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CESEM 3

ENTREPRENEURSHIP

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LEAN STARTUP

START

Professor: Frédéric NLEMVO
E-mail: frederic.nlemvo@neoma-bs.fr

01

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Some rules:

02

discussion

Case « LIVE tweet app »

Link

02

activities

Case « LIVE tweet app »

QUESTION 1

QUESTION 2

QUESTION 3

QUESTION 4

Link

Link

Link

Link

Entrepreneurship is more a method than a process

REMINDER!!!

Question: Which method to use?

Answer: LEAN STRATUP

Method VERSUS Process

REMINDER!!!

ENTREPRENEURSHIP AS A METHOD

REMINDER!!!

Assumptions underlying the practice of entrepreneurship

The Need of a Systematic Process for Startups

  • Majority of startups fail !!

- due primarily to self-destruction rather than competition (Marmer et al., 2012)

  • This self-destruction comes from entrepreneurs due to
- Absence of a good plan, a solid strategy, and thorough market research.
- Lack of applicability of traditional management practices.

  • Therefore, entrepreneurs generally end up building a product or service that no one is interested in.

Marmer, M., Herrmann, B. L., Dogrultan, E., Berman, R., Eesley, C., & Blank, S. (2012). The startup ecosystem report 2012. Startup Genome.

The Lean Startup

  • Instead of blindly following their passion and building a product that they think people want, and then failing miserably
- The lean startup methodology provides tools for the entrepreneurs to continuously test their idea, product and vision.
  • A scientific approach to creating and managing startups and getting a desired product to customers' hands faster.

Successful entrepreneurs

Passion for the business

Product/customer focus

Tenacity despite failure

Execution intelligence

Lean Startup

The Lean Startup

  • A method that teaches you how to drive a startup;
- how to steer (run a startup),
- when to turn (change orientation), and
- when to persevere (continue);
  • with maximum acceleration (grow a business as quickly as possible).

theleanstratup.com

The Lean Startup

(i) Minimum Viable Product (MVP), (ii) Experimentation, and (iii) Pivot

Agile Method and Lean Manufacturing

  • The Lean Startup approach combines methods used in Agile Product Development and Lean Manufacturing methodologies
  • Agile Method:
- Iterative and incremental development
- Evolving requirements and solutions
- Encourage quick responses; flexibility to change
- Improve products and reduce costs
  • Lean Manufacturing process
- Capitalize on the learning from short cycles
- Continuous improvement
- Reduce waste and improve production rates

The Lean Startup Method

  • Lean approach
- Short cycles for tests and correction
- Minimize cost and time to market

- Build upon learning from short cycles
- Maximize the chances for the best product to reach customers’ hands

- Minimum Viable Product (MVP) is the key/central element

  • Validated learning:
- Eliminate the effort that is not necessary to learn/identify what customers want
  • A cycle of: build - measure - learn
  • Pivot – changing strategy in tuning/correcting the product development process

1

The Lean Startup methodology is based upon 5 principles:

Entrepreneurs are everywhere

Entrepreneurship is management

Validated learning

The Lean Startup Principles

2

3

4

5

Innovation accounting

Build-Measure-Learn

1. Entrepreneurs are everywhere

  • A startup has nothing to do with type/size of company, sector of the economy, or industry.
  • This means that an entrepreneur can be anywhere at any time and create a startup.
  • In other words, anyone can become an entrepreneur
  • You don’t have to (but you can) be in a garage to be a startup. Entrepreneurs can also be in government departments, large companies, hospitals, universities…

The Lean Startup Principles

2. Entrepreneurship is management

  • A startup is not just an idea, product or service
- It is an organization, an institution.
  • Hence, a successful startup needs proper management
  • It is full of activities associated with building an organization: such as hiring employees, coordinating their activities, and creating an effective corporate culture.
  • For a lean startup, having a flexible, learning oriented (evolving) management style leads to a successful startup.

The Lean Startup Principles

3. Validated learning

  • Learning is the essential unit of progress for startups.
- It helps to identify whether the startup is on a path that will lead to a sustainable business or not.
  • Validated learning is the process of demonstrating empirically through data from customers that a startup team has correctly identified a startup’s present and future business prospects.
- It is more concrete, more accurate, and faster than market forecasting or traditional business planning.
  • Validated learning is always demonstrated by positive improvements in the startup.

