Six Lean Lessons For Corporate Startups

Egg Incubator

Big corporations want to build the next Facebook, Twitter, or Groupon as much as you, I, and the entrepreneur in a garage somewhere.

While corporations might have an advantage in resources and capital to do so better than anyone else, they do at the same time meet with challenges that independent startups don't.

Over the past years I've been fortunate enough to learn from corporate finance analysis, product launches, and early-stage M&A assessment on the one hand, and from founding and funding new startups on the other. And there is a pattern; the methods used by big corporations often turn counterproductive when launching new ventures.

Besides from knowing your customer development and lean startups basics, I share here some musings that you should consider if you want your corporation to innovate like a startup.

Rehabilitate from analysis paralysis

While a challenge in corporate business planning is that it often is comprised with mountains of information—in an early stage startup there usually is a minimal quantifiable track record.

Doing what they do best, corporations cram old information about existing products and markets to that of the startup. Executives and managers have founding teams develop detailed financial estimates and market analysis way too early.

Secondary data may be good for known and proven conditions, but not for unknown conditions, which most often is the case of new startups. The answer lies not with your thousand dollar Gartner report. Rather, it is time to un-MBA and get out of the building.

Learn like your kids would

With time grown-ups gradually stop learning. Kids, however, learn all the time. Kids experience their environment and make assumptions which are tested against reality, again and over again. For companies adopting new technologies in a fast pacing and quickly changing market the learning process is not much different.

Emerging entrepreneurial methods such as Lean Startup and Customer Development assume that startups are children, not smaller versions of mature companies. So, startups need their own methods and tools, which means it is time for even high-paid managers to get their hands dirty.

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Asymmetric Motivation & Startups

People need shoes. There is a grand market for shoes. Zappos has proven it. Big Shoes dubbed "Store Sko" in Norwegian, a small shop in my neighborhood that sells (guess what) big shoes, has proven it. The shop has been running profitable for years. Big Shoes is master of segmentation marketing.

Asymmetric motivation

Big Shoes has a positioning advantage - competitors, incumbents and mainstream shoe shops are reluctant to pursue the market of abnormal shoe sizes. First, the market is not perceived large and hence lucrative enough compared to mainstream markets. Second, customized shoes require customized inventory and production lines.

Niche marketing

When a mainstream shop cannot provide for the customer that shoe size s/he is looking for, they refer to Big Shoes, a sales person told be. Big Shoes receives referrals from competitors because they are in fact not yet competitors - they target different segments. Rather, for the mainstream shop, it is a matter of customer service.

Since Big Shoes is about the only big-shoes-specialist in Norway, customers come back. As customer retention is high, Big Shoes builds a stronger relationship to its customers who again share the news with new customers.

Solving problems

People with extra-large feet do not mainly need a spectacular design or shock-absorbing functions with their shoes. They need shoes that fit. Big Shoes excel at solving that problem for this particular segment. The shop has even started providing shoes that competes with regular shoes on design.

By solving a real customer need, Big Shoes are able to provide great customer service, keep clear of competition, and accordingly charge extra. The shop has added mail order as distributions channel and expanded into additional XXL product ranges. Big Shoes makes a sustainable business of asymmetric motivation.

Update: Thanks to Paul's comments I have changed the title and done some changes in this post; this is not a case of Jobs-to-be-done marketing. Rather it makes an example of asymmetric motivation, one facet of disruptive innovation.

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Minimum Viable Blog: What Blogging Taught Me About Startups

This blog was started in late 2009 after several attempts at blogging. Every time I'd configure the LAMP stack, source a the perfect Wordpress theme, and then, fine tune its look-and-feel. Being completely locked-in on the technicalities, however, I never got to write any actual content. Consequently, there was no room for feedback and my motivation stalled. It was a vicious cycle.

So in 2010 I figured it was time to go quick-and-dirty. I had to break with the cycle; forget about that stunning domain name, forget about database design, forget about adding yet another feature. Instead, I'd just publish that first post, watch what happens, and start collecting that feedback.

Without going into that content is king thing, it has been more of a learning path and understanding the real value of interacting with real audiences. Nonetheless, one year later I'm still using standard WordPress.com hosting and theme, and subscriptions are growing.

