Lean Startup

1. Lean Startup Minder Chen, Ph.D. Professor of MIS Martin V. Smith School of Business & Economics CSU Channel Islands minder.chen@csuci.edu

2. Lean Startup Start Your Business Lean and Quick: The Lean Startup Approach Introduce an innovative method to build a new business in the context of lean startup approach. The application and cases of deploying the Build-Measure-Learn cycle to measure user feedbacks and to validate assumptions in a startup’s business model will be discussion.

3. The Lean Startup A startup is a temporary organization designed to search for a repeatable and scalable business model (under extreme uncertainty). - Steve Blank, The Startup Owner’s Manual

4. Definition of Innovation Innovation = Imagination +    Creativity  +  Implementation (Execution) +  Value An innovation is the application of creative ideas, knowledge, or new technology, to a product/service, process, or business model that is accepted by markets and society. • Adapted from OECD 2005 and Wikipedia.

5. The Lean Startup Principles http://theleanstartup.com/principles • Entrepreneurs are everywhere. • Entrepreneurship is management. • Validated learning. • Build-Measure-Learn. • Innovation accounting. • Eric Ries, The Lean Startup: How Today's Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses, 2011.

6. Product Development Model http://web.stanford.edu/group/e145/cgi-bin/winter/drupal/upload/handouts/Four_Steps.pdf Raised $393 M before IPO Webvan launched its first regional Webstore in June 1999 Get “big” fast (GBF) model The Product Development Model IPO 60 days later Raised $375 M Market cap $4.8b Webvan began to beta-test its grocery delivery service in May 1999 to approximately 1,100 people. Founded in December 1996 Bankrupted 18 months after IPO Webvan management followed the product development model religiously. Its failure to ask “Where Are the Customers?” illuminates how a tried-and-true model can lead even the best-funded, best-managed startup to disaster.  Burn through $800 million in 3 years.

7. 18 Instead of sticking to the idea of “go big, and do it quick”, they should have thought of “go, think, react” strategy.

8. Product Development vs. Customer Development

9. Customer Development Process http://www.spikelab.org/img/blog/4steps-f6b16b56.png Steve Blank video at http://www.youtube.com/watch?v=6t0t-CXPpyM

10. The Lean Start-Up Steve Blank, "Why The Lean Start-up Change Everything," HBR, May 2013. (link)

11. Lean Startup Cycle * * Legend: *Process * Outcome http://www.agileacademy.co/wp-content/uploads/2014/09/LeanStartupCycle.png http://entrepreneurship.saddleback.edu/Resources/Lean%20Startup/Lean%20Startup-Visual%20Summary.pdf

12. Learning Cycle http://startupclass.samaltman.com/ Lecture #1

13. http://startupclass.samaltman.com/ Lecture #1

14. http://startupclass.samaltman.com/ Lecture #1

15. Food on the Table http://www.macworld.com/article/2109727/food-on-the-table-makes-meal-planning-and-grocery-shopping-a-piece-of-cake.html The Concierge Minimum Viable Product (MVP) http://mealplanning.food.com/ Food on the Table will ask you for your preferences—the types of foods you like and dishes you enjoy, and the grocery stores you shop at. Then it will recommend dishes for you for the week, helping you get out of food ruts or scrambling to figure out what to make for dinner. The app helps you save money by listing the items on sale each week at your chosen grocery stores and recipes based on those sale items. Add the recipes to your meal plan and the foods to your grocery list. The mobile app syncs up with your account on the website.

17. Lean Startup Food on the Table (FotT) began life with a single customer. Instead of supporting thousands of grocery stores around the country as it does today, FotT supported just one. How did the company choose which store to support? The founders didn’t—until they had their first customer. Similarly, they began life with no recipes whatsoever—until their first customer was ready to begin her meal planning. In fact, the company served its first customer without building any software, without signing any business development partnerships, and without hiring any chefs.

18. https://steveblank.com/2014/07/30/driving-corporate-innovation-design-thinking-customer-development/https://steveblank.com/2014/07/30/driving-corporate-innovation-design-thinking-customer-development/

19. Rent the Runway Case Todd Heisler/The New York Times Nathan Furr and Jeff Dyer, The Innovator’s Method: Beginning the Lean Startup into Your Organization, Harvard Business Review Press, 2014. (read this introduction (Rent the Runway case is an great example illustrating Lean Startup principles) and Chapter 1 at http://innovatorsdna.com/wp-content/uploads/2014/09/Innovators-Method-Sample.pdf

20. Business Plan Show **Rent the Runway: An inside look at the tech startup's success https://www.youtube.com/watch?v=cyvfsi3MX-M Fill out the Business Model Canvas based on the RTR case presented in the video Business Plan would identify the customer need, describe the product or service, estimate the size of the market, and estimate the revenues and profits based on projections of pricing, costs, and unit volume growth.

21. Business Model Canvas https://fivewhys.files.wordpress.com/2012/02/canvas1.jpg (Video)

22. Source: “Why the Lean Startup Changes Everything“ HBR 2013

23. Produce Evidence with a Call to Action (CTA) Use experiments to test if customers are interested, what preferences they have, and if they are willing to pay for what you have to offer. Get them to perform a call to action (CTA) as much as possible in order to engage them and produce evidence of what works and what doesn’t.

