Lean Startup and the Process of Innovation

Topics covered Lean Startup Overview Startup and the Innovation Process Make Your Idea Tangible Lean Experiments Decisions – The Art of the Pivot

Continuous innovation process Goal: Learn and apply lean startup principles by doing. What to expect: Experience constant state of disequilibrium Learn to think out of the box Develop momentum and speed in diffusing innovation Application of creative process to innovation Application of research process to innovation

How will you do it?

What is “Lean”? Elimination of waste in the production and delivery of value to the customer.

What is a Startup? “A startup is an temporary organization formed to search for a repeatable and scalable business model.” – Steve Blank “A human institution designed to create new products and services under conditions of extreme uncertainty.” – Eric Ries

What is “Lean Startup”? Learning through the innovation process. Elimination of waste in searching for a scalable business model, or significant business impact. Goal for lean startups: Learning through the innovation process. Lean Startup Myths: Lean = cheap or poor quality Only for high tech (hint: it works in large orgs too) Replaces vision with customer demands

Lean Startup Focus The Lean Startup is a management science for entrepreneurs of all kinds. It enables rapid customer-centric iteration. It helps startups test their vision before it's too late. It is a tool for people who want to change the world.

What is innovation

Major Type of Innovation Product innovation, which involves new and improved product and services, and enhance allocative efficiency by giving society more preferred mixture of goods and services. Process innovation, which involves new and improved production and distribution methods and improves productive efficiency by increasing the productivity inputsand reducing average total cost.

Innovation Spectrum

Sustaining vs Disruptive Innovation

Ten Areas to Innovate

Examples of Innovation

The Lean Startup Loop

Ideation Ideation is the creative process of generating, developing, and communicating new ideas, where an idea is understood as a basic element of thought that can be either visual, concrete, or abstract. Ideation comprises all stages of a thought cycle, from innovation, to development, to actualization

Fundamental Challenges All entrepreneurs face the same fundamental challenges: How do we know if we’re making progress? How do we know if customers will want what we’re building? How do we know what kind of value we can create?

Find your meaning Begin with an educated guess OK to begin without the answers, you’re probably wrong anyway. Innovators are problem solvers. Change guesses into facts using experiments Measure behavior, test hypotheses, capture surprises Make decisions based on the results of your experiments Move through the loop quickly Build the absolute minimum required to test your assumptions Build your case one experiment at a time Get moving – NOW! (rinse and repeat forever)

Build your MVP A minimum viable product (MVP) is the "version of a new product which allows a team to collect the maximum amount of validated learning about customers with the least effort" (similar to a pilot experiment). The goal of an MVP is to test fundamental business hypotheses (or leap-of-faith assumptions) and to help entrepreneurs begin the learning process as quickly as possible.

Code your product and process Continuous deployment, similar to continuous delivery, is a process "whereby all code that is written for an application is immediately deployed into production," which results in a reduction of cycle times.

Lean Experimentation Rigor Inspiration Research Process Finding the middle ground Creative Process Optimal Combination Rapid experimentation is an approach that resolves that tension. Rapid experimentation is really about getting to new learnings through a systematic approach. Rigor Inspiration

Research Process

Creative Process

Search Optimize Rapid Experimentation Continuum No Experience (unknown) Search High Risk - many unknowns Sustaining Innovations Breakthrough Innovations (disruptive) Optimize Low Risk - few unknowns Experienced (known)

Measure Focus on the key metrics that matter – ignore vanity metrics. Measure important customer behavior Willingness to exchange “currency” (time, attention, money) What activities must we do to deliver customer value? Something else unique to your idea? Use metrics to eliminate gap between “say vs. do”, focus on metrics involving “do”.

Feedback Why don’t we just ask customers if they will use our product? Feedback provide us data to analyze.

Important insights about your products and services can be found in every set of customer feedback. Within customer feedback data (such as purchase history and support history) are hidden details about what products customers are likely to want, the price they’re willing to pay, and what they think of their service experience. Pass it along to your product management team to enable them to improve your products and create smarter upsells. With it they can prioritize features for future products and create products that really resonate with buyers. Pass this data along to your service delivery team to help them improve their service, develop new offerings and identify new customer needs. Deliver this feedback to your customer service team as well. Empower them to mitigate service issues and further improve the customer experience.

