Entrepreneurial Design – Revisited

I have written about the course being offered in the School of Design in NY with the title Entrepreneurial Design by Christina Cacioppo
Gary Chou of Union Square Ventures. I wanted to take the opportunity to bring attention to the material. I believe the structure, the reading material and all the links they have put together is incredibly relevant and useful. I keep getting back to looking at the syllabus and discovering new things that I never thought about. If you have not visited the site and checked out the material please do. Depending on the startup cycle you are in there is material there that is relevant and valid. I think particular section is valid for the Lean Startup Meetings that we have having with Hugmyndaráðuneytið. The coming week I am going to try something where we will record the discussion and share in SoundCloud for those who were not present. Here is the topic and I think I will go through the Giff’s Slides. Here is the link to the Event on Facebook

Customer Development and Running Experiments with Giff Constable

Week Two Slides

Giff’s Slides

Week Two Recap

Love letters


Waste vs Value – 7th Lean Startup Meetup

We had our 7th meetup on the Lean Startup and the topic of discussion today was Determining Waste vs Value. The biggest reason for waste in any process is big batches. The book refers to a number of examples where batching things in smaller sizes actually resulted in the overall job getting done faster and in addition to that reduced waste in the process. Here is one example, where the batch processing of stuffing envelops vs stuffing each envelop had a show down. We discussed how the product development cycle if done in a lean way could result in getting feedback faster from the customers by getting a usable product to the market. We also spoke about the Lean Manufacturing Process of Toyota, how the Pull method is used to replenish inventory rather than storing a large stock. Although my experience with Toyota in Iceland is very different, my Toyota 4Runner rear wiper broke and when I wanted to buy a replacement I was told that they need to order it for me, it took a couple of days but when it came I realized I needed to get the wiper unit as well once again it was not in stock. I basically informed them that I was not interested to wait another couple of days for the wiper, I will just find the old one and try to fix it to the new arm. So, it is not consistent that Toyota has the same process world over. In manufacturing, pull is used primarily to make sure production processes are tuned to levels of customer demand. Without this, factories can wind up making much more or less of a product than customer demand. Lean Startup models do not work this way, as customers often don’t know what they want. The goal of any lean startup in building products is to be able to run experiments that will help us learn how to build a sustainable business. Thus, the right way to think about the product development process in Lean Startup is that it is responding to pull request in the form of experiments that need to be run. It is not the customer, but rather our hypothesis about the customer need, that pulls work from product development and other functions. Any other work is waste.

There were a number of questions and examples of how testing was done to validate hypothesis. Kristjan shared some examples that Eric Ries, the man himself was sharing in SXSW last week in Austin, Texas. Kristjan will talk about SXSW experience next as it relates to the book and how the whole conference was organized. During the discussions, there were  a couple of questions related to how to apply the lean methods in established conservative organizations. I tried to give examples of how hypothesis testing can be done in any process. The end result is the key and defining success and/or failure is also key to test hypothesis.

Business Model Design

Business Model Canvas Poster download (http://...

Image via Wikipedia

Alexander Osterwalder’s book Business Model Design is an excellent workbook for all businesses, especially those that are already established and want to look for ways to transform, amend or update their existing business model. Of course for those of us who have been in the Consulting industry it all feels like deja vu but I have been impressed with the approach of the book. I have written about this before, what works for me in this book is the concise way in which to view, capture and focus on the elements that a business can strategize, prioritize and execute on. When I work with companies and try to help them through their trasformation the biggest challenge is identifying the most impact for the resources that is at our disposal. And when I talk about resource, I mean Time, Money and Teams. Time is by far the most important because that is the only thing that we cannot create. We can strategize about raising money or organizing teams. I want to run a series of blogs on breaking the Business Model Canvas into each component and explain. I believe that this work by Alexander is more important if not the most important work compared to the Lean Startup by Eric Rise. The Lean Startup sets the overall goals of embarking on either building a business or transforming an existing business or fixing a broken business, Business Model Design gives you the roadmap of how to do it. We are trying to put together a workshop during the Startup Iceland Conference, were we are working on bringing both Eric Rise and Alexander Osterwalder to run workshops in Iceland. If you have not signed up, please do me a favor and sign up. I guarantee it is going to be an awesome event.

Business as a Hypothesis – 5th Meetup

We had a very good turn out for the 5th meetup to discuss the book the Lean Startup. We had a new interesting idea that was tried out, where one of the participant takes 5 minutes to talk about something that he/she found interesting and wanted to share with the group. Sverrir took the first stab at it and outlined a check list for making a business case for your product or service. His posting is here on Facebook, for those who don’t want to go there and find the post I have reproduced it:
22 Power techniques to show that your product or service has characteristics and benefits to secure a unique position for your product and sell it (From Formula Five)
The core things need to be present (all products and services have these), how can you show that you have strength in each of these attributes?

