CS419 Technology Entrepreneurship Building a Lean, Scalable Startup Fall 2012 – Fall 2013 Emre...
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Transcript of CS419 Technology Entrepreneurship Building a Lean, Scalable Startup Fall 2012 – Fall 2013 Emre...
CS419Technology
Entrepreneurship
Building a Lean, Scalable StartupFall 2012 – Fall 2013
Emre Oto
What is the Lean Startup?Why is the Lean Startup «Lean?»
Methodology inspired from Lean Manufacturing principles developed by Taichi Ohno and Shigeo Shingo The Toyota Production System (TPS)
Throughout the course we will see many reflections of the TPS on startup product development: Eliminating waste (muda) Genchi Gembutsu (go and see) Just-in-time manufacturing and Kanban (push vs pull) The Andon Cord Principle of Small Batches
CS419 Technology Entrepreneurship Week #6 «The Lean Startup Redux II»
The Lean StartupPower of small batches Idea inspired from the Toyota Production
System
Just-in-time systems in Toyota Production System Reduce in-process inventory
Translation to startups: Just-in-time scalability Conduct experiments without making massive
up-front investments in planning and design Reduce Work-in-progress (WIP) Inventory
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Small batches in the Lean StartupEnvelope folding..
We will start with a small experiment..
CS419 Technology Entrepreneurship Week #6 «The Lean Startup Redux II»
Small batches in the Lean StartupSingle-piece flow Batch-size = what moves from one stage to the
next at a time
One envelope = Batch size of one = single-piece flow
Why is stuffing one envelope at a time faster? Reason 1: Extra time needed to sort, stack, move
around large piles of half complete envelopes (WIP Inventory)
Reason 2: Less error prone (what if letters don’t fit the envelopes?) = Reduce potential rework
CS419 Technology Entrepreneurship Week #6 «The Lean Startup Redux II»
Small batches in the Lean StartupSingle-piece flow
The small-batch approach finishes a product every few seconds
The large-batch approach must deliver all the products at once, at the end
What if it turns out customers don’t want the product?
Which one allows us to find out sooner?
CS419 Technology Entrepreneurship Week #6 «The Lean Startup Redux II»
Small batches in the Lean StartupSingle-piece flow
Biggest advantage of working in small batches = quality ptoblems can be identified much sooner
Andon cord = Any worker can stop the production line.
Benefits of finding and fixing problems faster outweigh the cost of stopping the production line.
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Small batches in the Lean StartupBenefits of reducing batch size
Reducing batch size reduces cycle time
• Size of the shaded area is the size of the queue
• Queue size is proportional to
batch size• Reduce cycle
time without changing either demand or capacity
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Small batches in the Lean StartupBenefits of reducing batch size
Reducing batch size reduces variability in flow 100 people entering a restaurant at the same time
Reducing batch sizes accelerates feedback Fast feedback provides disproportionate economic benefits
because the consequences of failures usually increase exponentially when we delay feedback
The number of dependent decisions generally grows geometrically with time
A single incorrect assumption can force us to change hundreds of decisions
CS419 Technology Entrepreneurship Week #6 «The Lean Startup Redux II»
Small batches in the Lean StartupBenefits of reducing batch size
Reducing batch size reduces risk Risk of failure is significantly reduced
Reducing batch size reduces overhead 300 open bugs, we enter #301 vs 30 open bugs,
we enter #31
Large batches reduce efficiency Reviewing 200 drawings with incorrect assumptions
vs reviewing 20 drawings and getting feedback
CS419 Technology Entrepreneurship Week #6 «The Lean Startup Redux II»
Small batches in the Lean StartupBenefits of reducing batch size
Large batches inherently lower motivation and urgency Delivery of one module in 5 days vs 100 days until
integration point Lack of rapid feedback leads to dismotivation
The entire batch is limited by its worst element
Batch size slippage principle: Large batches cause exponential cost and schedule
growth High slippage of long-duration projects
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Small batches in the Lean StartupBatch size slippage principle
CS419 Technology Entrepreneurship Week #6 «The Lean Startup Redux II»
Original Planned Duration
Perc
ent S
lippa
ge
Small batches in the Lean StartupBatch size optimization
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Transaction cost:Cost of sending a batch to the next process
Holding cost:Cost of not sending the batch
Small batches in the Lean StartupBatch size optimization
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• Optimal batch size function is continuous
• Batch size reduction is reversible
Small batches in the Lean StartupBatch size optimization Key idea from the TPS:
Reduce batch size before you attack other bottlenecks
Reducing batch size reduces variability, and with lower variability we may find current capacity is sufficient
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Small Batches in the Lean StartupThe Entrepreneurial Connection The goal is not to produce more stuff efficiently
The lesson is not about manufacturing
The key question is: What if it turns out the customer doesn’t want
the product we are building? Better finding out sooner than later
Working in small batches, a startup can minimize the expenditure of time, money, and effort that could potentially be wasted.
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Small Batches in the Lean StartupThe Entrepreneurial Connection Release small
Test small with automated tests
Integrate small Create «andon cords» to detect integration failure
Deploy small and deploy continuously
= Continuous deployment
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Small Batches in the Lean StartupThe Entrepreneurial Connection
The essential lesson is not to ship/deploy 50 times per day
By reducing batch size, we get through the Build-Measure-Learn feedback loop more quickly than our competitors
The ability to learn faster from customers is the essential competitive advantage that startups must possess
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Small Batches in the Lean StartupThe Large Batch Death Spiral Large batches tend to grow over time
Moving the batch forward results in additional, work, rework, delays, and interruptions
Everyone works to reduce this overhead
Unlike in manufacturing, there are no physical limits on the size of the batch
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Small Batches in the Lean StartupThe Large Batch Death Spiral
It is possible for the batch size to keep growing and growing
Since the product has been in development for so long, why not fix this one more bug, or add this one more feature?
