2018 03 Lean Startup Und MVP

DRS Pro Transfer
Minimum Viable Products (in a Lean Startup)
Prof. Dr. Hannes Rothe

Department of Information Systems
Freie Universität Berlin
DRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt_ftr) 1

What is a Lean Startup?
or why should we care about prototyping?

What is the difference between startups
and existing companies?
human institution designed to deliver a new product or

“A startup is a
service under conditions of extreme uncertainty”

(Eric Ries 2009)
? ?
? ?
? ?
?

a Startup is not a small

version of a big
company

temporary organization
A startup is “a
designed to search
for a repeatable
and scalable
business model.”
(Steve Blank 2011)
Source: S. Blank (2011): Why the lean start-up changes everything.

Startups search for assumptions about the unknown.

Existing
Companies
execute what
they know.

“Business modeling is […] the managerial equivalent of the scientific method – you
start with a hypothesis, which you then test in action and revise when necessary.”
(Magretta, 2002)
H1: A change in an
Independent Variable leads
to a change in a Dependent
Variable
f.e.
If we place a product more
prominently, it can be sold
more often
Source: J. Magretta (2002): Why Business Models matter, p. 5.

Test the Problem, then your solution.
Ref. http://upload.wikimedia.org/wikipedia/commons/thumb/1/10/Business_Model_Canvas.png/1280px-
Business_Model_Canvas.png
How do we validate our Business Model?

We want to learn as fast as we can…
Hence, we want to reduce the time between

Build > Measure > Learn > Build > Measure > Learn > Build > Measure > Learn ---
Ref. Ries (2011): The lean startup: How today's entrepreneurs use continuous innovation to create radically
successful businesses.
We want to learn as fast as we can…
We need to test “leap-of-faith”-hypotheses:

a) Value Assumptions and b) Growth Assumptions
Once we have a Minimum Viable Product…
A MVP is the basis for an agile, incremental and iterative development of a

business model.
In case parts of our problem assumptions are

wrong, we change the Business Model
fundamentally (before our capital runs low).
We call it: pivot
New New
Guess Guess
Ref. Ries (2011): The lean startup: How today's entrepreneurs use continuous innovation to create
radically successful businesses.
Minimum Viable Product
What is a MVP?
"The minimum viable product is that version

of a new product which allows a team to
collect the maximum amount of validated
learning about customers with the least
effort.“
(Eric Ries, 2009)
“[…] a bare-bone[s] product that includes just

enough features to allow useful feedback from
early adopters”
(Carmen Nobel, 2013)
Ref. http://www.startuplessonslearned.com/2009/08/minimum-viable-product-guide.html
Nobel, C. (2013). Teaching a 'Lean Startup‘ Strategy. Harvard Business School.
image: Margot Duane 2012 | flickr
Why an MVP?
Ref. Croll/Yoskovitz (2013): Lean analytics

Customer Development
Where do we start?
“a group of stupid hippies turned

the bike world on its ear”
“I don’t think Schwinn Designers were really thinking

about us, when they design those early fat tire bikes.”
Ref. E Ries (2011): The lean startup: How today's entrepreneurs use continuous innovation to create radically
successful businesses; S Blank (2013): Why the Lean Start Up Changes Everything.
Images and citations from Klunkerz: A Film About Mountain Bike History

Customer Development
Where do we start?
Has or can acquire a budget
Has put together a solution

out of parts
Has been actively seeking a

solution
Is aware of having a problem
Has a problem
„earlyvangelist“
Ref. S. Blank (2010):https://steveblank.com/2010/03/04/perfection-by-subtraction-the-minimum-feature-set/

Build faster…
Enter the Lean Startup Cycle with

a testable MVP in front of real
customers.
A Lean Design Usability or UX Tests

(Agile Development, Free or Open (Hallway Testing, Heuristic
Source, Cloud Computing, Evaluation, A/B Tests, Usability-
Refactoring etc.) questionnaires, Cognitive
Walkthrough etc.)
Measure faster…
Beware Analysis Paralysis:

Get out of the building
and talk to your customers…
…about their Issues and your Solution

(Interviews, Observation) (Interviews, make use of web
analytics, usability & UX testing,
funnel analysis (f.e. AARRR), cohort
analysis)
successful businesses; A Maurya (2012): Running Lean; Lean Analytics (2013)
Learn faster…
Your Learning Goals depend on your current
state:
In the end you want Product/Market-Fit
Execute
Customer
Discovery
Customer
Validation
Customer
Creation
Company
Building
Search
Ref. E Ries (2011): The lean startup: How today's entrepreneurs use continuous innovation to create radically
successful businesses; S Blank (2013): Why the Lean Start Up Changes Everything.
Minimum Viable Products (in a Lean Startup)
Prof. Dr. Hannes Rothe

