Building a business around a product that hasn’t yet been built is not an easy task; not to mention, the nuances pertinent to the different aspects of a model that works. In the past few decades, when a project — or product — was about to start, people would have to build an exhaustive description of work with specifications regarding every different aspect of said project or product. Team members would use that document as a guide, to work on it. That is called the “Waterfall” model and it comes with a great caveat; there is no direct contact with the market and the people that would buy it. We’d only depend on wishful thinking for sales. In 2008, all that changed, with the Lean Startup methodology.
The Lean Startup methodology caused a paradigm shift in how new startup businesses work and how they can yield results. And, although nothing is written in stone, there’s no denying the benefits it brought into the world of startups; tech startups, no less.
What is the Lean Startup methodology
The Lean Startup methodology is a methodology that derives from the Toyota Production System. It was conceived by Taiichi Ohno who came up with a set of principles to what was later consolidated into the Lean Manufacturing process. He published the finished methodology in his book “Toyota Production System” in 1988. And it revolved around the concept of identifying and reducing wasted effort and unwarranted costs around the overall production process. He followed up with a second book, namely “Workplace Management”, toward a more complete approach, the same year.
In 2005, Steve Blank, in his book “The four steps to the Epiphany”, described how a startup company can conduct customer development efficiently. Three years later, in 2008, Eric Ries came up with an adaptation of the Lean Manufacturing process for Software Product Development, combining it with Steve Blank’s customer development, in his book “The Lean Startup”.
All in all, the Lean Startup methodology offers a well rounded approach to developing software products with the least amount of wasted effort and in the most affordable way.
Lean thinking, with Lean Startup
Lean thinking is a mindset. It draws on the knowledge, experience and creativity of individuals to help reduce batch sizes in a repetitive process, perform just-in-time actions and reality checks, and optimize budgets and cost centers, greatly accelerating release cycles. And, by “release” we mean a new iteration of the product being developed.
The Lean Startup methodology — and its consequent way of thinking — uses a few principles to bring the desired results.
A set of principles
Lean Startup uses the Build-Measure-Learn loop to expedite customer development. The idea is to create a set of experiments that would help validate or invalidate one’s core hypotheses; making course corrections and iterating until there is a model that works.
Each iteration is designed with a set of actionable metrics, which will help make a decision for the next step. These must reflect the key factors that will drive the business. Split testing helps define which proposed hypothesis is the most prominent one — and the most promising. And, since we’re not talking about sales, the most important metric is what we call “innovation accounting”; a way of measuring progress, planning ahead and prioritizing, while maintaining individual accountability.
If everything goes well — definitely not “according to plan”, since there can never really be a plan that won’t be revised a hundred times over — the product development team can go on to create what’s known as the Minimum Viable Product (MVP). This will be offered to the first prospective customers, for feedback; and that’s what will help plan for the next steps.
If, on the other hand, things don’t really seem to go well, the product team will consider a “pivot”, which essentially is a structured course correction. And its purpose is to test a different — and educated — fundamental hypothesis about the product; not to mention a new strategy and a potential way to achieve growth — which is called an “engine”.
Optimize productivity with Lean Startup
Productivity is largely misunderstood, in a sense. An individual, when asked, will evaluate their productivity based on how well — and without interruptions — they were able to do their jobs in a specific time period. What the Lean Startup methodology proposes is to examine productivity from an entirely different standpoint, asking these questions:
- Are we building the right thing?
- Is this thing something that customers would want to pay for?
- Will they pay for it?
- If not, how fast can we find out what the right thing to build is?
Measure progress: Learning is your currency
As mentioned, Lean thinking isn’t about sales. A Lean Startup measures progress through validated learning; which, essentially, is whatever the team was able to learn by conducting their experiments on different hypotheses. This knowledge will, in turn bring clarity to the qualities — and the quality — of the product. And that means sales.
Use the Build-Measure-Learn model for your feedback loop
Starting out with a set of assumptions for a business model doesn’t really help. In all practicality, one needs to verify these assumptions, consolidating them into a model that works. The Build-Measure-Learn loop allows a team to test — and split test — them, constantly making adjustments towards validity and robustness. If the assumptions are invalid, the team can pivot, in a few different ways.
