The Startup Thesis with the Lean Canvas

transcript

The Startup Thesis

Tendayi Viki University of Kent

Follow Me: @tendayiviki

Rockstart Accelerator, Amsterdam

About Me:

Academic: University of Kent

Several Previous Startups: Tasksauce, Book Editions,

Research Innovations, Valideation,

Simplicitly

Current Company: bennelijacobs&co.

Website: http://www.tendayiviki.com/

The Narrative

The Reality

Stephen J. Kline & Nathan Rosenberg (1986)An Overview of Innovation

“Models that depict innovation as a smooth, well-behaved linear process badly misspecify the nature and direction of the casual factors

at work…..

Innovation is complex, uncertain, somewhat disorderly, and subject to changes of many

sorts…”

“Thus, an important and useful way to consider the process of innovation is as an

exercise in the management and reduction of uncertainty” (pg. 275).

What we learn in business school…

Business planning is problematic:• Because it describes as linear, a process

that is actually non-linear.

Business planning is problematic:

• Because it places too much emphasis on the value of the initial idea.

• It also gears up the organization for execution and operational effectiveness.

Do not place too much emphasis on the value of your initial business

People are terrible at predicting what other people will pay money

Most new businesses and innovations fail:

In some cases failure rates are over 70%.

Most new product launches fail.

Being part of a large company does not guarantee success.

Having a lot of investment money does not guarantee success either.

You probably think your product idea is this cute…

But this is what it looks like to your customers!

The difficult discipline is in deciding:

• How much effort you want to put into execution and optimization, before you are certain that you are on the right path…

IMMITATIONThe Greatest Form of

Flattery

Startups fail because they imitate large companies too early.

Startups are not smaller versions of

big companies! (Steve Blank & Bob Dorf, 2012)

Rob Fitzpatrick and Salim Viranihttp://www.foundercentric.com/

Startups also fail because they imitate other startups.

The new cult of the celebrity founder.

No two startup situations are the same…(Even in the same market as another company)

Rob Fitzpatrick and Salim Virani http://www.foundercentric.com/

Each startup situation has its own topography….

And it’s your job to systematically figure out the topology of your own

startup

A Startup Is A Thesis

A Path for Searching:

For a sustainable and profitable business model…

Innovating is Really Like a Research Project:

We should not be making business plans, we should view our initial business model as a research proposal.

The Innovation Team is a Research Team:

All hands on deck, to learn what customers want…

And a sustainable/profitable way to deliver that value to them….

A Significant Contribution:

The significant contribution of a startup is building something people want…

Upon achieving product-market fit, a startup graduates…

Eliminate Waste

“The majority of inventions that have been recorded at the US Patent Office have never been introduced on a commercial basis” (pg.

Michael L. Tushman & William L. Moore (1982)Readings in the Management of Innovation

Of the 1800 successful innovations tabulated by Donald G. Marquis in 1976, almost three

quarters were the result of perceived market need, and only one quarter from perceived

technical opportunity.

“Both technical and market needs must be met for successful innovation” (pg. 276)

Successful Innovation:The Technological + The Commercial

In Other Words: Product – Market Fit

The Scientific MethodApplied to Innovation and Entrepreneurship

The Lean Startup approach is not anti-planning!

But the plan is to learn…

And use tools that allow us to learn from customers quickly…

Eric Ries (2011) The Lean Startup

http://lean.st

Ash Maurya (2012)Running Lean

http://www.runningleanhq.com/

The Lean Canvas

1.The true product of an entrepreneur is NOT the solution, but a working business model.

2.The real job of an entrepreneur is to systematically de-risk that business model over time.

* Remember that your product is NOT the product.

Ash Mauryahttp://www.ashmaurya.com/2012/06/the-lean-stack/

Step One

Document your Plan A Who are the customers? What problems do they have? What solution are you proposing? How do you plan to reach the

customers? How much will they pay? What are your key metrics?

Problem

Here you describe the top one-three problems that your customers maybe facing.

The best approach to use is the customer jobs to be done approach by Clayton Christensen.

When people need to get a job done, they hire a product or

service to do it for them (Clayton Christensen, 2010).

List existing alternatives: Most startup ideas are competing with email. It is mildly annoying but not painful enough to cause a

switch.

Customer Segments

Here we define the different groups of people that a company aims to reach and serve.

Mass Market Niche Market Segmented Market Diversified Market Multisided Market

Distinguish between customers and users. In search, the customer is advertisers and users are

the people doing searches. Identify your early adopters –

They will help your company to cross the chasm.

