Understanding the Lean Startup Methodology

and this big idea actually is what kicked off The Lean Startup movement is that a startup is not a smaller version of a large company this is a huge idea nowadays it's kind of like well we kind of understand that but when I was an entrepreneur that was not the case our investors taught us to do everything a large company did a large company wrote A business plan we wrote A business plan a large company did a 5-year forecast they made us do a 5-year forecast large company hired sales marketing you know Business Development VPS on day one they told us to do that and more importantly our investors assumed that all we needed to do was execute the business plan just like a large company yet they were surprised when 90 some odd percent of us would fail and they blamed it on us as the entrepreneurs the big idea that kicked off The Lean Startup movement was not only startups aren't smaller versions of large companies is that large companies execute known business models what's a business model who's my customer how do I price the product who's my competitors what's my distribution Channel how do I get keep and grow customers in that large company you're large because you know that and therefore you hire people to execute but in a startup the thing that you're all doing you're actually searching for a business model and that's the core distinction in The Lean Startup Movement we built tools for 100 years for execution but we had no tools we didn't even have a language to describe that what we're actually doing is searching for a business model so one of the biggest both benefits and problems with being a founder of a company is a Founder is driven by Passion and faith and in fact on day one a startup is closer to a religious organization than anything else um you're actually driven by your belief that you see something that no one else does and in fact that is not only the reason that you will succeed that's also the reason why you will fail because very quickly for a startup to succeed you need to turn that faith into facts as rapidly as possible the mistake is simply thinking that just because you believe then therefore it exists and the whole idea about the Lean Startup movement says you know there are no facts inside your building so why don't you get outside and try to get some facts as early as possible and that was my contribution in this portion called customer development and so the Lean Startup movement actually does three things it says let's take all your hypothesis and by the way I use this word hypotheses because that's Stanford where I teach the students pay $50,000 a year and their parents want to know they're learning very big words but outside of Stanford the word hypothesis means guess and if you really think about it most of your startups are based around a series of untested guesses though you might believe and you might have convinced other employees to join and you might have convinced even investors to give you some money the odds are most of what you have are a series of untested guesses and what we're going to do is have you write down those guesses and we're going to use something called the business model canvas by someone named Alexander osterwalder I would have added Alex's book to your reading list this book is called business model generation and in one single diagram one piece of paper we could put all your guesses all your guesses who are the customers what am I building for them what's the distribution Channel how do I get keep and grow them what are the profits and losses and costs Etc and then the second thing we're going to do is get out of the building physically and sometimes virtually and test those hypotheses by doing the third thing agile engineering and building minimum viable products and so the Lean Startup consists of those three pieces business model designed to articulate or write down your hypothesis customer development to get out and test them and actual engineering to physically build iterative and incremental versions of the product before you ever do what we used to call first customer ship in a lean method you're continually testing the product almost from day one and it's not just code it could be a PowerPoint slide could be wireframe could be just data to get some early customer feedback again I want to emphasize if you're doing the same thing you would have done in a large company you are going to go out of business big idea don't believe that just because you think so it's going to happen if you're a technologist and in Silicon Valley our history is we started with products and search of customers in fact that's why I invented the customer development process because every startup I ever did was semiconductors or supercomputers or we had some great technology invention and then they said let's go find some business other people actually might come out of a based where they actually understood the customers and are looking for products that could serve them in either case the two most important things you're searching for as entrepreneurs as the founding team is this fit between product and customer and this fit is called Product Market fit you can't go further in your startup unless you have found product Market fit and product Market fit is very simple are people grabbing the product out of your hands and saying I want it or I'm using it or I'm buying it or I've given you email addresses or I'm downloading it or or some evidence that people actually like what your vision is every once in a while I get a student who taken my class does a startup and then I have coffee with them and they say Professor blank the the customers aren't behaving as I I think and so sometimes I just kind of get exasperated and say well maybe we should sh a copy of your plan you know with the product and they write down ship copy of plan with product and I go no no no that's not what you should be doing you should be finding out why they're not behaving as you expect and by the way customers never never behave as you expect never what I'm really interested in and so should you is not how blib or how easy you could describe your company I'm really interested in what did you think you know what did you find then what did you do and then where are you now I want to understand where did you start from and what's how much did you learn these 30 second pitches just tell me that here's how smart you think you are right now I'm really interested is you if you didn't learn anything in the last six months I'm running away because I don't think you actually learned anything I want to understand well here's what I thought when I started the company here's what happened when we Shi some minimum viable products here's what happened when the customers didn't work the way we thought they would or pricing or competitors Etc and so here's what we're doing that journey is actually a lot more interesting because it teaches me the velocity and trajectory of the teams now that scares some investors but to be honest I wouldn't want to take money from people who are interested in a fancy PowerPoint slide I'd be interested in people who are want to invest in somebody who learns rapidly and is able to actually match the market you know um this word MVP is