Dos and Don’ts of Lean Startup- Top Takeaways from The Lean Startup Conference 2014

Lean Startup Conference 2014

Lean Startup Conference 2014

Main Takeaway- Continuous Experimentation Well Beyond The Startup Stage

Contrary to the generally held belief that lean startup principles advice experiments in early stages of a startup; many speakers at the conference showed how they are experimenting continuously at all stages of their ventures.

Eric Ries in said that “Product market fit and experimentation is not a one time activity. It’s a continuous flow of activities. There are no discrete big jumps! Think of these steps in continuous flow that lend themselves to go back if an experiment fails”

Hiten Shah of Kissmetrics reiterated that a meaningful metric leads to a hypothesis and then to an experiment to validate it. Startups should always be A/B testing. Empirically 1 out of 5 tests succeed. Strive to win 1.67 out of 5.

A/B testing can help not only at different stages of a startup; but also for various activities including website traffic, app installs, welcome emails, Web/Mobile onboarding, E-mail digests, Triggered notifications, dormant/churned users.

Des Traynor also said that having continuous feedback is more valuable than one time event driven feedback.

Experiments helped even established brands like Rally, Google and Vox Media to validate hypotheses at later stages of their product lifecycle

  • Rally launched a dummy brand waffle.io targeted towards developers to protect the parent brand from the impressions created by the experiments. Finally Rally decided to have both brands.
  • Google Adsenses team validated Partner Problems using Lean Startup Principles. Blair Beverly said that they faced problem with new projects scaling too early and failing as they lacked historical data to go by. He got coworkers at Google ad senses team to use the Lean Startup. They scheduled office time to read the book, being helpful and not pushy. They also gave them a reading guide with questions. In the end they identified three hypotheses; put together templates like the partner problem hypothesis. People felt good about invalidating their own hypotheses as it saved them work that would’ve been wasted.
  •  Vox Media launched Vox.com in 9 weeks using analytics to guide customer validation. Melissa Bell got her co founders and others from Vox media in the same room to get everyone on the same page about her vision. Many editorial staff came from Washington Post whereas Vox was an agile technology company. They used card stacks for flexibility. They had problems with the way editors used card stacks, as it was difficult to navigate-hence they analytics were used to solve the problem. Now Vox.com has 22m users. Delivering content to users where they are-on social channels such as Facebook or YouTube instead of own URL.

Lean Startup- Dos & Don’ts

Max Ventilla

  • Pivoting statistics- 80% of failures didn’t pivot, 65% of successes Pivoted but 85% of Huge Successes (>$1B exit) didn’t pivot. Those didn’t pivot felt that evolution is safer than betting on intelligent design.
  • You need to eat your own dog food. Use your product to solve your own problems. If not you are at an enormous disadvantage.
  • Invert the org chart :customers & customer facing team should be on top. They should be heard and not told what to do.
  • Force yourself to pretend at the earliest possible moment what you want to be- to learn whether its worth being what you want to be. Landing pages, Concierge or Wizard of Oz are ways to pretend.
  • Don’t speed up for the sake of it. For startups not going fast enough is not the main risk. False summit is the reality. Journey of a startup is slow like that of a mountaineer. A new goal appears once you have reached what seemed like the ultimate goal.

Grace Ng

  • According to Grace Ng success criterion for any experiment is the weakest outcome that will give you enough confidence to move forward.
  • Testing the riskiest assumption on buy side in a two-sided market place could be deceptive in a sellers’ market. Sellers may not automatically follow even if you find many buyers.
  • Validated hypothesis doesn’t necessarily lead to a viable business. Grace Ng tested a hypothesis whether birdwatchers will post photos to ask questions. The Hypothesis was valid but the problem turned out to be too small – not a big pain-point.
  • Don’t validate the solution before validating the problem. As in the case above; the problem was not big enough though the solution was right.