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Why risk the success of this release by failing to address this potentially critical flaw?
Small Batches in the Lean StartupWIP Inventory in a Startup
When factories have excess WIP, it piles up on the factory floor
Startup work is intangible
All the work that goes into designing the MVP
Incomplete designs, not-yet-validated assumptions, and most business plans are WIP
Lean Startup techniques convert push methods to pull and reduce batch size Reduce WIP
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Small Batches in the Lean StartupWhat the Lean Startup is NOT
Lean Startup is not applying pull to customer wants
The pull signal to product development is not what the customer tells us to build as a product
This is not the way the Lean Startup works because customers often do not know what they want
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Small Batches in the Lean StartupThe Pull Signal in a Lean Startup
Our goal in building products is to be able to run experiments that will help us learn how to build a sustainable business
The Lean Startup responds to pull requests in the form of experiments that need to be run
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Small Batches in the Lean StartupThe Pull Signal in a Lean Startup
We formulate a hypothesis we want to test
Product dev. Team designs and runs the experiment, using the smallest batch size that will get the job done
Build-Measure-Learn loop actually works in reverse order
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Small Batches in the Lean StartupThe Pull Signal in a Lean Startup
We figure out what we need to learn
We work backwards to see what product will work as an experiment to get that learning
The caveat: It is not the customer, but rather our hypothesis about the customer that pulls work from product development Any other work is waste
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Wisdom of the 5 Why’s Regulation of speed
Speed is the only strategy in a startup
But speed alone can be destructive
Startups require built-in speed regulators that help teams find their optimal pace of work
Remember the andon cord: Stop production so that production never has to stop You cannot trade quality for time
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Wisdom of the 5 Why’s Regulation of speed
It is OK for the initial MVP to have bugs, missing features and bad design
When you start building products customers want, low-quality products inhibit learning when customers cannot fully experience the product due to defects
We need an adaptive process that allows us to invest in preventing the problems that waste time and resources
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Wisdom of the 5 Why’s5 Why’s Analysis
Allows us to make incremental investments and evolve a startup’s processes gradually
Asking Why? 5 times to get to the root cause and understand what has happened
At the root of every seemingly technical problem is a human problem
5 Whys provides an opportunity to discover what that human problem might be
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Wisdom of the 5 Why’s5 Why’s Analysis
Why did the machine stop? (There was an overload and the fuse blew)
Why was there an overload? (The bearing was not sufficiently lubricated)
Why was it not lubricated sufficiently? (The lubrication pump was not pumping sufficiently)
Why was it not pumping sufficiently? (The shaft of the pump was worn and rattling)
Why was the shaft worn out? (There was not strainer attached and metal scrap got in)
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Wisdom of the 5 Why’s5 Why’s Analysis
The real cause is hidden behind more obvious symptoms
The root cause moves away from a technical fault = a blown fuse
Toward a human error = someone forgot to attach a strainer
Typical of most problems startups face
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Wisdom of the 5 Why’s5 Why’s Analysis
Acts as a natural speed regulator
The more problems you have, the more you invest in solutions to those problems
With startups in particular, there is a danger that teams will work too fast, trading quality for time in a way that causes sloppy mistakes
Five Whys prevents that, allowing teams to find their optimal pace
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Wisdom of the 5 Why’s5 Why’s Analysis
Ties the rate of progress to learning, not just execution
Startup teams should go through Five Whys whenever they encounter any kind of failure Technical faults, failure to achieve business results, or
unexpected changes in customer behavior
Small batches + 5 Whys analysis: Provide the foundation a company needs to respond
quickly to problems as they appear without overinvesting or overengineering
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Growth Drivers in a StartupEngine of Growth
Mechanisms that startups use to achieve sustainable growth
Sustainable excludes all one-time activities that generate a surge of customers but have no long-term impact e.g. A single advertisement or a publicity stunt that
generate jump-start growth
Characterized by one simple rule: New customers come from the actions of past
customers
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Growth Drivers in a StartupSources of sustainable growth Four ways past customers drive sustainable
growth:1. Word of mouth2. As a side effect of product usage
Inherent awareness created by product use E.g. Luxury products
3. Through funded advertising Paid through revenue generated through other
customers4. Through repeat purchase or use
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Growth Drivers in a StartupEngines of Growth Feedback loops powered by the four
sources of sustainable growth
Faster the loops turn, faster the company will grow
Each growth engine has an intrinsic set of metrics that determine how fast a company can grow when using it
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The Sticky Engine of Growth
The Viral Engine of Growth
The Paid Engine of Growth
Growth Drivers in a StartupThe 3 Engines of Growth
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The 3 Engines of GrowthThe Viral Engine of Growth
Relying on awareness of product to spread rapidly from person to person similar to a virus becoming an epidemic
Different from simple WoM Virality is an inherent property of the product itself Customers are not intentionally acting as
evangelists Growth happens automatically with product use
Viral engine can be quantified = Viral loop and Viral coefficient
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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 him or her?
E.g. Viral coefficient of 0.1 not sustainable
Used mainly by products targeting advertisers
The 3 Engines of GrowthThe Viral Engine of Growth
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Invest Customer Lifetime Value in user acquisition
CLV = Revenue – Variable Costs
Company grows if customer acquisiton cost < CLV
May be subject to competition and may require bidding at some point
The 3 Engines of GrowthThe Paid Engine of Growth
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The 3 Engines of GrowthThe Paid Engine of Growth
Using the right engine of growth is important for attaining product / market fit
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