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Running Lean

Ash Maurya book on Lean Startup process. 3rd edition (2022) ISBN:1098108779 https://www.leanfoundry.com/books/running-lean

2022 Table of Contents

Introduction

  • A Tale of Two Entrepreneurs
  • One Year Ago…
  • Off to the Races
  • Six Months Later
  • Catch-22
  • A Traction-First Approach Is the New Way Forward
  • What Determines Success Isn’t Differing Skill Sets But Differing Mindsets
  • The Stakes Are Much Higher This Time
  • Speed of Learning Is the New Unfair Advantage
  • Succeeding in the New World Requires New Mindsets
  • You Can’t Afford to Wait for an Idea Whose Time Has Come
  • Steve Learns About Minimum Viable Products
  • Don’t Start with an MVP
  • There Is a Systematic Approach to Entrepreneurship
  • About Me
  • How This Book Is Organized
  • Part I: Design
  • Part II: Validation
  • Part III: Growth
  • Is This Book for You?
  • Does It Work for Services and Physical Products?
  • Practice Trumps Theory

I. Design

1. Deconstruct Your Idea on a Lean Canvas

  • Sketching Your First Lean Canvas
  • Customer Segments
  • Problem
  • Unique Value Proposition
  • Solution
  • Channels
  • Revenue Streams and Cost Structure
  • Key Metrics
  • Unfair Advantage
  • Refining Your Lean Canvas
  • So, How Do You Avoid the Goldilocks Problem?
  • How Do You Know When to Split Your Lean Canvas?
  • Steve Splits His Big Idea Canvas into Specific Variants
  • What’s Next?

2. Stress Test Your Idea for Desirability

  • Defining Better
  • Our Innovator’s Bias Gets in the Way
  • Meet the Innovator’s Gift
  • Unpacking the Innovator’s Gift
  • Steve Challenges the Innovator’s Gift
  • Using the Innovator’s Gift to Stress Test Your Idea for Desirability
  • Customer Segments: Keep It Simple
  • Early Adopters: Forget Personas
  • Existing Alternatives: Transcend Category (competition)
  • Problems: What’s Broken with the Old Way?
  • UVP: How Will You Cause a Switch? (competition)
  • Steve Realizes He Has a Hammer Problem

3. Stress Test Your Idea for Viability

  • Don’t Create a Financial Forecast; Use a Fermi Estimate Instead (Fermi estimation)
  • What Is Traction?
  • Welcome to the Customer Factory
  • Testing the Viability of Your Idea Using a Fermi Estimate
  • Define a Target Throughput Goal
  • Test Whether Your Idea Can Deliver Your Target Throughput Goal (see Rapid Viability Test)
  • Revise Your Goal or Fix Your Business Model
  • Running a Fermi Estimate on Your Idea
  • Steve Reviews His Business Models with Mary

4. Stress Test Your Idea for Feasibility

  • Charting a Traction Ramp
  • Steve Charts His Traction Roadmap
  • Formulating a Now-Next-Later Rollout Plan
  • Stage 1: Now—Problem/Solution Fit
  • Stage 2: Next—Product/Market Fit
  • Stage 3: Later—Scale
  • Steve Gets a Lesson on Right Action, Right Time
  • Steve Learns About Wizard-of-Oz MVPs
  • Steve Formulates His Now-Next-Later Rollout Plan

5. Communicate Your Idea Clearly and Concisely

  • What’s Your Elevator Pitch?
  • Outlining Your Elevator Pitch
  • The Different Worldviews of an Idea
  • The Investor Worldview
  • The Customer Worldview
  • The Advisor Worldview
  • Delivering Your Business Model Pitch
  • The 10-Slide Business Model Pitch Deck
  • Desirability
  • Viability
  • Feasibility
  • Steve Shares His Business Model Pitch with Others

II. Validation

6. Validate Your Idea Using 90-Day Cycles

  • The 90-Day Cycle
  • A Typical 90-Day Cycle
  • Getting Ready for Your First 90-Day Cycle
  • Assemble the Right Team
  • Establish a Regular Reporting Cadence
  • Seven Habits for Highly Effective Experiments
  • 1. Declare Your Expected Outcomes Upfront
  • 2. Make Declaring Outcomes a Team Sport
  • 3. Emphasize Estimation, Not Precision
  • 4. Measure Actions, Not Words
  • 5. Turn Your Assumptions into Falsifiable Hypotheses
  • 6. Time-Box Your Experiments
  • 7. Always Use a Control Group
  • Steve Establishes an External Accountability Structure

7. Kick Off Your First 90-Day Cycle

  • Steve Calls a 90-Day Cycle Kickoff Meeting
  • The Problem/Solution Fit Playbook
  • Customers Don’t Buy Products, They Buy a Promise of Something Better
  • How to Make a Promise of Better
  • When Are You Done with Problem/Solution Fit?
  • Steve Calls a 90-Day Cycle Planning Meeting
  • The Mafia Offer Campaign
  • Building a Mafia Offer
  • Running a Mafia Offer Campaign
  • When to Use a Mafia Offer Campaign
  • Steve Tries Taking a Shortcut
  • Mary Bursts Steve’s Bubble (Again)
  • No Surveys or Focus Groups, Please
  • Are Surveys Good for Anything?
  • Preemptive Strikes and Other Objections (or Why I Don’t Need to Interview Customers)

