Course Curated By: Dr. G. Danford (London Business School MBA, Helsinki School of Economics PhD)


 

Before Starting Session

The only proven method for measuring learning is to take a pre-quiz and post-quiz of the content.

[WpProQuiz 4]

 

Content: Building Product

  • Critical things founders often do incorrectly.
  • The purpose of the business idea.
  • The benefit of ‘mapping the user experience’.
  • The ‘Minimal Viable Product’ concept.
  • Different methods for tracking user feedback.
  • The process of adding user features to a product/service.
  • The three types of growth.

 

Learning Moments

  • Novice Error: “I don’t want to tell anyone about it. I’m going to launch it, and I’m going to get lots of users’.
  • The Build-Measure-Learn product development process helps startups to be: faster, more agile, and more efficient.
  • Minimum Viable Product MVP is: product with the highest return on investment, versus risk.
  • Focusing on the essential product/service features, which are critical for each stage of growth.
  • The three forms of growth are; sticky, viral, and paid.
  • Innovation Accounting: optimistic growth plan, while at the same time grounded in reality.

 

1. The Novice

 

Adora Cheung (Co-founder, Homejoy)

Homejoy was an online platform connecting professional cleaners with clients for $20 per hour. The company had raised $39.7 million in 5 rounds of funding from 15 investors (Google Ventures, Andreessen Horowitz etc.).

What are the things most founders do incorrectly when starting a startup? The first of these is the novice error, “I don’t want to tell anyone about it. I’m going to launch it, and I’m going to get lots of users’. However, due to the fact that you will not get a lot of user feedback when taking this approach (you might get people to visit your site & try your product etc.), no customers will stick around because you neglected to get vital user feedback. Another neglected matter when starting is the the idea (problem) you are really trying to solve has not been defined.

 

Founders must be able to describe that ‘user problem’ in just one sentence. When you have defined that problem, and you are able to state it (remember, in just 1 sentence), then and only then should you think about the industry that you are getting yourself into. 

 

In certain situations (context) where there is a service element in the business you are exploring, you must first of all get out of the office and do that service yourself (learn the ropes or learning-by-doing). For example, if your thing is about restaurants, you should become a waiter. If it is about painting, become a painter. In this very concrete way you can ‘get into the shoes of your customers’. Furthermore, being obsessed, and wanting to know everything and everybody in that space (market), is essential.

Should you optimize for a selective part of the customer base? At the beginning, you want to realistically slice off (segment) part of the customer base in order that you can optimize for that segment. This involves focusing in on a particular users needs. Before even creating a product, you must storyboard (depicts the different steps the user goes through, from the time she/he first hears about your offering, to the time he/she leaves, including post-visit feedback). Furthermore, you must figure out how you are going to solve the ‘user problem’. This demanding challenge (defining user problem) requires that you think in a holistic way. It is essential that you go through that whole flow process (storyboard), along with visualizing the perfect user experience (creating persona can help: personas are archetypes built after an exhaustive observation of the potential users. Each persona is based on a fictional character).

 

Startup Decisions: Adora Cheung (3:00)

NOTE: this video will start and stop at the pre-assigned times 2:10-5:22


 

2. Validated Learning

The Build-Measure-Learn product development process is a radical improvement on the traditional Waterfall model which has been used throughout the 20thcentury to build and ship products. Waterfall Development is focused on execution of the requirements document. The purpose of early customer access to the product (Waterfall) was to uncover bugs and not to provide feedback on features or usability.

The Build-Measure-Learn product development process helps startups to be: faster, more agile, and more efficient.

The goal of Build-Measure-Learn is not to build a final product or to ship or even to build a prototype of a product. The goal of Build-Measure-Learn is to maximize learning through incremental and iterative engineering. Learning can include: additional/fewer product features, customer needs, pricing and distribution, etc.) “Build” in the process, refers to building a Minimal Viable Product (MVP).  MVP is not the product with less features. MVP is the simplest thing that a startup can show to customers in order to maximize learning at that point in time. (Steve Blank). Therefore, the MVP helps a startup better understand what they are trying to test and measure.