Eric Ries

  • When it takes too long to learn as end results take time, use proxy metric like number of likes or start a cohort.
  • Don’t depend on one experiment to determine the product market fit. Keep testing and validating along the way as you grow. Growing too fast by taking product-market fit for granted is dangerous.
  • Don’t get misled by corporate America’s habit to underinvest or overinvest. “All Hands On Deck” sounds great but surely is a sign of overenthusiasm.
  • Avoid handing off innovation between silos. Handoffs kill innovation. What is learnt in one silo can’t be handed off to another silo.
  • Don’t add features for the sake of it. Its better to err on the side of being too minimal to get early feedback and learning. Its easy to add a missing feature later.
  • Pay more attention to paid users’ feedback than free users’ feedback. Free users ask for more; paid users ask for better.
  • Don’t use vanity metrics- Eric’s law: At any time no matter how badly you are doing there is at least one Google analytic graph that’s up into the right

Joanne Molesky

  • As you go through build-measure-learn cycles for product the same way you should be going thru build-measure-learn cycles for process compliance.
  • Beware of developers’ tendency to focus on how to do things than on outcomes. Developers tend to ignore security as they are dazzled by technology, so they focus on doing things faster-not safer. Security testing, threat model and risk metrics should be included right from the beginning and not at the end.

Dan Milstein

  • Don’t take idle pleasantries as positive feedback. People tend to be polite and cordial even though they are least interested.
  • Don’t choose to see what fits in a narrative that sounds good and makes you look awesome. That is self-deception. Realize that a startup is a series of unpleasant encounters with reality.
  • Don’t own a plan. Own questions. Plans will change.

Hiten Shah

  • Test small changes- Google sign on and changes to verbiage improved acquisition by 314% for KissMetrics.

Brant Cooper

  • Don’t as two questions that kill breakthrough innovation – what is the roi? When do we get it? In order to answer these questions we have to look at existing markets which kills innovation -innovator’s dilemma. We need to build cultures or safety net for innovators.

Conclusion

Most of the takeaways and dos and don’ts are common sense for any practicing entrepreneur. According to Eric Ries The Lean Startup process is more widely practiced than talked about. Most entrepreneurs are agents of long term change. They don’t think The Lean Startup is a big deal. As with most profound thoughts- it seems obvious after its well thought through, well organized and well presented.

Top Takeaways from Nasscom Product Conclave 2014

Insights into startup ecosystems of the US and Israel

Technoratti of India descended to Bangalore for the annual Nasscom Product Conclave 2014 on 30th and 31st October. Here are some top takeaways from the conference with a few from the Pune Connect event that happened on 8th Nov.

New startups are being launched at a feverish pace in India. India has 3100 startups-taking it to # 3 ahead of Israel which has only 1000 . Technologies and infrastructure to build software products have become available and the domestic market has grown to become significant enough to take note. Devices at the edge and powerful technologies at the back end are throwing up unprecedented opportunities for startups to innovate. App to App communication is exceeding browsing traffic. John McIntyre and Zack Weisfeld presented the evolution of startup ecosystems in the Silicon Valley and Israel.

Startup EcosystemStartup Ecosystem

Startup Ecosystem

Strong universities which acted like feeders and presence of prominent MNCs provided the infrastructure needed for healthy startups in Israel. Few initial successes provided the much needed boost for the startup activity to take off. Military spending and a lenient tax regime by the Government helped. The Israel Government also promoted VCs and provided exit routes.

History of Silicon valley is similar in the role played by the US Government, world war II and electronic warfare research at MIT, Harvard and Stanford. John McIntyre said that Silicon Valley is a state of mind. “Free flow of people and ideas is natural. The team you build is more important than the idea itself. There is no stigma attached to failure- you have to fail and reinvent to finally succeed. Innovation happens when you address customer desire in a financially viable product that is technically feasible. Silicon valley is a melting pot where the magic happens because of diversity of people.”

India is following the footsteps of these countries by starting a Government funded innovation -the Aadhar card program. 700 million cards were issued in 4 years with a team of 20+ developers. Aadhar has developed an API for authentication and KYC (Know Your Customer) which is being consumed by about 500 independent developers. The Aadhar team showed some innovations that will drive the future roadmap. One of them developed at the MIT media labs was an app that does iris scans using 1.2 megapixel camera and retina display available in some mobile phones today. Soon Aadhar could make one click two factor authentication (like ApplePay) possible in rural India!

