Session 4 - LeanStartup

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THE LEAN STARTUP

Srivardhini K Jha, Entrepreneurship, IIMB
Analytical approach
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Analyze Decide Act
The analytical approach works well in stable, predictable

environments, in which one can identify trends that are likely
to continue moving forward.
Business Plans
 What percentage of Inc 500 founders wrote formal
business plans before they launched their companies?
 Approximately 40% (Source Inc Survey 2008)
 Approximately 28% (Bhide, A. 2000. The origin and evolution of new businesses.
NewYork: Oxford University Press).
 How many of those strayed from their original conceptions?

 What percentage of Inc 500 founders did formal market

research of any kind?
 Approximately 4% (Bhide, 2000)
 How many of those took more than a few months to plan?

 Approximately 32% (Source Bhide, 2000; Honig, 2004)
Planning fallacy
4
Business plans rarely survive first

contact with customers. As the boxer
Mike Tyson once said about his
opponents’ prefight strategies:
“Everybody has a plan until they get
punched in the mouth.”
- Steve Blank, Serial Entrepreneur

The test and learn approach
5
Build
Adapt Launch
Evaluate
The “test and learn” approach works best in conditions of rapid change,
unpredictability, and/or ambiguity.
In those situations, you cannot predict the future through analysis. You
must learn by doing.
In that case…
6
What is the utility of a business plan?
Do we not plan at all? What about Market

Just do it? research?
How do we implement “test and learn”?

“Entrepreneurs have been trying to fit the square
peg of their unique problems in the round hole of
general management for decades. As a result,
many entrepreneurs take a “just do it” attitude,
avoiding all forms of management, process and
discipline. Unfortunately, this approach leads to
chaos more often than it does to success.”
- Eric Ries (2015)
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Business plans/Market Research
8
 Market research gives partial information at best

 Focus is on past trends, preferences
 A useful starting point but to be used with caution
 Business plans certainly have a place
 Is an important communication device
 Helps clarify your own thoughts
 Gives the confidence to move ahead
 Provides a starting point
 What kind of business plans?
 How elaborate should they be?
 How much time do I need to spend creating one?
 What should they capture?
Product Development and Customer
Development Processes
9
 Not independent, parallel processes.

 Need to be synchronized.
 Need to feed one another.
The lean startup method blends product development

and customer development process into iterative
learning loops.
Meta-Principles – Lean Method
10
1. Document your Plan A
2. Identify the riskiest parts of your plan
3. Systematically test your plan

Document your plan: Lean Canvas
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3 7
1 1
2
6 4
5 5
1 – Customers/Problems
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 Customers
 Take a customer-centric approach.
 Start by identifying a customer segment that you envision
buying your product/service.
 You may need a separate lean canvas for each customer
segment.
 Note that customers are different from users.
 Hone in on early adopters.
 Problems
 List 3 problems that your potential customers face.
 Also list the alternatives available.
2 - Unique Value Proposition
13
 Derive the UVP from the #1 problem you are trying

to solve.
 Target the early adopters.
 Focus on finished story benefits.
 E.g.:A CV building service could choose to focus on the
features or focus on the end result – a dream job
 Pick your words carefully and own them.
 Try to answer what, who and why.
3 - Solution
14
 For each of the three problems outlined, articulate

a capability or feature that solves the problem.
4 - Channels
15
 The path to your customers

 Inbound versus Outbound
 Direct versus Automated
 First sell manually, then automate.
 Direct versus Indirect
 First sell directly, then let others do it.
 Retention before Referral
5 – Revenue Streams and Cost
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Structure
 Revenue Streams
 Down payment
 Licensing
 Subscription
 Free trial
 Freemium
 Cost structure
 Significant costs (Hosting costs, People costs, Real estate
costs etc.)
6 – Key Metrics
17
 Choose metrics that’ll tell you if your startup is

progressing.
 This is likely to differ from business to business and
change depending on the startup stage.
 Examples
 Click-through rate
 Conversion rate
 CAC / LTV
 GMV
 NPS
 30 day, 60 day retention
7 – Unfair advantage
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 This may be difficult to articulate upfront.

 It is any critical aspect of your business that is
difficult to imitate.
 Emerges over time as the business matures.
 Could take the form of
 Patents
 Exclusive Partnerships
 Logistics
Lean Canvas Example – Cloud Fire
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Create a lean canvas for Heal @Home
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Healthcare for the elderly is a $7 Billion industry in India. Increased life

expectancy, growing mobility among urban youth and nuclear family
structures have brought forth several challenges in how the
healthcare needs of the ageing population is taken care of. Deeply
entrenched social norms that expect children to take care of ageing
parents has compounded the situation further.
But, every challenge also presents an opportunity. Anish and Shivali,
two smart MBAs from IIM Bangalore believe this area is ripe for
entrepreneurship and presents a promising business opportunity.
They have launched a new venture called ‘Heal @home’. This venture
seeks to build an ecosystem that will deliver quality medical care for
the elderly in the comfort of their home, eliminating the need for
family to be physically present to take care of parents.
Identify the riskiest parts of your business
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Problem/Solution Fit
1 Key Question: Do I have a problem worth solving?
• Is the problem identified real?
• Are there enough customers who acknowledge the problem?
• Can it be solved? (feasibility)
Product/Market Fit
2 Key Question: Have I built something people want?
• Is my solution superior to what exists in the market today?
• Does my solution address the pain points?
• Are customers willing to pay?
Business model/Market Fit

3 Key Question: How do I accelerate growth?
• What are the potential channels to reach customers?
• How does the cost structure stack up against revenue (potential) streams?
Systematically test your plan
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 Formulate testable hypotheses.