However in a lean-startup, in addition to incorporating the Build-Measure-Learn process, the startup must also have a hypothesis (guess) which they are testing (or multiple hypothesis’s). That hypothesis is an educated guess which requires experimentation and data to validate or invalidate.

In a lean startup, building minimal viable products involves: Hypotheses – Experiments – Tests – Insights.

 

Unknown Problem & Solution (5:00)

Eric Ries (The Lean Startup)

NOTE: this video will start and stop at the pre-assigned times 18:18-23:07


Take a Pomodoro Break


 

3. Minimal Viable Product

The common phrase that most startups use today for the initial product is ‘Minimum Viable Product’ or MVP (product with the highest return on investment, versus risk). Andora underlines in her presentation ‘viable’, because she thinks a lot of people skip that part, and they go out into the market with only a unique product/service feature. As a result of that error, the whole user experience in the very beginning is flat (not necessarily solving the real user problem). A minimal viable product incorporates the smallest feature set that you can to build in order to solve the user problem.

Before you put something out in front of the user, it is essential that you refine your product positioning ‘this product/service does X,Y, and Z’ and you should be able to express that position in one sentence (as with the user problem).

So how do you get your first users? Often startups encounter the ‘chicken and egg’ dilemma (without customers you can’t test your problem solution… and without a problem solution, you can’t get customers). Therefore, the first few users are critical. Where do you get the first few users from? One solution to this challenge is to gather people who you are connected with (your mom, dad, friends and coworkers). More important that that however, is you must also continuously gather user feedback. Once you have obtained users, the question then is; what do you do with those users?

It is essential that you are tracking some key metrics on how you are performing on both a general and macro level. The best way to accomplish that is by tracking customer retention (number of people that came in the door today, come back tomorrow, the next day… and so forth). The challenge with retention is that it takes time to collect data. Therefore, a good leading indicator (which is less time consuming) is to collect reviews or ratings. A key metric for those review metrics is the Net Promoter Score – NPS (based on a rating from 0 to 10, how likely is a customer to recommend you to a friend-colleague). Over time that feedback should, and must, help you building-out additional product/service features. It is often the case that the best feedback you can get is if someone is willing to pay for your product or service (money talks, and it confirms viability).

 

Getting Users: Adora Cheung (3:30)

NOTE: this video will start and stop at the pre-assigned times 11:35-15:01


 

4. Stop Building Product

What do you do before you officially launch the product/service? It is essential at this stage that you build fast, and optimize for each consecutive stage of growth (optimize for 10 to 100 users, then optimize again for 100 to 1,000 users etc). Focusing on the essential product/service features, which are critical for each stage of growth, makes a lot of sense. Sticking to this process over time is critical as you scale the business. In the very early go-to-market stage (integrated tactics to connect with users and organizational processes which guide customer interactions from initial contact through fulfillment) it is vital that you build manually (do-it-yourself). Trying to automate everything at this very early stage may result in a lack of agility (not being able to move quickly and iterating).

To iterate means; the act of repeating a process with the aim of approaching a goal or target. Attempting to achieve perfection is irrelevant at this stage. However, you must continuously gather user feedback. As a rule this is often neglected. You must remember however, when a user does give feedback on product features, try to resist the temptation of immediately building-to-that-feature. Rather, you need to get to the bottom of ‘why’ they requested that feature (especially the problem it solves) in the first place.

Quite often, after the startup has a product which is ready to ship, founders frequently continue building the product, and therefore end up not shipping it at all. There is no logic to holding out on all of the potential user feedback you can gain by going-to-market. There is no point waiting for 100% perfection to arrive (it never will), when launching an initial product. Furthermore, at this early stage one must remain extremely focused. This is because there are numerous temptations to try and fulfill multiple strategic alternatives, rather than focusing on one at a time. A better alternative is to select, say one channel (segment), and execute on that for a specified period of time. During that time you only focus on that one defined target. Testing one channel (segment) at a time, and identify strategies that work within that channel (segment) requires that the startup is iterating (initial version of the product to fully featured and polished) continually. When a channel (segment) fails to materialize get rid of it quickly, and move on to testing the next potential target. However, over time one must revisit those channels/targets which were dropped earlier in the process (products), in order to re-evaluate once again their future potential.


