Originally published at: https://blog.12min.com/running-lean-summary/
Iterate from Plan A to a Plan That Works
Eric Ries in his book “The Lean Startup” created a world fever and flooded the business community with the word lean.
The market seemed to understand that the lean model is essential to becoming more efficient in today’s competitive landscape, but with that came significant challenges.
Often people and companies do not understand exactly what it means to take a lean process, how to start, and what results to expect.
Ash Maurya answered part of the question in his book: What if there was a method, a system to validate product ideas gradually and thus increase your chances of success?
That is the promise of Running Lean. In the book, he explains, without mysteries, how to start or grow an existing business, based on the fundamental principles of lean methodology.
"Running Lean Summary"
How Do Startups Grow?To grow and become a great company, a startup goes on a long journey. From the early days, when it's just an idea with 2 or 3 guys working in a garage, up to the moment of scale, where the company reaches thousands of employees, you have to overcome three different moments.
The first is finding a big problem worth solving. That means finding a challenge, a pain that people have in their daily lives and are willing to pay for it to be solved.
The second great moment is to come to the solution of this problem, and it depends on you being able to create a product that people want.
The point here is not whether they would pay for the problem solved, but whether they would pay for your solution. Does your product solve their problem and still capture value for the company?
If so, a company reaches its last stage, which is that of scale. At that point, the goal becomes one.
With the proven product, it’s time to scale the business and grow as fast as possible. And for them to grow and grow into large companies, Ash proposes a four-step methodology:
- Step 1: Understand the problem to be solved - At this stage, you should focus on interviewing clients and prospects to see if the problem is worth solving. Who has this problem? How is it being resolved today?
- Step 2: Define the Hypothetical Solution - Demonstrate a prototype that helps potential customers validate their solution to their problem. Will this product solve the problem the customer has? Will the prices we charge for this solution meet the client's expectation?
- Step 3: Qualitatively Validate: Build the minimally viable product and release it discreetly to the earliest potential customers. Do they understand the value proposition? Are you being paid for your solution?
- Step 4: Validate Quantitatively: It's time to release the product to a larger audience. How will this audience react? Is business feasible? Is it lucrative? Did other unexpected challenges arise?
Why Do Startups Fail?It is known that most startups fail and Ash systematizes the top 3 risks that exist and causes them to fail:
- Product risk - When the startup is unable to create a product that people want. To avoid this risk, it is necessary to be sure that the problem being attacked is worth solving and that the product is constructed through an iterative approach, through constant customer feedback.
- Customers Risk - When the startup is unable to take their product to customers. To avoid this risk, it is necessary to identify a set of initial users who are interested in the problem and its solution and create constant and scalable channels of attraction to reach these clients.
- Market risk - When the startup fails to create a viable business. To avoid this risk, it is necessary to have a clear pricing model from the beginning and to be continually validated to know if customers would pay for the product. Understanding the three top risks is essential to ensure the success of your business and to be aware of the mistakes you may be making.
Meet The Lean CanvasBefore you start creating a new product or service, you need to know how to plan and communicate it, right? But a business plan is not at all flat. Writing 30 pages to validate an idea does not seem to be the solution.
You need to be flexible, fast and agile. For this, Ash introduces us to the lean canvas. The canvas is a one-page diagram, adapted from the Business Model Canvas, a new business creation model developed by Alexander Osterwalder.
This one-page guide includes your customers’ problems, your solutions to these problems, your distribution plan, your competitive edge, and your pricing strategy.
The lean canvas is an important document because, in the initial stage of validating an idea, everything is just a guess, nothing is a certainty.
The idea of the canvas is that you capture all the assumptions you have about your product and then build a structure, a plan that you believe can work.
Start your brainstorm with a list of potential customers for your product.
Remember: the client is different from the user. The client is the one who would pay for your product. Then list 1 to 3 issues that you believe these customers would have. From there, define your unique value proposition, (UVP).
Your UVP should explain why you are different and why people should use your solution. It must be derived from the biggest problem that you solve and never from your product’s features.
It is important to be different, but more importantly, it is important to know that your difference matters to the customer. Your solution should be broad, and you should not fall into the trap of detailing it too much.
Remember, it is based on assumptions rather than facts. Another important point is to think about pricing still in the ideas phase.
Being paid to solve a problem is the best form of validation. To find a high potential idea, you must continually experiment and test it at all times, based on the simple cycle: Build> Measure> Learn.
Create as many canvases as you need, save them, share them, and continually come back to update them with new ideas.
Starting The JourneyOnce you have your first canvas ready, it's time to prepare for the validation journey. The important thing is to prioritize your ideas and hypotheses, find risks and prepare to go to the market. To prioritize your thoughts, ideally, you order them by four main criteria.
- How big are my client's problem and pain?
- How easy is it to reach this potential customer?
- How profitable is the solution to this issue?
- How big is the market for solving this problem?
The biggest risk a startup runs is creating something that no one wants to use.
For this, you need to test and leave the office. For each test, you have to do as little as possible, the smallest task that leads to learning, to save resources and learn fast.
You do not have to program an entire product to see if it solves a problem. You do not have to set up a restaurant to see if people would like a new recipe.
You do not need hundreds of automated tests on your software before you even know if people would pay for it.
To test, we must convert our hypotheses into clear, quantifiable experiments that may fail or be successful. A good example to test if the hypothesis has the following structure: Repeatable action X will generate a Y result.
A good hypothesis would be: If I post a blog about management software, I will be able to attract 200 potential clients to my company.
When dealing with uncertainties, especially when exploring a qualitative doubt, no huge amount of data is needed to minimize risk.