The Lean Startup Principles

3. Validated learning

  • Validated learning is based on 3 important concepts:
- (i) Minimum Viable Product (MVP), (ii) Experimentation, and (iii) Pivot
  • 1- Minimum Viable Product (MVP):
- It is a prototype of the actual final product.
- It is a functional product developed using minimum effort and least development time.
- An MVP usually lacks the refined look and features of a finished product.
- It helps to receive customer feedback about the basic product functionalities early in the product development process.
- In product development, the MVP is a strategy used for fast and quantitative market testing of a product or product features.

The Lean Startup Principles

3. Validated learning

  • Validated learning is based on 3 important concepts:
- (i) Minimum Viable Product (MVP), (ii) Experimentation, and (iii) Pivot


2- Experimentation
  • The testing of the MVP.
  • A true experiment follows the scientific method:
- Begins with a clear hypothesis that makes predictions about what is supposed to happen.
- Then tests those predictions empirically.
  • The experimentation in a startup is guided by the startup’s vision.
  • The goal of every startup experiment is to discover and learn about how to build a sustainable business in line with the startup’s vision.

The Lean Startup Principles

3. Validated learning

  • Validated learning is based on 3 important concepts:
  • (i) Minimum Viable Product (MVP), (ii) Experimentation, and (iii) Pivot

  • 3- Pivot (course correction)
- A significant change in the product, service, or business model.
- Based on the results of experiments and customer feedbacks.
- A pivot is not a failure!
- Helps to overcome misunderstandings or correcting wrong business assumptions
- Uncertainty related to a new product or service usually requires many course corrections, or “pivots” to find a successful formula.
- A pivot leads to change in direction but requires to stay focused on the learning.
- If entrepreneurs can reduce time between pivots, they can increase their chances of success!

The Lean Startup Principles

3. Validated learning

  • Validated learning is based on 3 important concepts: 3- Pivot
  • Types of pivot:
1. Zoom-in: where a single feature of your product becomes the entire product.
  • E.g. Flickr

2. Zoom-out: where your product is too narrow to support a business, and you decide to make a broader product.
  • E.g. LinkedIn

3. Customer segment: when you realize that you are building a product that solves a need for a segment of customers that is different than the one you started with.
  • E.g. Foursquare

The Lean Startup Principles

3. Validated learning

  • Validated learning is based on 3 important concepts: 3- Pivot
  • Types of pivot:
4. Customer need: based on an intimate understanding of the customers, you realize that the need you were solving for is not very important. But you find new needs that you can address.
  • E.g. Starbucks
5. Business architecture: where you go from a high margin, low volume solution to a low margin, high volume solution. This type of pivot occurs when you design a product for B2B and end up selling it to the mass market, or vice versa.
  • E.g. Midwest Express Airlines
6. Technology: where you realize that you could solve the exact same problem using a completely different (and usually less expensive) technology. More common among mature firms.
  • E.g. Software updates, new computer models, fuel- efficient vehicles, etc.

The Lean Startup Principles

The Lean Startup Principles

4. Build-Measure-Learn

- The Build-Measure-Learn feedback loop is at the core of the Lean Startup method.

The Lean Startup

"For a startup, the only way to succeed is to manage to go from 'plan A' to 'a plan that works' before running out of resources."

Ash Maurya

01 Idea

02 Hypothesis

03 Experimental Design

04 Experimentation

05 Pivot OR Persevere

6.b Persevere
experiments prove hypothesis

6.a Pivot
experiments disaprove hypothesis

The Lean Startup Principles

4. Build-Measure-Learn

  • The first step is figuring out the problem that needs to be solved and then building a minimum viable product (MVP) to begin the process of learning as quickly as possible.
  • Once the MVP is established, a startup can work on tuning the engine. This will involve measurement and learning and must include actionable indicators that can demonstrate cause and effect question.
  • The idea is to minimize the total time through the loop of Build-Measure-Learn.

Build

Measure

Learn

Define a problem statement; turn it into an experiment

See how customers respond

Pivot or Persevere?