Now, if you swap the word blog for product in the short story above, you will notice that the pattern has a thing or two in common with startup methodologies – the very thing I have been ranting about the past year.

Launching a "Minimum Viable Blog" did not only enable me to measure visitors, clicks or subscription metrics. It enabled me to test and validate value propositions with real people.

Initially, I had this plan on writing about digital strategies - an idea grounded in a recurring problem I had experienced through consulting: existing strategy frameworks were not adapted to the web. First, however, I couldn’t resist scratching my own itch as an aspiring entrepreneur. So I decided to write a short piece on trade-offs between deliberation and creativity. Fortunate enough, I was soon having Skype calls with inspired voices of the tech scene. I had discovered early adopters who encouraged me to continue down that road.

This motivated me to revisit shelved ideas about early-stage business models and methodologies of integrating marketing and software development. Since, I have learned about customer development, lean startups, minimum viable products, pivots, product/market fit, among others, which I brought into teaching at Centre for entrepreneurship at the University of Oslo. From theory to practice and back, I expect to give such topics a real try this year.

So far I have studied, taught, worked for and ranted about tech startups, but have yet to go all in. Going forward I will share here my pursuits in search of product/market fit for my new Internet software startup (more to come).

A special thanks to all subscribers for following me in 2010.

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7 WordPress Themes for Launching your Minimum Viable Product

By leveraging the web in creation of rapid prototypes for testing business model assumptions, and using customer feedback to develop them, companies will be able to advance in its' search for a repeatable business model and reduce risk in new-product introduction.

In creation of such rapid prototypes the Minimum Viable Product (MVP) idea is key. Neverthless, open source platforms such as WordPress are key enablers to the Lean Startup. As my previous post on 9 Minimum Viable Product WordPress Themes received pretty good interest among aspiring enterpreneurs,  I decided to share some more recent WordPress themes that can help you in quickly launching your minimum viable product.

Inspire, a clean-cut theme from the rockstars at Woothemes. The theme leverages a clear value proposition and call-to-action alongside usable design.

Inspire by Woothemes

SaaS Web App. This one I liked so much that I kept it in my browser tab for days. The makers knows all about sizing and positioning elements for increased conversion. The Plans & Pricing is simply right-out-the-box.

Apz, also by Woothemes, is a simple theme aimed at iPhone application developers. Simple and landing page-ish, perfect for that Minimum Viable Product version zero-point-something.

Apz by WooThemes

Coming Soon is a dead-simple landing page theme. Change the picture and do some copywriting, and you'll be up and running.

SaaS Web App II is based on the same ideas as the SaaS Web App above, but with some modifications. Myself, I like the 1-2-3 description at the bottom.

AppPress by ChimeraThemes, has crafted a promising framework. AppPress really makes use of call to actions and conversion mechanisms as well as a good pricing page.

Fullside is AppPress' brother theme, having some different design options. Have a look at the 37 Signals inspired decleration module at the bottom of the page. Get ready for ramping your conversion funnel.

What I love about WordPress is its take on simplicity and modularity. It allows you to do rapid testing of features, design and value propositions, and easily integrate third party forms and survey modules for getting customer feedback critical to customer development.

Going forward I would really want to see one Lean Startup-specific theme that leverages the back-end dashboard with consumer-focused metrics for testing business model hypothesis.

Business Model Canvas Tool for WordPress

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Design-driven Business Model Development for Startups

Business plans are out and business models are in. The waterfall method is out and agile development is in. Now an entrepreneur would iterate the business model through design-driven approaches using agile software development alongside customer development.

But how would you use design-driven development in building your business model? A good start would be to iteratively identify and test key hypothesis for each component with your business model.

Previously I suggested a mash-up of the Lean Startup/Customer Development methodology and the Business Model Canvas. On the higher level, the "back-end" business model structure aligns with agile development principles, and the "front-end" structure with customer development principles. Causally executing product development alongside customer development would optimally lead to problem-solution fit, followed by product-market fit corresponding to your value proposition.

On the lower level, typical Lean Startup and Customer Development principles are segmented according to each of the nine business model building blocks. These are the techniques and tools that you would take into consideration when testing your business model hypothesis.

