, building the right

product features that solve customers’ needs, testing the correct model and tactics for acquiring and

converting customers, and deploying the right organization and resources to scale the business.

Most, if not all of you will be in the pre product-

market fit stage. Therefore your customer

development process will begin with customer

discovery. You have a hypothesized solution or

product idea that needs validation. You validate with

prospects that a specific solution will solve a known

problem to such a degree that they will buy it. This is

the essence of finding problem-solution fit.

Phase II of this process is the development of your

minimum viable product (MVP). We do this through the Build-Measure-Learn Loop described below. Your

MVP is a product with the minimum feature set which solves the customer pain points, demonstrates

problem-solution fit and has been validated with your target customer. The process for validation begins

with observation and engagement with your customer; understanding their jobs, pains and gains. In Phase

III, through interviews, surveys and analytics you will have a proposed "sales and marketing roadmap,"

which lays out your customer's buying process and the business activities you must undertake to move

prospects through the process (funnel).

In Phase I of this immersive experience of entrepreneurship you will be interviewing people who have

the problem you are proposing to solve, a minimum of 100 people, 10 people per week is needed to

gather meaningful insights. It is from these customer interviews and observations that the validity of your

assumptions will be measured, an initial market segment defined (Beachhead Market) and a sales and

marketing roadmap defined.

One of the many mistakes new entrepreneurs make is the misguided belief that the market is the all-

encompassing “Everyone”! A market which includes everyone is a market that will defy any efforts to gain

traction in it. Your solution is not the answer for everyone but it is the answer for someone. You need to

narrow down and define this market segment. Your mission critical task is to identify these early adopters

and define an End-User Profile. A key determinant of your success as an entrepreneur will be your ability

to select a market your research shows fits your hypothesized solution and stay focused on it. You must

choose a single market you can excel in. You want to start in a market where you have great ability to

dominate in a relatively short time period. Early traction comes through your focused delivery of value to

this initial beachhead market. Choose a single market to pursue. Keep segmenting until you have a well-

defined market opportunity.

Develop your initial Business Model (Your Plan A):

After you have developed an initial Value Proposition using VPD and restated it in the form of a

hypothesized solution, your next step is to frame it. We will use the Business Model Canvas to capture our

overall strategy for creating, delivering and capturing value. Your “Plan A” will start with a series guesses.

Your Plan A is created using the Business Model Canvas. Here is an excellent video for maximizing your

understanding of how to best use the business model canvas.

This strategic framework provides you with a visual look at your overall strategy to finding a business

model that can scale. Each week your Business Model Canvas will be updated to reflect the most recent

results from your test and validation experiments. Think of it as a means to keep track of the development

of your strategy to create and deliver value to your target customer. Your first few BMCs will be a series

of guesses. In fact there is a strong likelihood that some of these elements will begin with a question mark.

You simply will not have the facts at hand.

1. Find Problem-Solution Fit – Problem-solution fit

means that your hypothesized solution aligns with

your customer segment’s concerns about the jobs,

gains, and pains. Your value proposition should align

your hypothesized solution with the pains, gains, and

work of your chosen customer segment. This is part of

the customer discovery process. You may need to test multiple value propositions before you find

one that leads to problem-solution fit. This process of finding problem-solution fit is STEP 1.

This is only a paper confirmation and your problem-solution fit is not yet proven.

2. Find Product-Market Fit – This step provides the evidence that your customers care about your

value proposition. This is the customer validation phase. This is where you will run your

experiments and gather evidence to validate or invalidate the assumptions underlying your value

proposition. Finding product-market fit is a long and iterative process. You will need to run

multiple experiments. Product-market fit is achieved when you have sufficient evidence showing

that your solution is something that customers want and pay for.

Rapidly prototype your value proposition with

napkin sketches, hypothesized solutions, 3D

models and other representations of your

value proposition. These quick and rough study

models of your idea allow you to rapidly

explore possibilities with potentially interested

customer segments. You’ll want to observe

and understand how your customer gets their

work done and what prevents them from

getting it done well. You want to understand

their pain points and motivations. Look for a

customer segment that has the problem you’re

proposing to solve, knows that they have this problem, and are who are actively looking for a

solution.

You may need to explore multiple value proposition prototypes

using the Build-Measure-Learn loop in order to find product -

market fit.

3. Business Model Fit – occurs when you have evidence that your value proposition can be

embedded in a profitable and scalable business model. No value proposition can survive without

a sound business model. Your cost structure and revenue model must create value for your

business and support growth. Revenue must exceed the costs of creating and delivering your

value proposition.