  1. The specific product or service, describe it
  2. Any associated service or product
  3. Bonuses coming along
  4. Pricing
  5. Quality
  6. How is it used, how easy is it to use it?
  7. Perceived value and status element
  8. Your delivery
  9. Your deliverability
  10. Is it readily available? How is it available, when?
  11. Your customer and technical support
  12. Your selection
  13. Your convenience
  14. Any warranty
  15. Your policies
  16. Terms
  17. Your guarantee or risk revearsal proposition, how do you minimize the risk for the buyer?
  18. Your reputation
  19. Reputation of people that own product
  20. Joining the club
  21. Ownership
  22. Experience
  23. (more, not mentioned here?)
Set up your Super Value Proposition (SVP)
  1. Find and show the financial value of the element that will positively effect the buyer. – Calculate and show the better value. – If you are giving bonuses, say what they are worth.
  2. Free focus factor, if the product has lower cost, calculate when the lower cost has added up so that the product is really free after that point. Tell it. Show it. „Pays itself up/free in ten months.“
  3. Instead of value, when pays itself up, show how much extra profit customer will make. Do the math for customers (most won‘t do it themselves).
  4. If not cost and money, show how things are quicker, easier, simpler, better environmentally.
The discussion centered around the notes that I had shared from the previous blog post. There was a number of discussion around how validating and hypothesis testing is critical to learn whether what we are trying sell has a customer. There was also a lot of discussion around why traditional businesses do not try this method with their current customers. Overall fun evening and I learnt a lot listening to the group.

Business as a Hypothesis – Notes for 5th Lean Startup Session

This is a picture of Tony Hsieh, CEO of Zappos.

This is a picture of Tony Hsieh, CEO of Zappos. (Photo credit: Wikipedia)

Delivering Happiness

Delivering Happiness (Photo credit: Wikipedia)

Today we will be discussing the concept “Business as a Hypothesis” in our weekly Ministry of Ideas meeting. The details of the meeting are here. I wrote about our first meeting and I have been really encouraged to see the swell of participation. We started with maybe 15 to 20 people, but last week we had over 40 participating. Sharing and learning from each other is fun. I thought Gunni was going to lead the meeting but he has asked me to do it, so I am going to give it a try. This blog post is more like my notes for the meeting. I was curious whether the two words “Business” and “Hypothesis” are linked together, so I did what any respectable researcher would do… I Googled it and guess what there is absolutely nothing out there in Google land explaining this concept so I think it should be a good discussion. Eric Ries talks about breaking any business vision into its component parts, he talks about two assumptions in business are “Value Hypothesis” and “Growth Hypothesis” in his book The Lean Startup, which is by the way the book we are using during these discussions.
Value Hypothesis: This tests whether a product or service really delivers value to customers once they are using it. The traditional way would be survey or ask your customers to get their opinion, but that would not be very accurate because most people have a hard time assessing their feelings objectively. Eric tries to emphasize, experiments provide a more accurate gauge. 
Growth Hypothesis: This tests how new customers will discover a product or service.” (pp 61)
Zappos is the world’s largest online shoe store which was acquired by Amazon for $1.2billion, yes with  “b”.  Here is a excerpt from the book “The founder Nick Swinmurn according to the book was frustrated because there was no central online site with a great selection of shoes. He envisioned a new and superior retail experience. Swinmurn could have waited a long time, insisting on testing his complete vision complete with warehouses, distribution partners, and the promise of significant sales. Many early e-commerce pioneers did just that, including infamous dot-com failures such as Webvan and Pets.com.
Instead, he started by running an experiment. His hypothesis was that customers were ready and willing to buy shoes online. To test it, he began by asking local shoe stores if he could take pictures of their inventory. In exchange for permission to take the pictures, he would post the pictures online and come back to buy the shoes at full price if a customer bought them online.”(pp 57)
What is interesting in this experiment is that while running his experiments, Swinmurn tested various other  assumptions as well like interacting with customers, taking payment, handling returns, and dealing with customer support. What they learnt in that has become the stuff of legends i.e Customer Support made their online shoe store sticky therefore they spent considerable amount of time making that their main priority. Their CEO Tony Hsieh, wrote the book “Delivering Happiness” based on that premise. I also like the following excerpt from the Lean Startup book – “Even the seasoned managers and executives at the world’s best-run companies struggle to consistently develop and launch innovative new products.
Their challenge is to overcome the prevailing management thinking that puts its faith in well-researched plans. Remember, planning is a tool that only works in the presence of a long and stable operating history. And yet, do any of us feel that the world around us is getting more and more stable every day? Changing such a mind-set is hard but critical to startup success.” (pp 72)