Like Appstore and Google Play there are many other platforms like Salesforce, Facebook, LinkedIn and Azure that have their own ecosystem of apps. Aadhar could become one such ecosystem.

Dhiraj Rajaram of Mu Sigma cautioned that we shouldn’t get carried away by the hype associated with product startups and seriously look at services. Services can dynamically provide solutions on the fly to problems as they arise whereas static products solve specific problems they are meant to solve. Tarken Maner also pointed our that out of $3.1 trillion global IT market only $1200 billion is accounted for by hardware and software products- balance $1.9 trillion is accounted for by services.

Tips on business and marketing

Business applications want to abstract trust broking to aggregators of services like Ola Cabs or Flipkart . Promod Haque said that App to App communication is exceeding browsing traffic. As users are demanding mobile first ; some applications are moving to mobile only. Zomato scrapped their web interface,built a mobile only app and then moved to build desktop app after 6 months. Omnichannel seems to be catching up – it not only accounts for various form factors but integrates digital and physical channels of conducting business. Users get a seamless experience across multiple channels – they can start in a new channel from where they left in an old channel. Tarken Maner said that you can strategically use channel to differentiate just the way you traditionally used customer profile or product features to differentiate. B.V.Jagdeesh said as business applications are starting to look more like consumer apps;  B2B market provides more opportunities than B2C. Once you acquire 20 customers in the B2B market you are safe to start building your business on that foundation. Though B2C appears more attractive ; sustainable customer acquisition in large numbers makes it more difficult.

Dhaval Patel of Kissmetrics described how their company scaled its outbound marketing communication. He said that they focused on low cost channels like Twitter and stayed away from paid conversions. They focused on creating content that their customers loved. He advised startups to join professional groups on social media like LinkedIn to study others’ content including competitors’ content and add a new twist to put across a different point of view. Once the content is up the same can be pumped up first by e-mail and then by social media campaigns. Both e-mail and social media are complimentary tools and need to be used in conjunction.

Campaigns need to be measured by studying sharing and social engagement metrics . Qualaroo is a great tool to ask questions to visitors. Vanity metrics can kill ROI . Metrics become meaningful only when they reach high thousands. Kissmetrics published over 50 info graphics and received more than 20k comments. Info graphics get hundreds of shares on LinkedIn, FB  and Twitter.

Dhaval advised startups to ” Treat content creation as customer service. Measure and optimize your content. Do a/b testing , stick to a regular schedule to publish content. Images are very important for content to make people click. Create content that teaches. Blogs are cost effective e.g.Kissmetrics’ cost per sign up is as low as $7. Always position top content in left panel so that it’s easy to find.”

Product Tips

Aakrit Vaish  co-founder of Haptik Inc said that mobile first is not just a business strategy but it changes the way we build and use applications. He said that everyone at Haptik uses low bandwidth 2g connection so that they can live the user experience of an average user. He said one should use mobile web if the use case starts in the browser e.g. with Google search- this way the user can reach your application in 1 click instead of 6 needed to download and install an app. Building an app would make more sense if one were leveraging native capabilities like geo-location or push notification. He said users download and install a number of free apps which they eventually delete.

Omni-channel means unification of web, mobile and in store experience- any user switching channels starts where he left off. Lowe’s – essentially a brick and mortar company now offers omni-channel experience to its customers. Associates who walk the floors of Lowe’s stores can capture the conversations about all the products and share it so that information is not lost. Product locator kiosks placed at prominent locations in the stores give stock position. Lowes planned ahead for iOS-8 and launched touch Id. They armed their associates with 42000 mobile phones not only for better operations but for better connection with customers. With more than 500K products online Lowe’s is a good example of digital-physical blur. Tesla is another example of digital-physical blur. Its more software than car.

Ramesh Raskar of MIT Media Labs shared his advice on how to invent. He explained it with his idea hexagon with some examples. The hexagon has a question at the center – “Given X whats next?” and the 6 corners show ways of inventing based on current state X.

