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.

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Business Model Design

[original post written in WordPress] 

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.

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Strategies to Test Business Hypothesis - 6th Meetup

We had our 6th Meetup @Cafe Solon last evening. We once again had a very good turn up, around 30 people. The topic of the discussion was Strategies to Test Business Hypothesis, which was a follow up from last week's meet topic "Business as a Hypothesis", here are the Notes to that meetup and follow up write up. Björn Brynjar Jónsson, give a 5 minute brief talk about a topic of interest that he wanted to share with the group. The topic that he talked about was from the book "Start with Why" by Simon Sinek. It was very interesting and inspiring. Björn talked about the Golden Circle from the book. The premise is that we tend to focus our effort our vision etc on the "What", whereas great leaders who inspire us usually start with the "Why", which refers to the Purpose of why we do the things we do. When we understand the purpose and communicate the purpose we can inspire people to action. He gave the example of Apple. Here is the Video of Simon talking in Tedx.

• We talked about Strategies that were used in Clara to test their business model through the product Vaktarinn. Originally, Clara had not created the software that automatically sources all the digital content and provides the visualization that they do on Textual information. Gunnar explained how they got 10 of their friends to manually enter all the text from different sources into Excel Spreadsheets and then manually created the visualization look and feel on the data to validate if anyone would be interested to buy the product. Their first revenue was in selling that manual work, once they validated that idea they went on to build all the software that powers Clara Insight and Vaktarinn now. This was a quick and dirty way to see if there is a market for what you want to build. 
• The second example was from the company Buuteeq, how the team there validated their hypothesis that Independent Hotel Owners are willing to share their contact details and everything about their hotels to a third party and host their solution on a third party platform. They validated that by creating a Hotel Directory Service for Independent Hotel Owners called Wandari.com. Not only were they able to validate that business hypothesis they also created their customer funnel which they could target and convert into actual paying customers. 
• There was a discussion on a new business hypothesis that Safe Drivers would be willing to save money on their car insurance by allowing a tracking device to be installed in the car. We talked about how this hypothesis can be validated by just creating a web page with a simple button that says "Are you a Safe Driver? If you answered Yes, You can save 30% on your Car Insurance!" Sign up to be the First of the Safe Drivers to take advantage of the offer." Ok, I made the actual sentences up but that is where the discussion was going!
• The 4th business hypothesis was about non-availability of Icelandic Candy on Souvenir shops. One of the participants wanted to create a business on creating an attractive wrapper around the traditional Icelandic Candy and sell it to the Souvenir shops. The group guided her to actually pre-sell the candy to the stores with just using Digital images and depending on the demand she could build up her business. I was so happy to see how excited she was about being able to launch her business by this weekend! Entrepreneurs find the way! 
• Kristján Freyr Kristjánsson shared the story of how they created a business to sell the Eyafjalljokul's volcanic ash. They sold this idea while they were stranded in the airport in London, they just used digital images to create a visualization of a fancy bottle with the Ash in it and they sold it even before the product was ready. Overall a fantastic meetup and the next meetup is going to be on Pivot Stories. 

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

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)

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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."

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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 Refactoring, Test Driven Development method and Continuous Integration by Martin Fowler, Kent 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.

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Business Model Canvas + Lean Startup

Cover via Amazon

The third session for the grass root gathering of Entrepreneurs and learners of the Lean Startup book happened this evening in Cafe Solon @17:30. The topic of today's discussion was the Business Model Canvas from the Business Model Generation, the popular book written by Alexander Osterwalder which came out in 2010. The canvas is used by Innovit the incubator in Iceland. Kristjan, the CEO of Innovit gave a good description of how to use the canvas but it was all in Icelandic. The author of the book stresses that the directions, methods and the canvas given in the book can be used to create new business models for established businesses as well. I think if we have to slap the Lean Startup principle on top of this, I would just add one single question to each and every box in the Canvas:

How do you know? for example in the Value proposition box, once we enter the value proposition that we believe is created by our solution we need to ask the question how do we know that it creates that value? We need to ask our potential customers the question so we can have a validated learning on each of the elements of building the business model. We have the tools, techniques and measurements that are available that enables every business to experiment, create a hypothesis, test if that is true and then iterate over the Build-Measure-Learn cycle.

But overall a good turn out, good questions and good discussions. I was encouraged to see a lot of new faces. I think we are starting a movement right here in Reykjavik. Lets build sustainable businesses by sharing and learning together.

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Why do Startups Fail?

I saw this post on Business Insider with the title "Don't do a startup, You WILL fail!" based on a presentation by Dave McClure. Dave is a colorful Super Angel and invests with an interesting investment thesis. But what Dave says is spot on and he is one of those who don't Bull S#$%. Of course Dave goes on rant about all the wrong reasons that entrepreneurs start companies and then they complain that they were not successful. Go an flip through his presentation and ask yourself if you are doing your startup for any of those reasons. I like some of the tips that he has on the presentation, I like this one:

• Doing a startup is a lesson in Pain & Sacrifice. If you are not ready to sacrifice and don't like pain, just don't bother because there will be times when you feel like you are scratching your fingernails against a rough sand paper. You need to have the persistence to ride those phases with optimism and positive energy.
• You have not instrumented your market or your product, i.e you don't know or have any metrics about how your solutions is changing market behavior. You don't know what is a Lean Startup or Steve Blank's work on Customer Development. Dave has what he calls the AARRR Metrics. Which stands for:

1. Acquisition: How are users coming to your site from various channels? Do you know the channels?
2. Activation: Are users happy with their first experience?
3. Retention: Are users coming back?
4. Referral: Are users telling others?
5. Revenue: Are users spending money or allowing you to monetize in some way? The most important of all is whether you are measuring all of the above and what do they tell you.

• You focus too much on the solution and not on the problem, better still you are really not solving a problem at all. It is not about the idea, it is always about the problem, the bigger, the bolder, the world changing the problem the better are you chances of building a business around that problem. I have written about it.
• Your team sucks. There is no way out of that problem! You just need A players to go win the world. As I always say you cannot make a Donkey run the Kentucky Derby... it would get the sympathy but it will never win! The under dog stories are great but they rarely come true in real life. You better have a strong team that knows what it is doing otherwise you are lost period.
• You have no knowledge of how to market or sell your product. You have this view that if you build it they will come. It is just not going to happen.

You have no idea of how to address any of the above topics but you have a fantastic idea! I say good luck, but I am sure Dave would say something much less nicer.

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