Even though it’s of no importance here, to mention the most prominent ways to do this, here are a few ways one can pivot toward success (in alphabetical order):
- Business model pivot
- Distribution channel pivot (also, different revenue streams)
- Customer needs pivot
- Customer segment pivot
- Growth engine pivot
- Platform pivot
- Technology pivot
- Value-capture pivot
- Zoom-in pivot
- Zoom-out pivot
Draft a business model from your vision
There is no need for complex business plans to make up for a “Description of Work” (or DoW). Since your vision is largely based on assumptions, most specifications you might come up with, would probably change multiple times before you had something that worked in your hands. And that, as you may have already observed, is wasted effort; mind you, wasteful or not, it still costs time and money. Let’s try to avoid that, then.
Star with your vision. Knowing where you are and where you want to get, eventually, is the key to devising a strategy on how to get there. Put your hypotheses on how this might work on paper; we call this the “Lean Canvas”. Test things out regularly, compare results and re-strategize (pivot and reiterate), until you can get a product that people have the intent to buy. Then, optimize it; get it from Minimum Viable Product (MVP) to Minimum Marketable Product (MMP), to proven, mainstream product. But, how?
Start with the ideation stage
Put ideas on the table, innovative or not; as many as you have. Evaluate said ideas by discussing each one of them with your team, keeping only what makes sense. Prioritize and put the final set of ideas into a framework of assumptions. Then, devise a set of experiments to validate or invalidate these assumptions, proving or disproving the quality of your ideas as business model material.
Define your leap of faith and fundamental hypotheses
Some of your assumptions will be exceptional, inasmuch as they are based on your faith, rather than facts. These are called leaps of faith; and they help define the fundamental hypotheses of how you can build a business around your product. Testing these assumptions will derive the decisions required to carry on, into the build phase of the MVP; making sure, of course, that you can complete the iteration with the least amount of effort and time.
Define your brand character and internal culture
People are not in search of a new product to buy. Nor are they constantly looking for problems to solve. But, they are, indeed, looking for a better version of themselves. Depending on the character of your brand, you may place yourself as a provider that can offer them just that. But, to accept what you’re proposing, they need to feel they can trust you to help them deal with some aspect of their daily life. In all practicality, you can’t do that if you’ve not developed a “customer comes first” culture that your entire team embraces.
Develop your internal culture wisely, with a “customer first” approach. Develop a set of principles or rules by which your team will conduct themselves in all outbound communications. This will provide you with the brand character you need to approach customers.
Run experiments to learn and validate hypotheses, with Lean Startup
Usually starting with the problem(s) worth solving and the customer archetype(s) that will most probably buy the product, one needs to start strategizing their way into validating their hypotheses, through a series of experiments. Each validation plan may incorporate one or a series of experiments.
Validation plans may be required wherever there’s a new hypothesis. But, based on the Lean Canvas, we can hit it off by devising at least nine of them; which is as many as the components on the Lean Canvas are. Each component examines a different aspect of the business. And, by experimenting and validating each aspect — or, rather, the hypotheses made about it — we’re getting one step closer to a viable business model, each time. Validation plans typically come in the form of a one-pager specification of what needs to be validated.
Experiments and experiment reports
Experiments are the means by which we can validate hypotheses. Oftentimes, one needs more than one experiment to validate or invalidate a certain hypothesis. Let us not forget that one is looking to innovate with regard to their business model; and that means there is no standardized model by which they can abide. They’re developing their model as they go. And they’re doing it without prior experience or knowledge, which makes it quite a bit harder to pull through.
Experiments are devised with a falsifiable statement of the hypothesis, so they can either prove true or false, avoiding cognitive bias. At the end of each experiment, an experiment report will shed light on what works and what doesn’t, validating or invalidating a hypothesis, or passing the baton to the next appropriate experiment towards the same goal.
When in doubt, use split-testing; even within the same experiment. For example, when developing a unique value proposition for the product, or a relatable message to communicate said value to prospective customers through a website, more often than not, one may be unsure of what works best. Coming up with a few different variants of the value proposition or message that will be served to visitors in a well balanced manner, helps determine which approach is the most effective with users. Split-testing is an extremely useful tool in experimentation with a new, existing or resegmented market and new or existing market segments or customer profiles. And it can help produce results — and, ideally, sales — much faster.