We use a three step process to advance our idea from untested value propositions to a commercially

feasible and technically viable product:

Step 1. Development of your Plan A: This is where you hypothesize your initial value proposition and

frame it in your initial Business Model Canvas (BMC). It is likely that you will have more than one initial

value proposition that could potentially deliver the promise of the value of your solution. Therefore you

will have multiple business model canvases to frame the strategy for each of these potential solutions.

Step 2. Risk Mitigation and Assessment: This is where we begin the process of risk mitigation. In each of

your BMCs there will be parts that if proven untrue would cause your BM to fail. Each one will need to

have the riskiest assumptions identified and systematically tested.

Step 3. Innovation Management: This is where you begin the formal process of testing the riskiest

assumptions identified in your BMCs using the Build-Measure-Learn loop. You will be testing multiple

BMCs and systematically eliminating the models

that are riskiest. Over time you will narrow down

your collection of BMs to a single one that will

scale. This is the goal of any startup. In particular,

our focus as previously stated is not on the

product but on finding customers who want and

will pay for our innovation. Because the

customer is completely mapped into the process

of systematic testing, the solution evolves into a

minimal viable product (MVP) that reflects the

true wants and needs of your target customer.

This process flow illustrates how we progress

from our Plan A to a plan that works.

Overview of the Testing Process

Set up your experimental design:

We start by testing the most critical hypotheses. This systematic approach to testing will increase the

likelihood that we will eliminate ideas that will kill our business model and maximize the use of available

resources to find a business model that can scale and sustain itself.

How will you do this?

1. Test your value proposition. Design your experiments that produce evidence showing how your

products and services kill pains and create gains that matter to customers. Does your customer

care about your proposed solution? Does your solution “fit” the customers’ pains, gains and jobs?

If not, you need to test another solution until it does fit. This may require that you test more than

one value proposition. Imagine that? Problem-solution fit is the prelude to product-market fit,

therefore you must get this right, corroborated by evidence. If you fail to find problem-solution fit

you must pivot.

2. Test your business model. What you are looking for is evidence that shows your strategy for

creating, delivering and capturing value will work. Your experiments should test the most

important things for your business model to work. This includes your cost structure and revenue

streams. The fundamental equation is this; When Revenue > Costs you make a Profit. A startup

that does not make a profit before it runs out of funding will be out of business. You need to

experiment with the revenue and cost structure to find the right mix to ensure profitability.

Your initial experiments should be fast. Our goal is maximum learning. In fact, the entire effort this

semester is to maximize your learning so that you can identify the assumptions in your business model

that will kill your business if they prove untrue. This is a process of systematic derisking. The end result

will be a fully validated business model and the evidence you will need to convince potential investors in

the investment readiness of your startup.

Evidence outweighs opinion. The purpose of testing is to get

beyond your opinions and assumptions---to get data from real

people that validates or invalidates your idea. You need to define

the most important things that must be true for your idea to work.

This process of testing your hypotheses will continue throughout

the semester. Getting both the business model and the value

proposition right is a process of adjusting each until you have

evidence that your value proposition can be embedded in a

profitable and scalable business model.

What is an experiment?

“The purpose of your experimentation is to validate or invalidate your proposed value

proposition or business model hypothesis with your targeted customer.”

An experiment is a procedure we use to test, measure and learn if our assumptions are

valid or invalid that produces evidence. We experiment to confirm our trajectory and

determine if we should continue to iterate in the development of our idea or pivot to test

a fundamentally new hypothesis. Remember that the faster you can kill a bad idea, the

quicker you can pivot to the successful one.

A notable example of a company employing the pivot is Groupon; when the company first

started, it was an online activism platform called The Point. After receiving almost no

traction, the founders opened a WordPress blog and launched their first coupon

promotion for a pizzeria located in their building lobby. Although they only received 20

redemptions, the founders realized that their idea was significant, and had successfully

empowered people to coordinate group action. Three years later, Groupon grew into a

billion dollar business.

Speed to fail should be your motto. Test, verify and adjust is the only way to keep your

idea advancing to problem-solution fit and product-market fit.

You will design experiments to test your hypotheses and to determine if your chosen customer

segment is interested in your solution. Remember that the question we ultimately are asking is

not can we build it but should we build it? The number one killer of startups is building a product

that no one wants to pay for. Your mission as a creator of value is to find a product or service that

people (lots of people) will want and pay for.

