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.

Monday, May 21, 2012

Startup status does not last forever!

Reading this post on the reasons why Path and Flipboard are no longer adopting the Lean Startup model, my intuition tells me that the true reason is because they are no longer startups.

It probably does not make sense to stay lean when you need to scale. Scaling is a big effort that require a heck of resources. When a company decides to scale, it can no longer afford to make pivots. Yes, because there is a committment on the infrastructure which renders even small changes extremely expensive.

This means that when you decide to scale, you must do it right. And to do it right you need to have learned everything about your business. 

So, I believe that Lean Startup has its own scope and it is a mistake to try to apply where it is not appropriate.

Google Knowledge Graph: a further step towards the Semantic Web?

...maybe yes!

According to Google, Knowledge Graph is the new frontier of Web Search. From the video below, it seems that Google was able to build a huge semantic network that will be exploited to retrieve semantically related content to a query.


However, it is not yet capable to fully understand natural language queries such as those showcased by PowerSet a few years ago:

1. Books on children

2. Books for children

The above queries differ only on the prepositions: "on" vs "for". Standard search engines get rid of these words in the indexing phases (they are "stopwords". Unless the content is indexed differently there is a minimal chance that the right results will be selected for the different queries. In other words, for Google the two queries are identical.

If you think that you may overcome this problem by putting the query into brackets: "books on children", Google will only return results that contains the string "books on children", which is not exactly what we are looking for.

Being a book ON children means that the book should tell stories about children. This is a PROPERTY of the BOOK object. More precisely is the value of the attribute TOPIC for the concept BOOK (if you speak RDF, it would be the triple topic(book, children)).

I don't know what exactly are the plans at Google, but if they really want to make progress towards the Semantic Web, they should turn their "classical" indexes into an RDF version of them where the text of the pages is semantically parsed and the semantic roles extracted. This is a very computationally expensive task (well, IBM Watson did it).

But it is not enough. Google should also process the query differently, i.e. without removing stopwords like prepositions as they carry essential semantic meaning as in the above queries. The technology for doing this already exists and it is also quite effective. I am sure Google is onto it.

Sunday, May 20, 2012

Spam ads

Google's contextual ads are too "contextual". For instance, when you visit your own GMail spam folder, it prompts you with an ad for the term "spam", as you can check from the picture below:

You might notice the "Ginger Spam Salad" recipe link that appears over the "Delete forever button".

This phenomenon allows me to talk about "Word Sense Disambiguation", a Natural Language Processing technique that Google seems not using in this situation. Basically, Google is not able to distinguish between the two senses of the word "spam" (corned beef and unsolicited mail).

Friday, May 11, 2012

Lean vs Fat startup debate: an argumentative analysis

From this video, Mr. Ben Horowitz has pointed out three alleged flaws of the Lean Startup Model:

1. It presumes when you have achieved product-market fit. The supporting example was about measuring success of products over time. iPods did not sell as fast as iPhones, and on that basis Apple should not have introduced other iPod models after iPhone. 

This argument is flawed because, first Apple is not a startup. Second, and most importantly, Lean Startup never said that one should use metrics from another products to assess the product-market fit of a product. In the example, exactly because of the risk of cannibalizing iPods, Apple decided to introduce new models (i.e. to do a pivot, as Lean Startup suggests).

2. Lean Startup presumes that once you have product-market fit you can't loose it. The supporting example, is Netscape that once had the product-market fit, but lose it when Microsoft included Internet Explorer in the OS.

Again, the fallacy resides on the fact that Netscape was not a startup. But more importantly, this was not a problem with customers needs, but rather than an external factor that forced the users to accept Microsoft policies/strategies. Horowitz points out that they "did not have the luxury to address the issue in the Lean Startup way". That's not a "luxury", is a rational way to adopt if a company cannot afford to splash milions for crashing new product development. Actually, it is the Fat way a luxury that startups cannot afford. In such a case, Lean provide a way to achieve decent results with a fraction of "Fat" resources.

3. Lean startup implies or assume that there is no competition. What if prior achieving product-market fit, even if the market is large, a scary competition appears. The supporting example is taken from VMWare who take care to invest money in order to be ahead of open-source competitors like Xen and big scary competitors such as Microsoft.

The argument is obviously fallacious because, first not even VMWare was a startup, but secondly because if crashing massive resources to gain competitive advantage works well, this does not necessarily mean that Lean doesn't. When it is not possible to deploy brute force to deal with competitors, Lean offers smart tools (like David and Goliath). One idea is to elicit niches where competitors are weak or not considering so that the startup can avoid direct competition and possibly erode the main market. Lean Startup is in that sense compatible with the work of Christensen's work on disruptive technology and emergent markets. 

The problem with Horowitz is not business skills; it's LOGIC. He provided three fallacious arguments against Lean Startup. I also believe that Lean is not universal and there are many contexts where it does not apply well (e.g. large established companies for mainstream products). Also, Lean Startup advocates that once the business scales, the conditions change and probably the methodology is no longer applicable.