Idea Hexagon

Idea Hexagon

  1. Xd– Add a new dimension. E.g. if Flickr shared photos.Youtube shares videos.
  2. X+Y. Pair X with Y – more dissimilar Y would be better. E.g. Retina display for eye checkup
  3. Xv – Given a hammer get all nails. E.g. Use mobile phone as a camera.
  4. ~X- Do exactly the opposite. E.g. reverse auction, toll free calls.
  5. X++- Add an adjective like faster, cheaper, cooler, more democratic to X. E.g. Skype for cheaper international calls.
  6. X^- Given a nail get all hammers – E.g. LensBricks- appstore for cameras.

Tips on culture

 Employees are demanding enterprises to provide more freedom. InMobi has given this freedom to bring about a cultural change in their company. They have stopped using traditional way of hiring – now they follow Hiring 2.0 to hire the best teams in hackathons conducted by them. Employees built their office to suit their liking instead of the standard cubicles.

Naveen Tewari said that “You can get 100X the valuation if you get the culture right. Culture is proving to be the disruptive differentiator.” He defined culture as experiences that the company gives to its customers and employees. Change, innovation, fast failure and learning ,fast iterative growth are difficult to implement without the right culture. InMobi has implemented an open door policy for employees who could leave to do their own startup and come back if they failed. They focused on growing instead of managing people. They did away with the performance appraisal system. Connecting with families including grandparents and also with ex-employees built the company’s soul.

Jim Ehrhart repeated what was said in an earlier post – boundaries of enterprises are blurring as we move from workforce to crowdsourcing. IT barely have the tight grip on what people do as they used to have. Employees want to use apps for everything they do. Many enterprises are planning to build their own enterprise appstore.

LeanRounds Instead of Seed Rounds for Early Stage Startups

Seed Vs Lean Rounds

Seed Vs Lean Rounds

In an earlier post we saw how the lean startup principles can scale an idea. However we are facing resistance to the concept on account of prior commitments. My company ‘s services are commissioned to build quality products but there is a tendency to “stay in the building”. Promoters and investors decide to walk along a certain path and there is no room for course correction. In fact investors might treat any deviation from the business plan as a breach of contract. Investors are wary of entrepreneurs frittering away the invested funds on activities other than the business plan. This is contrary to the lean startup method of doing course correction based on continuous market feedback and hypothesis validation.

The traditional seed investors generally review the progress of the portfolio ventures on quarterly basis. The startup is required to stay committed to execute the business plan. In fact the term-sheets often mandate that startups use the invested funds only to execute the business plan. This arrangement is often counterproductive in business environment which is becoming increasingly volatile, uncertain, complex and ambiguous (VUCA). Frequent customer feedback needs to be taken. Startup needs to change its direction based on market feedback. With no feedback startups often miss early warnings of impending failure. Promoters love staying focused on the business plan that embodies their dreams. Often no feedback is sought and unsolicited feedback that doesn’t resonate is ignored. These circumstances result in startups deploying resources and building momentum much before they have valid reasons to do so. Startups need to be more responsive, agile and lean.

More than a decade ago our startup received seed funding from StarTech. We received the seed round with a rider that we use the invested money and our energies only to build the product as per the business plan. Halfway through the process we realized what we were attempting was too big. We would have been better off building something much smaller. However we continued executing the business plan – just hoping against hope that luck would bring some customers to pay for a product that wasn’t even 10% ready. As expected we ran out of money before we could sign up any customers. Had we done some course correction and opted to build something smaller we might have had a better chance. But we had our marching orders which didn’t allow us to think of any other approach.

Ten years later the tables have turned. As a successful entrepreneur I along with a few angel inestors have launched a fund called LeanRounds. This post explains the guiding principles of LeanRounds.

Harsh Reality of startups is that nine out of ten startups fail in the first year itself! The main reason for this failure is lack of mentorship and investments. LeanRounds plans to provide these two essential inputs to selected early stage startups. We don’t plan to invest in business plans. We would rather invest in assumptions or hypotheses that need to be validated. The central idea is to fail early and learn from the failure. We still have a lot of runway left even if nine out of ten hypotheses turn out to be invalid. These experiments carried out to validate the hypotheses would cost very less and would not run longer than a couple of weeks. Depending on whether the hypothesis is valid or not, the investor and the startup may decide to continue along the chosen path or change the direction or drop the idea.