The Lean Startup Principles

- A startup should regularly question its current situation and then design experiments to identify how to achieve the objectives set in the business plan.
- Innovation accounting is a systematic quantitative approach that allows the entrepreneur to see if the effort to get to "perfect" product is successful or not.
- This approach creates learning milestones that are useful for entrepreneurs as a way of assessing their progress accurately and objectively.
- It is also useful to show the progress to the investors.

5. Innovative Accounting

The Lean Startup Principles

  • Traditional accounting is generally not helpful in evaluating entrepreneurs, since startups are too unpredictable for forecasts.
  • Innovation accounting works in three steps:
1) Establish a reference by building an MVP, to identify where the startup currently stands.
2) Refine the product through experiments and validated learning to bring it closer to the ideal product.
3) If the startup is making progress, you persevere. When you realize that the startup is not making progress, it is a sign that it’s time to “pivot”.
  • Innovation accounting includes:
  • product prioritizing decisions, deciding which customers to target or listen to, and constant testing and feedback.

5. Innovative Accounting

Debunking the Myths Related to The Lean Startup

Truth #1

Truth #2

Truth #3

Truth #4

Myth #1: Lean means cheap/ Lean startups try to spend as little money as possible.
Truth: The Lean Startup method is not about cost, it is about speed

Myth #2: The Lean Startup is only for Web 2.0/internet/consumer software companies.
Truth: The Lean Startup applies to all companies that face uncertainty about what customers will want.

Myth #3: Lean Startups are small startups with low (personal) funding
Truth: Lean Startups are ambitious and are able to deploy/raise large amounts of capital

Myth #4: Lean Startups replace vision with data or customer feedback.
Truth: Lean Startups are driven by a compelling vision and are rigorous about testing each element of this vision.

The Lean Canvas

  • Lean Canvas is a 1-page business plan template created by Ash Maurya in 2010.
  • It helps entrepreneurs deconstruct their idea into its key assumptions.
  • It is adapted from Alex Osterwalder's Business Model Canvas and optimized for Lean Startups.

The Lean Canvas

Business Model Canvas VS Lean Canvas

… sometimes BMC could not be directly applied to startups because some of the boxes remained empty (the project had no partners or distribution channels were unclear)

Business Model Canvas (BMC)

Lean Canvas

The Lean Canvas is a BMC adapted for startups at the very early stage of their lifecycle.
It provides founders a first opportunity to document the BM of their future startup, which will then be constantly evolving.

At the initial stage, the main task is to begin to scope the first MVP that can be shown to early customers. This should be designed to test all product, market, customer and technological hypotheses.

Lean Startup

...In practice

“Life’s too short to build something nobody wants.”

- Ash Maurya – Running Lean

The prescribed order

The lifetime value of a customer, or customer lifetime value (CLV), represents the total amount of money a customer is expected to spend in your business, or on your products, during their lifetime.

Starting point?

“Customers care about their problems NOT your solution.”

- Dave McClure– 500hats

Product

Market

Problem

Top 3 problems

1

A brief description of the top 3 problems you’re addressing

List how these problems are solved today

“When people need to get a job done, they hire a product or service to do it for them. The marketer’s task is to understand what jobs periodically arise in customer’s lives for which they might hire products the company could make.”

Clayton M. Christensen

Product

Market

Problem

Top 3 problems

1

Existing alternatives

List how these problems are solved today

2

Customer segments

Target customers

Who are the customers/users of this system? Can they be segmented?

Early adopters

List the characteristics of your ideal customers

Product

Market

Problem

Top 3 problems

1

Existing alternatives

List how these problems are solved today

2

Customer segments

Target customers

Who are the customers/users of this system? Can they be segmented?

Early adopters

List the characteristics of your ideal customers

3

Unique value proposition

Single, clear, compelling message that states why you are different and worth buying

High-level concept

Your X for Y analogy

UVP (Unique Value Proposition) “Why you are different and worth getting attention” Ash Mauria – Running Lean

High-level concept Example: Youtube = “Flickr for video”

Product

Market

Problem

Top 3 problems

1

Existing alternatives

List how these problems are solved today

2

Customer segments

Target customers

Who are the customers/users of this system? Can they be segmented?

