LEAN FROM THE START
LEAN FROM THE START Lean is about solving problems through continuous experimentation. ▪ We ask: what is our purpose as an organization? What value to create or what problem are we trying to solve? ▪ Then, how do we improve the work and how do we develop the people? Do startups face problems that are different from those of established enterprises? ▪ More uncertainty? ▪ Greater risk? ▪ Fewer resources? Lean, Whether Startup or Established… • Engage Everyone in Problem Finding and Continuous Experimentation • Give Everyone Permission to Fail and Ability to Succeed
WHAT IS LEAN THINKING? Path to Lean • Principle of “ Just Enough ” ▪ Stanford, Harvard using lean (engineering, business • Practice of Questioning and schools) Experimenting ▪ Created out of their experiences • A personal transformation ▪ Builds on other management methods/tools (lean manufacturing, boot strapping, software development) ▪ Customer focused
WHAT IS LEAN THINKING? Author Eric Ries (“Lean Startup”) Experienced team, strong market = failure ▪ Hypotheses about customers, markets, partners ▪ Build, measure, learn – feedback loop ▪ Experiment, multiple attempts, fast iterations ▪ Author Steven G. Blank (“Four Steps to the Epiphany”) Stanford/Berkeley ▪ Startup Handbook now out (apparently easier to read) ▪ Ries & Blank Rethink the Startup Human institution designed to deliver a new product or service ▪ under conditions of extreme uncertainty. (Ries) Nothing to do with size of company, sector of the economy, or ▪ industry
WHAT IS A LEAN ENTERPRISE? The product and customer are unknown. If truly innovative, even more uncertainty Transformation Questions • What ’ s the PURPOSE? What value? What problem to solve? • How to improve the work? • How to develop the people? • What leadership role and management system? • What ’ s the BASIC THINKING? To Do • Define Your purpose • Improve the work • Develop the people
HOW TO BUILD A LEAN STARTUP What is it about? • Idea • Sizing the Opportunity • Business Models • Customer Development As a startup: • Understand the real world aspects of Entrepreneurship by getting out of the building • Analyze and assess an opportunity • Build the product • Get orders • Work with a team Then: • Opportunity evaluation • Search for a Business Model • Customer Discovery and Validation • Operating and decision making in chaos with insufficient data
HOW TO BUILD A LEAN STARTUP Innovators use business models to sketch out quick and dirty conceptual prototypes of a business around the product (not just the product itself) in a format that is generally understandable and generates dialogue with others. “ Business models...are the managerial equivalent of the scientific method. You start with a hypothesis, which you then test in action and revise when necessary ” . Magretta, Why Business Models Matter. Harvard Business Review, May 2002.
HOW TO BUILD A LEAN STARTUP Idea • Size Opportunity • Business Model • Customer Development •
HOW TO BUILD A LEAN STARTUP Size of the Business Customer Customer Idea Opportunity Model(s) Discovery Validation
HOW TO BUILD A LEAN STARTUP Size of the Business Customer Customer Idea Opportunity Model(s) Discovery Validation Theory Practice
HOW TO BUILD A LEAN STARTUP Size of the Business Customer Customer Idea Opportunity Model(s) Discovery Validation • Web startups get the product in front of customers earlier
HOW TO BUILD A LEAN STARTUP Size of the Business Customer Customer Idea Opportunity Model(s) Discovery Validation
HOW TO BUILD A LEAN STARTUP What is Engineering about? ▪ Aren ’ t companies all about product? ▪ I have a great technology idea ▪ Teach me how to make a company around it ▪ Just like Facebook and Google (or Intel or Apple) Sources of Startup Ideas: • Dinosaur factor • Technology shifts – Arrogance – Moore ’ s Law – Deadened reflexes – Disruptive tech – Research • Market changes – Value chain disruption – Deregulation • Societal changes – Changes in ways we live, learn, work, etc. – The world is flat (outsourcing)
SCALABILITY ▪ Not all startups are designed to scale ▪ Small business startups have different goals ▪ They are done by normal people ▪ Scalable startups are designed to grow big ▪ Typically require venture capital ▪ This means the size of the opportunity needs to be $100 ’ s of millions to billions
SMALL BUSINESS STARTUPS Small Startup Business - Business Model found - Profitable business - Existing team < $1M in revenue
