Lean startup in eHealth 5/2015 Pauliina Smeds, Forum Virium Helsinki Jaakko Ikävalko, Forum Virium Helsinki

The lean startup model aims at increasing the odds for success for startups, by reducing the market risks

The goal is to

eliminate wasteful and inappropriate traditional new product development practices

This means among others

not writing elaborate business plans

Also, this signifies

avoiding expensive product trials, launches and failures

Consequently, one goal is to

diminish the need for high level of initial funding

The key methods of lean startup philosophy are

•  business-hypothesis-experimentation

•  iterative product releases

•  validated learning

The objective for experimentations, iterations & learning is to

guide new ventures to only launch products that customers actually want

In the lean startup approach, a startup is viewed as

an experiment within the context of massive uncertainty

a startup doesn’t know who is the customer or what is the business model

Extreme uncertainty: in the beginning both the problem and the solution are unknown. Thus, in the beginning,

Yet,

a startup exists only to create a new sustainable business model

The primary goal is to

 discover a business model that works before running out of money & time. And then scale it.

The business model or the scaling of a business should not be based on assumptions but instead be

built on tested hypotheses and validated learning

In the search for a sustainable business model, it’s crucial that before running out of money, the startup has the ability to either

pivot or persevere

Pivoting is productive failure for a startup. Pivoting signifies learning something useful.

Pivoting means staying grounded in the initial vision, but changing one dimension of the business at a time.

A startup should always consider

how many opportunities to pivot is left

Therefore, it is especially essential to

reduce time between pivots

This is done by

accelerating validated learning by the build-measure-learn feedback loop

Most startups are drawn apart by two approaches of building a product when maximizing the chances for success

building the most perfect product or

releasing early, releasing often

minimum viable product (MVP) is a synthesis of these two extremes

Most startups consider an MVP too big: including too many features.

MVP should contain only critical features

In order to deliver an MVP

a startup needs to be willing to iterate and experiment

An easy formula

what you think an MVP is, cut it in half

Customer feedback loops during product development help to eliminate features or products that the market doesn’t want.

Customer Discovery

Problem- Solution fit

Proposed MVP

Proposed Funnel(s)

Customer Validation

Product Market Fit

Business Model

Sales & Marketing Roadmap

Customer Creation

Scale Execution

Company Building

Scale Organization

Scale Operations

Customer Development

Source: Steve Blank`s Customer Development by Brant Cooper; custdev.com

Pivot

Experimenting means testing the ideas against reality.

experimenting is NOT about asking the customers

Instead,

experimenting means testing hypothesis, setting metrics and measuring how customers behave

Setting up the metrics requires also

identifying what is crucial in order to establish a sustainable business model

Questioning the assumptions •  Is the problem worth solving? •  Who’s problem is being solved? •  Does anyone care about the solution? •  Will the customers buy the solution? •  How are the target customers solving the problem now? •  How will the startup grow? •  What is the unit cost model? •  What is the unit revenue model? •  What are the acquisition costs per customer? •  What channels will be used to get to customers? •  What is the startup’s unfair advantage that cannot

be easily copied or bought?

Product - market fit: the point at which the startup can scale profitably

•  The customer is willing to pay for the product

•  The unit of cost per customer is smaller than the unit revenue per customer

•  There is sufficient evidence indicating the market is large enough to support the business

•  The sales model is repeatable and scalable

Unit of progress: validated learning

Problem: unknown

Lean Startup

Solution: unknown

Hypothesses, Experiments, Insights

Data, Feedback, Insights

Customer Development

Agile Development

Customer Discovery

Customer Validation

Customer Creation

Scale Company

User stories

Architectual Spike Release Planning

Iteration Acceptance Tests

Small Releases

Spike

Requirements Bugs

Latest Version

Next Iteration

Key Partners Key Activities

Key Resources

Value Proposition

Customer Relationship

Channels

Customer Segments

Cost Structure Revenue Streams

Canvas tools, one example

Source: Strategyzer.com

Summarizing the lean startup approach

The focus is on

•  business model, not on business plan

•  fast learning loops: build-measure-learn

•  avoiding investing in a bad idea: a quick death is a good death

What Lean Startups Do Differently

Lean start-ups don’t begin with business plan but with the search for a business model. Quick rounds of experimentation & feedback reveal a model that works. Then, lean startups focus on execution.

Lean Traditional

Strategy

Business Model Hypothesis-driven Business Plan Implementation-driven

New-Product Process

Customer Development. Get out of the office and test hypotheses

Product Management. Prepare offering for market following a linear, step-by-step plan

Engineering

Agile Development. Build the product iteratively and incrementally

Agile of Waterfall Development. Build the product iteratively, or fully specify the product before building it

Lean Traditional

Financial Reporting

Metrics That Matter. Customer acquisition cost, lifetime customer value, churn, viralness

Accounting, income statement, balance sheet, cash flow statement

Failure

Expected. Fix by iterating on ideas and pivoting away from ones that don´t work

Expection Fix by firing executives

Speed

Rapid Operates on good enough data

Measured Operates on complate data

Organization

Customer and agile development teams hire for learning, nimbleness, and speed

Departments by function Hire for experience and ability to execute

eHealth specific aspects with the lean startup approach

eHealth related aspects

•  lots of regulation

•  getting to product/market fit potentially expensive: even MVPs have usually to meet certain standards and often need approval from administrators & regulators

•  important stakeholders can be hard to reach

•  health providers can be conservative & reluctant to try new things, resulting in slow adoption

•  often complex ecosystems & value chains

Regulative aspects in eHealth

Within eHealth, there are requirements & directives for •  Privacy, security, language support •  SW development process •  Quality management system •  Risk management process •  Clinical investigation •  Validation •  Registration •  Placing on the market •  Incident reporting •  Suitability for the intended use •  Performance and reliability

When commercializing an eHealth innovation

if regulation concerns your product, think for ways to avoid regulation

An example: Case Owlet avoiding regulation in an eHealth startup

See video on the case: https://www.youtube.com/watch?v=rS6fHW9pRek

More info http://bit.ly/1AA2XHK