Learn and Decide The output from lean experimentation is new knowledge and insights about your customer or business model. Build a case over time, using multiple experiments Experiments to learn, not just validate. Savor the surprises! Is your confidence increasing or decreasing? Why, why, why?

The Lean Startup Loop

Exercise – Run the Loop Review and post your idea (customer + problem + solution) Brainstorm your riskiest assumptions Narrow to your top 3 assumptions Document your Leap of Faith Assumption Brainstorm hypotheses Document a single hypothesis Brainstorm experiments to test hypothesis Narrow to a single experiment Document your experiment Build and run your experiment outside with real customers Learn as a team – close the loop

Exercise 1 Make Your Idea Tangible Be sure to make clear “answer” not “correct”

Document Your Idea Tangible, measurable solution to a specific customer problem or pain – be specific! Task: Post 3 sticky notes on your poster Customer: Who is experiencing the problem. Problem: What is the customer’s problem Solution: Your proposed solution to the problem

What are Assumptions? “Something taken for granted or accepted as true without proof” Opinions vs. Facts (Hint: What you think is fact, is likely an assumption)

Exercise 2 Leap of Faith Assumption Be sure to make clear “answer” not “correct”

Brainstorm Assumptions What customer behaviors must take place for your solution to be adopted? What assumptions are you taking for granted as fact? What keeps you up at night? Task: Write down as many assumptions as possible as a team, one assumption per sticky note.

(ex: Sports cars lovers will drive an electric car) Narrow Assumptions What is the biggest assumption that if false, will cause you product to fail? What is most unknown, where do gaps exist? Focus on customer behavior related assumptions (ex: Sports cars lovers will drive an electric car) Task: Narrow your assumptions using the LEAN Loop poster 2x2 grid.

Post Your Leap of Faith This is the riskiest assumption for your business idea. “If this is not true, we’re out of business” (ex: Sports cars lovers want an electric car) Task: Place a single sticky note of your riskiest, LOF assumption on your poster.

Exercise 3 Hypothesis Be sure to make clear “answer” not “correct”

If we do X, Y% of people will behave in way Z X= Your solution (the carrot) Y% = Your target metric (the number) Z = The customers’ behavior (the hoop)

If we do X, Y% of people will behave in way Z Create Hypothesis If we do X, Y% of people will behave in way Z Task: Write down your hypothesis on a sticky note, and place on your poster.

Pitch 1 Customer + Problem + Solution + LOF

Exercise 4 Lean Experiments Be sure to make clear “answer” not “correct”

Why Lean Experiments? Reduce the risk associated with resource investment, move faster with more certainty. • Change opinions into facts • Inform our decisions with data and customer insights • Separate customer words from behavior – say vs. do! Output = Insights + Data (what did I learn from the customer + what behavior did I measure)

Brainstorm Experiments Will his experiment will test your hypotheses? Measure real behavior (or as close to it as possible) Can you get an answer quickly! Capture surprises as well as data Important: Use behavior + “currency exchange” to eliminate say vs. do – NO SURVEYS – KEEP IT HUMAN (currency = time, money, attention, personal info, usage) Task: Brainstorm at least 3 different experiment methods listed your survival guide.

NO SURVEYS + KEEP IT HUMAN Choose 1 Experiment Can you get your answers quickly? How will you measure behavior? How will you interact in person with your target customer? Did we mention: NO SURVEYS + KEEP IT HUMAN Task: Select the best experiment to run first (use 2x2 for help)

NO SURVEYS! KEEP IT HUMAN! Document Experiment Task: On your poster, complete a sticky note for each of the following: Describe the experiment What specific behavior will you measure? What currency will you collect? Minimum success criteria (ex: 50% sign-up) NO SURVEYS! KEEP IT HUMAN!

Go! Run your experiment in the wild Don’t tell people this is an experiment Collect contact info so you can follow-up later Ask why or why not – look for surprises! Stay out of jail.

Learn and Decide Closing the Loop Be sure to make clear “answer” not “correct”

What are you looking for? A strong behavioral response from your target customer, confirming or denying your hypothesis. Did your numeric hypothesis pass or fail? Do you know why or why not? What surprised you? Ex: 50% of small business signed up for our online beta program, providing their email and contact info.

Output = Learning What insights did you encounter which change the way you think about your customer? How painful is the problem? Does it exist at all? Vitamin > Medicine > Addictive Drug Are they trying to solve it today? What process, if any, are they taking to solve their problem What were your biggest surprises?

