Lean Startup Action Summary and Outline
If you are like me and just read The Lean Startup, you are probably thinking – wow, I learned a lot, what do I do now? What was the beginning of the book about again? This action summary is designed to highlight the key points and action items from the book, so that you can go out and conquer. If you haven’t read the book, you can buy it here.
What is the point of The Lean Startup?
“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. In other words, the Lean Startup is a new way of looking at the development of innovative new products that emphasizes fast iteration and customer insight, a huge vision, and great ambition, all at the same time.
A startup is a human institution designed to create a new product or service under conditions of extreme uncertainty.”
The key to successfully operating under these conditions is to gather a group of people and investors that can make the Build-Measure-Learn cycle as fast and as effective as possible.
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 hypotheses that you need to test. The Minimum Viable Product is the basic learning tool that you test hypotheses on. It is the most stripped down version of the product that will help you learn what you need to know. Once you have your idea, the MVP is what you use to measure, learn and adjust.
So you think people want to buy hot dogs online? In order to learn, break that statement into its constituent assumptions – people are comfortable buying food online, people want hot dogs delivered to them, people look online for hotdogs, etc…Now go build a product as cheaply and fast as possible to show to initial customers. It can’t be a static webpage, a sketch on a piece of paper, whatever. But whatever you do, don’t just throw up a website. Go sit down with your customers and watch them use it. Your success will depend on your ability to design as many insightful experiments such as these as fast as possible as cheaply as possible.
No matter what hypotheses you test, don’t forget to test two hypotheses: the value hypothesis and the growth hypothesis. The value hypothesis tests whether a product or service really delivers value to customers once they are using it. The growth hypothesis tests how new customers will discover the product. These hypotheses are best tested on early adopters – customers who feel the need for the product the most.
When your hypotheses are being tested and generating positive results, it’s easy keep adding features. So don’t forget to ask yourself the following questions before adding more features or developing the product further:
1) Do customers recognize that they have the problem you are trying to solve?
2) If there 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 customer’s problem. You really can’t do this without A LOT of customer interaction.
Before we move on from “Learning”, a note on Minimum Viable Products. They probably feel like they are inadequate to show to the world, but they are less inadequate than wasting money on something that no one wants. Plus should users prefer the Minimum Viable Product to the full-featured one, then you will save yourself a lot of time and money.
“As you consider your own minimum viable product, let this simple rule suffice: remove any feature, process or effort that does not contribute directly to the learning you seek.”
Don’t measure what your investors want to see. Measure the component parts of what will make you successful.
So, what to 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. The hardest part about this is figuring out what metrics to focus on and then gathering data on those metrics.
Tools for helping you 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 and whether you should pivot. Split testing means putting different versions of a product to different sets of customers to test whether different features are having the desired effect. For organizational purposes, make sure the measurements are actionable, accessible and auditable. If not there will be gridlock, indifference or disputes.
Pivots. You built. You measured. You learned. And the relevant metrics aren’t getting better. It’s probably time to consider a pivot. Here are your options:
Zoom-in: A single feature of the product becomes the product.
Zoom-out: The whole product becomes the feature of a larger product.
Customer Segment: Change the type of customer you serve (i.e. corporate vs. consumer, for-profit vs. non-profit, etc…)
Customer Need: The initial problem you were solving was not very important. But because of your research a new problem becomes more pressing and you solve it instead.
Platform: Moving from selling a killer app to building a platform. Or vice-versa.
Business Architecture: high margin/low volume to low margin/high volume. Or vice-versa.
Value Capture: How a product is monetized (usually an integral part of the product)
Engine of Growth: Viral, sticky or paid. Typically the engine of growth pivot corresponds with a value capture pivot.
Channel: Mechanism by which the product is sold to customers.
Technology: Same solution, different technology to address it.
Where does growth come from? 1) Word of mouth 2) As a side effect of product usage 3) Through funded advertising 4) Through repeat purchase or use
The 3 Growth Engines
Sticky Engine – You add existing customers at a rate and they stick around longer at a rate that exceeds the rate at which they leave
Key Metrics: Customer adds. Customer churn.
Viral Engine – New customers bring more than one new customer to the service.
Key Metric: The viral coefficient. The number of new customers each new customer brings with them. You need this number to be greater than 1. If not, your viral business model won’t work.
Paid Engine – The cost of acquiring customers is less than each customer’s value to you. So you spend money on services like advertising to drive growth.
Key Metric: Cost of acquiring customers/customer value. The lower the number, the faster you will grow
A final word on growth. Small batches actually lend themselves to faster work than large single batches with specialized functions. This means functional areas of teams need to work together.
(image credit: cornerstonetechnology.com)