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Lean Startup Basics - Evidence Based Entrepreneurship

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Introduction and overview to the lean process for startups. An evidence based approach to validate early hypothesis and develop a solid Business Model before launch. Involving Customer Development, Hypothesis testing, Minimum Viable Product, (MVP) to get to Product/ Market fit and ultimately A replicable scalable business model. This simple but disciplined approach takes the guess work out of taking an idea and turning it into a viable company.

Based on Eric Reis, Steve Blank and Alex Osterwald's work with Lean Startup, Lean launchpad, customer development and Business Model Canvas. Now in practice by multiple Incubators, Accelerators, Universities and now the National Science Foundation through ICorp to validate business ideas with before investing.

Published in: Business, Health & Medicine
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Lean Startup Basics - Evidence Based Entrepreneurship

  1. 1. Lean Startup Basics © Are held by their respective owners, Eric Reis, Steve Blank, David Skok, Dave McClure and others Evidence-Based EntrepreneurshipTM By Kelly Schwedland kellys@elevateventures.com
  2. 2. ~Drew Houston, CEO Dropbox
  3. 3. Key Points 1. A Business Model, Not a Business Plan 2. Fast Learning Loops: Build-Measure-Learn 3. Business Model Validation: Get Out of the Building! 4. MVP - It’s Not What You Think 5. The Lean Startup Path
  4. 4. 1. A Business Model, Not a Business Plan
  5. 5. No business plan survives the first customer contact
  6. 6. If you build it, they will not come.
  7. 7. 9 Out of 10 Startups Fail!
  8. 8. • Building on Invalid Assumptions • Premature Scaling • Lack of Customers and Markets • Change Your Business Model at Scale • Run Out of Money The Path to Disaster
  9. 9. Discover a Business Model that works before you run out of Money and Time. (Nail it, then Scale it.) Your Job as an Entrepreneur:
  10. 10. Questions • Is this problem worth solving? • Who’s problem are you solving? • How are they solving it now? • Does anyone care about your solution? • Will they buy it? • How do you create value for your customers? • How will you grow? • What’s your unfair advantage? • What channels will you use to get to your customers? • What are your acquisition costs per customer? • What is the lifetime value of your customer? • What’s your unit cost model? Unit revenue model?
  11. 11. Enter the Lean Startup
  12. 12. 2. Fast Learning Loops
  13. 13. The “Lean Startup” Model
  14. 14. But this is still Chaotic! • How can we organize these loops into an orderly process?
  15. 15. Business Model Canvas http://www.businessmodelgeneration.com/downloads/business_model_canvas_poster.pdf
  16. 16. Steve Blanks online course: udacity.com/course/ep245
  17. 17. 3. Business Model Validation: (Get Out of the Building) The Lean Launchpad /I Corp Approach
  18. 18. Get Out of the Building Go To The Source Get Pupil Dilation (Not surveys or focus groups, Talk to customers)
  19. 19. Validating Product/Market Fit
  20. 20. Key Partners Who are our Key Partners? Who are our key suppliers? Which Key Resources are we acquiring from partners? Which Key Activities do partners perform? Key Activities What Key Activities do our Value Propositions require? Our Distribution Channels? Customer Relationships? Revenue streams? Value Propositions What value do we deliver to the customer? Which one of our customer’s problems are we helping to solve? What bundles of products and services are we offering to each Customer Segment? Customer Relationships What type of relationship does each of our Customer Segments expect us to establish and maintain with them? Customer Segments For whom are we creating value? Who are our most important customers? Key Resources Do our Value Propositions require?Distribution Channels, Customer Relationships, Revenue Streams? Channel Through which Channels do our Customer Segments want to be reached? Cost Structure What are the most important costs inherent in our business model? Which Key Resources are most expensive? Which Key Activities are most expensive? Revenue Streams For what value are our customers really willing to pay? For what do they currently pay? How are they currently paying? How would they prefer to pay? How much does each Revenue Stream contribute to overall revenues? Customer/Value Hypotheses ? ? ? ? ?? ?? ?
  21. 21. Customer Interviews • Customer Demographics (Discover Subsegments) • Validate Their Top Three Problems • Discover New Problems • Rank the Problems • How Do They Solve Them Now? • Document existing workflow. 1 2 3 4 5 How to do customer interviews videos: http://vimeo.com/groups/204136/videos/
  22. 22. Solution Hypotheses Key Partners Who are our Key Partners? Who are our key suppliers? Which Key Resources are we acquiring from partners? Which Key Activities do partners perform? Key Activities What Key Activities do our Value Propositions require? Our Distribution Channels? Customer Relationships? Revenue streams? Value Propositions What value do we deliver to the customer? Which one of our customer’s problems are we helping to solve? What bundles of products and services are we offering to each Customer Segment? Customer Relationships What type of relationship does each of our Customer Segments expect us to establish and maintain with them? Customer Segments For whom are we creating value? Who are our most important customers? Key Resources Do our Value Propositions require?Distribution Channels, Customer Relationships, Revenue Streams? Channel Through which Channels do our Customer Segments want to be reached? Cost Structure What are the most important costs inherent in our business model? Which Key Resources are most expensive? Which Key Activities are most expensive? Revenue Streams For what value are our customers really willing to pay? For what do they currently pay? How are they currently paying? How would they prefer to pay? How much does each Revenue Stream contribute to overall revenues? Online model tool http://canvanizer.com/new/business-model-canvas
