Eternal student. #Lean and #agile advocate. Practitioner of the mystical arts of project management. Licence to geek.

Oct 10, 2016

Lean Methodology — Iterating Towards Success

What Is Lean?

Intro To Lean

Introduced to North America by Eric Ries in his book entitled The Lean Startup, then augmented by Ash Maurya in his book, Running Lean, Lean (capital L!) takes lessons from Toyota Production System design practices and applied it to new enterprise and project management.

Lean also integrates lessons from Agile development and Customer development methodologies.

What it is, and what it isn’t

Being Lean isn’t about being cheap. It isn’t about cutting corners or not having a plan or roadmap. Lean means being smart about getting from point A to point Z with minimal resources.

Lean methodology values efficient use of limited resources and reduction of waste in order to achieve a goal.

Lean values a scientific and observational based approach to quickly resolving a problem or creating marketable value.

The Validated Learning Loop

The validated learning loop, or Build-Measure-Learn loop, was codified by Eric Ries and describes the customer feedback loop that drives learning in a Lean Startup.

The idea is to build upon a hypothesis, measure the response, derive qualitative and quantitative data that will allow to refute/validate the hypothesis. The loop starts again as a new hypothesis is derived from those lessons. STEM students will likely recognize elements of the scientific method.

Startups that succeed are those that manage to iterate enough times before running out of resources. — Eric Ries

The Lean approach to starting up

Lean and the three stages of a startup

Successful startups often go through three distinct stages:

1. Problem/solution fit
2. Problem/market fit
3. Scale

Lean facilitates cycling through these stages incrementally while mitigating your expenditures (do more with less).

Example: Writing a book

To better understand the concepts, we’ll observe as a writer plans the publication of a book. We’ll follow his work in these quote sections.

The writer will iterate, pivot and scale through the delivery of value (the book) using Lean thinking in order to reduce effort and concentrate on what his audience wants.

Problem/Solution fit

This stage strives to answer the following questions:

Is it something customers want?
Will they pay for it? If not, who will?
Can it be solved?

Using customer development techniques, one can better determine what problems need solving and how best to address the problems.

Through interviews, feedback, market research, a writer will be able to identify a subject matter or a plot that his target audience (his customers) are interested in.

From there, he could build a teaser site that would allow him to validate the problem/market fit.

Problem/Market fit

The problem/market fit strives to determine if you’ve built something people actually want.

At this point, we’ve built an MVP that is complete enough to allow us to validate marketability, but no more. The key to Lean is to do just enough to validate the hypothesis. Any effort beyond that point is potential waste, as it may be trashed as you enter your next cycle.

The writer in our example has a teaser site he’s presented to his early adopters. On this site, he’s set up a crowdfunding model.

Through analytics, he can then determine whether people are willing to pay for a book that doesn’t exist yet, and how much they’re willing to invest. He’ll also be able to identify those who aren’t willing to pay, and use this to document why so he can take action to resolve this.

Scale

How do I accelerate growth?

At this point, it’s all about expanding your business model to reach a broader audience.

Growth would be based on the findings of the problem/market fit stage.

What made your early adopters so eager to be and remain on board? What made the others weary of your offering?

Our writer has received initial feedback on the willingness of his audience to buy his book. He can now use this information to expand the content based on the feedback.

A validation loop allows him to incrementally determine if he’s on the right track without wasting effort on content that his audience doesn’t feel is valuable.

Startup Phases — Visual representation

You stand to learn the most when the probability of the expected outcome is 50%; that is, when you don’t know what to expect. — Ash Maurya

Putting It All Together — The Lean Canvas

The Lean Canvas

Developed by Ash Maurya and based on the Business Model canvas, the tool is meant to allow a visual representation of a Lean plan.

The size limitation within the frames, especially when it comes to defining the solution, is meant to force the user to reduce his plan into the smallest increment possible, in order to focus validated learning on a small set of hypotheses.

Lean Canvas — Structure and flow

1) Problems and Alternatives

What are the top 3 problems that your audience is experiencing that you are attempting to resolve?
What are the ways that this audience mitigates or evades these problems today?

Our writer, through various channels, has identified that his audience has a hard time finding a centralized, normalized and reliable source of information on the principles of traditional Spanish cuisine (mmm, paella!).

He found out that his contacts often fall back to crawling the web, cobbling together their own understanding of the matter that yields certain results, but is felt by some to be risky, as experts often disagree on opinions and terms used to discuss the subject (see: Jamie Oliver’s recent chorizo-gate).

2) Customer Segments

Identify the various roles that will interact with your product.