Besides, a Fat startup model has several problems, among which "premature scaling". Horowitz was unable to explain how the Fat model could be beneficial for startups as he showed only Big Companies examples.

On the other hand, the Willson's argument was much clearer and plausible:

"Wilson’s argument focused more on how to maximize the probability that entrepreneurs will get favorable exits. He boils down the formula to: (Founder’s Stake) x (Probability of an exit) x (Size of the exit). Wilson says to focus on the first two variables. Accepting more funding will dilute the founder’s stake, but it isn’t going to proportionally increase the probability of an exit (which is based on far more factors). In other words, it hurts the likelihood of a favorable outcome (at least from the entrepreneur’s perspective). Likewise, he says investors are looking to mitigate risk, which is why investing small amounts when a company is young is in their interest."

However, he only focused on one of the many benefits of the Lean Startup model: the reduced need of initial resources. Lean Startup is a comprehensive methodology that make sense for startups (possibly with a few exceptions), and it has several facets. 

My personal opinion is that Lean Startup can help startups in finding the right direction towards a sustainable, profitable business model by incorporating failure in the product and market development process. Failure becomes a learning event, which allow the startup to "rule out" the failing paths (or pruning, to use a Computer Science terminology, the "dead branches" of the business opportunity search tree) very early in the process.  

Sunday, April 08, 2012

Divergent thinking

Dear Readers,

I would like to resume my blog today with an Easter egg. 

I stumbled upon this talk given by Tina Seelig about Divergent Thinking and related subjects.

Divergent thinking, when combined with convergent thinking results into Design Thinking.


Design Thinking is what is needed to create new things and change the world. Sometimes people only see the "convergent" side of this process, because they can only see the result of it. Instead, ideas generation is the most challenging part and often hidden. Even Steve Jobs, before getting it right, have explored plenty of designs he did not hesitate to throw away if they did not meet his standards. 

Nobody get it right from the beginning. But everybody is able to explore the search space of ideas. But also people are afraid to explore this, possibly large, space because they can get lost. Moreover, many assume that sharing one idea means believing that the idea is the best or the right one from the perspective of who generated it. This a wrong assumption. Generated ideas are not right or good. They are just ideas... that need to be validated. Ideas are assumptions, and assumptions need to be validated. Only after this process, one can say if they are good or bad. If you don't do that, you are simply biased. 

This is where convergent thinking unfortunately kick off prematurely. Once an idea is generated, instead of taking position in favor or against it, one should think about how to validate it with a neutral standpoint. Validating, means setup experiments and put the idea at work. Sometimes is very straightforward and brainstorming might be sufficient. Some other times, it can be very challenging and it would require a complex experiment.

In no case, an idea should be classified immediately as a non-sense. Moreover, ideas can be tweaked and made feasible and valuable just by changing the some assumptions that don't work. That is "morphing". As I said before, nobody get it right from the beginning, but there is a high chance that they get it "almost" right.

Another situation is when some assumptions are believed to be validated and in fact they are not. When implemented, these ideas fail just because some of their assumptions were believed true and in reality they were not (e.g. customers like it because I like it). In these situations, one has to have the courage to throw away work done and start from the beginning. This is called "pivoting". 

In my opinion, if pivoting is required often later in the process of developing an idea, it means that too little has been done in the "divergent" phase of design. In other words, ideas were not explored adequatelly.

In the divergeng phase, one can use the "re-framing" technique. This is when, one tries to see things from different perspectives. The idea can be the same, but you look at it in a different way. You do this when you say "let's see this as it was that". In other words, you can use different metaphors.

As pointed out by Tina Seelig, metaphors are a very powerful tool to change perspective. Metaphors are orthogonal to ideas. Of course, adding an additional dimension makes the process more complex and difficult to manage. However, the chances to find the best idea are higher. 

Dealing with metaphors requires to see things differently. If you see ideas differently, the assumptions might change and turn out to be validated. This is something we do for instance when we change market segments or consider a different use of a product. Well, in reality we don't do this, our users do. Yes, because they are not biased like us by "convergent" thinking: they are naturally "divergent". 

That is why, "validated learning" is very helpful. Validated learning is a technique promoted by the Lean Startup Model proposed by Eric Ries. The idea is that assumptions are validated through the building of a Minimal Viable Product (MVP)t that users can test and provide feedback to. Then you learn by measuring the feedback and then iterate the process by integrating what is learned in the next version of the MVP. 

To conclude this post, I would like to stress that being a Design Thinker might be challenging if you work with "convergent" thinkers. They tend to see in black and white whereas you see colors. They see one dimension where you see two (like in Flatland). They blame you to bring distraction where they need focus. They see threats where you see opportunities. And most of all, they fear "pivoting" because they have focused so much energy in developing one single idea that throwing it away would represent a big failure for them. 

Design thinkers know that faillure is the only way to success and they are just fine with it. For 100 bad ideas there might be a good one. They know that the only way to seize it is to rule out the other 99.

So don't be disappointed if you don't find what you expected in the Easter egg.

Happy Easter to everybody!