Experiment until you find your early adopters
In 1962, Everett Rogers published his book “Diffusion of Innovations” and came up with the “Law of diffusion of innovation” which seeks to explain how new ideas and new technologies gain adoption. Later, in 1991, Geoffrey Moore, in his book “Crossing the chasm” came up with a way to predict when an innovative idea or technology will gain enough adoption to become sustainable. He called the tipping point between niche appeal and mass adoption “the chasm”.
As Simon Sinek explained in 2015, the chasm works accordingly for tech startups. Adoption begins with innovators, the people that are truly visionaries. Early adopters come next. These are people that understand how this new idea or technology is likely to evolve; and they want in, as soon as possible. In essence, they want to be the first to benefit from it. Once this idea or technology has matured enough, the early majority of users will start adopting it. At this point, the chasm is bridged. And it’s only a matter of time for the late majority to start adopting it. Of course, there are also users that detest change. These are the laggards — or skeptics — and will be the last to adopt it, out of absolute need; out of obsolescence.
One must keep experimenting with new approaches, new messaging, and new values until they get their early adopters. But, the way customer profiles are described at that point may have to drastically change when the chasm is bridged. Mainstream users (early majority, late majority) are quite different from the more imaginative early adopters. But, more on that later. Let’s discuss the practical aspect first.
Lean Startup methodology: Test your hypotheses
Each hypothesis one makes toward the success of this new endeavor should be tested against the two most important hypotheses of all; the value hypothesis and the growth hypothesis. Otherwise, no real value might come from the effort.
The value hypothesis
For better or for worse, the value hypothesis may only be tested when the MVP is available to use. And, that’s because we need to find out whether the product really delivers value to users — ideally, customers — or not. If it does, we’re in business. If it doesn’t, perhaps a pivot is in order.
The growth hypothesis
The growth hypothesis comes after the value hypothesis, of course. Once we’ve established that real value is, indeed, provided, we can go ahead to figure out if the way we thought people will discover our product is of sound logic or not. If it does, we have a repeatable sales cycle in our hands; which, in turn, will bring growth. If it doesn’t, perhaps we should examine different distribution channels or revenue streams; which may, in and of itself, be a pivot of its own.
Measure the results and the quality of what you learned
Measuring the results and quality of what one’s learnt is largely what validated learning is all about. It’s not really that hard, if one tries to be logical about it. It usually comes down to answering a few questions that matter.
Is it a problem worth solving?
Validating our initial hypotheses about the problems our users — or customers — really have and really need to solve is one of the most fundamental factors in developing a product — or service — that works and helps people. If we do have a problem — or problems — worth solving in our hands, we’re paving the way for success. If, on the other hand, we don’t, we need to conduct a reality check and pivot as needed.
Are you producing real value for customers?
Given that we’ve established the problem(s) of our customers, we’ve gone on to develop our MVP. And we’re demonstrating it to select users; typically, the ones we think would be early adopters. These are people that understand what we’re doing and why, and are more likely to buy the product or service.
If people can understand the value of our solution, we’re on the right track. If they can’t, we need to conduct some new research, find out what went wrong — including our personal cognitive bias — establish some new fundamental hypotheses and verify them for validity before going back to the drawing board.
Do people see the problem?
A frequent problem in closing a sale is people — that is, potential buyers — being unable to see and understand the problem we claim exists in their workflow. And that’s a very real and difficult problem to solve. If they cannot see or understand their own problem, it’s nearly impossible to convince them to buy.
We can help people see the problem with clear messaging, conveyed with some recognizable and, ideally, relatable analogies that are present in their daily routines. Perhaps a comparison with the percentage of time or money saved or the benefits in relation to their current situation would help. Understanding the problem would also require a more precise approach, including and indicating the points in their daily routines that would have them make the decision to buy and make things easier. This is roughly what we’d call a “user journey”; their path from using the product to the final moral reward of a problem solved.
Would they buy a solution?
