Running Lean

By Ash Maurya

“What separates successful startups from unsuccessful ones is not necessarily the fact that successful startups began with a better initial plan (or Plan A), but rather that they find a plan that works before running out of resources.  Running Lean is a systematic process for iterating from Plan A to a plan that works, before running out of resources (p. xxi).

Why are startups hard?  [They are] built on several incremental innovations (and failures), “the classic product-centric approach front-loads some customer involvement during the requirements-gathering phase but leaves most of the customer validation until after the software is released,” and, “even though customers hold all the answers, you simply cannot ask them what they want….given the right context, customers can clearly articulate their problems, but it’s your job to come up with the solution” (p. xxii).

Customer Development is a term coined by Steve Blank and is used to describe the parallel process of building a continuous feedback loop with customer throughout the product development cycle….The key takeaway from Customer Development can be best summed up as Get out of the building” (p. xxiii).

“[Bootstrapping] is funding with customer resources” (p. xxiii)

Three core meta-principles: Document your Plan A [BUILD], Systematically Test your Plan [MEASURE] and Identify the Riskiest Parts of your Plan [LEARN] [NOTE change in sequence vs. book.]

Meta-Principles

Meta-Principle 1: Document Your Plan A

Reasonable smart people can rationalize anything, but entrepreneurs are especially gifted at this [Steve Job’s REALITY DISTORTION].Most entrepreneurs start with a strong initial vision and a Plan A for realizing that vision.  Unfortunately, most Plan A’s don’t work (p. 4).

“The first step is writing down your vision and then sharing it with at least one person” (p. 4).

  • Business Model Canvas

Your job isn’t just building the best solution, but owning the entire business model and making all the pieces fit (p. 7).

Lean Canvas helps deconstruct your business model into nine distinct subparts that are then systematically tested, in order of highest to lowest risk” (p. 7).

Meta-Principle 2: Systematically Test Your Plan  [Note change in sequence vs. book.]

“Startups are a risk business, and our real job as entrepreneurs is to systematically de-risk our startups over time” (p. 7).

The biggest risk for most startups is building something nobody wants” (p. 8).

  • Stage 1: Problem/Solution Fit: Do I have a problem worth solving?
    • [Do I understand the problem?  Is it severe enough to motivate action?]
    • Is the solution something customers want?  Will they pay for it [market desirability]
    • Can the problem be solved [technical feasibility]
    • [Can I make money? [business validity]
    • [Is this solution scalable?]
  • Stage 2: Product/Market Fit: [Have I built something that will work that people will  want badly enough they will pre-order at a price I can live with?]
  • Stage 3: Scale: How do I accelerate growth?

“Before product/market fit, the focus of the startup centers on learning and pivots.  After product/market fit, the focus shifts toward growth and optimizations….Pivots are about finding a plan that works, while optimizations are about accelerating that plan (p. 9).

“[The] ideal time to raise your big round of funding is after product/market fit, because at that time, both you and your investors have aligned goals: to scale the business” (p. 10).

“Selling to investors without any level of validation is a form of waste” (p. 11).

Meta-Principle 3: Identify the Riskiest Parts of Your Plan

“With your Plan A documented and your starting risks prioritized, you are now ready to systematically test your plan” (p. 11).  Experiment: Build-Measure-Learn.