24. Use Experiments to Test Interest and Relevance Priorities and Preferences Willingness to Pay

25. Test Customer Interest with Google AdWords We use Google AdWords to illustrate this technique because it’s particularly well suited for testing based on its use of search terms for advertising (other services such as LinkedIn and Facebook also work well). • Select search terms. Select search terms that best represent what you want to test (e.g., the existence of a customer job, pain, or gain or the interest for a value proposition). • Design your ad/test. Design your test ad with a headline, link to a landing page, and blurb. Make sure it represents what you want to test. • Launch your campaign. Define a budget for your ad/ testing campaign and launch it. Pay only for clicks on your ad, which represent interest. • Measure clicks. Learn how many people click on your ad. No clicks may indicate a lack of interest.

26. Tracking User’s Actions “Fabricate” a unique link. Make a unique and trackable link to more detailed information about your ideas (e.g., a download, landing page) with a service such as goo.gl. Track if the customer used the link or not. If the link wasn’t used, it may indicate lack of interest or more important jobs, pains, and gains than those that your idea addresses.

27. Funnel

28. Split Testing Split testing, also known as A/B testing, is a technique to compare the performance of two or more options. We can apply the technique to compare the performance of alternative value propositions with customers or to learn more about jobs, pains, and gains.

29. What to Test? Here are some elements that you can easily test with A/B testing: • Alternative features • Pricing • Discounts • Copy text • Packaging Website variations . . . Call to Action: How many of the test subjects perform the CTA? • Purchase /Rent • E-mail sign-up • Click on button • Survey • Completion of any other task • Osterwalder, Alexander; Pigneur, Yves; Bernarda, Gregory; Smith, Alan (2015-01-23). Value Proposition Design: How to Create Products and Services Customers Want (Strategyzer) (Kindle Locations 3196-3202). Wiley. Kindle Edition.

30. MVP In product development, the Minimum Viable Product (MVP) is a strategy used for fast and quantitative market testing of a product or product features. It is an iterative process of idea generation, prototyping, presentation, data collection, analysis and learning.

31. An MVP Example Source: http://michaelrwolfe.com/2013/10/19/why-is-dropbox-more-popular-than-other-programs-with-similar-functionality/ Why is Dropbox more popular than other programs with similar functionality? • Well, let’s take a step back and think about the sync problem and what the ideal solution for it would do: • There would be a folder. • You’d put your stuff in it. • It would sync.

32. MVP and Product/Market  Fit Minimum  Viable Product, or MVP, a bare-bones offering that allows the team to collect customer feedback and to validate concepts and assumptions that underlie the business idea. Product/Market Fit—the idea that they were crafting a solution the market wants, one that customers are willing to pay for, and one that’ll scale into a large, profitable business. 

33. Lean Startup

34. The Customer Development Process More startups fail from a lack of customers than from a failure of product development Try many times before you get it right. It is OK to fail so plan to learn from it. Only move to the next stage when you learn enough and reach the “escape velocity” http://www.ctinnovations.com/images/resources/Startup%20Owners%20Manual%20-%20BlankDorf.pdf

35. Product Market Fit http://andrewchen.co/when-has-a-consumer-startup-hit-productmarket-fit/ • Product/market fit means being in a good market with a product that can satisfy that market. • You can always feel when product/market fit isn't happening. The customers aren't quite getting value out of the product, word of mouth isn't spreading, usage isn't growing that fast, press reviews are kind of "blah", the sales cycle takes too long, and lots of deals never close. • I believe that the life of any startup can be divided into two parts: before product/market fit (call this "BPMF") and after product/market fit("APMF"). • Marc Andreessen ***(link)

36. Three Stages of a Startup The acid test to know where you are standing between stages is answering the following questions: • Product/solution fit:  Do I have a problem worth solving?, Do I have a feasible solution for it? Is my concept desirable for customers? • Product/Market fit:  Have I discovered and attracted my first customers? Are they already paying for my product? • Scale:   Have I found a repeatable business model? Do I have a plan to execute to accelerate growth?

37. Customer Development Process & 3 Stages of Fit Business Model Fit

38. Nail It to Scale It PSF PMF BMF http://www.nailthenscale.com/Nail-It-Then-Scale-It-Book-Graphics-PDF.pdf http://www.nailthenscale.com/wp-content/uploads/2015/06/Big_Idea_Canvas_v7.4.pdf

39. Minimum Feature vs. Whole Product Solution The Minimum Feature Set is "...the smallest or least complicated problem the customer will pay us to solve."  MVP is "The minimum viable product is that version of a new product which allows a team to collect the maximum amount of validated learning about customers with the least effort."  Think about the ecosystem!!! http://jsahni.blogspot.com/2014_02_01_archive.html

40. Lean Canvas (Link) https://leanstack.com/why-lean-canvas/

41. Customer Development The process to scale the sales & operations. The process to search for the right business model! Search Execution Scaling

43. Source: Link

44. Lean Startup Cycle • Ideas/Business Model • Technologies • Social trends • Pains/Gains Think with your hands Pivot/ Persevere • Build • Prototyping • Minimum viable products (MVP) • Learn • Insights • Hypotheses • 5 Whys Minimize the total time & resource through the loop • Product/service • Address Job to be done • Fit (P-S, P-M) • Data • Innovation Accounting • Net Promoter Score • AARRR • Measure • Split tests • Observations • Click streams Find/get real customers