As all business model components have their own characteristics they also have their own hypothesis testing schemes. The following is an overview of techniques and tools to be used for testing each and one of your business model components from a Lean Startup and Customer Development perspective.

Customer segment

This is where you identify with customer prospects a specific problem that they agree upon. You would put the Customer Development methodology in order by getting out the building and mapping out a Customer Problem Presentation. For what questions to ask, the guys at Survey.io provide an excellent starting point.

Value proposition

Here you test to see if your solution fits the customer's problem. The key is Minimum Viable Product. A Minimum Viable Product has just those features (and no more) that allows the product to be deployed and tested. Especially if you are in the online business you would consider putting up landing pages. Further, A/B testing, split testing and multivariate testing are super techniques for testing hygiene factors. This allows you to test and validate customer demand and positioning. Unbounce provides you with many of these tools.

Distribution channels

Do conversion optimization whether it includes your web page, social media accounts, Google Adwords or partner's pages. Ask your self what is most cost-effective channel. Eric Ries wrote these awesome posts on how to use search engine marketing and Google Adwords in testing demand and value propositions.

Customer relationship

This one is bit more qualitative in nature than the distribution and product offering schemes. It is more about making an arena for collecting feedback from your early customer segments. You would consider using tools such as wikis, forums and social networks as a basis for collecting data. It may include making a beta testers' community allowing for feedback, and distributing surveys and newsletters for measuring reach. Survey and form services such as KISSmetrics and WuFoo are useful tools for gathering feedback on-site.

Key activities

"Release early, release often" is a key tenet in agile software development. Question your self - how often you ship product. Do continuous deployment to learn and adjust. Testing should be a key activity itself. Automattic CEO Toni Schneider reported that WordPress.com averages about 16 product releases a day. Beat that!

Key resources

Arrange for the tools that you need in order to test the remainding components. For an example by signing up to Google, you can run Optimizer for split testing, Google Analytics for conversion optimization and Adwords for testing clickthrough on different value propositions. The good news is that this is cheap. Perhaps the most important resource - your co-founders and team members should embrace a learning culture and test-driven environment.

Partners

Here you would consider a similar approach to that of the customer segment. Your partners may also be the ones who provide you with key resources, such as Amazon for hosting or Google for distribution.

Revenue streams/cost structure

This is about defining the equation of your business model. If you are going for that 1 % of China's users cliché you are pretty soon on thin ice. Instead, do it bottom-up. For an example, numbers of users times ad revenue per user. The point is to convert your assumptions into metrics that are actionable. Sooner you would be a low-burn startup. By removing what is broken, test-driven business model development enable you to do so.

The bottom line: In systemizing hypothesis by the business model components you will simplify testing methods and reduce risk in building a lean business model.

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The Startup Samaritan’s Dilemma

Helpers of early stage startups - incubators, accelerators, angels and advisors - sleep good at night. There is something samaritan about what they do. They serve the bottom of the economic pyramid on which our society rests.  They facilitate jobs, and in turn taxes. Some get wealthy and part is poured back in to new ventures, jobs and taxes. A virtue indeed. Yet there is a dilemma. While high-end markets yields and numbers make the deal, the Startup Samaritan migrate towards helping "grown-ups" at the expense of startups. The cure: startup methodology.

While I was studying and working my own market research practice, I had the pleasure to work with a couple of fine venture finance agents. I did customer interviews, and created business plans and investor presentations. It was first when I got the assignment to carry out a method with the goal of evaluating risk in early-stage ventures that I understood the dilemma.

What I quickly learned was that there is a minimal quantifiable track record within a startup. Accordingly, analytic models get dismissed in favor of qualitative variables such as team, customer insight and technology. For a couple of reasons I believe that this creates a dilemma to the Startup Samaritan.