  • DOCUMENT YOUR PLAN A
    • Create Your Lean Canvas
    • Brainstorm possible customers
      • Distinguish between customers and users [customers pay]” (p. 24)
      • “Split broad customer segments into smaller ones…You can’t effectively build, design, and position a product for everyone” (p. 24).
      • Sketch a Lean Canvas for each customer segment…I recommend starting with the top two or three customer segments you feel you  understand the best or find most promising” (p. 25)
    • Problem and Customer Segments
      • List the top one to three problems…Another way to think about problems is in terms of the jobs customers need done” (p. 27).
      • List existing alternatives…how you think your early adopters address these problems today….Do nothing could also be a viable alternative” (p. 27).
      • Identify other user roles…[customer, user, decision-maker, influencer]
      • “Hone in on possible early adopters…. Your objective is to define an early adopter, not a mainstream customer (p. 28).
    • Unique Value Proposition
      • “Why you are worth buying and getting attention” (p. 29
      • “Be different, but make sure your difference matter” (p. 29).
      • “Target early adopters” and “focus on finished story benefits” (p. 30).
      • [Answer WHY, HOW, WHAT — the “Golden Circle”]
      • “Create a high concept pitch” [10-second pitch using “like”]
    • Solution
      • “[Don’t] fully define your solution yet” (p. 32)
    • Channels
      • “Failing to find a significant path to customers is among the top reasons why startups fail” (p. 33)
    • Revenue Streams and Cost Structure
      • “Your MVP should address not only the top problems customers have identified as being important to them, but also the problems that are worth solving” (p. 37)
      • “I believe that if you intend to charge for a product, you should charge from day one” (p. 37)
      • “It’s hard to accurately calculate [operational costs] too far into the future.  Instead focus on the  present:
        • What will it  cost you to interview 30 to 50 customers?
        • What will it cost you to build and  launch your MVP?
        • What will your ongoing burn rate look like in  terms of both fixed and variable costs?
    • Key Metrics
      • Acquisition: “Acquisition describes the point when you turn an unaware visitor  into  an interested prospect” (p.  40) {Leads}
      • Activation: “Activation describes the point when the interested [prospect] has his first gratifying user experience” (p. 40) {Prospects}.
      • Retention: “Retention measures ‘repeated use’ and/or engagement with your product” (p. 41) {Customers}
      • Revenue
      • Referral
    • Unfair Advantage
      • “A real unfair advantage is something that cannot be easily copied or bought” (p. 43).
  • SYSTEMATICALLY TEST YOUR PLAN
    • Get Ready to Interview Customers
      • “Build a frame around learning, not pitching….Before you can pitch the “right” solution, you have  to understand the “right” customer problem.  In the learning frame, the roles are reversed: you set the context, but then you let the customers do most of the talking” (p. 73).
      • ‘“Stick to a script” (p. 74).
      • Cast a wider net initially” (p. 74).
      • Prefer face-to-face interviews” (p. 74).
      • Start with people you know” (p. 74).
      • Take someone along with you” (p. 75).
      • “Pick a neutral location” (p. 75).
      • Document results immediately after the interview” (p. 75).
      • Prepare yourself to interview 30 to 60 people” (p. 76).
    • The Problem Interview: “Your first objective is measuring how customers react to your top problems” (p. 81)  [Can also supplement by using social media to post problems and gauge reaction.]
      • Welcome (Set the Stage)
      • Collect Demographics (Test Customer Segment)
      • Tell a Story (Set Problem Context)
      • Problem Ranking (Test Problem)
      • Explore Customer’s Worldview (Test Problem [and how customers address the problem today]
      • Wrap Up [Hook and Ask]
      • Document Results
    • Debrief of Problem Interview:  “You are done when you have interviewed at least 10 people and you…
      • Can identify the demographics of an early adopter
      • Have a must-have problem
      • Can describe how customers solve the problem today” (Running Lean, p. 91)
    • The Solution Interview: “The main objective here is to use a ‘demo’ to help customers visualize your solution and validate that it will solve their problem….You want to build enough of the solution (or a proxy, like screenshots, a prototype, etc) that you can put in front of customers for the purpose of measuring their reaction and further defining the requirements for  your minimum viable product (MVP) ” (pp. 95, 96).  “Use old prospects” and “Mix in some new prospects” (p. 103).
      • Welcome (Set the Stage)
      • Collect Demographics (Test Customer Segment)
      • Tell a Story (Set Problem Context)
      • Demo (Test Solution)
      • Test Pricing (Revenue Streams)
      • Wrap Up [Hook and Ask]
      • Document Results
    • Debrief the Solution Interview
      • Share results of solution interviews, treat feedback as data, and reflect on what you will do
      • “You are done when you are confident that you…
        • Can identify the demographics of an early adopter
        • Have a must-have problem
        • Can define the minimum features needed to solve this problem
        • Have a price the customer is willing to pay
        • Can build a business around it (using a back-of-the-envelope calculation)” (Running Lean, p. 108).
    • The MVP Interview: “Your objective is to sign them up to use your [product] and, in the process, test out your messaging, pricing, and activation flow” (p. 127).
      • Welcome (Set the Stage)
      • Show Landing Page [or Prototype] (Test MVP)
      • Show Pricing Page (Test Pricing)
      • Signup [Pre-order] and Activation (Test Solution)
      • Wrap Up (Keep Feedback Loop Open)
      • Document Results