Unique Value Proposition

The value propositions section how your product creates value for your customer segments.

Why are you different worth buying from or getting attention.

Performance, Price, Design, Brand/Status, Convenience/Usability, Risk Reduction

Be different, but make sure your difference matters to customers.

Solution

In this section, you provide a brief description of the solution you will provide to customers.

List the possible products/features/solutions you may provide customers.

Don’t get carried away too much in the early stages, as this piece mostly makes sense after the problem hypothesis has been validated.

Channels

The channels section describes how a company reaches its target segments to deliver the value proposition.

Free vs. Paid Inbound vs. Automated Direct vs. Automated

http://www.businessmodelgeneration.com/

Revenue Streams

The revenue section describes how the company generates money from its customer segments.

Asset Sale, Usage Fee, Subscription Fees, Lending/Renting/Leasing, Licensing, Brokerage Fees, Advertising

Charge from day-one: Remember price is part of the product Price defines your customers Getting paid is the ultimate form of validation

Cost Structure

The cost structure describes all the costs that are incurred to operate a business model. Cost Driven Value Driven Fixed and Variable Costs Economies of Scale and Scope

Key Metrics

Find one key metric that is critical for success.

Unfair Advantage

This is the most difficult part of the canvas to complete.

Most things that people call unfair advantage are just not an unfair advantage (e.g. first-mover).

“A real unfair advantage is something that cannot be easily copied or bought”

Jason Cohen, A Smart Bear

Insider information A dream team Large network effects Community Expertise and reputation

The canvas can be used as a prototyping tool.

http://www.businessmodelgeneration.com/Alexander Osterwalder

Via: @robfitz

✦Canvas Rules You don’t write on the canvas (use

post-its). Everyone writes (no team boss). One idea per post-it note (no lists!). Be concise and think in the present. Quantity over quality (no self-

censoring). For double sided market use

different colour post-its.

Rob Fitzpatrick and Salim Virani (2012)http://www.foundercentric.com/

✦For your current business

Discuss as a group and put one business model on the canvas.

Your business model as you currently see it.

Time: 10M

Who else could use your product?

Come up with every type of person you can imagine benefitting from your product or service.

Time: 5M

How will they hear about it?

Come up with as many channels as you can, that you will use to publicise and distribute the product or service to your customers.

Time: 5M

Marketing vs. Sales?

You are either a marketing or sales driven company?

Low Margin, High Volume (Consumer) High Margin, Low Volume (B2B)

Which do you think you are?

Now build a model to do the opposite!

Time: 10M

How can you make your customers pay 10 times more?

Come up with a way you could charge more for your product/service.

How will this affect the rest of the business model?

Time: 10M

Give the product away?

Come up with a way you could give the core value of your product away for free to your end users.

How would you make money?

How does this change the rest of the model

Time: 10M

Option Cards

Salim Viranihttp://optioncards.co/

Exercise: 10 min

Create 5 option cards

Tip: Aim for 2 - 4 dots per card max.

Question Examples

Who will our next 10 early adopter be? What problems do they have? Where solutions are they looking?

How do our early adopters solve their problems now?

We will make money by __________. How would our business change if we cut our

prices by 95%? How would our business change if we couldn't

have a website or mobile app? Where do our early adopters seek help and advice

when they're stuck? How do our customers make buying decisions

differently when buying in different channels?

✦Now what?

In the past, you would now be encouraged to

turn your business models, into business plans and execute.

But our approach is different.

All these hypotheses have to be tested and validated with customers.

The canvas can be used to prioritise

where to start.

Riskiest Assumptions

This is a state of uncertainty were some of the possibilities can involve lose and catastrophe.

You can have: Product Risk, Customer Risk, Market Risk

Indeed, you can have risk on any part of the canvas.

Customer pain levels Ease of reach through channels Revenue stream/cost structure Market size Technical feasibility

You always deal with the riskiest assumptions first!

Specify who you are going to be talking to from the beginning. Be specific about your target sample.

If you talk to anyone who will talk to you: It becomes hard to distinguish signal from

noise.

Running Successful Experiments

Specify exactly what you would expect to find if your assumptions are correct.

Hypotheses MUST be falsifiable. Set minimum success criteria.

Otherwise, there is no way to know if you have learned anything.

Running Successful Experiments

Ash Mauryahttp://www.ashmaurya.com/2010/09/lean-startup-is-a-rigorous-

process/

The Startup Thesis with the Lean Canvas

Small Business & Entrepreneurship