Strategies to implement Validated Learning

The meetup yesterday on the Lean Startup was very inspiring, so I am following up the post with some more thoughts on how can we implement the validated learning concept on various businesses and scenarios. I strongly believe that the Internet and all the applications that have been built on this global network provide us with valuable sensors to touch, feel and understand the dynamics of human behavior. We can conduct experiments, collect data and learn from them. This is precisely what Validated Learning is from my perspective. The classic example is the concept of selling a car through the internet, when someone floated this idea 13 years back, the conventional wisdom was it will never work but I know various examples from Steve Blank‘s book as well as Bill Gross’s interview on This Week in Venture Capital with Mark Suster show how they experimented and did validated learning. Bill Gross is a fantastic ideas guy, check out the full video but if you want to skip to the part about the Car Selling example it is at 0:31:41 in the video. The summary of it is they had just put a landing page with some images of Car with a price tag on it, they had no inventory or distribution or management team or any infrastructure to support selling cars but they did it anyway to learn if anyone would click on the “Buy” button and their idea was if anyone click on it they will have validated the idea a car can be sold on through the Internet, they followed that link to test further hypothesis will a user actually give their credit card information and personal details like address, phone number etc sure enough they put up a form that takes in the information of the buyerand the credit card information. They were surprised to see the orders start to come in, and when it did they physically drove to a Car seller bought the car and deliver it to the buyers. When you think about this, the buyer really does not care whether you are buying it from another seller or not, all he cares about is the convenience of being able to buy a car from his office. They found out that there were many buyers and once they had validated that hypothesis, they built the infrastructure to support growing sales. Actually, I think they took down the site in a day because they could not fulfill the orders that poured in, thats what I can a luxury problem.

Validated Learning – 4th Meetup

We had a fantastic turnout today with over 40 people participating in Hotel Kex lobby in our 4th event related to the Lean Startup book discussion. Ari led the discussion about Validated Learning, once again the whole meeting was in Icelandic until I interrupted the flow with my 2 cents in English :) what can I say I am like that. Anyways, it was very exciting to see the level of participation and interest in this material. I think the most important element of the discussion was when Gunni gave examples of how traditional businesses can apply the Validated Learning concepts to established and functioning business models, and how one can improve on them. The whole premise of the Validated Learning concept is to treat every assumption we have about our business like a scientific hypothesis and build tests to validate those hypothesis. There were a bunch of references during the examples and talk to Steve Blank‘s book the four steps to Epiphany. I thought this video was very apt as it talks about the lost lessons of validated learning, I like the conclusion- “Lean Startup does not teach you to create value, that comes from within and from your value system. Use Lean Startup methodology to refine that.”

Metrics that matter

Building a business is hard, running one while you are building it is harder. No wonder there are all these metrics on the failure rate of startups. Try juggling 5 balls while you are on a mono-cycle on the freeway, that is what it feels like when you are in the early stage of a startup. So, how does one navigate this mine field? Well, if we go back to basics, we absolutely need to have defined metrics that matter to building the business. Eric Ries in his book Lean Startup talks a lot about this but none of the stuff that he his talking about is new, just like what Warren Buffet says he does in the investment process is simple, but doing what he does is very hard. I want to make one small change to Eric’s method of Build-Measure-Learn, I want to change the order a bit Measure-Build-Learn. This idea goes back to the times when I was in software development, I actually got pretty good at it when I started writing Test Code before I actually wrote the Code for the Use Case, I saw that I was making rapid progress in how well I could write the actual functionality in the system. For all those people writing software, read the RefactoringTest Driven Development method and Continuous Integration by Martin FowlerKent Beck and others. The Lean Startup book refers to this as well.

Lets define some metrics that matter, this also depends on which stage of the development the startup is:

Idea: You have a brilliant idea that you have shared with your friends and family and they think that this could be the next best thing to sliced bread. The things that you absolutely need to instrument at this stage are:
  • Is your potential customer really hurting so bad that they are willing to pay you to solve it? how do you know?
  • How will you find your customer? or more importantly how will they find your solution?
  • What is the size of the market? how do you know?
  • Is the market growing? how do you know?
  • Will the customer continue to buy from you? how do you know?
The important thing in instrumenting your idea is to automate it, i.e just like a dashboard in your car build some gauges. The age of the Internet has bought all this to your doorsteps. There are many resources that are available that provide you with a wealth of data that you can read and make an instrument out of.
Startup: You have validated the above 4 things and you have also build a Minimum Viable Product (MVP), you have your first customer and you are excited that this thing is actually going to make you afford a cafe latte. Great! so what are the metrics that you absolutely need to have here?
  • All of the above +
  • What feature of the solution that you have sold to the customer that the customer absolutely cannot do without? how do you know?
  • How do you plan to scale your business? i.e. how are you going to sell more stuff? how are you going to support the customers?
  • How do you collect your payment? have you automated it?
  • What is your Average Revenue Per User? (ARPU)
  • What is your turn around time for customer issues?
  • How many “features” read “bugs” that need to be addressed right away?
  • How many people visit your website? (although the above ideas can be for any type of business, this metric is critical, if you are not being found you are not going to scale the business… Period)
  • What is your conversion rate? i.e % of those visiting your site want to try your product/service
  • What in your website attracts the visitors? this is nothing but which links they click on.
  • How is your bookkeeping? are you accounts in order? have you automated it? again no excuse for not using tools that are available today to automate this important metric.
Once again measuring all of this is trivial in the age of internet. There are many tools available to do that Google Analytics, KISSmetrics, etc so no excuses for not having built instruments into your solution.