Differentiate between:

Customers: Those willing to pay to use the product.
Users: Those willing to consume the output of the product.

Hone in on your early adopters, those prototypical customers that represent the core group that you want to target in the first iterations.

Our writer has identified his target customers. They are mainly millennials that are open to explore new taste profiles, but are unwilling to settle for cheap americanized interpretations.

His early adopters are acquaintances that maintain a food related blog he frequently exchanges with. Their blog gets a lot of daily visits, which he can capitalize on to extend his reach later.

3) Unique Value Proposition (UVP)

A UVP is a clear statement of the tangible results a customer gets from using your product or service.

Build your UVP as if you were riding an elevator with a potential investor. Most elevator rides last on average about 15 seconds. This is all you get. Make it worth it!

“I offer a comprehensive and practical research on the history and principles of traditional spanish cuisine in a format that is based on years of study on the matter. I open the door to amateur and professional chefs to better understand the subtleties that make spanish cuisine the rich and complex landscape it is today.”

4) Solution

Once you understand the problem, you are then in the best position to define a possible solution.

Define a minimally viable product (or MVP) that addresses the core problems and alternatives that your early adopters, and by extension, your target audience, have raised.

The box is intentionally left small to force users to restrain themselves, and not fall into the trap of Entrepreneur’s bias, where the solution grows into what you think your users want rather than what consumers are expecting.

Our writer has identified the problems, his core audience and defined his UVP.

He’s decided that his MVP would be, as a first iteration, a table of content, made available to his early adopters, that highlight the details of what he intends to present.

He’ll also publish his professional background in order to reassure consumers on his position as a subject matter expert.

5) Channels

A company can deliver its value proposition to its targeted customers through different channels. Effective channels will distribute a company’s value proposition in ways that are fast, efficient and cost effective.

An organization can reach its clients either through its own channels (storefront), partner channels (major distributors), or a combination of both.

Our writer will capitalize on several channels to validate his claim:

His food blog contact will write up an article about the initiative and direct consumers to the teaser site.

A minimal AdWords campaign will generate traffic to the same site

A social media strategy will allow viral interest for the project.

6) Revenue Streams and Costs

The cost structure represents the financial impact of building your MVP during the current iteration. This would cover time and material costs, as well as external services required to reach your goal.

The revenue stream identifies potential influx of money your MVP may generate. In our example, we identify crowdfunding promises, as some investors may consider this as a revenue stream that is simply waiting to be received.

Revenue stream: — Promise of purchase from crowdfunding

Cost structure: — Customer Development 40 man hours

— Teaser site creation 40 man hours

— Teaser site hosting 100$ per year

— Domain hosting 20$ per year

— AdWords campaign 2$ per keyword per click, 200$ maximal budget = ~100 clicks.

— Social media campaign 20 man hours

7. Key Metrics

“A startup can only focus on only one metric. So you have to decide what that is and ignore everything else.” — Noah Kagan

Derive, from your hypothesis, what variable you’ll be using to measure the validation (or invalidation) of your claims.

Focus on a single metric, so as to not drown in a sea of data. Too much can be just as damaging as not enough.

Our writer is concentrating on Acquisition, that is attracting a larger pool of customers, by building an MVP based on initial customer development feedback.

At a later phase, he may concentrate on Revenue, but this early on in his venture, his focus is on securing volume he can weed out later, if need be.

Look up Pirate Metrics (AARRR) for more on the subject.

8) Unfair Advantage

What sets you apart from the competition that you customers should keep in mind when considering your product.

This is the final cell, as it is often the hardest to define.

Most startups would even keep this one blank until later iterations, since defining your advantage is not easy this early on.

Our writer considers himself an expert on the subject, and may even have the credentials to back his claim.

But he knows that his target customers don’t buy a reputation. They want a quality product and aren’t swayed by a cult of personality. He’ll hold off defining this value until he solidifies his offering further.

Lean Canvas — Filled out example

But, what happens next?

Once the efforts and costs defined in the plan have all been spent, the various inputs are then analyzed and lessons are learned.

Those lessons will fuel the hypothesis for the next iteration, which will pivot its goals towards the conclusions of the previous iteration.

The Validated Learning Loop starts again.

The results are in. The various campaigns that our writer has launched have proven successful. Most successful of all was the social media campaign, which generated the most initial and returning visits.

He’ll therefore concentrate the efforts of this next iteration on that channel, attempting to either improve his acquisition rate or convert those initial acquisitions into activations.

Resources/Further Reading

Sources for this article

The Lean Startup (Amazon Link) — Eric Ries

Running Lean (Amazon Link) — Ash Maurya