Department of Information Systems
Freie Universität Berlin

Interview

Concierge MVP (Wizard of Oz MVP)
Expected process by customer

Supplier Pick up
Incoming Order
order order from Shipping
order processing
processing warehouse
Behind the curtain Shoes merchant

was sold for about
Pick up order
Incoming Order 900 Mio. US$ to
from a nearby Shipping
order processing
local shop Amazon in 2009
„Fake it until you make it“ „[Be] the [wo]man behind the curtain.“
Task and Tools
Service is done step-by-step,

manually and in person, as if it was
done (semi)automatic.
See also Ries (2010): The Lean Startup

Images: Wikipedia | Jorge Royan (cc by-sa 3.0), Cover of L.F. Baum „Wonderful wizard of OZ“, G. M. Hill, 1900
Concierge MVP (Wizard of Oz MVP)
Another Linguistic students at your faculty need

books without marked paragraphs
example
Create a simple How many people

landing page, find and visited your site and
sell books by hand. ordered these books?
Ref. http://www.startuplessonslearned.com/2009/03/minimum-viable-product.html.
Image: Wikipedia | Johannnes Jansson/norden.org (cc by 2.5)

Video MVP
“It drove hundreds of thousands of

people to the website. Our beta
waiting list went from 5,000 people
to 75,000 people literally overnight.
It totally blew us away.”
(Drew Houston, CEO Dropbox)
https://www.youtube.com/watch?v=w4eTR7tci6A
Task and Tools
A video displays briefly the

value proposition / value
creation by a service or
product offering.
Ref. Video made with VideoScribe; Another example http://innovationsmarathon.de/team-7

Landing Page / Ads
AdWords Facebook
AdWords Ads
FacebookAds
AdWords
Tasks and Tools
Illustrate your value proposition LandingPage

(product or service offer)
Critical aspect: Assess your success

KPI ARRR Method
with suitable measures. Lean Analytics
Images. Screenshots from Facebook.com and Google.com
Landing Page / Ads
1. In 10 Minutes Scribble a
landing page
a) a Landing Page for
our product
„Catch-Phrase“ b) Develop search
terms to acquire
target customers
2. Present your page (2 Min.)
Call to action
Ref.: Osterwalder et al. (2014): Value Proposition Design

Assess Costs-per-Click (Google) on https://adwords.google.com/ko/KeywordPlanner/
Images: cc by sa Chris Harrison 2007 | Flickr, cc by sa Ftiercel 2012 | Wikipedia

Crowdfunding
Sell it before you build it
But only 36,85 % of projects

Image: Pebble Technologies
attain their project goals on
Kickstarter.
Tasks and Tools
Assess market demand, get feedback Crowdfunding

about product or service and test
marketing channels.
Maybe you also secure initial funding Crowdinvesting

Ref. http://www.statista.com/statistics/321513/top-ranked-kickstarter-projects-funding/
http://www.statista.com/statistics/235405/kickstarter-project-funding-success-rate/

Paper Prototype
Webbased Android & iOS Paper & Pencil
i.e. myBalsamiq, Axure i.e. Pop 2.0 i.e. pencil, fineliner,

(Indesign, Powerpoint) colored markers,
scissors …
Sefelin, Reinhard, Manfred Tscheligi, and Verena Giller. "Paper prototyping-what is it good for?: a
comparison of paper-and computer-based low-fidelity prototyping.“; Snyder, Carolyn. Paper
prototyping: The fast and easy way to design and refine user interfaces, 2003.
Paper Prototype
Example:
https://youtu.be/9wQkLthhHKA?t=1m35s
Decide which
Prepare your Do your
user tasks
mockups. usability test.
you‘ll test.
One person Multiple people At least one person

„simulates“ observe the user and tests the mockup
the machine her actions and thinks aloud.
Snyder, Carolyn. Paper prototyping: The fast and easy way to design and refine user interfaces. Newnes, 2003.
Nielsen, Jakob. Designing web usability: The practice of simplicity. New Riders Publishing, 1999.
Paper Prototype
Create an iOS app to

capture and circulate notes
from scientific conferences
1 Form groups of 2 or 3 and develop an app

(10 Minutes)
2 1 Person is a demonstrator
1 Person is documentor
1 Person is a tester
(5 Minuten)
Snyder, Carolyn. Paper prototyping: The fast and easy way to design and refine user interfaces. Newnes, 2003.
Nielsen, Jakob. Designing web usability: The practice of simplicity. New Riders Publishing, 1999.
Product Prototype
Common practice for building

information systems (Software).
1999 2000 2003 2016
Information systems (Hardware)
Siehe Interview with Nicholas