Your experimental design will use both the Test Card and Learning Card

You need to produce evidence showing that your product or service kills pains and create gains

that matter to your customer segment. Your experiments should test one pain reliever and one

gain creator at a time. Always look for the quickest and least costly way to test a pain reliever or

gain creator. We start experimenting to reduce risks, systematically testing to learn what works

and what doesn’t work.

S1: Extract Hypotheses from your Business Model, your Value Map and your Customer Profile.

Look at your Value Proposition and Business model canvas. What must be true of the assumptions

you’ve made for your idea to work---about your customer, your Value Proposition, and your

Business Model?

S2: Prioritize these hypotheses for testing

Identify the hypotheses that are critical to the survival of your idea. What could kill your business?

These are the ones you test first. Prioritize in order of how critical they are for your idea to survive.

S3: Design Tests using the test card – the test card provides

you with a simple yet effective means to structure your

experiments. It begins with the hypothesis to be tested. The

source of this hypothesis is found in your business model,

your value map and your customer profile. The test and

measurement segment defines how you will verify and

measure your results. In the criteria segment you will define

the criteria for whether the tested hypothesis is validated or

invalidated.

Think of these test cards as a way to implement the “Build-

Measure-Learn” loop with which you gain the insights

necessary to determine if you should pivot-or-persevere..

S4: Prioritize Tests

You’ll want to design a series of experiments using these Test Cards to test the most critical

hypotheses you identified in S2. You should be asking yourself where you can get the most

learning in the shortest amount of time. At the beginning of the testing process, uncertainty is at

its maximum. Therefore the quicker you can reduce uncertainty, the faster you can remove risk

from your business model. Pick the quick and cheap test to be done early and make sure that the

most critical hypotheses get tested first.

S5: Run Tests through the Build-Measure-Learn loop.

You’ll implement the Build-Measure-Learn loop using the Test Card to describe the experiment

(the build piece) and then measure the results as defined in the “measure” section of the Test

Card. The Learning Card will be used to capture your insights.

This is the part of the process in which you will be interviewing

real people who have the problem that you want to solve. This is

customer discovery and customer validation. It will be the source

of the data that you will use to show evidence that your model

will work and will be the evidence you will use to make your

evidence-based pitches in the last 6 weeks of the course. It’s

absolutely the single most important thing you will do in the

process of finding a scalable and repeatable business model.

S6: Capture Learnings

As I noted in S5, the Learning Card is what you will use to capture your insights. It is the “learn”

piece of the Build-Measure-Learn loop. It explains what

conclusions and insights you gained from the experiment and

describes what actions you will take based on your insights.

From your experiment you will have learned one of three things:

1. Your hypothesis was invalidated. You must find new

alternatives. This is what is known as a Pivot.

2. The results of your experiment was inconclusive. You need to

deepen your understanding and conduct further tests. If the

experiment was quantitative then the next experiment would be

qualitative to better understand the customer.

3. Your hypothesis was validated. Congratulations! Now you test

the next hypotheses in your priority list.

S7: Iterate and make progress.

Pick the next mission critical hypotheses from your priority list to be tested. Repeat S1-S6 until all

assumptions which could kill your idea and your business model are fully tested and validated.

Use your Business Model Canvas or Lean Canvas to track your progress in validation. Each week

the results of your interviews and experiments will be reflected in updates to your business

model. Pivot or persevere.

This second stage of developing your idea into a validated business model will require you to establish

an initial target market.

It’s often referred to as a “Beachhead Market.” At this point in development of your problem-solution fit

it should be obvious to all that you cannot serve everybody. From an entrepreneurial perspective to try

and serve everybody is in effect to serve no one. You need to select a market based on the results of your

hypothesis testing and data. This is where the evidence becomes much more critical in the advancement

of your idea toward product-market fit and ultimately commercialization.

You must select a beachhead market (BHM) and stay disciplined in your approach. Your BHM is where

you will gain dominant market share. Success here means that you have properly understood your

customer’s needs and have not built your startup based on your interests and capabilities.

To assist you in selecting your BHM please use the following criteria as a guideline:

1. Is your target customer well-funded?

2. Is your target customer readily accessible to your sales team? (For now you are the sales team)

3. Does your target customer have a compelling reason to buy?

4. Can you deliver a product? (For now, it’s your MVP)

5. Is there entrenched competition that can block you?

6. If you win this segment, can you leverage it to enter additional segments?

7. Is this market consistent with your team’s values, passions and goals?

A narrow, focused market is the best way to do this. You need to pick a market in which you will get

efficiencies of scale. Given that none of the class is likely to have had any marketing classes, the three

conditions that define a market are:

1. The customers within the market all buy similar products.

2. The customers have similar sales cycles and expect your product to provide value in similar ways.

3. There is “Word of Mouth” between customers.

Focus is your ally.

