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 “The Lean Startup method teaches you how to drive a startup-how to steer, when to turn, and when to persevere-and grow a business with maximum acceleration.” http://theleanstartup.com/principles 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 (even in well-established firms). • Entrepreneurship is management (but different from managing traditional firms). • Validated learning (about customers). • **Build-Measure-Learn feedback loop. • Innovation accounting (using actionable metrics – mostly about customer behaviors). • Eric Ries, The Lean Startup: How Today's Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses, 2011.

6. Resources • Why the Lean Startup Changes Everything https://hbr.org/2013/05/why-the-lean-start-up-changes-everything • Eric Ries, The Lean Startup: How Today's Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses, September 13, 2011. http://theleanstartup.com/principles • **Lean Startup-Visual Summary (link) • The Lean Approach (The Kauffman Founders School) • http://www.entrepreneurship.org/Founders-School/The-Lean-Approach • *Eric Ries: "The Lean Startup" | Talks at Google (video) ~ 1 hour • **Steve Blank How to Build a Startup: The Lean LaunchPad free course on Udacity (link) or (YouTube video list)

7. Case Studies • Lean Startup Cases • **IMVU Case Study (link) • http://theleanstartup.com/casestudies • Rent the Runway Case • ***The Supply & Demand of Rent the Runway | Jennifer Hyman https://www.youtube.com/watch?v=JYFWpJvq6DU (about testing business ideas) • Introduction Chapter of the Innovation Method http://innovatorsdna.com/wp-content/uploads/2014/09/Innovators-Method-Sample.pdf

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 Read this 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. **Lean Startup: 3 Components The Lean Startup method consists of three parts: • The Business Model Canvas – to frame hypotheses. • Customer Development – to test those hypotheses in front of customers. • Agile Engineering – to build Minimum Viable Products to maximize learning.

13. 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

14. 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.

15. Rent the Runway Case • Rent the Runway Case • ***The Supply & Demand of Rent the Runway | Jennifer Hyman https://www.youtube.com/watch?v=JYFWpJvq6DU (about testing business ideas) • Introduction Chapter of the Innovation Method http://innovatorsdna.com/wp-content/uploads/2014/09/Innovators-Method-Sample.pdf

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

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

18. 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.

20. Food On The Table’s Lean Startup This case exemplifies Paul Graham’s argument that at the beginning, a startup company should “Do Things That Don't Scale” http://paulgraham.com/ds.html 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.

21. Do Things That Don't Scale • Do Things That Don't Scale http://paulgraham.com/ds.html • Startup Class Lecture 8 http://startupclass.samaltman.com/ or https://www.youtube.com/watch?v=oQOC-qy-GDY

22. Paul Graham artcle (link)

23. 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.

24. 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.

25. MVP and Product/Market  Fit MVP: A product that includes just enough features to allow useful feedback from early adopters Customers will use the MVP and pay for it. 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. 

26. 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/

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

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

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

30. Hypotheses Testing and Insight Identify Business Model Hypotheses Gain based on Facts Collect Data/Facts By conducting experiments

31. Lean Startup- Assumptions and Experiments Mapping Map the key assumptions & attached them to the various parts of your business model. Develop quick and inexpensive experiments to validate or invalidate the assumptions quickly. Pivot if assumptions are invalidated. This is the central idea of the Lean Startup Movement. http://www.alexandercowan.com/business-model-canvas-templates/

32. Business Model Design Meets Customer Development https://steveblank.com/2010/11/11/get-out-of-the-building-and-win-50000/

33. http://blog.startupinstitute.com/2015-3-3-what-does-pivot-mean/http://blog.startupinstitute.com/2015-3-3-what-does-pivot-mean/

34. What Is Pivot? • Pivot: A change to business model component based on customer feedbacks. A pivot is not a failure. • Pivot is a structured course correction designed to test a new fundamental hypothesis about the product, strategy, engine of growth, etc. • Eric Ries, The Lean Startup, 2013. • Pivots are vision driven.

35. Pivot a Lean Startup Source: Top 10 Ways Entrepreneurs Pivot a Lean Startup (link) The popular view of a real entrepreneur is someone with a big vision, and a stubborn determination to charge straight ahead through any obstacle and make it happen. The vision part is fine, but successful entrepreneurs have found that the extreme uncertainty of a new product or service usually requires many course corrections, or “pivots” to find a successful formula. Use continuous innovation to create radically successful 

36. Top Ten Types of Pivots Source: Top 10 Ways Entrepreneurs Pivot a Lean Startup (link) • Zoom-in pivot • Zoom-out pivot • Customer segment pivot • Customer need pivot • Platform pivot • Business architecture pivot • Value capture pivot • Engine of growth pivot • Channel pivot • Technology pivot.

38. Pivot https://steveblank.com/2010/11/11/get-out-of-the-building-and-win-50000/ This startup search process is the business model / customer development / agile development solution stack. This solution stack proposes that entrepreneurs should first map their assumptions in their business model and then test whether these hypotheses are accurate, outside in the field (customer development) and then use an iterative and incremental development methodology (agile development) to build the product. When founders discover their assumptions are wrong, as they inevitably will, the result isn’t a crisis, it’s a learning event called a pivot — and an opportunity to revise/update the business model.

39. Learning and Assumptions Testing

40. 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.

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

42. Test Customer Interest with Google AdWords We use Google Ad Words 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.

43. 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.

44. Funnel

45. 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.

46. 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.

47. Lean Startup

48. 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

49. Product Market Fit http://andrewchen.co/when-has-a-consumer-startup-hit-productmarket-fit/ • Product/market fit (PMF) 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)

50. Customer Development Process & 3 Stages of Fit Business Model Fit (Scaling) Problem/Solution Fit Product/Market Fit