Buying a solution is quite more complex than a simple consideration of whether it solves their problem. Besides, we must not forget that we’re playing in a competitive field. And, perhaps there are other — maybe better, even — solutions than ours out there; especially if they had a head start.
But, regardless of the solutions available, we have to ask ourselves these questions:
- Is the problem they’re facing severe enough to need a solution such as ours?
- Are they actively seeking a solution for it?
- Are they solving the problem with a workaround solution? Is that enough?
- Have they tried to develop a solution of their own and failed for whatever reason?
- Have they already found a solution for it? Perhaps from one of our competitors?
- Do they understand the difference in their bottom line between having a solution and not having one?
Would they buy your solution?
Being in need and in search of a solution is not enough for a potential customer to buy our solution; even if it’s the best one on the market. Again, there are a few questions we should be able to answer, before they can buy from us:
- Do they know our brand? And, do they know who we are and what we do?
- Do they trust our brand will sufficiently solve their problem(s)?
- Are they at ease, knowing that we have top quality customer service?
- Do they believe in what we do and why we’re doing it?
- Can they afford it?
- What is the real reason someone would buy from us? Can we use that to our advantage?
For example, when a vehicle owner pulls up at the gas station to buy fuel, do they really want to buy fuel? Probably not; they rather need to get from point A to point B in their vehicle. And, the vehicle needs fuel to do that. So, the real reason for someone buying gas is not the value of the gas itself; it’s the value of being able to safely — and timely — reach their destination. A gas station on the highway can take advantage of that, perfectly!
Reality check — Are your early adopters, really, early adopters?
Finding the first few people to discuss your new ideas and the structure and value of your product does not mean they are your early adopters. In fact, a statement of intent to buy when it’s ready, doesn’t mean they are your early adopters, either!
Early adopters are people that can imagine how your product or service will evolve over time. And they can see the value in it. They are the kind of people that will naturally want to be the first to try something new; your product. And they’ll be willing to pay for it, at a price that makes sense. They’re not vaguely familiar contacts with whom we had a pleasant conversation at some point in time. And, they might never become customers if the user experience in our product doesn’t help them understand how it works or how they can generate value out of it.
So, conducting the occasional reality check over who is and who isn’t an early adopter goes a long way in determining how our Ideal Customer Profiles (ICP) are described, at each different stage.
Measure what you learned — Innovation accounting
As mentioned, the Lean Startup methodology uses innovation accounting to measure progress, plan ahead and prioritize actions, while maintaining individual accountability. In the first stages of the venture, it all comes down to what we learned at the end of each cycle. But, at the end of the day, it also needs to take sales into account; and, when a functioning sales engine is ready to launch, the team will turn the key and start bringing new business into the sales funnel.
Tune your sales engine
Establishing a baseline for how the sales engine works is relatively easy. But, for it to really work for growth, we need to have a well-tuned sales engine. Intuitively, we pay more attention to quantitative information; and it is, indeed, what will help distinguish success from failure.
But, failure is still useful. It provides us with information about what doesn’t work. And it gives way for qualitative research, producing new ideas and hypotheses to test and experiments to conduct. When we’ve achieved reproducible results in this cycle of selling our product, we’ll know we have a repeatable sales cycle to use. And that serves greatly in tuning the sales engine.
The occasional reality check is also required here, though. If things don’t seem to work, regardless of what we’ve tried, perhaps a pivot might be in order. But, if things are going well, there are three distinct sales engines one can use:
The Paid engine of growth is focused on invoking growth using ads. And, it’s a great way to jump-start sales. Of course, it’s the most expensive of the three. That’s why one should make sure that the sales leads coming through are relevant and qualified and that they will bring back substantially more value that they cost to bring in. That means, their Lifetime Value (LTV) should considerably exceed the Customer Acquisition Cost we spent on their account.
The Sticky engine of growth is the engine of customer retention. Keeping existing customers happy will reduce churn rates; which, in turn will help with sustainable growth. All we need to do is help our customers solve any problems they come up against — and that includes potentially new features in our product — and make their lives easier. That also means we deliver on our promise to “offer them a better version of themselves”.