Early adopters

List the characteristics of your ideal customers

3

Unique value proposition

Single, clear, compelling message that states why you are different and worth buying

High-level concept

Your X for Y analogy

4

Solution

Top 3 features

“Failing to build significant path to customers is among the top reasons why startup fail.”

Ash Maurya – Running Lean

Product

Market

Problem

Top 3 problems

1

Existing alternatives

List how these problems are solved today

2

Customer segments

Target customers

Who are the customers/users of this system? Can they be segmented?

Early adopters

List the characteristics of your ideal customers

3

Unique value proposition

Single, clear, compelling message that states why you are different and worth buying

High-level concept

Your X for Y analogy

4

Solution

Top 3 features

5

Channels

Path to customers

Product

Market

Problem

Top 3 problems

1

Existing alternatives

List how these problems are solved today

2

Customer segments

Target customers

Who are the customers/users of this system? Can they be segmented?

Early adopters

List the characteristics of your ideal customers

3

Unique value proposition

Single, clear, compelling message that states why you are different and worth buying

High-level concept

Your X for Y analogy

4

Solution

Top 3 features

5

Channels

Path to customers

6

Revenue Streams

Revenue Model
Life Time Value
Revenue
Gross Margin

Product

Market

Problem

Top 3 problems

1

Existing alternatives

List how these problems are solved today

2

Customer segments

Target customers

Who are the customers/users of this system? Can they be segmented?

Early adopters

List the characteristics of your ideal customers

3

Unique value proposition

Single, clear, compelling message that states why you are different and worth buying

High-level concept

Your X for Y analogy

4

Solution

Top 3 features

5

Channels

Path to customers

6

Revenue Streams

Revenue Model
Life Time Value
Revenue
Gross Margin

7

Cost Structure

Customer Acquisition Costs
Distribution Costs
Hosting
People, etc...

Product

Market

Problem

Top 3 problems

1

Existing alternatives

List how these problems are solved today

2

Customer segments

Target customers

Who are the customers/users of this system? Can they be segmented?

Early adopters

List the characteristics of your ideal customers

3

Unique value proposition

Single, clear, compelling message that states why you are different and worth buying

High-level concept

Your X for Y analogy

4

Solution

Top 3 features

5

Channels

Path to customers

6

Revenue Streams

Revenue Model
Life Time Value
Revenue
Gross Margin

7

Cost Structure

Customer Acquisition Costs
Distribution Costs
Hosting
People, etc...

8

Key Metrics

Key activities you measure

“Find the key number that tells you how your business is doing in real time, before you get the sales report” Norm Brodsky and Bo Burlingham

Product

Market

Problem

Top 3 problems

1

Existing alternatives

List how these problems are solved today

2

Customer segments

Target customers

Who are the customers/users of this system? Can they be segmented?

Early adopters

List the characteristics of your ideal customers

3

Unique value proposition

Single, clear, compelling message that states why you are different and worth buying

High-level concept

Your X for Y analogy

4

Solution

Top 3 features

5

Channels

Path to customers

6

Revenue Streams

Revenue Model
Life Time Value
Revenue
Gross Margin

7

Cost Structure

Customer Acquisition Costs
Distribution Costs
Hosting
People, etc...

8

Key Metrics

Key activities you measure

9

Unfair Advantage

Cant' be easily copied or bought

“A real unfair advantage is something that cannot be easily
copied or bought.” - Jason Cohen, A Smart Bear Blog

Back Up

The Lean Canvas

  1. Problem: A brief description of the top 3 problems you’re addressing
  2. Customer Segments: Who are the customers/users of this system? Can they be further segmented?
  3. Unique Value Proposition (UVP): What is the product’s tagline or primary reason it is different and worth buying?
  4. Solution: What is the MVP that demonstrates the UVP above?
  5. Key Metrics: Describe the key activities (that you measure) by users that lead to revenue or retention?

Back Up

The Lean Canvas

6. Channels: List the FREE and PAID channels you can use to reach your customer.
7. Cost Structure: List out all your fixed and variable costs.
8. Revenue Streams: Identify your revenue model , and outline your assumptions for life time value, gross margin, break-even point, etc.
9. Unfair Advantage: Something that cannot be copied or bought, e.g. insider information, skillset of the founding team, personal experience.