As an investment fund; LeanRounds would divide its risk over many units in its portfolio. Each unit is not a startup with a business plan, but a falsifiable hypothesis. Instead of investing in a dozen or so startups; LeanRounds plans to invest in hundreds of hypotheses. Traditional seed stage investment decisions are based more on the credibility of promoters and their track record than the business idea itself. This is one way the investors try to reduce their risk. However they tend to ignore many promising business ideas from teams without any credible track record.

Baby steps instead of long strides

Baby Steps Vs Long Strides

Baby Steps Vs Long Strides

There was some value associated with startups staying on course and committing all their energy and time to a mutually agreed business plan. In fact as we saw earlier some term-sheets mandate that the invested funds be spent on the business plan and entrepreneurs were discouraged from using these funds for experimenting with other ideas. This way of working served its purpose in relatively stable business environments of yesteryears.

The business environment is constantly changing. The assumptions that are valid today won’t remain so for long. LeanRounds believes in frequently validating hypotheses. We advise startups to build products in agile iterations. Each iteration lasts only for a couple of weeks. Startups should seek market feedback and validate their assumptions at the end of every iteration. They should avoid long development cycles as it distances them from market feedback. Each iteration has a falsifiable hypothesis to be validated. It could be an assumption that customers will behave in a certain way. While it may turn out that the customers behave entirely differently thus falsifying the initial assumption but resulting in new insights and learning that could help to formulate the next hypothesis.

Does this mean that entrepreneurs will fritter away their time and money experimenting with various ideas? That would obviously not happen because LeanRounds invests in hypotheses that are worth testing. Each round of investment comes with some advice that the entrepreneurs need to follow. We also ensure that chosen teams have the needed experience, skills and ability to execute the business idea should the hypothesis turn out to be valid.

Lifecycle of Startups in LeanRounds Portfolio

StartupLifeCycle

Startup LifeCycle

As it might have become clear by now; startups have to continuously form and validate hypotheses. These may be short experiments lasting a couple of weeks in the initial stages of the lifecycle. However once the startup has passed through the initial filters of problem-solution validation; further hypotheses and validations might need longer running experiments. To illustrate this point we have identified seven hypotheses that typically represent seven stages in the lifecycle of a startup. Some finite number of startups will get filtered out at each stage of the lifecycle. The hypotheses grow in time and money needed to validate them as you progress through these stages.

More Details About LeanRounds Investment and Exit

Investment Ladder

Investment Ladder

LeanRounds investments start small and grow as a startup validates its basic assumptions and moves to validate bigger assumptions. Initially a startup needs to validate if the problem they are trying to solve is worth solving. This can be done by using very low cost methods like landing pages. Later we need to build a MVP or prototype and test it in the real market which needs higher investment.

Along with investment comes some advice from experienced entrepreneurs who’ve been there and done that. This advice helps the startup to accelerate its value ten-folds in very short – lean and agile sprints.

The value of startups multiplies in orders of magnitude as they move up the ladder shown in the diagram above. We believe that a credible team focused on solving a problem that is validated to be worth solving is an order of magnitude more valuable than one that does not know whether the problem that they are attempting to solve is hurting enough customers to have them pay for having it solved. In the same vein a startup that is further along by having a validated solution that’s better than the existing solutions for customers to switch is an order of magnitude more valuable.

The investments are linked to hypotheses being validated. At each stage the experiments become more demanding and cost more. A prototype might cost ten times as much as a landing page and version 1.0 of the product might be 10 times more costly as compared to the prototype.

Bigger investors take interest as the startup climbs the ladder. The mortality rate is highest in the fist two stages of the lifecycle and the investments are too small to attract any investor. These are the times when a startup can turn to LeanRounds instead of bootstrapping or going to friends and family to raise the money. LeanRounds plans to exit once the startup is at a stage in the lifecycle where bigger angel investors and private equity firms start showing interest.

