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Lean Startup
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The Lean Startup provides a scientific approach to creating and managing startups and getting the desired product to customers' hands faster.
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Outline
Lean Startup
Vision
Startup's Vision
Creating a thriving and world-changing business.
Strategy
Business model, a product road map, a point of view about partners and competitors, and ideas about who the customer will be.
Product
End result of the strategy.
Validated Learning
Rigorous method for demonstrating progress when one is embedded in the soil of extreme uncertainty.
Value vs Waste
Lean thinking defines value as providing benefits to the customer; anything else is waste.
Value Hypothesis
The value hypothesis test whether a product or service really delivers value to customers once they are using it.
Growth Hypothesis
The growth hypothesis test how new customers will discover a product or service.
Steer
Build-Measure-Learn Feedback Loop
Ideas->Build->Product->Measure->Data->Learn
Leap-of-Faith Assumptions
The riskiest elements of a startup's plan, the parts on which everything depends. The two most important assumptions are the value hypothesis and the growth hypothesis.
Minimum Viable Product
Version of the product that enables a full turn of the Build-Measure-Learn loop with a minimum amount of effort and the least amount of development time.
Innovation Accounting
Quantitative approach that allows us to see whether our engine-tuning efforts are bearing fruit. Innovation Accounting defines a set of macro metrics that can be used to model the customer lifecycle. You can actually define and measure customer value before you capture back some of this value i.e get paid
Establish the Baseline
Through the creation of an MVP and measuring.
Tune the Engine
Pivot or Persevere
Metrics
Engine of Growth
Registration Rate
Activation
Retention
Referral
Revenue
Lifetime Value
Learning Milestones
Way of assessing progress accurately and objectively.
Vanity Metrics
Actionable Metrics
Help analyse customer behaviour in ways that support innovation accounting.
Net Promoter Score
Customer Archetype
Brief document that seeks to humanize the proposed target customer.This archetype is an essential guide for product development and ensures that the daily prioritization decisions that every product team must make are aligned with the customer to whom the company aims to appeal.
Rate of Growth
Profitability of Customers
Cost of Acquiring New Customers
Repeat Purchase Rate Existing Customers
Learning Milestone
Metrics
Actionable
An actionable metrics is one that ties specific and repeatable actions to observed results.
Accessible
Make reports as simple as possible so that everyone understands them.
Auditable
Cohort Analysis
Says: among the people who used our product in this period, here's how many of them exhibited each of the behaviours we care about. A cohort is a group of people who share a common characteristic over a certain period of time. Cohort analysis is a study that focuses on the activities of a particular cohort
Pivot
Are we making sufficient progress to believe that our original strategic hypothesis is correct, or do we need to make a major change? That change is called a pivot: a structured course correction designed to test a new fundamental hypothesis about the product, strategy, and engine growth.
When?
The decreasing effectiveness of product experiments and the general feeling that product development should be more productive.
Meeting
Less than a few weeks between meetings is too often and more than a few months is too infrequent. Each pivot or persevere meeting requires the participation of both the product development and business leadership teams. If possible the perspective of outside advisers.
What
The product development team must bring complete report of the results of its product optimization efforts over time (not just that period) as well as comparison of how those results stack up against expectations (again, over time). The business leadership should bring detailed accounts of their conversations with current and potential customers.
Types
Zoom-in Pivot
What previously was considered a single feature in a product become the whole product.
Zoom-out Pivot
This type of pivot, what was considered the whole product becomes a single feature of a much larger product.
Customer Need Pivot
This is a case where the product hypothesis is partially confirmed, the target customer has a problem worth solving, just not the one that was originally anticipated.
Customer Segment Pivot
The product hypothesis is partially confirmed, solving the right problem, but for a differente customer than originally anticipated.
Platform Pivot
A platform pivot refers to a change from an application to a platform and vice versa.
Business Architecture Pivot
Change between hight margin, low volume (B2B) to low margin, high volume (B2C) and vice versa.
Value Capture Pivot
Capturing value is an intrinsic part of he product hypothesis.
Engine of Growth Pivot
This type of pivot a company changes its growth strategy to seek faster or more profitable growth. (viral, sticky, paid)
Channel Pivot
A channel pivot is a recognition that the same basic solution could be delivered through a different channel with greater effectiveness.
Technology Pivot
Kanban
The kanban rule permitted only so many stories in each of the four states. As stories flow from one state to the other, the buckets full up. Once a bucket becomes full, it cannot accept more stories. Only when a story has been validated can it be removed from the kanban board. If the validation fails and it turns out the story is a bad idea, the relevant feature us removed from the product.
Accelerate
Just-in-Time Scalability
Conducting product experiments without making massive up-front investments in planning and design.
Small Batches
Engine of Growth
Mechanism that startup use to achieve sustainable growth.
Sticky Engine
If focused on retaining customers for the long term, this is the engine needed. Maintaining a low customer attrition is absolutely critical. You need to do everything you can to keep your customers coming back month after month. Once you have an exceptionally low attrition rate, you only need to acquire a few new customers to keep your business growing. If the rate of new customers acquisition exceeds the churn rate, the product will grow. The speed of growth is determined by what I call the rate of compounding, which is simply the natural growth rate minus the churn rate.