The Art of the Pivot A significant change in direction based on new customer insights, where the vision remains the same. Idea: App to help diabetics maintain healthy eating habits. Insight: “Diabetic caregivers often care more than patients about maintaining healthy habits” Pivot to: App for diabetic caregivers instead of diabetics

Close the Loop Based on what you learned, is your leap of faith true or false? Why or why not? If true – Persevere! Move on to next leap of faith, repeat loop process Push to be more aggressive for next experiment If false – Pivot! Change one or more components of your Idea, Repeat loop process Important: leverage insights gathered during your experiment! Document updates on your poster and canvas Create new sticky notes and place them on top of existing notes

Pitch 2 Customer + Problem + Solution + LOF + Experiment + Decision

Refine and Repeat the Loop Be sure to make clear “answer” not “correct”

Loop to the Start, Begin Again Review/update your vision and idea Pick your next Leap of Faith assumption to test Create a new hypothesis for next experiment Create the next experiment to test your next hypothesis Run your next experiment with real customers! Task: As a team, run through the steps of your poster, asking for mentor help if needed.

Digital Experiments Run a digital experiment overnight Unbounce.com Bit.ly Wufoo.com MailChimp.com Godaddy.com Craigslist.com Facebook Ads Google AdWords

Judge the Search Teams are just as important as ideas Teams must demonstrate the ability to “search”, in addition to their idea’s viability. No team gets it right the first time. Real customer behavior trumps opinion Teams must demonstrate the ability to generate data from customers using behavioral experiments. Evidence builds in small increments over time Teams must move through multiple experiments loops in small increments, in order to increase confidence over time.

Judge the Business Model Identify a specific customer Teams must demonstrate understanding of their specific customer segment, and insights related to the customer’s desired outcomes. Deliver value to the customer Teams must demonstrate their proposed solution is delivering value to their target customer, via currency exchange (time, attention, dollars) Generate positive business impact Teams must demonstrate Intuit can extract value for shareholders (and employees as well)

Before we Begin, Review. Review/update your vision and idea Pick your next Leap of Faith assumption to test Create a new hypothesis for next experiment Create experiment(s) to test your next hypothesis Run your next experiment with real customers! Task: As a team, run through the steps of your poster, asking for mentor help if needed.

Pitch 3 Tell Your Story Vision + Customer + Problem + Solution + LOF + Experiment 1

What are you looking for? A strong behavioral response from your target customer, confirming or denying your hypothesis. Do you know why or why not? How painful is the problem? Does it exist at all? Vitamin > Medicine > Addictive Drug Are they trying to solve it today? What process, if any, are they taking to solve their problem

Repeat until your business is validated (or not)

Final Loop Did you get a strong behavioral response from your target customers? Did your numeric hypothesis pass or fail? Do you know why or why not? What surprised you? What is your decision as of right now? How confident are you in this decision?

Pitch 4 – Final Tell Your Story Vision + Customer + Problem + Solution + LOF + Experiment 1, 2, 3 + Final Decision

Next Steps Try it – Don’t wait for permission to run experiments Start small, think big Set aside specific time for experiments Help each other – you’re in the club Include leaders in the process

Business Model Canvas

Business Model Canvas 1 1 2

Start with Customer, then Business 5 3 4 1 1 BUSINESS CUSTOMER 5 3 You’ll be testing many hypothesis, but the “exchange of currency” 6 2 Use learning from customers to inform how to create business.

Vision: Create Entrepreneurs. Corporations Conferences Lean Startup community Conduct events Follow-up Coaching Jumpstart your idea quickly. Find your meaning. Lean startup principle. Find out if customers like your idea. Event + follow-up support from the community. Entrepreneurs Product Teams Service Teams Academies CEO, CFO, GM Mentors Content Word of Mouth Social Media Per-event: Facilities, facilitators (~$6,000 est.) Fees to attend % of New ideas in market

Vision: Mentor Entrepreneurs. BUs Lean Startup community Conduct events Follow-up coaching Event + follow-up support from the community. Entrepreneurs Product Teams Service Teams Academies CEO, CFO, GM Jumpstart your idea quickly. Find your meaning. Lean lean startup principles. Find out if customers like your idea. Mentors Content Word of Mouth Social Media Per-event model (~$6,000) + employee time Fees to attend % of New ideas in market

Thanks! Now JUMP!