SMALL BUSINESS STARTUPS Small Startup Business - Business Model found - Profitable business - Existing team < $10M in revenue • 5.7 million small businesses in the U.S. <500 employees • 99.7% of all companies • ~ 50% of total U.S. workers http://www.sba.gov/advo/stats/sbfaq.pdf
SCALABLE STARTUP Large Scalable Company Startup >$100M/year - Total Available Market > $500m - Company can grow to $100m/year - Business model found - Focused on execution and process
SCALABLE STARTUP Large Scalable Company Startup >$100M/year - Total Available Market > $500m - Company can grow to $100m/year - Business model found - Focused on execution and process - Typically requires “ risk capital ” • In contrast a scalable startup is designed to grow big • Typically needs risk capital • What Silicon Valley means when they say “ Startup ”
VERY DIFFERENT STARTUP GOALS Small Startup Business - Business Model found - Profitable business - Existing team < $10M Scalable Large Startup Company - Total Available Market > $500m - Company can grow to $100m/year - Business model found - Focused on execution and process - Typically requires “ risk capital ”
VENTURE FIRMS INVEST IN SCALABLE STARTUPS Small Startup Business Scalable Large Startup Company
MARKET/OPPORTUNITY ANALYSIS How Big is It?: Market/Opportunity Analysis ▪ Identify a Customer and Market Need ▪ Size the Market ▪ Competitors ▪ Growth Potential
HOW BIG IS THE PIE? TOTAL AVAILABLE MARKET • How many people would want/need the product? • How large is the market be (in $ ’ s) if they all bought? • How many units would that be? Total available market How Do I Find Out? • Industry Analysts – Gartner, Forrester • Wall Street Analysts – Goldman, Morgan
HOW BIG IS MY SLICE? SERVED AVAILABLE MARKET • How many people need/can use product? • How many people have the money to buy the product Total Served Available • How large would the market be Available Market (in $ ’ s) Market if they all bought? • How many units would that be? How Do I Find Out? • Talk to potential customers
HOW MUCH CAN I EAT? TARGET MARKET • Who am I going to sell to in year 1, 2 & 3? • How many customers is that? • How large is the market be (in $ ’ s) if they all bought? Total Served • How many units would that be? Available Available Market Market Target Market How Do I Find Out? • Talk to potential customers • Identify and talk to channel partners • Identify and talk to competitors
SEGMENTATION – IDENTIFICATION OF GROUPS MOST LIKELY TO BUY Total Available • Geographic Served Market • Demographic Available • Psychographic variables Market • Behavioral variables Target • Channel Market • etc… 25
MARKET SIZE: SUMMARY ▪ Market Size Questions: ▪ How big can this market be? ▪ How much of it can we get? ▪ Market growth rate ▪ Market structure (Mature or in flux?) ▪ Most important: Talk to Customers and Sales Channel ▪ Next important: Market size by competitive approximation ▪ Wall Street analyst reports are great ▪ And : Market research firms Like Forester, Gartner
WHAT IS A BUSINESS MODEL? ▪ Diagram of flows between company and customers ▪ Scorecard of hypotheses testing ▪ Rapid change with each iteration and pivot ▪ Founder-driven à Hands-on Planning: 9 Building Blocks of the Business Model Canvas * Alex Osterwalder
CUSTOMER SEGMENTS which customers and users are you serving? which jobs do they really want to get done?
VALUE PROPOSITIONS what are you offering them? what is that getting done for them? do they care?
CHANNELS how does each customer segment want to be reached? through which interaction points?
CUSTOMER RELATIONSHIPS what relationships are you establishing with each segment? personal? automated? acquisitive? retentive?
REVENUE STREAMS what are customers really willing to pay for? how? are you generating transactional or recurring revenues?
KEY RESOURCES which resources underpin your business model? which assets are essential?
KEY ACTIVITIES which activities do you need to perform well in your business model? what is crucial?
KEY PARTNERS which partners and suppliers leverage your model? who do you need to rely on?
COST STRUCTURE what is the resulting cost structure? which key elements drive your costs?
value key customer proposition activities relationships key customer partners segments cost revenue structure streams key resources channels
SKETCH OUT YOUR BUSINESS MODEL
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