Woodman (CEO GoPro)
https://www.youtube.com/wa
tch?v=Gd-k-395KtA
Images: Screenshots from google.com and web.archive.org; Gopro; Forbes.com

Product Prototype / Service Prototype
Alternative practice for prototyping your service.
… explore your customer group,

location, and recipe.
Image: http://www.eventinc.de/info/food-truck-berlin;
see also http://www.woopwoopicecream.de/

Summing up with the Dropbox Story
Using MVPs within the Lean Startup Cycle
Initial core domain: Lean

(IT-based) startups Startup
(meanwhile also been seen Cycle
in big companies of all kind)
Prototypical Procedure:
„learn early, learn often“
(adaptation from „release early, release often“)
Ref.: Ries (2011), Maurya (2012), Blank (2013), http://theleanstartup.com/casestudies, Drew Houston ( 2010, Link)

Summing up with the Dropbox Story
Using MVPs within the Lean Startup Cycle
Case: Dropbox is Software as a Service

2007 „Throw away your USB drive“
1st Video MVP + Call to Action
1 (3 minutes screencast on Hacker News)
„Put something in
2008 Private Beta Launch users hands and get
2nd Video MVP + Landing Page real feedback ASAP“
2 Early Adopters (Waiting List leapt
from 5k to 75k within a day)
2009 Landingpages Typical happy customer

multiple pages + SEO/SEM „didn‘t realize [they]
needed this“
experiments
-> SEO/SEM
2010 Version 1.0

Freemium model with WoM
Marketing (2,8 mio. „referal Iinvites“ in
30 days)
Ref.: Ries (2011), Maurya (2012), Blank (2013), http://theleanstartup.com/casestudies, Drew Houston ( 2010, Link)

MVP Types
Product Prototype /
Single Feature MVP
3D Print Concierge MVP

Scope
Video MVP
„Sell it before
Roleplays you build it“
Wireframes (Crowdfunding)
Questionnaire
Paper Prototype
Advertisements Landing Page

Presentation/ Interview
Reach
Ref. Stefan Roock (2012) and Mathieu Garde (2014),
images (cc by sa) Efude 2007 | DeviantArt, Creative Tools 2012 | Flickr, Jorge Royan 2006 | Wikipedia,Shawan Zaln 2014 | Flickr
(1) Which of the the MVP
types would be most
feasible for you?
(2) Which value

assumptions could you
test with the MVP?

Am I riding a
dead horse?
Upside down Horse by David Cerny | Flickr Abi Skipp 2008 cc by |https://www.flickr.com/photos/9557815@N05/2775512699
Typically we are asked for the Break-even Point
When will we break even (wins == losses)
𝑇𝑜𝑡𝑎𝑙 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 = 𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡𝑠 R: revenue

Cf: fixed costs
𝑅𝑥 = 𝐶𝑓 + 𝐶𝑣 Cv: variable costs
𝑥 ∗ 𝑝 = 𝐶𝑓 + 𝑐𝑣 ∗ 𝑥 x: units
p: price
cv: costs per unit
Which cost types are regularly most important for highly scalable
business models?

Variable costs + revenues for entrepreneurs
Understanding the customer funnel
Acquisition: User gets in contact with product/service
Activation: User successfully interacts for the first time with product/service
Retention: User comes back
Referral: User talks about product/service
Revenue: User initiates a cash flow
e.g., http://blog.trak.io/growth-hacking-like-a-pirate-a-beginners-guide-to-pirate-metrics/

Understanding the customer funnel
Attract Sell Support / Loss

Resell
 Kroenke (2013), Using MIS, S. 263

Customer lifetime value
Time Lifetime
Retention probabilty Rest lifetime
Value
Acquisition
payments … … + expected referral (virality)
Repeated
payments Current cashflows Expected cashflows
Beginning of relationship Current time End of relationship
Ref. Bruhn, M.; Georgi, D.; Schusser, S. (2004): Einsatz des Customer Lifetime Value (CLV) im Commitmentgeschäft. In:
Management von CRM-Projekten. Handlungsempfehlungen und Branchenkonzepte, Wiesbaden, S. 438.
Diving into customer acquisition costs
How about your customers?

(lets compare selling to business with selling to consumers)
Some Additional Readings
Blank, Steve. "Why the lean start-up changes Maurya, Ash. Running Lean: Iterate from Plan A to a Plan
everything." Harvard Business Review 91.5 (2013): 63-72. That Works. " O'Reilly Media, Inc.", 2012.
Croll, Alistair, and Benjamin Yoskovitz. Lean Analytics: Use Ries, Eric. The lean startup: How today's entrepreneurs use
Data to Build a Better Startup Faster. " O'Reilly Media, Inc.", continuous innovation to create radically successful
2013. businesses. Random House LLC, 2011.
Magretta, J. "Why business models matter." Harvard

business review 80.5 (2002): 86.
Some videos on the topic
Lean Startup Value and Value What is a “business

(Introduction) Proposition model”?

