Principles of a lean startup – 3 Steer and Lead

Today´s chapters:

STEER and LEAD

How Vision leads to steering.

At its heart, a startup is a catalyst that transforms ideas into products. As customers interact with those products, they generate (qualitative and quantitative) feedback and data.

There is a three-step process:

Ideas – BUILD – Product – MEASURE – data – LEARN – back to ideas(the goal is to minimize the total time through the loop)

It´s about validated learning and as in lean management, learning where and when to invest energy results in saving time and money. To apply the scientific method to a startup, Eric Ries says we need to identify which hypotheses to test. He calls the riskiest elements of a startup´s plan, the parts on which everything depends leap-of-faith assumptions. The two most important assumptions are the value- and the growth-hypotheses. These give rise to tuning variables that control a startup´s engine of growth. Each iteration of a startup is an attempt to rev this engine to see if it will turn. Once it is running, the process repeats, shifting into higher and higher gears.

Once clear on these leap-of-faith assumptions, the first step is to enter the Build phase as quickly as possible with a minimum viable product (MVP). I´ll give some more information about MVPs soon.

Leap

Strategy is based on assumptions:

Every business plan begins with a set of assumptions. It lays out a strategy that takes those assumptions as a given and proceeds to show how to achieve the company´s vision. Because the assumptions haven´t been proved to be true (they are assumptions, after all) and in fact are often erroneous, the goal of a startup´s early efforts should be to test them as quickly as possible.

Most leaps of faith take the form of an argument by analogy. Eric Ries gives a few examples of proper business plans he had in his hands. People who compare their idea to already existing ones and why their startup has to achieve the set goals.

There is nothing intrinsically wrong with basing strategy on comparisons to other companies and industries. In fact, that approach can help you discover assumptions that are not really leaps of faith. Randy Komisar, who wrote the “book Getting to Plan B”, uses a framework of “analogs” and “antilogs” to plot strategy.

“If you were looking for analogs, you would have to look at the Walkman. It solved a critical question that Steve Jobs (->iPod) never had to ask himself: Will people listen to music in a public place using earphones? We think of that as a nonsense question today, but it is fundamental. When Sony asked the question, they did not have the answer. Steve Jobs had the answer in the analog version”. Sony´s Walkman was the analog. Jobs then had to face the fact that although people were willing to download music, they were not willing to pay for it. Napster was an antilog. That antilog had to lead him to address his business in a particular way. Out of these analogs and antilogs come a series of unique, unanswered questions. Those are leaps of faith that I, as an entrepreneur, am taking if I go through with this business venture. They are going to make or break my business.”

Get out of the building

Just remember, no matter how many intermediaries lies between a company and its customers, at the end of the day, customers are breathing, thinking, buying individuals. Their behavior is measurable and changeable. Even in a business to business model.

As Steve Blank has been teaching entrepreneurs for years, the facts that we need to gather about customers, markets, suppliers, and channels exist only “outside the building”. Startups need extensive contact with potential customers to understand them.

The first step in this process is to confirm that your leap-of-faith questions are based in reality, that the customer has a significant problem worth solving.

It´s important for startups to have early contact to as much potential customers as possible. The goal of such early contact with customers is not to gain definitive answers. Instead, it is to clarify at a basic, coarse level that we understand our potential customer and what problems they have.

BUT there are two ever-present dangers when entrepreneurs conduct market research and talk to customers. Followers of the just-do-it school of entrepreneurship are impatient to get started and don´t want to spend time analyzing their strategy. They would rather start building immediately, often after just a few cursory customer conversations. Unfortunately, because customers don´t really know what they want, it´s easy for these entrepreneurs to delude themselves that they are on the right path.

Other entrepreneurs can fall victim to analysis paralysis, endlessly refining their plans. If too much analysis is dangerous but none can lead to failure, how do entrepreneurs know when to stop analyzing and start building? The answer is a concept called the minimum viable product, about which I´ll get back to you tomorrow.

Tomorrow´s focus is Test.

QUICKINFO:

Beyond “The Right Place at the Right Time”

There are any number of famous entrepreneurs who made millions because they seemed to be in the right place at the right time. However, for every successful entrepreneur who was in the right place in the right time, there are many more who were there, too, in that right place at the right time but still managed to fail.

Henry Ford was joined by nearly five hundred other entrepreneurs in the early twentieth century. Imagine being an automobile entrepreneur, trained in state-of-the-art engineering, on the ground floor of one of the biggest market opportunities in history. Yet the vast majority managed to make no money at all.

We saw the same phenomenon with Facebook, which faced early competition from other college-based social networks whose head start proved irrelevant.

——–

Principles of a lean startup:
Part1: Principles

Part2: Learn and Experiment

 

 

One thought on “Principles of a lean startup – 3 Steer and Lead

  1. Pingback: Principles of a lean startup – part9: Epilogue and Conclusion | self.vestors

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