According to Maurya, only 5 tests reveal 85% of the problems of a product. For each hypothesis, you have to validate it with real people, and the canvas helps you maintain this fast learning cycle.
The important thing is: never assume that you know the solution. Learn, adjust and create new hypotheses.
A big negative sign in the first interviews can be a clear signal to rethink your model. An extremely positive message may mean the timing to proceed to quantitative validation.
To understand if the problem you are attacking is real and worth solving, you need to talk to potential customers.
Ash does not believe that research methodologies and focus groups work. Research starts from the premise that you know which questions are correct and also what the possible answers are.
Focus groups, on the other hand, lead to collective thinking, which does not necessarily represent the individual’s problems and challenges.
Ash suggests that you talk to 30 to 60 people, always taking their interaction with them toward learning and never sales of a product.
Ash suggests that you start the interviews through your network of contacts and gradually ask for more and more presentations to potential clients.
You need to develop your networking to create a vast and diverse network of people with whom we seek to learn.
Ash also gives tips for collecting the first contacts of potential stakeholders through web pages, emails, and social networks. It is important to create and follow a script to keep learning constant and efficient.
While it’s easy to test whether potential customers engage with the problem-solving message in a blog post or a landing page, you need to capture more information to understand how they solve the problem today.
Another good practice is not asking what potential customers want, but rather what they do and how they deal with the problem, ideally by measuring the impacts of the problem.
Techniques that help you create good interviews and scripts are the methods, like Design Thinking or User-Centered Design.
This stage ends when you’ve interviewed at least ten people, and you have a real problem, you understand how customers solve it today, and you know who the potential customers are and what channels you can use to reach them.
Step 2: Defending The SolutionCustomers do not care about your solution, but about their problems. So we need to validate the solution to the problem we encounter.
To do this, you need to build a demonstration that helps customers visualize the solution and validate if it solves the discovered problem.
At this stage, we will return to the potential clients interviewed in the previous stage, with a solution to the problems reported by them.
This presentation should go through the confirmation that the problem exists, show how your product would solve that, and how much it would cost for customers to solve their problem using your product.
This step ends when you understand that customers believe in your solution and that they would pay the proposed value for the solution you plan to build to solve this problem.
To define pricing, customers must be told the direct value. In this case, the approach here is not to ask customers how much they would pay, but to tell them how much it will cost.
You cannot convince a customer that he has a problem, but you can and should convince the client to pay a pre-set amount for your product.
When asking the client how much the problem would be worth, he will probably give you little value, after all, there are no economic incentives for him to suggest a high price.
Pricing your product is also based on having clarity of the segment of customers you want to attack.
To sell to the first customers, you need to adopt some strategies. Ash suggests tactics like using scarcity (we will have only ten users in the first version of our product) and anchoring (price is relative, the time you lose with this problem costs less than that).
You know you’ve come up with a good pricing model when you have a value that the customer accepts but still has some resistance.
To structure solution interviews, Ash Maurya proposes that you use a template called AIDA. AIDA is an acronym that stands for: Attention, Interest, Desire, Action.
You must attract the customer’s attention to your value proposition, take the client’s interest when you present your solution, create a desire for your solution, and come to an action, a verbal, written commitment or even a pre-payment for your solution.
Step 3: Qualitative ValidationFor qualitative validation, we need to have our MVP, the minimum viable version of our product. With MVP created, we're ready to validate if people would buy our product.
MVP is comprised of a marketing site for your product, a dashboard to monitor conversions and from there to meet with your potential customers to convince them face-to-face to use your product.
If you cannot persuade them in a direct conversation, you probably will not be able to convince them with your website. How does the user perceive our site? Is your product differentiated to your potential customer?
Is the customer ready to give you payment information and start using your product? If so, great. Once we have the first sign-ups, our goal is to get paid, retain customers and collect testimonials from successful clients.
You must continuously learn from your customers and the reasons why they pay you, but also customers who have chosen not to hire you. For what reasons did they make this decision?
Step 4: Quantitative ValidationTo reach the product/market fit, that is, having a product that people want and that you can sell is the primary objective, and it comes through quantitative validation.
For recurring goods and subscriptions, you have some traction when you can retain at least 40% of your active users month after month.
Ash recommends that you use the test of the great marketing professional Sean Ellis, who helped companies like Dropbox scale up and reach millions of users.
The test is simple. In your product, ask the users “How disappointed would you be if you could not use our product anymore?” With answer options: Very disappointed, a little disappointed, not disappointed.
If more than 40% of people say they would be very disappointed, there is a good chance that you will be able to build a scalable machine for growth and customer acquisition.
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“Running Lean” Quotes[bctt tweet="Startups that succeed are those that manage to iterate enough times before running out of resources." username="get12min"]
[bctt tweet=“While passion and determination are attributes that are essential in order to drive a vision to its full potential, if they are left unchecked, they can also turn the journey into a faith-based one driven by dogma.” username=“get12min”]
[bctt tweet="When people need to get a job done, they hire a product or service to do it for them. The marketer’s task is to understand what jobs periodically arise in customers’ lives for which they might hire products the company could make. " username=“get12min”]
[bctt tweet=“At every stage of the startup, there are a set of actions that are “right” for the startup, in that they maximize return on time, money, and effort. A lean/bootstrapped entrepreneur ignores all else.” username=“get12min”]
Final Notes:When you want to launch a new product or service, you have to be fast and learn at high speed with few resources. The biggest risk you face is solving a problem that does not exist and that the market does not care.
Hence, one must minimize the effort of building the product itself until one is sure that it solves a real problem for the customers and that they would pay for it.
Interviewing people and getting feedback from potential customers is a critical step in preventing you from wasting resources or creating something that people do not want.
Validating the idea is key before investing in its development.