Happy customers bring new customers, which, in sales, is called “customer referral”. It’s also known as “Word of mouth”; but, it is, in essence, a way to spread the word of our brand and product, just like a virus would spread. Hence, the name “Viral”. And that’s how the Viral engine of growth works; simple as that!
Pivot or persevere?
The brutal honesty of an experiment formed with a clear falsifiable hypothesis, the constant monitoring of quantitative and qualitative metrics, the transparency in communication, they’re all tools to help identify the need for a pivot. And, make no mistake, it’s easy to miss the signs!
If the milestones never seem to be achieved, if the runway is coming to an end or if the lack of transparency and vanity metrics — such that are always trending upwards — have led us to false conclusions, we need to stop. We need to take a step back, see all that is wrong, evaluate, cut our losses and determine whether it’s worth the investment in time, effort and money to persevere and keep trying or to pivot — perhaps with one of the methods we mentioned — and start over. Keeping a venture in a zombie state will never bring any real value at all, to anyone.
Define your OKRs and KPIs
To avoid false conclusions and a direction of product development that may be pretentiously correct, we need to set our Objectives & Key Results (OKR) and our Key Performance Indicators (KPI).
What is an OKR and why do you need it?
OKRs help us set our personal and collective Objectives for a specific time period. Matched with specific Key Results, they make a powerful tool under our belt to achieve clarity of purpose, brevity and a strong sense of direction. In other words, they keep us focused on our goals. OKRs are exceptionally important in goal setting and accountability.
What is a KPI and why do you need it? — Actionable metrics (also, accessible, auditable)
A KPI is an indicator of business performance. It delineates how the business end of things has evolved over time and whether that progress is acceptable. In order for KPIs to work, one needs to set up and monitor a small set of actionable metrics, such that they display cause and effect. They should also be accessible to everyone; that means that every stakeholder should be able to understand them. Finally, they should be auditable; in essence, that part serves towards data credibility. These are also known as the 3As of KPIs.
For tech startups, especially in SaaS, some of the most common KPIs to keep track of the business end of things may include:
- Website traffic; new users, per channel — or per funnel — as compared to the previous time period — typically 2-4 weeks
- Conversion rate from website visitor to a free or trial user, depending on the pricing policy of the product and the tiers available
- Conversion rate from free or trial user to subscribed customer. Differentiation among different pricing plans may apply
- Customer retention and churn rates. That measures how well we manage to keep customers happy
- Customer referral rates; how many new customers did our existing customers bring per time period?
- Annual contract value — or annual revenue per customer/acquisition (ARPA) — vs total customer Lifetime value (total revenue per customer)
- Customer acquisition cost — this may include cost of hardware and software, even payroll
- Paid traffic to organic traffic balance (for later stages)
Can you build a product around what you learned?
A fair question. If one cannot build a product around what they learned from talking with prospective customers, there is no real point in attempting to do so. It’s highly unlikely they will eventually be able to build a viable and profitable business around a product that won’t practically stand on its own to offer real solutions to real problems, for real people.
Set your (learning) milestones
So, first, we must learn. And, as anything else, anything that takes some doing, learning also requires a structured approach. Establishing a set of learning objectives is really important before dealing with any business-related objective. And, timeboxing your efforts is the only practical way to determine whether you managed to achieve these objectives, while it still matters.
Repeat what works and grow, using Lean Startup
Embedded in these experiments — and experiment reports — there is some validated learning; the ultimate value of experimentation. Those little pearls of wisdom can be used to determine what worked and what didn’t. We can use more of what worked to establish some healthy processes, achieve stable and reliable repeatability and automate as many operations as we can. Automation will help keep operations running at the lowest cost possible, while enabling the entire team to respond fast, offer consistent services and keep customers satisfied. The result of all that, as one may deduce, is sustainable growth.
Try things in batches, with rapid iterations
Experimenting with the market, customer segments, their problems and solutions available, distribution channels, revenue streams, cost structure and added value is only one side of things. As you learn you’ll be able to determine which actions make more sense to work on. That’s how a product or service starts to take shape. But, sticking to the fundamentals of the Lean Startup methodology, one can use software development frameworks to produce results and learn from them as soon as possible.
