🏭Lean startup

More data for your mental model

Testing the idea

What would be required to get users to get excited about clutch & tell their friends about it?

leap of faith assumptions - Those kind of assumptions that you take for granted, you don't know if they're right or wrong, you just go with them.

Test the riskiest assumptions first

Multiple MVPs

Create multiple versions of the MVP to test different assumptions made about a business idea.

Purpose of an MVPs

We need to prove that we building something that people respond to. The MVP does not need to be an automated version of the product with contracts, tech etc.

Wizard of Oz test - users think the product is automated. In the backend, it is actually run by people

Validated learning

Validate your assumptions about your business. 1. Determine what your assumptions are (ie users want a simple way to create a banking account)

Build an MVP, or test, to determine whether these assumptions are true
Measure feedback and user experience from users
Review data
Rebuild a new version of your product that closer aligns with what customers actually want
Repeat

Build measure learn feedback loop

Hiding your startup from competition

You should not need to keep the business idea a secret. If you need to keep your product hidden from the market to stay competitive, there is a fundamental issue with your product.

Innovation accounting

Proves to companies objectively that they are learning to grow a stainable business. Turning leap of faith assumptions into a quantitative financial model.

Example financial accounting KPIs

RATE OF GROWTH:

- Profitability of each customer

- cost of acquiring new customers

- repeat purchases of existing customers

Engine of growth

The engines are metrics that can help you figure out how to create sustainable growth based on customer use of your product or service.

Tune the engine of growth - To fine-tuning is to make subtle adjustments to improve ongoing performance. In the case of tuning the engine of growth, this process uses small adjustments to increase the efficiency of a business (ie customer growth, retention, revenue etc)

There are three engines:

sticky engine - customer retention
viral engine - users promoting the product
paid engine - advertising

Pivot

A pivot is a pivot in the engine of growth. A structured course correction designed to test a new fundamental hypothesis about the product, strategy and engine of growth.

10 types of Pivots

Zoom-In: in this situation, a single feature becomes whole product and everything else in the product is cut away. This pivot helps organizations find and retain focus by delivering the (MVP) as fast as possible.
Zoom-Out: what was considered the whole product now becomes a single feature of a much larger product. This is the reverse of the zoom-in pivot. Companies use this pivot when they have data that shows a single feature set, i.e. a product, is insufficient to support the customer, users or market segment and decide to make the product more expansive.
Customer Segment: sometimes after a product is launched, it attracts real customers, but not the customers in the original product vision. While disappointing, this pivot encourages the product designers to reposition and optimize the product adoption by a more appreciative market segment.
Customer Need: in some situations early customer feedback indicate that the problem being solved by the product is not very important. Other times, the customer does make money available to buy the product. This pivot requires the product team to find a real customer problem worth solving and worth paying for.
Platform: this pivot refers to a change from an application to a platform or vice versa. Many product designers envision their solution as a platform for future products. Most customers buy solutions, not platforms.
Business Architecture: Geoffrey Moore, author of the famous book Crossing the Chasm, observed many years ago that there are two major business architectures: high margin, low volume (complex systems model) or low margin, high volume (volume operations model). This pivot recognizes that a company cannot do both at the same time.
Value Capture: this pivot refers to the monetization or revenue model for the product. When using this pivot, leaders changes how the company captures value. Many software products today offer free versions with minimally sufficient functionality. Later, they ask users to pay to unlock greater power. Unfortunately, the free model doesn’t capture much value for the business.
Engine of Growth: there are three primary growth engines for a startup: viral (users promoting the product), sticky (customer retention) and paid growth models (advertising). Picking the right model can dramatically affect the speed of growth and profitability. This pivot seeks to change the engine of growth.
Channel: there are many different ways, or channels, to deliver a product to the customers. This pivot asks the business to select a different product delivery channel with greater effectiveness. A channel pivot usually requires unique pricing, feature and\or competitive positioning adjustments.
Technology: sometimes a startup discovers a way to deliver the same solution to the customer by using a completely different technology. Companies make this pivot when new technology can provide superior price and\or performance to improve competitive position.

LEARN - Build Measure Learn loop

"Learn about customers and their reaction to a product"

Cohort - A group of customers you introduce to a product. IE a sample size. Review info about these customers eg

Funnel analysis

Funnel analysis is best known as a method for calculating conversion rates at different steps of your app, website, or checkout flow. A simple funnel analysis example is discovering the cart abandonment rate for an e-commerce site.

What is a Funnel Analysis?Chartio

Quality != Progress

A product having all the bells and whistles (features) & a high-quality product does not mean you're making progress!! Progress is building a product that fulfils the requirements of a customer!

Common questions

"Why aren't customers responding to our product improvements?"

"Why isn't our hard work paying off?"

User stories

A user story is an informal, general explanation of a product or feature written from the perspective of the end user. Its purpose is to articulate how a product or feature will provide value to the customer. Stories keep the focus on the user. User story template

“As a [persona], I [want to], [so that].” Example user stories

As Max, I want to invite my friends, so we can enjoy this service together.
As Sascha, I want to organize my work, so I can feel more in control.
As a manager, I want to be able to understand my colleagues progress, so I can better report our sucess and failures.

Agile development

Approach to product management where development is broken down into smaller "chunks". With the mantra "Built is better than perfect". Small teams, short milestones and quick development.

Agile is an iterative approach to project management and software development that helps teams deliver value to their customers faster and with fewer headaches. Instead of betting everything on a "big bang" launch, an agile team delivers work in small, but consumable, increments. Requirements, plans, and results are evaluated continuously so teams have a natural mechanism for responding to change quickly.