 

5. Types of Growth

What are the three forms of growth? The three forms of growth are; sticky, viral, and paid. Sticky growth is when you are trying to get existing users to come back, pay you more, use you more (what really matters here is that you deliver an excellent user experience). How to do measure stickiness? The way to measure stickiness is customer life value or CLV (revenue over a period of time). and another measure is retention-cohort-segment analysis (retention analysis visualizes how often your customers return and engage with your offering). You can use this data to track and measure if the changes you are making to your offering (product/service) are increasing customer retention rates.

 

Sticky Growth: Adora Cheung (6:00)

NOTE: this video will start and stop at the pre-assigned times 32:54-38:41

 

Viral growth is when users talk about your offering (viral word-of-mouth etc.). As is the case with sticky growth, you need to deliver an excellent user experience to achieve viral growth. As a matter of fact, you need to deliver a really, really exceptional user experience. An exceptional user experience means that those users are going to shout out loud on Twitter, Facebook, WeChat, KakaoTalk etc. However, that’s not enough though, because you also have to have magical mechanics behind the referral program. You want to place the customer touch points and links users are going to refer their friends to at points in time when users are highly engaged, and when you know that they are loving you’re offering. Another option for stimulating growth is to use program mechanics (get 10$ if you invite a friend etc.).

Paid growth. If you are lucky enough to have money in the bank, you can invest your money to buy growth. The optimal way to view paid growth is; you are risking your precious money in order that you will get an adequate return on that investment. The simplest way to visualize this is; the CLV (customer’s lifetime value) is greater than the CAC (customer acquisition cost). Many startups get into trouble when they begin spending beyond their means (and that’s a frequent occurrence). Therefore, payback time is a critical metric (three months payback time is a good rule of thumb).


 

6. Yin and Yang

Should you have a growth plan when you start? Yes, however that growth plan should be optimistic, while at the same time grounded in reality. Think of this as the ‘Yin and Yang’ of growth plans (apparently opposite or contrary forces are actually complementary). What do you do when there is no growth, or negative growth? If you are fully executing on your product, working really hard, and for three to four weeks in a row there is no growth or backwards growth, maybe that’s time consider a pivot (course correction designed to test a new hypothesis for the customer, value proposition, position etc.).

 

Innovation Accounting (6:00)

Eric Ries (The Lean Startup)

NOTE: this video will start and stop at the pre-assigned times 39:08-44:58


 

Conclusion

  • At the beginning, you want to realistically slice off (segment) part of the customer base, in order that you can optimize for that segment.
  • The MVP helps a startup better understand what they are trying to test and measure.
  • It is essential that you are tracking some key metrics on how you are performing on both a general and macro level.
  • Attempting to achieve product perfection is irrelevant in the early stage. However, you must continuously gather user feedback.
  • For viral growth, you need to deliver a really, really exceptional user experience.
  • When there is no growth or backwards growth, maybe that’s time consider a pivot (course correction to test a new hypothesis for the customer, value proposition, position etc.).

 


[WpProQuiz 48]

Slide Deck:

Building Product

Recommended Readings:

From Failure to $37M Funding

Why Startups Need to Focus on Sales, Not Marketing


NEXT Session 5/20: COMPETITION

CONTENT: In the next session topics include; competition (Peter Thiel, founder, Founders Fund), extreme binary view of businesses, survival, last-mover advantage, identifying un-recognized opportunities and more. LINK TO 5/20 BELOW

Presenter: Peter Thiel (Founders Fund)


Recommended Content

Design Thinking

All startups could benefit most from combining both Lean Startup methodologies and Design Thinking. However, according to Professor Bill Burnett (Stanford University), there are still significant philosophical and practical differences between these approaches. The common elements between Lean Startup vs. Design Thinking are that:

  • Both assume extreme uncertainty.
  • Both assume users don’t know what they want, and can’t tell you what to make.
  • Both assume that a rapid cycle of building and learning is the only process that yields actionable data.