overused but very relevant a minimum viable product is whatever you could building the most at a certain point of time and if you're an engineer the immediate reaction is oh I get it it's a de featured version of the product it's you know some of the features are missing and that just misses the point that's not what an MVP is an MVP on day one could be a PowerPoint slide to the UI or it could be a spreadsheet with the data you're going to provide a customer or it could be a wireframe or it could be even a conversation and MVP changes over time and what you're trying to do is maximize learning it could simply be different price points it could be AB testing and pricing which has nothing to do with the product that is what I'm trying to do is learn about custom customer segments Revenue model customer acquisition cost volume Etc correct channel right partners and so the minimum viable product is not a smaller version of the finished product it could it might be but almost often is not in the beginning of the company and and in fact um it's almost worth reminding people what a startup is you know when I was an entrepreneur I always thought a startup was the things I did which is I woke up in the morning and figured out how I was going to take over the entire world if not the entire universe and that's what a startup was but I realized that there were a variety of definitions in silan Valley a startup is the place where you get free food and get to bring your dog but you're not allowed to bring your children I I never figured that one out but so I came up with a definition which might be helpful a startup is a temporary organization designed to search for a repeatable and scalable business model it was designed to be like you could say it in a sentence so number one is I used to love startups I did eight of them um mostly because I was unemployable in a large company so I I had to do startups startup is a temporary organization which means the goal of a startup is not to become a startup what's the goal of a startup to grow to grow to become a large company so I put the word temporary organization just to remind ourselves that the goal is not to stay as a startup designed to search boy that's interesting I thought the goal of a startup is to to grow and sell stuff or get sold or whatever actually the goal of a startup that early phase is to answer a bunch of questions about your business model it's a big idea the goal in the early days is not to hire people and execute like you think you're correct in fact the data says while you think you're a Visionary there's enough data across the world now to say you're not a Visionary you're hallucinating big idea and so therefore instead of wasting your time we want you to search for a business model who are the customers what's the right price what's the right feature set what's the right product Market fit and the way I want to do this is I want to get some evidence that this thing is the right business model and I'll use MVP to do that um but I'm looking for something that's repeatable that is I could do the same thing on Monday that works on Wednesday that works next week and scalable that means for an input of you know a 100 L I might get 200 a back or for an input of a certain amount of dollars I'll acquire so many customers uh and so that's what the definition means a startup is a temporary organization designed to search for repeatable and scalable business model

and this big idea actually is what kicked off The Lean Startup movement is that a startup is not a smaller version of a large company this is a huge idea nowadays it&#39;s kind of like well we kind of understand that but when I was an entrepreneur that was not the case our investors taught us to do everything a large company did a large company wrote A business plan we wrote A business plan a large company did a 5-year forecast they made us do a 5-year forecast large company hired sales marketing you know Business Development VPS on day one they told us to do that and more importantly our investors assumed that all we needed to do was execute the business plan just like a large company yet they were surprised when 90 some odd percent of us would fail and they blamed it on us as the entrepreneurs the big idea that kicked off The Lean Startup movement was not only startups aren&#39;t smaller versions of large companies is that large companies execute known business models what&#39;s a business model who&#39;s my customer how do I price the product who&#39;s my competitors what&#39;s my distribution Channel how do I get keep and grow customers in that large company you&#39;re large because you know that and therefore you hire people to execute but in a startup the thing that you&#39;re all doing you&#39;re actually searching for a business model and that&#39;s the core distinction in The Lean Startup Movement we built tools for 100 years for execution but we had no tools we didn&#39;t even have a language to describe that what we&#39;re actually doing is searching for a business model so one of the biggest both benefits and problems with being a founder of a company is a Founder is driven by Passion and faith and in fact on day one a startup is closer to a religious organization than anything else um you&#39;re actually driven by your belief that you see something that no one else does and in fact that is not only the reason that you will succeed that&#39;s also the reason why you will fail because very quickly for a startup to succeed you need to turn that faith into facts as rapidly as possible the mistake is simply thinking that just because you believe then therefore it exists and the whole idea about the Lean Startup movement says you know there are no facts inside your building so why don&#39;t you get outside and try to get some facts as early as possible and that was my contribution in this portion called customer development and so the Lean Startup movement actually does three things it says let&#39;s take all your hypothesis and by the way I use this word hypotheses because that&#39;s Stanford where I teach the students pay $50,000 a year and their parents want to know they&#39;re learning very big words but outside of Stanford the word hypothesis means guess and if you really think about it most of your startups are based around a series of untested guesses though you might believe and you might have convinced other employees to join and you might have convinced even investors to give you some money the odds are most of what you have are a series of untested guesses and what we&#39;re going to do is have you write down those guesses and we&#39;re going to use something called the business model canvas by someone named Alexander osterwalder I would have added Alex&#39;s book to your reading list this book is called business model generation and in one single diagram one piece of paper we could put all your guesses all your guesses who are the customers what am I building for them what&#39;s the distribution Channel how do I get keep and grow them what are the profits and losses and costs Etc and then the second thing we&#39;re going to do is get out of the building physically and sometimes virtually and test those hypotheses by doing the third thing agile engineering and building minimum viable