Agile software development is a great way to apply the Build-Measure-Learn loop in producing your software. You can use an Agile methodology framework that fits the bill, to do it. For example, the Continuous Integration / Continuous Delivery (CI/CD) pipeline closely follows what Lean Startup proposes, with the Build-Test-Release-Deploy loop; which, in turn resembles the Build-Deploy-Monitor loop described in DevOps — which you’ll probably also need, down the road. The CI/CD pipeline enables the team to work with rapid iterations, achieving both progress in development and learning milestones, at the same time. This keeps everyone focused on a customer-first approach, only putting in the effort on what really matters.
Use split testing
As with any effort to effectively communicate one’s product value to prospective customers — marketing actions included — split testing is equally important in software development. Oftentimes, the product development team needs to know which one approach is more efficient than any other available; this includes user interface elements, screen structure and layout, workflow efficiency, user experience, and more. And, customer satisfaction and retention largely depend on these things. That’s why it’s essential to determine the best possible solution for each software development problem that comes up. Split testing is the easiest and fastest way to do it.
Create your MVP, the Lean way
Now that we’ve determined the size (TAM, SAM, SOM) and attributes of our market, our customer segmentation and profiles, and we’ve set up our Standard Operating Procedures (SOP), powered by our — by now — familiar feedback loops, we can go on to determine the structure and value of our MVP. Feature development should be prioritized by customer behavioral data and feedback, as well as by Cost of Delay (CoD), which determines which feature should be available first, to bring the most value — as in revenues — in the least amount of time.
The “Viable” in a Minimum Viable Product is, by no means, determined by some obscure, preliminary Description of Work (DoW) and specifications; nor is it to be developed in one take, using a Waterfall approach. If results are to be achieved, it should be an iterative process, constantly updated through a feedback loop, such as the Build-Measure-Learn loop; just as the Lean Startup methodology proposes.
Find out what works and repeat it for growth
Finding out what works to repeat it and increase your bottom line depends on a few different things. Depending on the type of venture, the list of considerations could differ. But, the fundamentals are the same:
Find your High Speed Segments
Of all the customer segments available on your Lean Canvas — whichever of them were verified and validated — you might find that some are more “productive”. And, by productive, we mean they describe more of the end-users you’ve been welcoming to your service lately. In other words, customers that belong in these customer segments are faster to make a decision and buy your product than customers who belong in other segments. These are called “High Speed Segments” and you can use them to invoke faster growth, bringing in some much-needed — in these first stages — cashflow; not to mention the valuable customer feedback that may come with it.
Strive for operational excellence
People, especially buyers, are rarely forgiving. If they don’t receive top quality customer service from you, they won’t trust you for long. And, chances are, they won’t be renewing their subscription for the next term. That’s really bad for customer retention and referral rates; you’ll only see an increase in churn rates.
That’s why all companies, startups or established business, must learn to tackle multiple aspects of customer work at all times. Customers expect to experience operational excellence on your side. And, if you’re also looking to achieve disruption — or disruptive innovation — it’s the only way to do it.
Find your ideal customer profiles
Getting customers takes some profiling. Our early contact with potential customers delineates a basic understanding of their pains, needs, daily routines and basic demographics. We can put all that on paper, in an effort to “humanize” our target customers.
As our understanding of our target customers improves, we will, as mentioned, discover which profiles are the fastest growing, with regard to our customer base; these are, of course, the High Speed Segments. And, as our description of them grows more and more detailed, we will eventually sort some of them out, as our Ideal Customer Profiles. These are the customers that will get the most value from our product. That goes to say, the product may be ideally designed for their needs, level of familiarity with technology and general daily workflows. As such, they are the easiest types of customers to acquire and retain, with the least amount of effort; this also means we will be able to yield maximum Lifetime Value from them. And, we can use these customer profiles to bring sustainable growth.
Bring sustainable growth
The users of a product or service, however satisfied from its usability and quality of customer service, will not consciously and actively function as advertisers — also known as evangelists — for us. But, when someone is happy with something, they tend to discuss it with friends, colleagues and family. This is called “Word of mouth” and is one way to achieve growth. But, in all actuality, growth happens in a few different ways (alphabetically):
- Paid advertising: The more people that can see an ad, the more will eventually decide to have a look and find out if our product solves their problem. And, as long as the cost to acquire them is less than the revenue they’ll generate, this means growth.