Two Paradigms:

The Lean Startup paradigm assumes; most startups are technologically driven and founded by visionaries who are looking for product/market fit. The Lean Startup is therefore, focused on finding product/market fit as rapidly as possible (before running out of money). Unlike Design Thinking, the Lean Startup begins with a founder vision and a product-in-hand.

Design Thinking, on the other hand, is not reliant on the vision of the technologists/founders, and there is more early-stage empathy/needfinding. Design Thinkers find the need (market fit) first, and only then select appropriate implementation technologies. Design Thinking does not offer the entrepreneur a management blueprint for high uncertainty (startup) environments. Design Thinking does not (at the beginning of the process) have actionable measurements of processes. Furthermore, Design Thinking does not address down-stream issues (customer segmentation, technology platform choice, business architecture, channel strategy etc.).

Design Vs. Lean (4:00)

Professor Bill Burnett (Stanford University)

NOTE: this video will start and stop at the pre-assigned times 5:57-10:19

Design Thinking Stages

  • Empathize
  • Define
  • Ideate
  • Prototype
  • Test

During this Design Thinking process, the designers mindset is driven by; curiosity, mindfulness of the overall process, re-framing of ideas, radical collaboration, and a bias-towards-action. ‘Needfinding’ is also a critical part of the Design Thinking process ‘getting beyond what people say and do, to what they think and feel’. However, some needs are apparent and easy to see, but others are latent and deep (like an iceberg):

  • Explicit needs (above the water line) lead to incremental improvements.
  • Implicit needs come from the meaning embedded in stories.

The Design Thinking philosophy also adheres to the belief that, ‘understanding implicit needs leads to unique insights and big new ideas’. This philosophy is based on the understanding that people (customers) often can’t tell you what is important, but they can signal what’s important with their behavior. Therefore, Design Thinking represents:

  • A dynamic problem solving approach (ideal for poorly-bounded problems, and achieved through prototyping, iteration and rapid learning).
  • A problem finding approach (involving re-framing, ethnography, and prototyping).
  • A value-creation perspective (a human-centered, co-creation process focused on real end-user needs).

Lean Startup:

The Lean Startup is a human institution designed to create a new product/service under extreme uncertainty. The primary goal of the Lean Startup is to eliminate waste and increase value-producing practices. This approach is derived from lean-manufacturing practices (Toyota), and S. Blank’s customer development model. There are five lean principles which the Lean Startup adheres to:

  1. Entrepreneurs are everywhere
  2. Entrepreneurship is management
  3. Validated learning
  4. Build-Measure-Learn
  5. Innovation accounting

There are a number of practices which define the Lean Startup:

  • MVP (Minimal Viable Product): A version of a new product which allows a team to collect the maximum the amount of validated learning about customers, with the least effort.
  • Build-Measure-Learn: Turning ideas into products (MVP), measuring how customers respond, and learning whether to preserve or pivot.
  • Actionable Metrics vs. Vanity Metrics: High levels of uncertainty make traditional accounting useless. Thus, Lean starts with the MVP (baseline), moves from that baseline towards the ideal, and then makes a decision (pivot or preserve). The riskiest assumptions are tested first.
  • Pivot: A strategic hypothesis that is testable. The changes made are designed to test a new fundamental hypothesis about the product, business model, and engine of growth.
  • Other: Continuous deployment (sw) and A/B (split) testing.

The Lean Startup is a management blueprint that influences; ways of managing, measurements, metrics for progress, places an emphasis on testing & learning, and is actionable. Design Thinking on the other hand, seeks to create a ‘culture of creativity’ and innovation… regularly, places more emphasis on empathy & collaboration, and is focused on a bias-to-action (plus prototype/test cycle). Professor Burnett (Stanford University) feels that all startups should consider combining Lean Startup methodologies and Design Thinking, to their benefit.