products and so the Lean Startup consists of those three pieces business model designed to articulate or write down your hypothesis customer development to get out and test them and actual engineering to physically build iterative and incremental versions of the product before you ever do what we used to call first customer ship in a lean method you&#39;re continually testing the product almost from day one and it&#39;s not just code it could be a PowerPoint slide could be wireframe could be just data to get some early customer feedback again I want to emphasize if you&#39;re doing the same thing you would have done in a large company you are going to go out of business big idea don&#39;t believe that just because you think so it&#39;s going to happen if you&#39;re a technologist and in Silicon Valley our history is we started with products and search of customers in fact that&#39;s why I invented the customer development process because every startup I ever did was semiconductors or supercomputers or we had some great technology invention and then they said let&#39;s go find some business other people actually might come out of a based where they actually understood the customers and are looking for products that could serve them in either case the two most important things you&#39;re searching for as entrepreneurs as the founding team is this fit between product and customer and this fit is called Product Market fit you can&#39;t go further in your startup unless you have found product Market fit and product Market fit is very simple are people grabbing the product out of your hands and saying I want it or I&#39;m using it or I&#39;m buying it or I&#39;ve given you email addresses or I&#39;m downloading it or or some evidence that people actually like what your vision is every once in a while I get a student who taken my class does a startup and then I have coffee with them and they say Professor blank the the customers aren&#39;t behaving as I I think and so sometimes I just kind of get exasperated and say well maybe we should sh a copy of your plan you know with the product and they write down ship copy of plan with product and I go no no no that&#39;s not what you should be doing you should be finding out why they&#39;re not behaving as you expect and by the way customers never never behave as you expect never what I&#39;m really interested in and so should you is not how blib or how easy you could describe your company I&#39;m really interested in what did you think you know what did you find then what did you do and then where are you now I want to understand where did you start from and what&#39;s how much did you learn these 30 second pitches just tell me that here&#39;s how smart you think you are right now I&#39;m really interested is you if you didn&#39;t learn anything in the last six months I&#39;m running away because I don&#39;t think you actually learned anything I want to understand well here&#39;s what I thought when I started the company here&#39;s what happened when we Shi some minimum viable products here&#39;s what happened when the customers didn&#39;t work the way we thought they would or pricing or competitors Etc and so here&#39;s what we&#39;re doing that journey is actually a lot more interesting because it teaches me the velocity and trajectory of the teams now that scares some investors but to be honest I wouldn&#39;t want to take money from people who are interested in a fancy PowerPoint slide I&#39;d be interested in people who are want to invest in somebody who learns rapidly and is able to actually match the market you know um this word MVP is overused but very relevant a minimum viable product is whatever you could building the most at a certain point of time and if you&#39;re an engineer the immediate reaction is oh I get it it&#39;s a de featured version of the product it&#39;s you know some of the features are missing and that just misses the point that&#39;s not what an MVP is an MVP on day one could be a PowerPoint slide to the UI or it could be a spreadsheet with the data you&#39;re going to provide a customer or it could be a wireframe or it could be even a conversation and MVP changes over time and what you&#39;re trying to do is maximize learning it could simply be different price points it could be AB testing and pricing which has nothing to do with the product that is what I&#39;m trying to do is learn about custom customer segments Revenue model customer acquisition cost volume Etc correct channel right partners and so the minimum viable product is not a smaller version of the finished product it could it might be but almost often is not in the beginning of the company and and in fact um it&#39;s almost worth reminding people what a startup is you know when I was an entrepreneur I always thought a startup was the things I did which is I woke up in the morning and figured out how I was going to take over the entire world if not the entire universe and that&#39;s what a startup was but I realized that there were a variety of definitions in silan Valley a startup is the place where you get free food and get to bring your dog but you&#39;re not allowed to bring your children I I never figured that one out but so I came up with a definition which might be helpful a startup is a temporary organization designed to search for a repeatable and scalable business model it was designed to be like you could say it in a sentence so number one is I used to love startups I did eight of them um mostly because I was unemployable in a large company so I I had to do startups startup is a temporary organization which means the goal of a startup is not to become a startup what&#39;s the goal of a startup to grow to grow to become a large company so I put the word temporary organization just to remind ourselves that the goal is not to stay as a startup designed to search boy that&#39;s interesting I thought the goal of a startup is to to grow and sell stuff or get sold or whatever actually the goal of a startup that early phase is to answer a bunch of questions about your business model it&#39;s a big idea the goal in the early days is not to hire people and execute like you think you&#39;re correct in fact the data says while you think you&#39;re a Visionary there&#39;s enough data across the world now to say you&#39;re not a Visionary you&#39;re hallucinating big idea and so therefore instead of wasting your time we want you to search for a business model who are the customers what&#39;s the right price what&#39;s the right feature set what&#39;s the right product Market fit and the way I want to do this is I want to get some evidence that this thing is the right business model and I&#39;ll use MVP to do that um but I&#39;m looking for something that&#39;s repeatable that is I could do the same thing on Monday that works on Wednesday that works next week and scalable that means for an input of you know a 100 L I might get 200 a back or for an input of a certain amount of dollars I&#39;ll acquire so many customers uh and so that&#39;s what the definition means a startup is a temporary organization designed to search for repeatable and scalable business model

Transcript for:Understanding the Lean Startup Methodology

Transcript for:
Understanding the Lean Startup Methodology