Split test / A B test

Split test - different versions of the product are offered to customers at the same time

For example, offering a product at two different price points to two different groups of customers. You can use this test to determine the different effects of the two different products

A successful startup is made up of:

Product prioritisation decisions
Innovation accounting
Choosing your target market
Choosing which client feedback to take on onboard (Customers don't always know exactly what they want)
Need to be able to subject a grand business idea to critique
Deciding when to pivot and when to persevere

CHAPTER 8- PIVOT OR PERSEVERE

Innovation accounting leads to a faster pivot

Early adopters - Those individuals that use new products before the majority of people. They come before mainstream adopters. Their main motivation is generally to "be the first ones" to use a product.

Assumptions

1. Registration - customers will register for a product or service

2. Activation - customers will activate the product after the "try-out" period. Ie pay for a premium service

3. Retention - customers will continue to use the product

4. Referral - customers will tell their friends about a product. Viral engine of growth

Tune the engine of growth - the way to achieve responsible growth based on the customer use of your product or service

Low volume high margin - Ferrari

low margin high volume - Ford

Chapter 9 Batch

The "Toyota way" of manufacturing is to build in batches.

This is where, for example, one person builds the entire car from start to end. This is different to the manufacturing line approach taken in mass production, for example, Ford, where manufacturing tasks are completed in bulk.

Small batch processing - Toyota vs mass production. Folding letter example.

Envelope example - A study whereby a person was given 400 letters to prepare as quickly as possible. It was found that preparing the letters one at a time (writing the letter, folding the letter, putting the letter in the envelope) was quicker to complete one at a time instead of grouping tasks together (ie mass production, folding them all, putting them all into envelopes)

Benefits of Batch manufacturing

You find and fix problems faster
You can check for & find defects immediately. This prevents bigger problems later

Andon cord -

Toyota Production System (TPS)

A cord that, when pulled, all work on the assembly line would stop immediately. Anyone could pull it.

Employees were obligated to pull the cord if they discovered a problem with production.
A team leader would immediately go ask why the rope was pulled. Then, together, the leader and the team could work to solve the problem and restart production.
realized that unaddressed problems on the assembly line create huge complications if left unattended

Rapid prototyping tools - Tools and techniques to quickly fabricate a product or idea.

Large batch death spiral - Behaviour where large batches seem to attract more and more work. Ie Managers have a tendency to increase batch size, rather than ship the product

"Fix one more bug or add one more feature "

Optimum batch size & testing

As soon as we have an idea or hypothesis we want to test - the product development department needs to be about to create it as fast as possible in the smallest batch size that will get the job done"

Example assumptions

"They do not want to buy our product"

" X does not want to become early adopters because X"

Chapter 10 - Grow

LTV lifetime value - Customer lifetime value represents the total earnings from a customer over the duration of their relationship with the business

CPA cost per acquisition - Aarketing metric that measures the total cost of a customer completing a specific action

Product market fit

"Every engine of growth inevitable runs out of Gas"

Chapter 11 - adaptive organisation

Example

Split the difference - take the most polarising position possible to meet in the middle.

"Startups are in a race, to learn how to build a sustainable business before they run out of resources and fail."

Andon chord

"Any energy we spend not trying to learn from customers is waste"

There is a cost to being too fast!

You can trade quality for time

Bugs, low quality software or service will come back and bite you. They will need to be fixed at a point in the future.

At a specific point there will be a point of no return where an entire product will need to be replaced.

Shortcuts taken today will slow down progress tomorrow

Next iteration of our product

Learning how to build a product that customers do want.

Early adopters to mainstream users

How do you estimate a completely unknown quantity? IE how much will users pay for x

The 5x Why's

A method to determine the root cause of the problem. Why? But why that? But why that?

The Toyota production system

Proportional improvements -

Problem is small, spend a small amount of time to fix it. Each time it comes up, spend an amount of time equal to the problem.

Do not sacrifice a large amount of time if it is not necessary

"These improvements are compounding"

It becomes an automatic speed regulator!

Tie progress to learning, not just achievements!

-stops over investing

-stops over engineering

"We tend to overreact to what's happening in the moment"

5 Why's not 5 Blames!

"Shame on us, we need to fix this"

"Most mistakes are caused by bad systems not bad people"

5 Why's - requires entire team/everyone involved to get on one call together. This stops parties blaming others.

Making an efficient team

- smaller teams

- shorter milestones

- faster customer feedback

- fast and courageous decisions

- smaller batch size and cycle size

feedback & customer experience

"Disruptive innovation"

Chapter 12 - innovate

Have full time participating from one person from each department (development, business development, marketing, product management etc)

Giving employees stake in a company is more then financial stake (IE equity)

Nothing more motivating then having your name on the door!

- need objective criteria to win an award

Vanity metrics vs actionable metrics

"Supporting different products under different brand names"

I'd say I'm apart of the innovation team. Constantly trying and testing out new products

Creating a separate company for innovation is a bad idea. Need to instill a culture of innovation!

Innovation team (sandbox)

- tests should take no longer than 2x weeks

- Same metrics should be used across all tests

- pick 10-15 tests

- small sample size (not all customers)

- testing team must monitor progress while the testing is in progress/abort it if something catastrophic happens

- clear leader with ultimate power

- mixed team (cross functional)

- report with standard actionable metrics/innovation accounting

MVP or Proof of Concept

Strong creative managers should not get stuck in management roles. Ie founder of a startup should not get set in a management role once the startup is commercialized

Entrepreneur - responsible based on the metrics of innovation accounting

INNOVATION TEAMS

Team 1

Entrepreneur in a large company should be incubating projects within the startup sandbox

(Overlap period)

Team 2

Needs to be integrate the venture into the larger company.

Need to to commercialize it, grow it

Benefit of sand box innovator teams - quickly improve processes required for innovation

Product developer

- split testing

- customer deployment