- Product users: This is especially effective in niche markets, but when many users in a specific market are using the same product, this creates a trend towards even more eventually adopting it. Especially if said users are prestigious and able to create new fashion trends (where applicable).
- User retention: If we manage to retain users after the expiration of their subscriptions to our product, they will renew their subscriptions — or repurchase a product. This recurring payment — or repurchase — is another way to sustain growth.
- Word of mouth: Free, involuntary promotion of our product, from happy customers. This may be the most effective type of sustaining growth, since the recipients of said promotion usually know and trust the happy customer.
Achieve product/market fit
When a combination of these methods of growth hits critical mass, the team starts to identify quite more widespread adoption of the product. That, finally, means that the product resonates well with mainstream customers. This group includes the early and late majority of mainstream customers, as mentioned earlier, through the law of diffusion of innovation.
And, that’s when we’ve reached the stage of Product/Market fit. And it’s a perfect example of a Lean Startup success story.
Find patterns and automate
When the Product/Market fit has been achieved, the team can start looking for behavioral patterns in the way people react to ads, to certain use case scenarios, to certain parts of their experience with the product and to the different options to conduct their transactions — such as payments. These patterns can be used to decide which processes are standardized and repetitive enough to warrant automation. Any automation implementation will serve to minimize costs, eradicate error-prone processes, enable fast-response culture and optimize customer service. And that’s a great advantage — even a competitive one; at least for SaaS startups.
Reduce bureaucracy, leverage autonomy
In a competitive environment, startups have a great advantage over corporate businesses; or, at least, they should. That involves autonomy and flexibility; corporate businesses no longer have that.
Within a somewhat limited mandate — investment funds and stakeholders included — startups need to be able to come up with ideas, conceive experiments and conduct them without a corporate amount of discussions and approvals. Otherwise, the use of swift Build-Measure-Learn loops to learn, produce and release a functioning product, might not have any real use.
That goes to say, wherever there is a large amount of approvals and handoffs involved, the ability of a co-founder or team member to learn and to remain accountable for a piece of work are preponderantly inhibited, introducing the innovator’s dilemma and diffusing the value of Lean thinking and Agile development; a recipe for failure. At the end of the day, this way of running things is not representative of the Lean Startup methodology.
Do the right thing, at the right time
On the other hand, freedom to act does not mean one should be inconsiderate or act irresponsibly. Any order of business should be based on firsthand knowledge. And any action should be informed by that knowledge.
Taichi Ohno describes this as “Genchi Genbutsu”, which means “Real location, Real thing”. Practically speaking, it means that “doing the right thing, at the right time” is what it takes to be able to take advantage of the latest — and best — knowledge one’s earned; making sure they really understand the part of the problem they want to solve with said action, to the best of their ability — and research.
Adapt to changes fast, remaining Lean
Being adaptive takes an adaptive mindset. And, while somewhat counterintuitive, an adaptive process, if properly set up, aims to slow one down to give them the opportunity to think and prevent or resolve problems in production that are wasteful of time and effort — and money. This slowing down is nothing to worry about, though. As the team deals with those issues, they gradually regain the lost speed.
But, how does one pinpoint existing or potential problems?
Use the root cause analysis to adapt: The 5 whys
Most of the time, problems are related to human errors. We can use the root cause analysis to pinpoint the root of the problem, asking “Why” 5 times. That is known as “the 5 whys” approach.
An example of the 5 whys approach:
- Why did the application server stop? → There was a memory overload and the service froze
- Why did the memory overload? → The tier of service we’re using was not sufficient
- Why was it not sufficient? → We had an increased load in usage these last few weeks and we didn’t notice
- Why did we not notice the increase in usage? → The reporting system uses a partially obsolete API and did not successfully update our weekly report
- Why is the reporting system using a partially obsolete API? → The software developer who had created the system is no longer with the company and has not left any documentation for us to use and update the system
This simple approach has helped determine that the team overlooked an important system after the person who created it left the company. What’s more, no one took any steps to ensure that the system remains updateable. This could be a payroll budget problem, a product management problem or a Standard Operating Procedure problem. But, the 5 whys were able to shed some light on what is really not working; and this gives the team what they need to make sure the issue never arises again.