  • The time utilized in facilitating a startup is pretty much equal to that of facilitating a grown-up. Risk is lower and more predictable at the later stages. The stake and respectively the compensation is often higher. For logical reasons the Samaritan's focus gradually migrates towards grown-ups. High-end markets yield.
  • With the theory of Disruptive Innovation, authors argue that most companies force teams to develop detailed financial estimates way too early, when their accuracy will necessarily be low. That using metrics such as net present value (NPV) or return on investment (ROI) as rank-ordering tools to make decisions is counterproductive [i]. Technological knowledge and qualitative unpredictability might cause a great headache to MBA scholars. Naturally such samaritans seek to utilize their knowledge and go after what is quantifiable.

Instead, early startup formation requires an understanding of entrepreneurial patterns - talking failure as well as success. Methodologies such as Customer Development and Lean Startup identify and learn from common challenges that occurs in startups and then describe methods that aid in overcoming such challenges. In exchange for meter-long spreadsheets, they embrace so-called Startup Metrics that are trackable, actionable and drive better product and marketing decisions. Of course you can not ignore financial data, but focusing on the assumptions behind the numbers is meaningful when there is no such track record. Dedication is more likely when motivation, knowledge and methods are aligned.

The bottom line:

  • Focusing on patterns [through startup methodologies] instead of numbers enable entrepreneurs to better manage uncertainty and their good samaritans to sleep even better in the future.
  • Principles of Disruptive Innovation can help explain why startup investors as well as entrepreneurs would want to educate in startup methodologies.

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[i] Mapping Your Innovation Strategy, by Scott D. Anthony, Matt Eyring, and Lib Gibson

How Lean Innovation Goes Beyond Corporate Assembly Lines

Lean Manufacturing, Lean Production, Kaizen and Continuous Improvement (dear child has many names) have created buzz for many years. Originated with Toyota's production system, "Lean" was primarily created with manufacturing businesses in mind. Now, as manufacturing businesses are increasingly rendered by service and network businesses, can lean philosophies go beyond corporate assembly lines and keep up with the new economy?

In one of my favorite articles, Casting of the Chains (pdf) from 2003, authors Ø. Fjeldstad and E. Andersen make a fruitful observation.

The world has changed. From 1960 to 1999 manufacturing companies’ share of GNP in the US, as well as its workforce, fell from 30 per cent to 15 per cent, with the consequence that such businesses are now a minority of the S&P500. Banks, transportation, building, healthcare, research pharmaceuticals and other services companies have taken over. Strategic models of the world, however, have not changed. When managers develop strategies for their companies, they still use the tools and language of the manufacturing organisation.

In brief, the authors found limitations in applying Porter's Value Chain to other than traditional assembly line-based manufacturing businesses. Consequently, the authors extended the Value Chain to two more models; the Value Shop and the Value Network.

The Value Shop creates value by scheduling activities and applying resources in a fashion that is appropriate to the needs of the client’s problem (typically management consulting, lawyers and doctors). Value in a Value Network is created by linking clients or customers who wish to be interdependent (typically banking, social networks and dating venues).

Business Model Patterns on Value Chain, Shops and Networks

When I joined my current employer to work on online startups, I did at the same time choose from working on continuous improvement at one of Scandinavia's leading media companies (see Bharat N. Anand's Harvard Business Review case). Regardless of my interests in innovation methods and owing my conviction to entrepreneurship, working with startup ventures rather than cutting down "corporate bacon". Later I discovered the Lean Manufacturing Startup, which basically adopts lean thinking and agile development to startup ventures.

Although Lean Startup principles are argued to be generally applicable, it mainly has been applied to enterprise- and consumer software cases. Yet, as far as Microsoft creates value by linking consumers with third party software developers, and Google links consumers with advertisers, the software business generally acts as a value network. Hence, I believe that we start to see cases with the lean paradigm being adopted to the connected, networked economy.

In this manner, I assume that the new schools of lean methodologies not only help traditional management thinking avoid cramming business models with manufacturing approaches, but also preserve new-product introduction and disruptive innovation alongside continuous improvement.

Essential Startup: 5 Killer Startup Decks

Planning versus execution often makes a dilemma to startup founders. So instead of reading a pile of books on the subject you might as well getting started with some killer ideas at hand. Recently I shared a list of 6 Essential Startup Decks. Here I continue the Essential Startup series sharing 5 decks that I believe can aid in entrepreneurial pursuits.