Images
 Team (cc-by); http://www.marketingfacts.nl/berichten/innovatie-het-verschil-tussen-succes-en-faillissement

 Building (cc-by); Lance Hancock from The Noun Project
 Books (cc-by) http://upload.wikimedia.org/wikipedia/commons/7/76/Urval_av_de_bocker_som_har_vunnit_
Nordiska_radets_litteraturpris_under_de_50_ar_som_priset_funnits_(2).jpg
 Screenshot – amazon Webpage, https://www.amazon.com (2014-10-24)

Bibliography
Cooper, Alan. The inmates are running the asylum:[Why high-tech products drive us
crazy and how to restore the sanity]. Vol. 261. Indianapolis: Sams, 1999.
Kleinaltenkamp, M. (2013). Nutzungsprozesse–die vernachlässigte Seite der
Wertschöpfung. In Theorie und Praxis des Dienstleistungsmarketing (pp. 1-25). Springer
Fachmedien Wiesbaden.
Kleinaltenkamp, Michael, Ilias Danatzis, and Carolin Wernicke. "Produktivität im
Gesundheitssektor–Wertschöpfung in Nutzungsprozessen." Dienstleistungen im
Gesundheitssektor. Springer Fachmedien Wiesbaden, 2014. 59-87.
Lusch, R. F., Vargo, S. L., & Tanniru, M. (2010). Service, value networks and learning.
Journal of the academy of marketing science, 38(1), 19-31.
Maslow, Abraham Harold. "A theory of human motivation." Psychological review 50.4
(1943): 370.
Osterwalder, Alexander, et al. Value Proposition Design: How to Create Products and
Services Customers Want. John Wiley & Sons, 2015.
Rintamäki, T., Kuusela, H., & Mitronen, L. (2007). Identifying competitive customer value
propositions in retailing. Managing Service Quality: An International Journal, 17(6), 621-
634.
Smith, Adam. "An inquiry into the nature and causes of the wealth of nations: Volume
One." (1776).
Vargo, S. L., & Lusch, R. F. (2004). Evolving to a new dominant logic for marketing.
Journal of marketing, 68(1), 1-17.

Thank you!
Enterprise Fair: Digital Startup Ecosystem, Prof. Dr. Hannes Rothe (@cpt_ftr)

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DRS Pro Transfer

Minimum Viable Products (in a Lean Startup)

Prof. Dr. Hannes Rothe

DRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt_ftr) 1

DRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt_ftr) 2

human institution designed to deliver a new product or

service under conditions of extreme uncertainty”

DRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt_ftr) 3

a Startup is not a small

DRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt_ftr) 4

Source: S. Blank (2011): Why the lean start-up changes everything.

Startups search for assumptions about the unknown.

DRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt_ftr) 6

Source: J. Magretta (2002): Why Business Models matter, p. 5.

DRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt_ftr) 9

Hence, we want to reduce the time between

We need to test “leap-of-faith”-hypotheses:

A MVP is the basis for an agile, incremental and iterative development of a

In case parts of our problem assumptions are

"The minimum viable product is that version

“[…] a bare-bone[s] product that includes just

Ref. Croll/Yoskovitz (2013): Lean analytics

DRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt_ftr) 14

“a group of stupid hippies turned

“I don’t think Schwinn Designers were really thinking

DRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt_ftr) 15

Has or can acquire a budget

Has put together a solution

Has been actively seeking a

Is aware of having a problem

DRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt_ftr) 16

Enter the Lean Startup Cycle with

A Lean Design Usability or UX Tests

Beware Analysis Paralysis:

…about their Issues and your Solution

Prof. Dr. Hannes Rothe

DRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt_ftr) 20

DRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt_ftr) 21

Expected process by customer

Behind the curtain Shoes merchant

Task and Tools

Service is done step-by-step,

See also Ries (2010): The Lean Startup

Another Linguistic students at your faculty need

Create a simple How many people

Image: Wikipedia | Johannnes Jansson/norden.org (cc by 2.5)

“It drove hundreds of thousands of

Task and Tools

A video displays briefly the

Ref. Video made with VideoScribe; Another example http://innovationsmarathon.de/team-7

DRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt_ftr) 24

Tasks and Tools

Illustrate your value proposition LandingPage

Critical aspect: Assess your success

2. Present your page (2 Min.)

Ref.: Osterwalder et al. (2014): Value Proposition Design

Images: cc by sa Chris Harrison 2007 | Flickr, cc by sa Ftiercel 2012 | Wikipedia

DRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt_ftr) 28

Sell it before you build it