Lean and Customer Development Flashcards
Steve Blank makes a clear distinction between the ‘search’ and ‘execution’ stages of entrepreneurial development. Explain why he draws this distinction and how this relates to the concept of a lean startup.
Steve Blank’s Startup Owner’s Manual emphasises that, unlike established companies, startups do not have tried and tested business models. This means that their main reason for existence is to learn. As Kaplan writes, ‘The startup game is an elaborate contest created to accelerate the pace at which corporations evolve’. True to the ways of evolution, the fastest to adapt to the environment survives. As startups companies are founded, often there is no set product, customer segment or value proposition. There are a vague set of hypotheses describing a problem or pain and a team with some sort of capacity and motivation to change this. Before vast resources are expended, the founders must run tests to validate these hypotheses. One of the key ways Blank proposes, which is also emulated in the Lean Startup methodology, is to conduct customer development. This involves talking to potential customers to gain first hand experience of different aspects of the ‘hypothesised’ business model. Blank makes this important distinction between the search and execution phase because, without searching first, resources are wasted on untested assumptions. The search phase allows the startup to learn and fail without any negative consequences. As Blank writes, ‘In a startup, you’re searching, not executing’. It follows that failure is a part of the process. One of the seven principles of the Lean Startup methodology is to eliminate waste. Having a distinct search phase can help to eliminate waste through ensuring that different aspects of the product, features and business model are tested as opposed to being built blindly. It follows that the minimum viable product is an important part of the lean and ‘search’ concept. This is the minimum product required to test your assumptions. As part of the search phase, this can be used to test the assumptions whilst the product interacts with real customers/users. Through a combination of customer development and testing using the MVP (as well as agile development), the startup may reach product-market fit. When this is the case, the execution phase comes into force and the company seeks to scale. However it is still important to continue employing both customer development and agile development.
What is a Lean startup and what are the roots of this terminology? What would you do differently if you were following a lean approach when compared with any alternative development approaches?
Origins; - lean manufacturing - originated in japan - based on the toyota production system Principles of lean manufacturing; - small batch sizes - just in time production - rapid cycle times Lean startup principles - learning organisation - search for a scalable and repeatable business model - build, measure, learn - MVP - customer development and agile development compared to use of business plan; - planning and then execution - in depth market research and analysis (perhaps use of swot, porter) - execution on plan and hope for the best - waterfall development advantages of lean - build adaptable, disruptive company - reduce waste - less likely to fail??
What is Lean?
7 principles; 1. eliminate waste 2. amplify learning 3. decide as late as possible 4. deliver as fast as possible 5. empower the team 6. build integrity in 7. see the whole
what is waste in a lean start-up context?
unclear requirements -> build the wrong thing. unused inventory -> unnecessary code for features not required defects, bottlenecks, bureaucracy
how do we amplify learning?
- rapid iteration and feedback. - rigorous setting and testing of hypotheses. - capturing and documenting progress.
What is agile development?
Iterative methodology for software development. main concepts include;
- product backlog contains user stories (requirements in the eyes of the customer) and priorities
- software is built in rapid iterative cycles - sprints
- each sprint involves requirements definition, design, coding and testing.
- continuous learning and discovery of insights from users - collaborative
- streamlined and little documentation.
it’s the one that is the most adaptable to change that survives. customer development alongside agile development provides continuous customer input to make agile work. There are many cases whereby startups are vastly different to the initial idea. For example Groupon started as a platform called ThePoint.com, which sought to connect people together to solve problems. It was only when a group of users started using the site to organise themselves to benefit from group discounts that the company pivoted to its current product and business model. Without this agility and responsiveness, Groupon would not have been able to make such a drastic shift in response to the demands of users.
Blank on failure
‘failures are not truly failures, per se but an integral part of the startup learning process.’ ‘when something isn’t working, successful founders orient themselves to the new facts, decide what needs fixing, and act decisively’
Designing experiments to test hypotheses
ask yourself - what insight do i need to move forward? and what’s the simplest test I can run to get it? rarely has to be actual code.
Kaplan - the startup game
The startup game is an elaborate contest created to accelerate the pace at which corporations evolve, played continuously by an endless parade of hopeful entrepreneurs
What is a pivot?
to change an element of your customer-problem-solution hypothesis or business model, based on learning.
Based on falsifiable hypotheses made about the company’s problem and solution, a startup will run tests and experiments looking to prove/disprove.
At times, it will be necessary to pivot as the company develops new insights and has new hypotheses to test. A pivot is a significant change in the direction of a startup to test a new course of action.
Some example pivots include;
Zoom-in pivot - what previously was considered a single feature in a product becomes the whole product.
Value-capture pivot - change of monetisation model Business architecture pivot - high margin, low volume to low margin, high volume.
e.g. Twitter began as a personal podcasting site called Odeo.
Instagram was a location-sharing tool similar to foursquare.
what is customer development?
at its core, it is a process of questioning your core business assumptions.
a four step framework to discover and validate the following;
- customer discovery - a product solves a problem for an identifiable group of users
- problem/solution fit
- MVP
- proposed funnels - customer validation - the market is saleable and large enough that a viable business can be built
- product/market fit
- business model
- sales and marketing roadmap - company creation - the business is scalable through a repeatable sales and marketing roadmap
- company building - company departments and operational processes are created to support scale.
TALC
innovators - pursue new technology for interest early
early adopters - pursue technology for intrinsic benefit
early majority - want the benefit but without the kinks
late majority - wait for established leader and buys standard
laggards - use technology only in necessity
Chasm between early adopters and early majority because they invest in technology for different reasons.
Early adopters are important for startups because they;
- seek out new technology to solve their (or companies’) problems
- don’t rely on references from others.
- may be influenced by other early adopters but ultimately just want to solve a problem.
- they want to help you and for you to be successful.
what is product-market fit ?
three criteria satisfied;
- customer is willing to pay for the product
- cost of acquiring the customer is less that what they pay for the product
- sufficient evidence that the market is large enough to support the business.
Sean Ellis says that product-market fit is when at least 40% of your users would be very disappointed without your product.
what is an mvp?
a product with the fewest number of features needed to achieve validated learning
what is problem-solution fit?
when you have validated your core C-P-S hypotheses (customer, problem, solution) and have reason to believe that a market exists.
achieved during customer discovery phase of customer development.