Churn Rate
Fraction of customers in any period who fail to remain engaged with the company's product.
Compounding Rate
Natural growth rate minus the churn rate.
Natural Growth Rate - Churn Rate
Viral Engine
This is the domain of word of mouth and having your product advertise itself. Either by telling their friends or simply using your product, your customers will do your advertising for you. The viral engine is powered by a feedback loop that can be quantified. It is called the viral loop, and its speed is determined by a single mathematical term called the viral coefficient.
Viral Coefficient
The viral coefficient measures how many new customers will use a product as a consequence of each new customer who signs up. How many friends will each customer bring with them? A viral look with a coefficient that is greater than 1.0 will grow exponentially, because each person who signs up will bing, on average, more than one other person with them.
Paid Engine
This is what most business owners are familiar with and every form of advertising falls into this category. Whether you’re using the yellow pages or Super Bowel ads, you’re buying your customers. In the paid engine growth is measure by how much it cost to acquire new clients and how much revenue gained. To increase the rate of growth one has to increase the revenue from each customer or drive down the cost of acquiring a new customer.
Lifetime Value (LTV)
Each customer pays a certain amount of money for the product over their "lifetime" as a customer. Once variable costs are deducted, this is called the customers lifetime value.
Cost Per Acquisition
Cost of acquiring clients.
LTV > CPA = Growth
Sustainable Growth
New customers come from the actions of past customers.
Word of Mouth
Side Effect of Product Usage
Funded Advertising
Repeat Purchase/Use
Adaptive Organization
Building an adaptive organization through process and performance adjustments to current conditions.
Five Whys
The core idea of the Five Whys is to tie investments directly to the prevention of the most problematic symptoms. Which most of the time is a human problem.
Technical Faults
Failure to Achieve Business Results
Unexpected Changes in Customer Behaviour
How To
Be tolerant of all mistakes the first time
Never allow the same mistake to be made twice.
Start small, be specific
Appoint a Five Whys Master
Only new problems in the beginning
Explain what the process is for & how it works
Five Blames
Tactics to escape the five blames:- Make sure that everyone affected by the problem is in the room during the analysis of the root cause.- Meeting should include anyone who discovered or diagnose the problem.- Including customer service representatives who fielded the calls- Include anyone who tried to fix the symptom as well s anyone who worked on the subsystem or features involved- If escalated to senior management, the decision makers involved should be present
Senior Mantra
If a mistake happens, shame on us for making it so easy to make that mistake.
How To
Consistently make a proportional investment at each of the five levels of the hierarchy. The investments should be smaller when the symptom is minor and larger when the symptom is more painful.
Disruptive Innovation
Scare but Secure Resources
Independent Development Authority
Personal Stake in the Outcome
Creating Platform For Experimentation
Whenever possible, the innovation team should be cross-functional and have a clear team leader, like the Toyota shusa. It should be empowered to build, market, and deploy products or features in the sandbox without prior approval. It should be required to report on the success or failure of those efforts by using standard actionable metrics and innovation accounting.
Innovation Sandbox
1. Any team can create a true split-test experiment that af fects only the sandboxed parts of the product or service (for a multipart product) or only certain customer seg ments or territories (for a new product). However:2. One team must see the whole experiment through from end to end.3. Noexperimentcanrunlongerthanaspecifiedamountof time (usually a few weeks for simple feature experiments, longer for more disruptive innovations).4. No experiment can affect more than a specified number of customers (usually expressed as a percentage of the company's total mainstream customer base).5. Every experiment has to be evaluated on the basis of a single standard report of five to ten (no more) actionable metrics.6. Every team that works inside the sandbox and every product that is built must use the same metrics to evalu ate success.7. Any team that creates an experiment must monitor the metrics and customer reactions (support calls, social media reaction, forum threads, etc.) while the experi ment is in progress and abort it if something catastrophic happens.
Hold Teams Accountable
The Startup Way
People
Culture
Process
Accountability
Lean Startup Method
Entrepreneurs are Everywhere
Entrepreneurship is Management
Validate Learning
Scientific Experimentation
Build Measure Learn
Innovation Accounting
Startup
A startup is a human institution design to create a new product or service under conditions of extreme uncertainty. The way forward is to learn to see every startup in any industry as a grand experiment.
Basic Questions
- Should this product be built?- Can web build a sustainable business around this set of products and services?- What would be required to get customers to engage with the product and tell their friends about it?- What products do customers really want?- How will our business grow?- Who is our customer?- Which customers should we listen to and which should we ignore?
Answers
For this we need a method for systematically breaking down a business plan into its components parts and testing each part empirically.
Scientific Method
We need the scientific method. In the Lean Startup model, every product, every feature, every marketing campaign --everything a startup does-- is understood to be an experiment designed to achieve validated learning. Scientific method begins with a clear hypothesis that makes predictions about what is supposed to happen. It then tests those predictions empirically.
