Thursday, June 21, 2012

Are you ready for Lean Startup?


Lean Startup is appealing as it promises to bootstrap your business fast. However, it might prove to be a very tough method that might find strong resistance in its adoption. Lean Startup needs you are ready to get out of your COMFORT ZONE.

These are, in my opinion, the main reasons why Lean Startup finds resistance among startups and entrepreneurs:

1. You are afraid of throwing away what has been done so far. You already have a plan and you want to stick on it. This might happen when you try to embrace Lean Startup at a later stage in your project. You have already committed resources to certain activities and you don't want to backtrack. More correctly, you don't want to take the risk of realizting that you are going to the wrong direction and you will have to backtrack. But you do want to take the risk to fail later because you have created something that nobody wants. (Would you call it "procrastination"?).

2. You have a strong ego as a founders (or CEO) and you don't want that someone challenges your assumptions. It's very hard to get out of your own reality distortion field. To put this bluntly, the problem is that you refuse to measure the progress towards business objectives. Lean Startup requires that you are ready to setup Actionable Metrics and honestly evaluate your progress towards Product-Market-Fit. In this case, measure of progress is a mean, not an end. It is a proof that you are going in the right direction, namely you are buidling a product that sells.

3. You fear of facing the reality of the market. World is much nicer if seen on a piece of paper. The market is made of people and as Steve Blank says: "no business plan survives first contact with customers". 

4. You believe that getting to market too early would entail loss of reputation in case of failure. You don't see failure as part of the process of searching a viable business model and achieving the product-market fit. What you don't understand is that failing with early adopters is not a problem. They are aware of the imperfections of innovative products and they are very forgiving. Besides, the type of failure that you might face at this stage is that NO ONE will buy your products. Therefore, nobody will notice you and your reputation is not at stake.

5. You see business from the top down. You have a business degree and you think you know how to do business. You are not ready to build your business from the bottom up. Executives know how to run a business, not how to create it. Startup is a search process aimed at finding the Product-Market-Fit. Once you found it, you can build your company, scale your business and execute a business plan.

6. You believe that your business is not "lean-compatible". You may have been already been funded on the basis of your Business Plan. In that lucky situation, I can only wish you best luck in not finding yourself in the 90% of startups that will fail.

Lean Start could be a threat to focus-oriented people. I mean that, those who believe that once the plan is written, the only way to succeed is to stick on it. As I already said, planning in uncertain situations is nonsense. So, do you want to stick on nonsense? Be my guest! But don't tell me I did not warn you. :-)

Vincenzo Pallotta, Strategic Adviser at LeanStart, Geneva, Switzerland.

Saturday, June 16, 2012

Metrics to understand cause and effects (aka "impact")

As Eric Ries pointed out: only those metrics that help you in making decision matter; the others are "vanity" metrics.
Actionable metrics help you to understand the progress of your business. In particular they help you in understanding the impact of your decisions, being design or marketing decisions.
In order to do so in a systematic way, you need to first understand the dynamics of the customer behavior, also known as the customer life cycle. Many examples are given for eCommerce since metrics are easily implementable through Web Analytics. However, also in other types of business this can be done effectively.
I would like to provide here an example which is different than eCommerce and that I am trying to experiment myself.
As a consultant, I provide an stretegic advisory service to startups so that they can successfully implement the Lean Startup approach for boostrapping their business or introduce new products. I provide them with an "external" perspective to their business so that they can start validating their business model's hypotheses right from the beginning and not when it is too late.

What are my Business Model hypotheses?
1. Startup's founder need a different approach to business development;
2. Even if they know about Lean Startup they need someone who guide them through the process;
3. They are willing to pay a relatively small fee to get a "one-man advisory board".

Of course, it is not possible to validate this kind of hypothesis with Web Analytics. Moreover, I need to turn qualitative feedback into quantitiatve performance indicators.
In order to test hypothesis 1, I started talking to individual startup founders in order to understand where they were struggling in business development. Actually, a recurrent pattern was that they are not able to plan on the long term and be able to convince investor in financing their ideas. Therefore, if they want to persevere, they need to find a way to self-sustain and rapidly start sellign something. In that respect, I am gathering evidences that the standard approach, i.e. the Business Plan, is perceived as an "unavoidable evil" that founders have to do in order to be considered by incubators, advisors, early investors, etc. In other words, they don't see a value in doing it but just a perfect waste of time.
In testing hypotehsis 2,  I discovered that Lean Startup idea is gaining field over mainstream approaches to business development. In the same way as it happens in software development with Agile methods, Lean Startup is seen as "common sense" for business development. People believe that the principles of Lean Startup are very reasonable, but they ask questions about how they can implement them. Following the analogy with Agile SW development, I believe that a "Master of ceremonies" (e.g. as a SCRUM master) is essential. In Lean Startup, startups need someone who help them keeping on track by avoiding falling into their own "reality distortion field". Founders believe they are right until they launch their product and realize they weren't. And this often happens too late to recover.  Founders need to change their mindset and attitude towards failure and experimentation. So far, the recurrent pattern is that often consultant are hired to confirm the company's strategy and if the consultants provide negative feedback they are probably fired.  As an advisor, I am supposed to challenge the founders and their business models so that unvalidated hypotheses will emerge very early in the process. The question is, am I able to change the founders' mindset and move them out of their comfort zone? This is exactly the hypothesis I am trying to validate.
Finally, in order to test hypothesis 3, I figure out one possible approach. In consulting/advising, the most appreciate currency is referral. Once people start appraising your skills, you will get customers in no time. Therefore, I considered useless to start charging money for my MVP and I proposed my first 10 customers a win-win deal: I will provide my service for 4 weeks provided that you will accept to write a public endorsement in case of satisfaction. After the 4 weeks, they will decide if they want to continue or not on a subscription basis and for a price which will be established according to their perceived value. I don't know if this approach will work or not. After all the MVP is not just the Lean Startup Model, but also my skills as an adviser. I consider this as a very explorative metric where I am trying to figure out the "real" value I can offer to my customers. On its results, I will be able to decide if a price and a marketing strategy, or even to target a different market segment.
In summary, for a metric to be actionable one needs to:
1. Gather insights on the customers needs and wants and in particular select the "must to have" features from "nice to have" features.
2. Understand the impact of your decision in the development of your business. Not only in cases where it is going to work, but also in the (very probable) cases where it doesn't.
3. Realize what is the perceived value of your product/service. In one market segment, customers might consider your product as a "must to have" but only for a specific price range, while it could be completely different story for another market segment.
These elements can be elicited, in my opinion, for any type of busines, product and market. In that sense, I believe that the Lean Startup model is a universal model. My long-term objective is to provide an empirical proof of this universality.
      Vincenzo Pallotta, Strategic Adviser at LeanStart, Geneva, Switzerland.