You need to target a specific demographic.

Marketing and sales lesson #1: You must build your startup based on the customer you are serving. This

is why customer discovery is mission critical. If you have not accurately identified your target customer

through customer discovery and problem-solution fit you have no viable path forward towards

commercialization. Let me say it again: If you don’t know the specifics of who your customer is there is no

way to have a validated business model.

The essence of entrepreneurship is successful commercialization. Misidentified target customers leads

to repeated failures. Of course, you are following the Lean approach and should have, through your

extensive experimentation, fleshed out what an end user of your product looks like. Ideally your team

should have someone from your target demographic on your team. If you don’t have one yet, I strongly

encourage you to do so. With an end user on your team you will not have to rely on assumptions about

who your end user is and what they want. Think about it! The whole purpose of the lean approach to

entrepreneurship is to find a problem-solution fit and product-market fit that people want and will pay

for...with the least amount of risk.

To accomplish this you must have the right focus---a well-defined target customer. At this point in the

semester with 70+ interviews you should be ready to create an End User Profile (EUP). It’s time to get

specific. The EUP will provide the demographic data that you will use to calculate the Total Addressable

Market (TAM) size of your beachhead market. Primary market research is fundamental to your success.

This is the purpose of all your experiments. To succeed in this endeavor demands that you must

continually talk, observe and interact with your target customer to obtain this information and confirm it.

Your End User Profile (EUP)

You cannot be everything to everybody. You already know that of course. Your goal is to create a

description of a narrowly defined subset of end users with similar characteristics and with similar

needs. Here are some potential characteristics to include in your EUP:

• Gender

• Age Range

• Income range

• Geographic location

• What motivates them?

• What do they fear most?

• Who is there hero?

• Where do they get there information? Websites? TV? Books? Magazines?

• Reasons they would buy your product?

• What is their story?

These are only suggestions. You should pick characteristics that are specific to your market.

In summary the purpose of the End User Profile is to keep you on track to building your startup around

your target customer’s needs and of course to know how to serve their needs better than the

competition.

Once you have established who your end user is and have defined your Beachhead Market (BHM) you

need to make an estimate of the Total Addressable Market (TAM).

Your initial estimate of the TAM should be included in the next phase of your pitch deck presentations.

The purpose of this calculation is to confirm that the market is large enough to generate positive cash flow

and that you are headed in the right direction. Your goal should be a conservative and defensible TAM

number that you have faith in. It’s not there to impress investors but to demonstrate to them that there

is a viable initial market that will provide positive cash flow and traction. Of course this fact will impress

investors so make the calculation as feasible as possible.

Total Addressable Market Calculation:

1. Determine the number of end users that fit your End User Profile (EUP) using a bottom-up analysis

based on your primary market research (Customer Discovery and Hypothesis testing). This is often

referred to as “Counting Noses!”

2. Next determine how much annual revenue an individual end user is worth. This will require that

you make some initial assumptions about how much a customer is willing to pay. How much are

they spending today to accomplish what your product does? How much value does your product

create for them?

3. Multiply the revenue per end user by the number of end users to get the TAM as dollars/year.

A TAM that is between $20 million and $100 million per year is a good target. For some teams this range

may seem high and for others it may seem low but for startups that intend to be for real it’s essential.

The TAM is how much annual revenue you would accumulate if you achieved 100% market share. It’s

only used for your first Beachhead Market (BHM).

In addition to the End User Profile, which represents a composite of your targeted end user, you will

need to create a “Persona.”

The Persona is a real person you select from your End User Profile that represents the key characteristics

of your end user. The purpose of selecting a Persona is to ensure that all team members are clearly

focused on the same target. This person you choose will speak in a sense for your entire Beachhead

market so choose very carefully. In fact your initial product development will focus around this individual

rather than your End User Profile.

Your Persona:

• They should conform to your End User Profile while providing more specific details.

• You should prepare a fact sheet about your Persona; about their life story, their job, their real

name, their goals, their needs and their pains. Be as specific as possible. Include a description and

photo.

• You’ll want to list your Persona’s Purchasing Criteria in Prioritized Order. It’s crucial for you to

understand how your customer prioritizes their needs and wants.

You’ll need to interview your Persona to get this data. Your chosen Persona will inform you as you think

about decisions going forward. It is your startup’s North Star therefore it should be visible to all members

of your team as your move forward. With the Persona you are now selling to a specific individual.