Summary Of Lean Start-Up/ Lean Startup Methodologies

By Glenford Scott – GSCOTTY.COM

A few months back I stumbled upon a book that as a budding entrepreneur, would change my outlook on the process of building and running a company. I was a bit happy to know there is a scientific method to what I consider the wild Art Of Entrepreneurship, this scientific method is known as The Lean Startup pioneered by Mr. Eric Ries. This book makes you feel like a young wizard learning new magic tricks within every chapter, but it can be quite a long read and you may forget all the important points outlined in this great book.

So here’s a summary of what I consider to be the backbone of lean startup methodologies.

The goal of a startup is to figure out the right thing to build- the thing customers want and will pay for as  quickly as possible.

A startup is a human institution designed to create a new product or service under conditions of extreme uncertainty. The key to operating under these conditions is to gather a group of people and investors that can make the build-measure-learn cycle as fast and effective as possible.

startup-feedback-loop1

You can only learn if you can validate your learning with data or experience. So product development is not a department within a company, but a series of hypothesis that you need to test. The minimum-viable-product is the basic learning tool that you test your hypothesis on; it is the most stripped down version of your product that will help you learn what you need to know. After BUILDing the MVP you MEASURE and LEARN from it and make adjustments where necessary.

No matter what hypothesis you test, don’t forget to test two hypothesis:

  1. The Value Hypothesis tests whether a product/service really delivers value to customers once they are using it.

  2. The Growth Hypothesis tests how new customers will discover the product.

Asking yourself these questions before adding more features:

  1. Do customers recognize that they have the problem you are trying to solve?

  2. If they was a solution, would they buy it?

  3. Would they buy it from us?

  4. Can we build a solution to the problem?

Success is not delivering a feature. Success is learning how to solve the customers problem. You can’t do this without A LOT of customer interaction.

MEASURE: first establish a baseline of relevant metrics with an MVP- conversion rates, sign-up rates, trial rates, payment rates etc. Second, adjust the product to improve these rates. Third, if the product features/marketing can’t be adjusted to make these rates into a business, PIVOT.

Tools to help measure: Cohorts help you figure out what customers are doing what on your site. the more granular the data, the more actionable it can be to figuring out what features you should add whether to pivot. Split testing means putting different versions of a product to sets of customers to test whether a different feature has a desired effect.

For organizational purposes make sure measurements are actionable, accessible and audit-able. If not there will be a gridlock, in difference or dispute.

Actionable: when an employee sees a report about a specific metric, it’s essential that they have some idea how to replicate the result in the report.

Accessible: Everyone in the company understands how to read them, everyone in the company has easy access to the latest data.

Auditable: It should be possible to translate the summary numbers in the report back to actual customers who generate them.

PIVOT: You built, you measured, you learned and the relevant metrics aren’t getting any better. It’s probably time to consider a pivot. Options are the following

  1. Customer problem pivot. In this scenario, you use essentially the same product to solve a different problem for the same customer segment. Eric says that Starbucks famously did this pivot when they went from selling coffee beans and espresso makers to brewing drinks in-house.

  2. Market segment pivot. This means you take your existing product and use it to solve a similar problem for a different set of customers. This may be necessary when you find that consumers aren’t buying your product, but enterprises have a similar problem, with money to spend. Sometimes this is more a marketing change than a product change.

  3. Technology pivot. Engineers always fight to take advantage of what they have built so far. So the most obvious pivot for them is to re-purpose the technology platform, to make it solve a more pressing, more marketable, or just a more solvable problem as you learn from customers.

  4. Product feature pivot. Here especially, you need to pay close attention to what real customers are doing, rather than your projections of what they should do. It can mean to zoom-in and remove features for focus, or zoom-out to add features for a more holistic solution.

  5. Revenue model pivot. One pivot is to change your focus from a premium price, customized solution, to a low price  solution. Another common variation worth considering is the move from a one-time product sale to monthly subscription or license fees. Another is the famous razor versus blade strategy.

  6. Sales channel pivot. Start-ups with complex new products always seem to start with direct sales, and building their own brand. When they find how expensive and time consuming this is, they need to use what they have learned from customers to consider a distribution channel, e commerce, white-labeling the product, and strategic partners.

  7. Product versus services pivot. Sometimes products are too different or too complex to be sold effectively to the customer with the problem. Now is the time for bundling support services with the product, education offerings, or simply making your offering a service that happens to deliver a product at the core.

  8. Major competitor pivot. What do you do when a major new player or competitor jumps into your space? You can charge ahead blindly, or focus on one of the above pivots to build your differentiation and stay alive.

3.-Y-U-No

Where does growth come from?

  1. Word of mouth

  2. As a side effect of product usage

  3. Through advertising

  4. Through repeat purchase or use

Three Engines Of Growth

  1. Sticky Engine: you add existing customers at a rate that exceeds the rate at which they leave. Key Metrics: Customer Adds, Customer churn

  2. Viral Engine: New Customers bring more than one new customers to service. Key Metrics: The viral co-efficient.

  3. Paid Engine: The cost of acquiring customers is less than each customers value to you. So you spend money on services like advertising to drive growth. Key Metrics: Customer acquisition cost/customer value. The lower the number, the faster you will grow.

Checkout the man himself Mr. Eric Ries speaking on the Lean Startup below.

“The company that consistently makes and implements decisions rapidly gains a tremendous, often decisive, competitive advantage.”- Steve Blank

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