Finding Product / Market Fit

Since being introduced by Marc Andreessen and popularized by the Lean Startup movement, Product-Market Fit has evolved into a great deal in tech entrepreneurship. Several bloggers have addressed the subject lately, yet as a concept Product-Market Fit has been missing a-picture-says-more-than-1000-words. Earlier I suggested the Product-Market Fit diagram. Here Rishi Dean presents the Product-Market Matrix aligned with Customer Development and Lean Startup methodologies.

The UX Driven Startup

What to do as a founder when you actually can't build things? Say no more, Alexa Andrzejewski, founder of Foodspotting, gives you a memorable pitch on how to craft an experience vision at startup.

Why fighter pilots run startups

Originator of Customer Development and serial entrepreneur Steve Blank shares an arsenal of great ideas on entrepreneurship, including Customer Development, Lean Startup, business model validation, market types, the pivot and the OODA Loop. Perhaps one of his most encompassing slide decks.

Continuous Deployment at kaChing

From a more technical perspective than the reminder on this list, Pascal-Louis Perez gives us an introduction to and examples on continuous deployment at startup. I am a strong believer in his statement "Release is a marketing concern", which I also covered in What's in a Startup Methodology giving an example of Spotify's beta releases.

Product Management 101 for Startups

I enjoyed Dan Olson's talk on Lean Product Management for Web 2.0 Products at web 2.0 Expo earlier this year.  His recent slide deck includes a section on What is Product Management, as well as covering subjects a such as Product-Market fit, value proposition, usability, the pivot, and continuous improvement together with a case study.

In continuing the Essential Startup series I appreciate any tips on killer startup decks, tools and ideas.

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Getting Lean: A Startup’s Key Learnings from Web 2.0 Expo

Being fortunate to win a scholarship for this year's web 2.0 Expo in San Francisco (appreciation to @ericries, @SarahM and @TechWeb for having this opportunity), it is also in courtesy that I share a startup's takeaways and lessons learned from the conference.

In my approach writing for the scholarship program for lean startups, I pitched how EasyPeasy could learn from attending the conference and the Lean Startup Intensive. I described how EasyPeasy currently is seeking to validate Product-Market fit and, presumably in the customer validation phase, searching for its first transactions.

The Grand Pivot

Arriving at the conference after a 20 hours travel from Oslo, Norway and suffering from a mild jet-lag, I finally got to see Eric Ries, Steve Blank, Sean Ellis and Dave McClure and the reminder of the Lean Startup movement at work. In nearly every event that I was attending that week, either it was the in the talks, keynotes or unconferences, "Lean Startup" was buzzing. One major highlight was attending Matt Brezina's talk: 5 stages of Xobni's growth and 5 pivots along the way.

Having been a fan of Xobni for some time, I was excited to learn from their practical implications in pivoting from offering an e-mail analytics suite to that of "just" an outlook sidebar plug-in. Nevertheless, by talking to @brezina and @hnshah I had my thoughts about customer validation and pivoting matured. One week later, EasyPeasy is smoke testing for a new product offering.

Minimum Viable You

During the Lean Startup Intensive one common denominator came into view. Steve Blank, advocate of validating hypothesis about business models, talked about how a startup must strike balance between a product's minimum feature set and maximum sales. Accordingly, Dave McClure talked about how a startup must balance between user hypothesis and revenue. Lessons learned, and one key tenet with the Lean Startup methodology is that a focus on validated learning will enable startups to mitigate risk in new-product introductions, often by including continuous deployment, arguably a start-charging-now and learn fast/fail fast philosophy.

This is where the minimum viable product comes into the picture. At the second day of the conference a case of minimum viable tactics was elaborated by @drewhouston and @asmith in their excellent talk: From Zero to a Million Users - Dropbox and Xobni lessons learned. I think that this presentation gave a great many startups, including EasyPeasy, a lean toolbox at hand.

