Tag Archives: customer development

What’s in a Startup Methodology?

Back when I did the transition from studying software engineering to entrepreneurship, one question kept coming to me – while methodologies are inevitable for successfully building software products, why isn’t there an integrated methodology for launching and taking that product to market?

Take for an example the Perpetual Beta and Spotify, a successful online peer-to-peer music streaming service. Spotify did not only use beta versions to test engineering requirements with early users – using beta-invites enabled Spotify to create demand for their service at the same time. Software developers have been embracing practices such as Continuous Deployment for years, but merely from a technical viewpoint. I believe that the Perpetual Beta represents a new line of ambidextrous practices that not only enables a startup to plan, test and build – but also serve, distribute and market their product at a lower cost.

Astonishingly, methodologies that help entrepreneurs facilitate software product development alongside commercialization are still scarce. At the one hand there exist a variety of methodologies to manage risk in agile software product development, including Scrum, Extreme Programming and Adaptive Software Development. However, none or few of these methods, to my best knowledge, encapsulate risk in commercialization. To simplify, think of it as Scrum + marketing (Scrumm). At the other hand traditional management practices have been argued not to fit the extreme uncertainty in startups, and often comes to short in terms of aligning with disruption driven by Internet technologies.

At that time I was also more than inspired by Crossing the Chasm that addresses the specifics of marketing disruptive high-tech products. However, I still find the Pre-chasm phase left unintended. In my last post I wrote about diagramming the product-market fit, in which I have aligned with the Technology Adoption Life Cycle below.

Pre-Chasm Startup Methodology

In many ways I think that new-product introduction is about ramping the Pre-chasm, where building and taking new products to market are not two separate activities. Obviously a startup needs ambidextrous qualities, and working engineering and marketing in parallel will enable a startup to discover the holy grail of product-market fit – a key tenet with Customer Development and Lean Startup thinking. Together with elaboration on 37signals’ Getting Real and Rework, I look forward to seeing what this emerging school of startup methodologies brings.

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Diagramming Product-Market Fit at Lean Startup

Continual iteration is a fundamental principle in agile thinking as well as in startup methodologies such as Customer Development and Lean Startup. Basically, its premise is that a startup will mitigate risk and uncertainty by shortening product and customer learning loops, and adjust its product-market fit accordingly.

A startup achieves product-market fit when it masters the balance of building a solution, or product that acts on a customer’s problem, or vice versa. Both product development and customer development each has its own iterative loop structure. I believe that the two should be reciprocally acting and proceed in parallel towards the goal of product-market fit and that this makes a multiple-loop system. This invokes an ambidextrous challenge to early-stage ventures.

Building on my former post on Disciplined Creativity with Mihály Csíkszentmihályi’s Flow diagram, I would add to the Lean Startup model.

The diagram above shows product-market flow as a result of efforts in parallel iteration between agile product development (at the y-axis) and customer development (at the x-axis). In order to achieve a product-market flow state, that is product-market fit, a balance must be struck between customer development and product development. If a startup is drifting too far along one of the axis without iterating, flow cannot occur.

I believe that iteration beyond the product-market flow zone could be considered pivoting – that is when you change a fundamental part of your business model in regards to products and customers. To successfully iterate between product and customers and achieve product-market fit, you would develop a minimum viable product offering that enables you to learn about your customers needs and wants.

At startup you must pay close attention not only to the iterative tasks within customer development and agile product development separately, but also to the feedback loops in between the two. However, time is limited, and you should be aware of trade-offs in achieving flow in a Lean Startup. This is where continual iteration and validated learning allows for greater risk reduction under extreme uncertainty.

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6 Essential Startup Decks

Among the great many startup 101s’ that are out there, it can be hard to separate the wheat from the chaff. Here is an overview of the most essential startup decks that I have taken notes of. The list is merely a snapshot of hands-on startup methods and tools but a complete list of entrepreneurship literature.

Mint.com Pre-Launch Pitch Deck makes a great example of a startup pitch. For more on pitching  it is definitively worth looking into Pitching Hacks: How to pitch investors from Nivi and Naval at VentureHacks (PDF and free sample) to be used in companion with Dave McClure’s Startup Viagra: How to Pitch a VC.

Mint Founder Institute Accounting, this time by Mint founder Aaron Patzer, is a must read on how to draw your business case together and getting the numbers right.

Startup Metrics for Pirates by Dave McClure is the nuts and bolts of how to formalize traction and accountable metrics for your startup, including methods from the Lean Startup.

No One Cares About Your Stupid Little Startup by Xobni founder Matt Brezina takes us through its phases and tactics for building critical mass.

The Lean Startup methodology by Eric Ries combines the best from the agile development paradigm with Steven Blank’s Customer Development methodology (which might as well have been included) into a low-burn startup methodology.

Drop the business plan?! The Business Model Canvas by Alex Osterwalder, is an one-slide template and systematic approach to analyze, brainstorm and sketch out your business model. If you are not familiar with the framework you might want to start with the Business Model Generation book, the lean startup business model pattern and Steve Blank’s post on how to process it.

There sure are several interesting startup decks, and no such list goes without mentioning Guy Kawasaki’s The Art of the Start and Garage‘s Perfecting your Pitch. I will read SEO Moz’s Venture Capital Process again. Not to forget Getting Real and Rework – the business, design, programming, and marketing philosophies of 37signals’ (see aslo Eric Santos’ summary). Neverthless, keep up to date with Lean Startup news.

Do you know of other essential startup decks, we would love to know about them.

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Minimum Viable Product revisited – the MVP Curve?

My professor once introduced me to a concept he called FRUST – an acronym for frustration. Its premise is that products should be built solving a problem or pain for the customer. So is the minimum valuable product (MVP) a systematic, disruptive approach to product marketing. Google, Twitter and Spotify apparently get it. Say no more.