 Execute the Build-Measure-Learn loop i.e., design and
execute experiments to test hypotheses
 Pivot / Persevere
Minimally
Viable Product
(MVP)
Hypotheses - Testability
 Hypotheses should be testable

 Examples of untestable hypotheses:
 Our company’s product will trigger word-of-mouth
marketing.
 Customers will use our product regularly.
 Examples of better-formulated hypotheses:

 Each instance of product sold/downloaded will result in 5
referrals.
 Customers will use the product two times a week for a
duration of 15 min or more.
Hypotheses – False Positive and False
Negative
 False positives can be

mitigated thru credible
commitments.
 False negatives can be
tricky and go/no-go
decision will depend on the
extent of resources
required to make the next
iteration and
entrepreneur’s confidence.
Types of hypotheses
 Value hypotheses
 Is the problem identified real?
 Are there enough customers who acknowledge this problem?
 Is my product/service solving the problem?
 Are customers willing to pay?
 Growth hypotheses
 What is my margin?
 Can I scale this business?
 What is the engine of growth – paid, sticky or viral?

Minimum viable product (MVP)
 The smallest set of activities needed to
rigorously disprove a hypothesis.
 MVP can be a product, service, pitch etc.
 Types of MVP
 Smoke tests
 Video MVP
 Concierge MVP
How to test hypotheses
 Customer interviews
 Surveys
 Focus groups
 Market trials
 Letters of Intent / Pre-Ordering
 Split tests
 Usability tests
Pivoting - Optimize
Finding a plan that works Accelerating that plan

28 Validate Refine
Course Correction Efficiency
Focus: Validated Learning Focus: Growth
Experiments: Pivots Experiments: Optimizations
Problem/Solution Fit Product/Market Fit Scale
Your Goal: Learning Your Goal: Growth
Investor’s Goal: Growth Investor’s Growth

Goal:
Ideal time to raise funding
Vision – Strategy - Product
Product: Is the end result of the strategy

Product
Change in Product is Optimization
Strategy: Employed by the start up to achieve

its vision & includes – business model, product
Strategy road map, partners, competitors, who is a
customer etc.
Change in Strategy is a Pivot
Vision: The true north! The destination the

start up intends to reach
Vision
Entrepreneurs are committed to seeing what
the start up to its destination
29
Lean Canvas and BML
In Summary: Think big, but start small
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 Launch small experiments

 Prototype rapidly and inexpensively
 Tolerate failures
 Learn from your mistakes
 Increase investment after testing and learning

Limits to Lean Startup Methods
 Mission critical products

 Low demand uncertainty
 Long development cycles

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1

THE LEAN STARTUP

Analyze Decide Act

The analytical approach works well in stable, predictable

 How many of those strayed from their original conceptions?

 What percentage of Inc 500 founders did formal market

 How many of those took more than a few months to plan?

Business plans rarely survive first

- Steve Blank, Serial Entrepreneur

What is the utility of a business plan?

Do we not plan at all? What about Market

How do we implement “test and learn”?

 Market research gives partial information at best

 Not independent, parallel processes.

The lean startup method blends product development

1. Document your Plan A

2. Identify the riskiest parts of your plan

3. Systematically test your plan

 Derive the UVP from the #1 problem you are trying

 For each of the three problems outlined, articulate

 The path to your customers

 Choose metrics that’ll tell you if your startup is

 This may be difficult to articulate upfront.

Healthcare for the elderly is a $7 Billion industry in India. Increased life

Business model/Market Fit

 Formulate testable hypotheses.

 Hypotheses should be testable

 Examples of better-formulated hypotheses:

 False positives can be

 Is my product/service solving the problem?

 Are customers willing to pay?

 What is the engine of growth – paid, sticky or viral?

Finding a plan that works Accelerating that plan

Experiments: Pivots Experiments: Optimizations

Problem/Solution Fit Product/Market Fit Scale

Your Goal: Learning Your Goal: Growth

Investor’s Goal: Growth Investor’s Growth

Product: Is the end result of the strategy

Strategy: Employed by the start up to achieve

Change in Strategy is a Pivot

Vision: The true north! The destination the

 Launch small experiments

 Learn from your mistakes

 Increase investment after testing and learning

 Mission critical products

 Long development cycles

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