LEAN FROM THE START

LEAN FROM THE START Lean is about solving problems through continuous experimentation.

▪  We ask: what is our purpose as an organization? What value to create or what problem are we trying to solve?

▪  Then, how do we improve the work and how do we develop the people?

Do startups face problems that are different from those of established enterprises?

▪  More uncertainty?

▪  Greater risk?

▪  Fewer resources?

Lean, Whether Startup or Established…

•  Engage Everyone in Problem Finding and Continuous Experimentation

•  Give Everyone Permission to Fail and Ability to Succeed

WHAT IS LEAN THINKING?

Path to Lean

▪  Stanford, Harvard using lean (engineering, business schools)

▪  Created out of their experiences

▪  Builds on other management methods/tools (lean manufacturing, boot strapping, software development)

▪  Customer focused

•  Principle of “Just Enough” •  Practice of Questioning and

Experimenting •  A personal transformation

WHAT IS LEAN THINKING?

Author Eric Ries (“Lean Startup”)

▪  Experienced team, strong market = failure

▪  Hypotheses about customers, markets, partners

▪  Build, measure, learn – feedback loop

▪  Experiment, multiple attempts, fast iterations

Author Steven G. Blank (“Four Steps to the Epiphany”)

▪  Stanford/Berkeley

▪  Startup Handbook now out (apparently easier to read)

Ries & Blank Rethink the Startup

▪  Human institution designed to deliver a new product or service under conditions of extreme uncertainty. (Ries)

▪  Nothing to do with size of company, sector of the economy, or industry

WHAT IS A LEAN ENTERPRISE?

Transformation Questions

•  What’s the PURPOSE? What value? What problem to solve?

•  How to improve the work?

•  How to develop the people?

•  What leadership role and management system?

•  What’s the BASIC THINKING?

To Do

•  Define Your purpose

•  Improve the work

•  Develop the people

The product and customer are unknown.

If truly innovative, even more uncertainty

HOW TO BUILD A LEAN STARTUP What is it about?

•  Idea

•  Sizing the Opportunity

•  Business Models

•  Customer Development

As a startup:

•  Understand the real world aspects of Entrepreneurship by getting out of the building

•  Analyze and assess an opportunity

•  Build the product

•  Get orders

•  Work with a team

Then:

•  Opportunity evaluation

•  Search for a Business Model

•  Customer Discovery and Validation

•  Operating and decision making in chaos with insufficient data

HOW TO BUILD A LEAN STARTUP Innovators use business models to sketch out quick and dirty conceptual prototypes of a business around the product (not just the product itself) in a format that is generally understandable and generates dialogue with others.

“Business models...are the managerial equivalent of the scientific method. You start with a hypothesis, which you then test in action and revise when necessary”. Magretta, Why Business Models Matter. Harvard Business Review, May 2002.

HOW TO BUILD A LEAN STARTUP

•  Idea

•  Size Opportunity

•  Business Model

•  Customer Development

HOW TO BUILD A LEAN STARTUP

Idea Size of the Opportunity

Business Model(s)

Customer Discovery

Customer Validation

HOW TO BUILD A LEAN STARTUP

Idea Size of the Opportunity

Business Model(s)

Customer Discovery

Customer Validation

Theory Practice

HOW TO BUILD A LEAN STARTUP

Idea Size of the Opportunity

Business Model(s)

Customer Discovery

Customer Validation

•  Web startups get the product in front of customers earlier

HOW TO BUILD A LEAN STARTUP

Idea Size of the Opportunity

Business Model(s)

Customer Discovery

Customer Validation

What is Engineering about?

▪  Aren’t companies all about product?

▪  I have a great technology idea

▪  Teach me how to make a company around it

▪  Just like Facebook and Google (or Intel or Apple) Sources of Startup Ideas: •  Technology shifts

–  Moore’s Law –  Disruptive tech –  Research

•  Market changes –  Value chain disruption –  Deregulation

•  Societal changes –  Changes in ways we live, learn, work, etc. –  The world is flat (outsourcing)

•  Dinosaur factor –  Arrogance –  Deadened reflexes

HOW TO BUILD A LEAN STARTUP

▪  Not all startups are designed to scale

▪  Small business startups have different goals

▪  They are done by normal people

▪  Scalable startups are designed to grow big

▪  Typically require venture capital

▪  This means the size of the opportunity needs to be $100’s of millions to billions

SCALABILITY

Small Business Startup

- Business Model found - Profitable business -  Existing team < $1M in revenue

SMALL BUSINESS STARTUPS

Small Business Startup

- Business Model found - Profitable business -  Existing team < $10M in revenue

•  5.7 million small businesses in the U.S. <500 employees •  99.7% of all companies •  ~ 50% of total U.S. workers http://www.sba.gov/advo/stats/sbfaq.pdf

SMALL BUSINESS STARTUPS

Scalable Startup

Large Company >$100M/year

-  Total Available Market > $500m -  Company can grow to $100m/year -  Business model found -  Focused on execution and process

SCALABLE STARTUP

Scalable Startup

Large Company >$100M/year

-  Total Available Market > $500m -  Company can grow to $100m/year -  Business model found -  Focused on execution and process -  Typically requires “risk capital”

•  In contrast a scalable startup is designed to grow big •  Typically needs risk capital •  What Silicon Valley means when they say “Startup”

SCALABLE STARTUP

Small Business Startup

- Business Model found - Profitable business -  Existing team < $10M

Scalable Startup

Large Company

-  Total Available Market > $500m -  Company can grow to $100m/year -  Business model found -  Focused on execution and process -  Typically requires “risk capital”

VERY DIFFERENT STARTUP GOALS

Small Business Startup

Scalable Startup

Large Company

VENTURE FIRMS INVEST IN SCALABLE STARTUPS

How Big is It?: Market/Opportunity Analysis ▪  Identify a Customer and Market Need

▪  Size the Market

▪  Competitors

▪  Growth Potential

MARKET/OPPORTUNITY ANALYSIS

HOW BIG IS THE PIE? TOTAL AVAILABLE MARKET

•  How many people would want/need

the product?