The Lean and Mean Startup

Main concept in “The Lean Startup” is learning from failure by engaging iteratively in validating hypotheses that lead to the next logical step. Its better to get early validation of “leap of faith” assumptions forming the basis of your business plan. Do we have to fail ourselves to learn? Can we not learn from other’s failure? There are so many failures around. Most startups fail. Can we not learn from their failure?

Proxy Prototypes

In this blog I want to share my thoughts on how the idea of “The Lean Startup” can be tweaked a little to make it easier, faster and cheaper to execute. “The Lean and Mean Startup” follows almost all the main concepts from “The Lean Startup” but for the grunt work involved in product validation. The “Mean” approach is different in the fact that it advises startups to use –

  • Competitive products.
  • Similar Products that are targeting some other market.
  • Similar Products that are made with some other use in mind.

We call such products “Proxy Prototypes”. These “Proxy Prototypes” can be used by startups before building their own prototypes or landing pages to validate a product concept that solves a known problem.

Selling a “Proxy Prototype” to your target audience is one way of doing market validation. You can validate the product by using the “Proxy Prototype” yourself to solve your target problem.

Solving Known Problems

This approach works well for startups who have ideas that are not the next iPhone or iPod . These are like most startup ideas – solving known problems and not launching ground-breaking innovations that solve unknown problems. 

vj-blog-Dec-2013

Search – Use – Learn

If you just look around and search you will find products that attempt to solve the same problem you are. If such “”Proxy Prototypes” are carefully evaluated by putting them in hands of target users, you will develop valuable insights.

If there’s a feature that the users like – add it to your product. If there’s something that users hate – learn from it.

If your market doesn’t have a product that can work as a “Proxy” ; look elsewhere – you might find one in a geographically distant market. This is particularly true of products like the “mobile shopping assistant” that address localized markets. Entrepreneurs in emerging economies are most likely to find their “brilliant idea” already in use somewhere in the west – most likely in the Silicon Valley.

Interview the current users of the “Proxy Prototype” to find out how you can do better. If you find some segment of the users deserving better attention explore further. Can I carve out a niche and extend the “Proxy Prototype”?

If the company owning the “Proxy Prototype” is burning cash trying to “Cross the Chasm” , find out why their customers are not ready to pay enough. May be the problem the product solves is not big enough. User research might reveal a more overwhelming problem. Start looking for another “Proxy Prototype” that solves that problem. Continue these “Search-Use-Learn” iterations till you find a problem that is big and yet its not properly addressed by these “Proxy Prototypes”.

How easy or difficult was it for you to find the “Proxy Prototype” for your target problem? Are users actively looking for solutions? You might discover many “Solutions” waiting to be found. Ask yourself a question- if users are not pro-actively finding those; why would they find the one that you are planning to build? Most of them passively live with the problem. There might be a big communication gap between available solutions and target customers. Try selling a “Proxy Prototype” to such a passive user to understand her objections; you will definitely learn why people prefer to live with a problem than with “So Called Solutions”.

Conclusion

Does this mean that there is no need to build a prototype? How would we validate a product by showing some other product? The idea is to save time and money by reducing the number of iterations to get to the “Compelling Solution” that has the best chance to address a “Really Big Pain Point”.  Finally you will have to start building your own prototype – but you would be much wiser by the time you get down to do it.

7 of 7 Unique Ways India Conditions the Minds of its Entrepreneurs to Excel

New Age Start-ups – Advantage India!

7. Variety and fragmentation? Indians have always been dealing with them.

As discussed in Chris Andersen’s “The long tail” businesses have to deal with millions of players with their unique offerings competing for a part of the pie. Niche offerings and the internet’s ability to address the “audience of one” has resulted in fragmentation of every market. India has always been a fragmented market given more than 26 languages, hundreds of sub cultures with their own religious customs. Hindus believe in worshiping a different deity (God or Goddess) depending on the purpose or day of prayer. Even food habits demonstrate the same variety.

It’s time Indian entrepreneurs realized that they have these special advantages while competing with others in general and the western entrepreneurs in particular.