At its shortest, Eric Ries coined the minimum viable product:

.. the minimum viable product is that product which has just those features (and no more) that allows you to ship a product that resonates with early adopters; some of whom will pay you money or give you feedback.

In this Venture Hacks interview with Eric Ries, it is put even more simple:

The minimum viable product (MVP) is often an ad on Google. Or a PowerPoint slide. Or a dialog box. Or a landing page. You can often build it in a day or a week.

More recently, voices of the Customer Development/Lean Startup community have made an excellent effort in elaborating the idea, e.g. Andrew Chen; Minimum Desirable Product and Ash Maurya; How I built my Minimum Viable Product.

If a picture is worth a thousand words, then the minimum viable product would deserve its own least common multiple. Adapting the Featuritis Curve, here is a conceptualization as a basis of discussion.

Minimum-viable-product-illustrated-methodologist1

The MVP Curve questions whether resonance with Early Adopters is relative to the number of features or amount of complexity offered. The minimum viable product does not necessarily mean that the product should be dead simple. Rather, the resonance with customers should peak when the product offering is designed to solve their core problems or jobs-to-be-done, as suggested by Clay Christensen. In accordance with the Customer Development model, this implies not only listening to the customer, but getting out of the building and carefully studying the customer.

I leave to you the question whether the minimum viable product can be conceptualized. In different use cases, what would be the pitch of the curve? Further, the curve might be tested by applying metrics to it: how to measure resonance with early adopters over features, and are there alternative variables?

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How to design your Business Model as a Lean Startup

If you spend time exploring innovation methodologies and models, you know that configuration of such frameworks largely apply new ideas, assembly and build upon previous work (hat off to science). I have come to explore conformity of two emerging frameworks; the Business Model Ontology by Alex Osterwalder and the Lean Startup methodology by Eric Ries. The result, the Lean Startup and Business Model Canvas mashup is illustrated below.

With the Business Model Ontology Osterwalder proposes a single reference model based on the similarities of a wide range of business model configurations. With the business model canvas (used as basis for the illustration above) Osterwalder describes nine building blocks that form a meta-business model.

On methodology, Eric Ries coins the Lean Startup, a practical approach for creating and managing startups using principles of Steven Blank‘s Customer Development  methodology alongside Agile Development methodologies.

The Lean Startup Business Model Pattern adopts principles of the Lean Startup (i.e. agile development and customer development) with the building blocks of the Business Model Canvas. In his recent book, Business Model Generation, Osterwalder uses the notion of Design Patters alongside the ideas of Christopher Alexander and Tim O’Reilly among others, to describe common configurations of business model components. Hence, it could be considered a Lean Startup Business Model Pattern.

The Lean Startup Business Model Pattern aligns with three main pillars that constitutes the Lean Startup methodology; Customer Development, Agile Software Development and Technology Commoditization.

Illustrated above the template using arrows, one key tenet with the Lean Startup methodology is the understanding of Product-Market fit, which optimally results from Agile Product Development, the solution offered, to match with Customer Development, the problem that is solved for a customer.

The Customer Offering or Value Proposition component of the template can be understood with the Minimum Viable Product concept used with Lean Startup method (see also whole product or doughnut diagram in Crossing the Chasm). The Customer Segments in which the Minimum Viable Product is offered, typically is characterized by early adopters or lead users in the social system.

With the Technology Commodity Stack, one of the main principles with the Lean Startup, Eric Ries speaks of how free and open source software (FOSS) availability and user generated content reduce startup costs. This is typically recognized with the Key Resources component. That is, knowledge of and access to open source software is a key resource to a Lean Startup. Similarly, open web hosting services are recognized with the Partner Network component, and convenient search engine marketing with the Distributions Channels component. Social media could as an example be a aligned with the Customer Relationship component enabling user generated content and interaction with customers.

Data-driven approaches based on customer-centric metrics applies to Distribution Channels, but may be considered a key activity as well. Among the Key Activities of the pattern are Agile Software Fevelopment methods and techniques, and the use of Metrics (e.g. Dave McClure‘s AARRR, Startup Metrics) for a startup to measure performance and adjust its directions accordingly. Although “listening to customers” would be recognized as a technique with the Agile Development methodologies, this is central not only to the Customer Development, Agile Development and the Lean Startup methodologies – it is also central to the Business Model Generation (Emphatic Design), Disruptive Innovation (Jobs-to-be-done), Lead User innovation and Voice of the Customer among other customer-centric innovation frameworks.

The conformity of the frameworks is not straightforward though. One such problem is that the level of abstraction differs. Think numerator and denominator. How do we distinguish between tactics, process, strategy and concepts herein? According to Steven Blank’s Customer Development methodology (slide #29 in this presentation), Product Development and Customer Development can be viewed through the tactical lens, while the business model view could be viewed through the strategic lens. Osterwalder understands business models as a facilitator between business processes and strategy. Myself, I would start from the premise that strategy or goals often comes as consequence of continuous learning in early stage ventures where resources are scarce and uncertainty is extreme.

One challenge to consider is how the pattern might express iterative development and internal feedback loops that are fundamental to Lean Startup methodology. It is in my understanding that when working with models and methodologies there is a general challenge in uniting behavior (process) and structure. That is, to what extent are the two frameworks integratable in terms of methodologies and notations. Borrowing from areas such as software engineering and system dynamics, future work would envision a tool that aid in entrepreneurial learning and aggregates key metrics in order mitigate risk in new-product introductions.

For starters a fruitful discussion would consider what are the principles with the Lean Startup methodology that should be included in the Business Model Pattern and where they belong. Later, I will address how a startup would use the pattern to validate their business model as a part of their lean methodology. Stay tuned.

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