People Analytics

The Lean Startup advocates use of metrics for validated learning. Yet, there still is one vast amount of metrics to track, dependent on what line of business you are in. At the second day, Neil Patel gave an exciting talk on Web Analytics – Tracking People and Not Just Numbers, and an amazing Q&A session about what metrics you ought to track. In plenary, Neil asked the audience for their websites' URL, he quickly analyzed their pro and cons, and gave the audience applicable tips and tricks, all in real-time. I highly recommend his slides to be found on Slideshare, 5 Metrics You Ought to Track.

iPad, Flash and HTML5

Soon after arriving San Francisco I found that nearly every overseas visitor who I got to meet at the conference, in their very first morning in town, had been rushing over to the Apple store. Ourselves, arriving one day after our Norwegian fellows (we organized by extending the #w2e Twitter hashtag with #w2eNOR), we found that the iPad 3G edition was already sold out. We put our names on a notification list, hoping that another delivery would arrive at the store before we were on our way back home.

Nevertheless, web 2.0 Expo hosted a couple of very popular talks on the tablet innovation, here and here. iPad were on everybody's tongue and the big discussion tended to be about Flash vs. HTML5 and Adobe vs. Apple. Among a many good keynotes, Brady Forrest's chat with Adobe CTO Kevin Lynch did comb the debate. As when it comes to EasyPeasy, currently offering an open source operating system for netbooks, you might have a clue about how this might affect a pivot.

Learn Fast, Fail Fast

Truth is that there was many interesting talks, and unfortunately one did not have the time to attend all.  The main theme of the conference being Web as a Platform, there was a lot of interesting stuff on social media marketing, cloud computing, mobility, usability, virtual and social gaming. Many more events and people should be mentioned, yet I think that the above is sufficient to draw some main characteristics.

Pivoting, minimum viable products and analytics were just some of the themes that were buzzing throughout web 2.o Expo. What these subjects have in common and what was an overall takeaway, whether we are talking about ever changing technologies, markets or startups, is that a strong learning culture can be source of success, or at least to fail fast. I certainly will attend the next year's web 2.o Expo.

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How To Craft a Lean, Mean Value Proposition For Your Startup

EasyPeasy Value PropositionMark Twain said "I didn't have time to write a short letter, so I wrote a long one instead." Similar, every business model needs a clear and compelling proposition - a short description of the value or benefit your product creates for a specific customer segment.

In his seminal tech marketing book, Crossing the Chasm, Geoff Moore provided a very useful template for making and baking your elevator test. But as I needed an even more high-concept positioning–one that goes with your social media accounts, your tweets or Google ads–I turned to successful web startups for help. What I found is something that I call the VAD technique.

Guy Kawasaki is a true master of crafting value propositions or mantras, which he prefer over corporate-ish mission statements. On his blog I found the following killer examples:

I like these. They are short, simple, playful and to-the-point. Guy is not afraid of polarizing people. Its premise is that you will rather take a sniper than shotgun approach when targeting your customers with value propositions. Guy seems to put a verb or call-to-action first, followed by the application and a differentiator.

That is [verb; application; differentiator], or VAD if you like.

Another interesting value proposition is that of Xobni. By highlighting "Drowning in Email?", Xobni immediately makes you aware of your problem and invokes some kind of thank-god-I'm-not-alone-feeling. Instead of being everything to everyone, Xobni makes it clear that it offers you an Outlook sidebar plug-in. Following, Xobni highlights it main features and user perceived values - "searching your inbox and finding information about your contacts fast and easy".

Now, consider EasyPeasy, a software startup that I helped found. Its current value propostions are:

  • EasyPeasy: an open source cloud OS for netbooks.
  • EasyPeasy: Linux for the rest of us.

By using the VAD technique we came up with the following high-concept pitches:

  • EasyPeasy: Rediscover your netbook.
  • EasyPeasy: Make your netbook a lean, mean surfing machine.
  • EasyPeasy: Run any web app inside the operating system

I admit being scared of polarizing main audiences within open source and Linux. Yet, VAD helped us drill down customer segments and perceived user value. From a positioning point of view these value propositions polarize new netbook users, and focus on solving the problem of current netbook users that feel pain with their pre-installed OS.

If you would like a more in-depth approach to value propositions and business models, I recommend reading chapter 2 in Business Model Generation by Alexander Osterwalder and Yves Pigneur.

Feel free to slaughter or embrace the high-level EasyPeasy pitch, or throw away the shotgun, load your rifle and share your own VAD-style value proposition.

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