How lean are you ?
The purpose of this blog post is to explore lean startup practices within a smaller project called “Povezovalec”. I am really looking forward to present all findings, lessons learned etc. on this blog. Explaining and refining an accumulated knowledge is the main goal of this project.
Let’s start with explaining basics. So what is a startup?
According to Steve Blank, it is a search for a scalable, repeatable business model. This is a perfect definition. Why?
Validated learning loop
“Everyone gets hit by ideas when they least expect them… Most people ignore them – entreprenours choose to act on them” (Running Lean, Ash)
At the beginning we have an initial vision of our product that is shared with our colleagues and friends. But this vision must be documented, and as the above saying implies, we must act on it.
The phrase “lean startup” suggests that we start with capturing a business model hypothesis; moreover, Zach Nies, a CTO at Rally Software, suggests an iteration of the following steps:
Hunch => Hypothesis => Build => Measure & Test => Validated Learning
1.) we form a hypothesis, which is used to
2.) build some artifacts (mockups, code, landing page…) only for the purpose of
3.) measuring or testing the hypothesis through customer feedback, for example by doing interviews. Results are then used for
4.) learning, at which stage the hypothesis is either proved or rejected.
This is called a validated learning loop, or shorter, an experiment, that is nothing more than Eric Ries Build-Measure-Learn cycle.
In order to be more successful, some ground rules need to be set (based on ).
Hypothesis must be testable (measurable)
Objective conditions under which a hypothesis can be rejected or proved must be defined upfront. For example: A required field for a tax number on a form will drive away every third customer.
We have to chase an optimal learning loop with an appropriate dos of all three spices: Speed, Focus, Learning.
Learning with focus but without speed will result in running out of resources.
Learning with speed but without focus will result in premature optimization (that is root of all evil, based on Adam Bien).
Speed with Focus but without Learning will result in being unproductive.
Make accessible dashboards about learning and business data
Running a startup primarily on faith is not enough; it is essential to measure everything and to show results on a dashboard continuously.
So what do we use to document our experiments? Ash Maurya is writing about the so-called “Plan A”. At the beginning, it contains our initial gueses – a hypothesis that has not been tested yet. And as you can guess, the plan A gets more and more improved trough the iteration of experiments. Don’t forget, if a startup is a search process, then our first idea is probably wrong. It is only part of the journey (that is the first realization of an entrepreneur).
Can the Plan A be a traditional business plan? While everybody talks about a good business plan, we must mention Steve Blank and his statement:
“Business Plan: A document investors make you write that they don’t read”.
In my opinion, this is the first big shift from the traditional point of view of a startup, especially in the Slovenian environment. where we are brainwashed daily about the importance of an upfront prepared and static business plan. Sure, a big block of papers with big letters “Business Plan” sounds and looks very nice, but it contains too many untested guesses. It is way too rigid. It can very fast become a big block of a failure. Since most Plan As are going to fail anyway, we sure need something better, more effective.
So the answer to our question is lean canvas. The concept was first used by Ash Mauyra and it is an adapted Business Model Canvas . It looks like this:
Based on , I would like to highlight most important differences compared to a traditional business plan.
Lean canvas is fast
There is no need to write 60 pages of a business plan. At this stage, all the project essentials can be thrown onto a piece of paper in a single afternoon. And yes, it is ok to leave some segments blank.
Lean canvas is concise
We are forced to choose our words carefully. This helps us anyway, because we must grab the attention of investors in 30 seconds and that of customers in 8 seconds (, pg. 19)
Lean canvas is dynamic
Due to its conciseness, it is much easier to change a lean canvas based on validated learning during iterations of experiments
Stages of a startup
After we finish the Plan A with initial guesses, we should test it through a set of well-defined experiments decided on between two stages (out of three) of our startup.
Stage1: Problem-solution fit
First, there are two variables that need to be decoupled: a problem and a solution.
The problem interview
In my opinion, testing a problem is extremely under-emphasized. It is necessary to have a positive answer to the following two questions: “Is our product worth solving?” and “Can our problem be solved ?” Therefore, our hypothesis must be about understanding a problem. A formed artifact helps us to articulate a problem, whereas learning and measurement is done through interviews concerning the defined problem.
The solution interview
After we have defined a problem, we are in the best position to find a possible solution. We make a demo only to help customers to visualize the solution. So our artifact is a demo, and learning and measurement is done through interviews regarding the solution.
Type of validation
Validation of the hypothesis is done qualitatively. At the beginning, we don’t have enough data to make statistically significant decisions. Jakob Nielsen and Steve Krug proved that five testers are enough to uncover 85% of the problems. Thus, we can shift from this message and assume that five customer interviews will be enough to make bold decisions about our hypothesis.
Our focus centers on validated learning and pivots (a change in direction of a startup). We have to make bold decisions instead of making incremental improvements (e.g. rather than changing a style of a button we change the entire form).
Stage2: Product – Market fit
At this stage we have already validated that we have a problem worth solving. Moreover, we provide a solution through a demo.
The MVP interview
All the information and data that we have gathered up to this point brings us to the next artifact called Minimum Viable Product (MVP), a product having the minimum set of essential features. This stage is about learning and measurement through interviews about MVP. We test how well our solution solves the problem.
Type of validation
Any hypothesis after the MVP interview is tested quantitatively, meaning that we are gaining traction with our customers. If we are doing it right, we are signing up customers and also getting paid. That is why I said that this is the first significant milestone of a startup.
We focus on incremental improvements of MVP. At this stage we learn how to create a better product-market fit for a product.
What happens after achieving the product-market fit? We reach the final stage –”scale”. Here our goal is simply growth – a goal also aligned with the goal of investors; hence this is the ideal time to raise funds.
Our focus shifts towards growth and optimization. It is all about accelerating the plan that we have formed within the framework of the problem-solution fit.
1 Steve Blank, The Four Steps to the Epiphany: Successful Strategies for Products that Win, 2005
2 Eric Ries, The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses, 2011
3 Ash Maurya, Running Lean: Iterate from Plan A to a Plan That Works (Lean Series), 2012
4 Steve Blank, The Startup Owner’s Manual: The Step-By-Step Guide for Building a Great Company, 2012
5 Alexander Osterwalder, Yves Pigneur, Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers, 2010