•  How large is the market be (in $’s) if they all bought?

•  How many units would that be?

How Do I Find Out?

•  Industry Analysts – Gartner, Forrester

•  Wall Street Analysts – Goldman, Morgan

Total available market

HOW BIG IS MY SLICE? SERVED AVAILABLE MARKET

•  How many people need/can use product?

•  How many people have the money to buy the product

•  How large would the market be (in $’s) if they all bought?

•  How many units would that be?

How Do I Find Out?

•  Talk to potential customers

Served Available Market

Total Available Market

HOW MUCH CAN I EAT? TARGET MARKET

•  Who am I going to sell to in year 1, 2 & 3?

•  How many customers is that?

•  How large is the market be (in $’s) if they all bought?

•  How many units would that be?

How Do I Find Out?

•  Talk to potential customers

•  Identify and talk to channel partners

•  Identify and talk to competitors

Total Available Market Target

Market

Served Available Market

Total Available Market

SEGMENTATION – IDENTIFICATION OF GROUPS MOST LIKELY TO BUY

25

Served Available Market

Target Market

•  Geographic •  Demographic •  Psychographic variables •  Behavioral variables •  Channel •  etc…

▪  Market Size Questions: ▪  How big can this market be?

▪  How much of it can we get?

▪  Market growth rate

▪  Market structure (Mature or in flux?)

▪  Most important: Talk to Customers and Sales Channel

▪  Next important: Market size by competitive approximation

▪  Wall Street analyst reports are great

▪  And : Market research firms Like Forester, Gartner

MARKET SIZE: SUMMARY

▪  Diagram of flows between company and customers

▪  Scorecard of hypotheses testing

▪  Rapid change with each iteration and pivot

▪  Founder-driven

à Hands-on Planning:

9 Building Blocks of the Business Model Canvas

WHAT IS A BUSINESS MODEL?

* Alex Osterwalder

CUSTOMER SEGMENTS

which customers and users are you serving? which jobs do they really want to get done?

VALUE PROPOSITIONS

what are you offering them? what is that getting done for them? do they care?

CHANNELS

how does each customer segment want to be reached? through which interaction points?

CUSTOMER RELATIONSHIPS

what relationships are you establishing with each segment? personal? automated? acquisitive? retentive?

REVENUE STREAMS

what are customers really willing to pay for? how? are you generating transactional or recurring revenues?

KEY RESOURCES

which resources underpin your business model? which assets are essential?

KEY ACTIVITIES

which activities do you need to perform well in your business model? what is crucial?

KEY PARTNERS

which partners and suppliers leverage your model? who do you need to rely on?

COST STRUCTURE

what is the resulting cost structure? which key elements drive your costs?

customer segments

key partners

cost structure

revenue streams

channels

customer relationships

key activities

key resources

value proposition

SKETCH OUT YOUR BUSINESS MODEL

building block

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building block

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building block

building block

SKETCH OUT YOUR BUSINESS MODEL

HOW DO STARTUPS SEARCH FOR A BUSINESS MODEL?

•  The Search is called Customer Development •  The Implementation is called Agile Development

à More startups fail from a lack of customers than from a failure of product development (focus on “who” more than “what”)

Customer Development

Solving For Customer Risk

HOW DO STARTUPS SEARCH FOR A BUSINESS MODEL?

Concept/ Bus. Plan

Product Dev.

Alpha/Beta Test

Launch/1st Ship

Product Introduction Model

Customer Development

Company Building

Customer Discovery

Customer Validation

Customer Creation

Pivot

CUSTOMER DEVELOPMENT

▪  Stop selling, start listening ▪  Test your hypotheses ▪  Continuous Discovery ▪  Done by founders

CUSTOMER DISCOVERY

Customer Discovery

Customer Validation

Company Building

Customer Creation

Pivot

Test Hypotheses: •  Product •  Market Type •  Competition

TURNING HYPOTHESES TO FACTS

Test Hypotheses: •  Problem •  Customer •  User •  Payer

TURNING HYPOTHESES TO FACTS

Test Hypotheses: •  Channel

TURNING HYPOTHESES TO FACTS

Test Hypotheses: •  Problem •  Customer •  User •  Payer

Test Hypotheses: •  Demand Creation

Test Hypotheses: •  Channel

Test Hypotheses: Product Market Type Competitive

Test Hypotheses: •  Pricing Model / Pricing

Test Hypotheses: •  Size of Opportunity/Market •  Validate Business Model

Test Hypotheses: •  Channel •  (Customer) •  (Problem)

TURNING HYPOTHESES TO FACTS

Customer Development Team

Agile Development

Test Hypotheses: •  Problem •  Customer •  User •  Payer

Test Hypotheses: •  Demand Creation

Test Hypotheses: •  Channel

Test Hypotheses: Product Market Type Competitive

Test Hypotheses: •  Pricing Model / Pricing

Test Hypotheses: •  Size of Opportunity/Market •  Validate Business Model

Test Hypotheses: •  Channel •  (Customer) •  (Problem)

TURNING HYPOTHESES TO FACTS

THE PIVOT

•  The heart of Customer Development

•  Iteration without crisis

•  Fast, agile and opportunistic

THANK YOU VERY MUCH FOR YOUR ATTENTION!