How to design a Minimal Viable Product

While it is pretty clear that a Minimal Viable Product (MVP) enables validated learning through its adoption by early adopters, it is not clear enough what it actually is.

Even Eric Ries seems to be very vague on what actually constitues an MVP. He says that essentially a MVP is a learning tool that we can use to learn about the targeted customers needs from early adopters providing them with the minimal set of features that they accept to find in your product.

Minimum Viable Product

View more presentations from Eric Ries

But now the question is how to figure out the minimal set of features? In order words, how do I know the needs adn wants of early adopters?

This might seem an chicken-and-egg problem, but there might be a way out.

First of all, WHERE do I find early adopters. Well, of course it depends on the type of product, but high chances are that you find in place where the people talk about simiar products (e.g. discussion forums).

Second, HOW I select the features for building my MVP? Here is my 2 cents about the topic. You can follow these simple steps:

  1. It is very likely that your product is similar to existing products. If it is the case, you can select the most similar one and list all the features of this product.
  2. Once you have listed these features, select those that your product will share with it and add those features that will differentiate your product from the selected one.
  3. Now (and this is the hard part), start to remove features. Once you removed a feature, ask yourself, is the resulting product still something "acceptable"? You iterate this removal process until you reach a situation where removing any of the remained feature will make the product "unacceptable". 

One suggestion, to improve the process is the following: for each feature you want to remove, ask yourself what is the value of this feature to the user/customer and try to understand what is its contirbution to the overall perceived value. You might even rank them beforehand and start removing them from the lowest valued features up.

Notice that this is about "features" of your product and it does not tell you if you have to implement them into a real functional prototype. This process leads to the design of a product that is the "cheapest" to build because only contains the features that define the "substance" of the product.

Building it or not is another story. Namely, it fundamentally depends on what resources you have. If you can afford to build a real instance of your MVP, that's great because you can directly sell it to your early adopters. But sometimes (often?) this is not possible. In this case, you can tell your early adopters about the "design" of your MVP and ask them for feedback or, even better, to support its development. In times of economical recession, maybe this is the way to go and there are a lot of successful cases of crowdfunding out there such as KickStarter.

My personal suggestions are:

Don't be afraid to eliminate "vanity" features from your MVP as long as it represent your vision. There will be time to reintroduce them later.

Dont' be afraid to ask your early adopters to pre-order your product. Sales are the only reliable indicator that people really want what you offer to them. If your MVP requires an effort that you cannot afford, ask your potential customer to help building it. After all, this is a win-win situation because they will eventually have what they were looking for. 

Don't ask investors to help you in building your MVP. Investors are not customers and basically they are interested in their return on investment and company ownership. Always be aware that with an MVP you are running an experiment that allows you to learn what the market really wants. Inverstors are not interested in experiments that have a high chance to fail.

Make several versions of the same MVP and split test. There is a high chance that you made a mistake in selecting the relevant features.

Listen your potential customers and ask them to help you in designing the MVP: they know better than you what they want.

Vincenzo Pallotta, Strategic Adviser at LeanStart Geneva.


Sunday, June 10, 2012

Coraggio Massimo!

I am compelled to express my solidarity to Massimo Marchiori in his recent resignment as CTO of Volunia.
With a open letter, Massimo Marchiori announced and explained the reasons of his resignation from CTO role at Volunia.

First of all, I would like to stress that Volunia has been launched as a private beta and therefore nobody should say that it has failed.

Second, the CTO should not considered directly responsible of a flawed marketing campaign. Although Marchiori was in first line in the launching event, this might have been decided by other people because of his visibility and reputation.

Third, if it is true that Marchiori has been excluded from the decision process in the Board and thus forced to follow a strategy he did not support, not only he has the right to tell about it to everybody, but he also has the obligation to disclose it to Volunia's investors. Probably, investors have suppported Volunia because of his reputation and therefore if the company no longer endorses his vision, they must be informed about this.

I believe that Marchiori has learned the lesson that only who has the vision and the core idea of the business has the right to become CEO. At the startup stage, only who has the vision and possess the IP should be entitled to hold control of the whole business, no one else. 

I need also to express my opinion to the reaction of Italian media and entrepreneurial community who stigmatized Marchiori's decision as being determined by a poor teamwork or by not wanting to accept the failure of his project. I don't think it is fair and correct. I believe that Marchiori, had the right to express his disappointment against people who failed in aligning the business objectives to his vision. He clearly explained that what Volunia became was not what he intended and it was mainly the results of other's decisions. 

I wish all the best to Massimo Marchiori and most of all that he could recover from this situation as fast as possible and be ready to undertake another venture with better team mates.