It is imperative that a team uses the root cause analysis to resolve issues. Otherwise — and, make no mistake — blame will inevitably arise. A blame “game” makes it really hard to eventually discover the root cause of the problem and resolve it, as fast as possible; as such, this is something to be carefully avoided.
Define your next course of action
So, we’re now an adaptive team. Once we’re able to adapt to our situation, we can also define — or redefine — our next course of action, depending on whatever new variables. Our actions have the most impact when we’re acting with the latest, most updated knowledge and information available. Make no mistake. planning and devising a roadmap and a strategy to guide us through the entire process is required and it really helps. But, we may need to revisit our business plans, our validation plans and experiments, our roadmap and overall strategy; and we may need to take corrective measures, to increase our chances of success.
Do it with due haste — Speed is key
Adaptability, typically, goes hand in hand with fast iterations. Both the Lean Startup and the Agile methodologies describe a fast iterative loop to help build something, test and make it available to our users, and then learn whatever we can from it, through communication and feedback. Some of that can even be automated, to make sure we get it, each time around.
We should use our ability to work fast. It’s a great advantage over competition — who, almost always, can also move as fast — and over more established businesses who, for better or for worse, have the larger piece of the pie in their hands.
And, let’s not forget that to leverage autonomy and eliminate bureaucracy we also need to work and learn fast, retaining our focus and accountability, entirely avoiding the innovator’s dilemma.
All this doesn’t mean we should rush into anything, but we should adopt a well balanced approach, where we do everything with due — not exaggerated — haste.
Bridging the gap: Early adopters to mainstream
By now, we have a Lean Startup that features an adaptable, fast-responding team, offering product features that matter and high quality customer service, supporting both existing and prospective customers. All that, using the Build-Measure-Learn loop to approach the market and our customer segments and profiling.
But, as per Geoffrey Moore’s predictive model, we still need to bridge the gap between early adopters and mainstream customers. The customer profiles we’ve been using to bring early adopters to use our product may no longer be accurate in describing our mainstream customers. It’s easy to overlook this and keep burning money on marketing campaigns that are not really effective, at the end of the day.
Mainstream customers are typically less imaginative and less visionaries than the early adopters we’re used to speaking with. Mainstream customers don’t really want to talk to us, unless they have a problem using our product. They just need a solution to their problem and they just want to pay for it and use it — no questions asked. And they need it to work well.
Understanding this fundamental difference between early adopters and mainstream customers will help us re-describe our customer profiles and use them to devise ways to make our website and product more interesting and relatable to them. This takes some doing; it may go smoother this time around, but it still warrants caution and attention to detail.
No, you’re not done! Lean Startup is an ongoing process
When all is said and done, one would believe that growth is guaranteed. Granted, if the team keeps doing everything efficiently, working together towards a common goal, the chances are high. But, as the team grows, all these things become increasingly more difficult. The team will soon have to move from a vision driven approach to a mission driven approach, adjusting the organizational structure — also known as the organizational map — to try and retain some of its flexibility and adaptability. Let’s not forget, we need a fast-response team — by now, multiple teams or departments — to keep customers happy. That’s one of our greatest assets; we can’t really afford to lose it.
It seems, a startup’s work is never really done. And that’s actually a good thing. No one will ever get bored, everyone will always have something new to learn or do and, if everyone gets along well, the team’s morale will be great!
TL;DR — Lean Startup is the key
The Lean Startup methodology is a scientific approach to help startups in launching their product to market with increased chances of success. It’s an adaptation of Toyota’s Lean Manufacturing process, for software product development. It’s been widely used both by startups and established companies around the world as a fundamental approach to considerably speed up production. That is, by constantly learning one’s market and customers, validating assumptions and consolidating them into a viable, profitable business model; successfully building a business around a well-made, robust and reliable product that really answers customer needs.
With the Lean Startup methodology, startup companies are able to guide their teams with vision, through the uncertainty and into a successful business, strategically achieving sustainable growth and reaching the potential to scale up, even into large corporations.