  23. 23. Solution Design
  24. 24. Solution Interviews • Recap Demographics and Problem • Describe and Show Solution (don’t sell it!) • Does it Resonate? • What’s most important, what’s missing, what can you take away? • How do they find out about solutions to this problem? • Will they pay $X? 1 2 3 4 5 6
  25. 25. Problem/ Solution Validation
  26. 26. Drill down to Minimum Viable Product (MVP) 1 2 3 4 5 X X 6
  27. 27. 4. MVP - It’s Not What You Think!
  28. 28. More on MVP • Not one snapshot, but a progression of experiments • Early experiments have no product. • At some point, you need to start development. That’s where Agile comes in
  29. 29. Groupon: Wordpress Blog, Widget from The Point, PDF Coupons via email. Foursquare used Google Docs to collect customer feedback. No code, no maintenance. Grockit puts up a notify-me-when-you-release form on steroids. Auto e-commerce site uses manualation and flintstoning for their backend. Allicator uses Facebook ads: “Ditch Digger? Feeling spread thin? Click here to complete a survey and tell us about it.” ManyWheels uses Microsoft Visio to build clickable web demos for prospective customers. Cloudfire uses a classic customer development problem presentation. Example MVPs
  30. 30. Key Partners Who are our Key Partners? Who are our key suppliers? Which Key Resources are we acquiring from partners? Which Key Activities do partners perform? Key Activities What Key Activities do our Value Propositions require? Our Distribution Channels? Customer Relationships? Revenue streams? Value Propositions What value do we deliver to the customer? Which one of our customer’s problems are we helping to solve? What bundles of products and services are we offering to each Customer Segment? Customer Relationships What type of relationship does each of our Customer Segments expect us to establish and maintain with them? Customer Segments For whom are we creating value? Who are our most important customers? Key Resources Do our Value Propositions require?Distribution Channels, Customer Relationships, Revenue Streams? Channel Through which Channels do our Customer Segments want to be reached? Cost Structure What are the most important costs inherent in our business model? Which Key Resources are most expensive? Which Key Activities are most expensive? Revenue Streams For what value are our customers really willing to pay? For what do they currently pay? How are they currently paying? How would they prefer to pay? How much does each Revenue Stream contribute to overall revenues? Continue Validating Hypotheses 7 8 1 4 23 5 9 6
  31. 31. Use Canvas As a Weekly Scorecard Week 3 Week 2 Week 1 Useful tool for tracking weekly updates: https://www.launchpadcentral.com/
  32. 32. 5. The Lean Startup Path
  33. 33. Lean Startup: Two Fast Feedback Loops
  34. 34. Launch?
  35. 35. Validate Business Model You Need to Get Here! Replicable/Scalable Fit: LTV/3 >= CAC You Are Here You’ve only just begun Metrics that Matter
  36. 36. Post Launch Goal: Decrease CAC and Increase LTV
  37. 37. Post Launch Fast Feedback Loops You have real users and precise usage data - Analyze it! (By cohort) Make small changes fast (hours, not weeks to get into production) When you make changes - A/B test (or multivariate w/ traffic.)
  38. 38. Get/Keep/Grow – Customer Relationships Web/Mobile Products Metrics that Matter
  39. 39. Investment Readiness Level Mkt Size/Competitive analysis Complete first-pass canvas Problem/Solution Validation Low Fidelity MVP Experiments Validate Product/Market fit Validate right side of canvas Prototype High-Fidelity MVP Validate left-side of canvas Validate metrics that matter Friends and Family Angel investors Venture Capital None Validation Stage Investment Type
  40. 40. $1B+ Market? Scalable Solution? Recurring Revenue? Past Successes? Full team? (Hipster, Hacker, Hustler) Traction? Investment Interest Level
  41. 41. What Does Traction Look Like? *cost of acquisition is less than 1/3 lifetime value; $1 in, $3+ out Typical AngelList Investments $1M raise (2013) • Enterprise: 1000 seats @ $10/seat/mo., • Big Enterprise: 2 pilot contracts and some $ • Social: 100,000 downloads/signups • Marketplace: $50,000 revenue/mo. • E-Commerce: $50,000 revenue/mo. LTV > 3X CAC?
  42. 42. Common Mistakes • Too Broad a Segment • Not a Big Enough Problem • Surveys Instead of Interviews • Conflate Problems and Solutions • Confuse Users and Customers • Build Too Much (Fat Experiments) • Don’t Test Revenue Model Early Enough • Stop Experimenting When You Have Customers (No Metrics) • No UX and No Agile
  43. 43. Summary 1. A Business Model, Not a Business Plan 2. Fast Learning Loops: Build-Measure-Learn 3. Get Out of the Building! 4. MVP - It’s Not What You Think 5. The Lean Startup Path
  44. 44. Questions? slideshare.net/KellySchwedland KellyS@elevateventures.com
  45. 45. Resources steveblank.com udacity.com/course/ep245
  46. 46. Customer Development Search Execution
  47. 47. Get/Keep/Grow – Customer Relationships Physical Products

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