8. Understand Your Customers Better Than They Do

  • The Problem with Problems
  • Case Study: Using Problem Discovery Interviews to Drive New Home Sales
  • Focus on the Bigger Context: The Job-to-be-Done
  • Case Study: Using Problem Discovery Interviews to Build Better Drill Bits
  • Finding the Bigger Context
  • Scoping the Bigger Context
  • Diving Deeper into a Bigger, More Specific Context
  • Running a Problem Discovery Sprint
  • Broad-Match Versus Narrow-Match Problem Discovery Sprints
  • Finding Prospects
  • Steve Kicks Off the First Problem Discovery Sprint
  • Conducting Interviews
  • Steve Creates a Meta-Script for His Interviews
  • Capturing Insights
  • Steve Reviews the Results of the Broad-Match Problem Discovery Sprint
  • When Are You Done with Problem Discovery?
  • The Altverse Team Uncovers Several Additional Jobs-to-be-Done

9. Design Your Solution to Cause a Switch

  • Steve Learns About the Concierge MVP
  • Running a Solution Design Sprint
  • Addressing Desirability
  • Addressing Viability
  • Addressing Feasibility
  • The 5 P’s of MVP
  • Steve Takes a Stab at the 5 P’s of MVP

10. Deliver a Mafia Offer Your Customers Cannot Refuse

  • Case Study: The iPad Mafia Offer
  • Running an Offer Delivery Sprint
  • Assembling Your Offer
  • Define the Characters in Your Customer Story Pitch
  • Outline the Structure of Your Customer Story Pitch
  • Steve Shares His Customer Story Pitch Outline with the Team
  • Delivering Your Offer
  • Optimizing Your Offer
  • Measure Your Customer Factory Metrics Weekly
  • Identify Your Key Constraint
  • Formulate Ways of Breaking the Constraint
  • Steve Meets with the Team to Review the Results of Their First Offer Delivery Sprint
  • When Are You Done with Offer Delivery?

11. Run a 90-Day Cycle Review

  • Steve Calls a Pre-Review Meeting Just with Mary
  • Preparing for the Meeting
  • Collect/Update Artifacts
  • Assemble a Progress Report Pitch Deck
  • Running the Meeting
  • Steve Calls a 90-Day Cycle Review Meeting

III. Growth

12. Get Ready to Launch

  • The Altverse Team Prepare for Launch
  • Keep Your Customer Factory Running
  • Look for Ways to Automate Your Customer Factory
  • Race to Value Delivery
  • Extend Your Customer Factory Metrics Dashboard
  • Roll Out Your MVP in Batches
  • The Altverse Team Launch Their Concierge MVP

13. Make Happy Customers

  • The Altverse Team Learns About Behavior Design
  • The Happy Customer Loop
  • Don’t Be a Feature Pusher
  • Implement an 80/20 Rule
  • Prevent a Switch
  • Outlearn the Competition
  • Reduce Friction
  • Learn the Science of Habits
  • Chart a Customer Progress Roadmap
  • Trigger Your Customers
  • Help Your Customers Make Progress
  • Reinforce Progress
  • The Altverse Team Calls a 90-Day Cycle Review Meeting

14. Find Your Growth Rocket

  • The Altverse Team Learns About Growth Rockets
  • The Rocket Ship Growth Model
  • Launching Rocket Ships
  • The Three Types of Growth Loops
  • The Revenue Growth Loop
  • The Retention Growth Loop
  • The Referral Growth Loop
  • Can You Have Multiple Growth Rockets?
  • Finding Your Primary Growth Rocket
  • Short-Listing Growth Rocket Candidates
  • Validating Your Growth Rocket
  • Optimizing Your Growth Rocket
  • Steve Makes Mary an Offer She Can’t Refuse

15. Epilogue

  • The BOOTSTART Manifesto
  • 1. Entrepreneurs Are Everywhere
  • 2. The Persona of the Garage Entrepreneur Has Changed
  • 3. There Is No Better Time to Start
  • 4. Most Products Still Fail
  • 5. A Dozen Reasons Why Products Fail
  • 6. The Number One Reason Why Products Fail
  • 7. The Number Two Reason Why Products Fail
  • 8. You Don’t Need Permission to Start
  • 9. Love the Problem, Not Your Solution
  • 10. Don’t Write a Business Plan
  • 11. Your Business Model Is the Product
  • 12. Focus on Time, Not Timing
  • 13. Not Acceleration, but Deceleration
  • 14. Not Faux Validation, but Traction
  • 15. Remove Failure from Your Vocabulary
  • 16. It’s Time to Act on Your Big Idea
  • References and Further Reading

Partial Excerpts

Introduction

Foreword

by Eric Ries, February 20, 2022

“Practice trumps theory.” When I first read those words on Ash Maurya’s blog more than 10 years ago, I knew he would be a valuable addition to what was then the fledgling Lean Startup movement

This revised and expanded new edition reflects just how much deeper and more inclusive Ash’s thinking about what Lean Startup can be and do has become.

Like new products, successful companies require constant, disciplined experimentation—in the scientific sense—in order to discover new sources of profitable growth

Preface

My goal was to further test and refine the systematic step-by-step process

Along the way, I developed additional business modeling tools (the customer factory blueprint, Customer Forces Canvas, and traction roadmap), better validation strategies, and more practical techniques synthesizing concepts from a wide range of methodologies and frameworks, including Lean Startup, Design Thinking, Business Model Design, jobs-to-be-done, Systems Thinking, Behavior Design, and many more.

you shouldn’t be limiting yourself to any one of these frameworks, but rather should be using all of them

I’ve curated these superpowers into a new framework of frameworks (the Continuous Innovation Framework) that is laid out in this book.

Life’s too short to build something nobody wants.
Ash
December 21, 2021

Introduction

A Tale of Two Entrepreneurs

Steve and Larry

what makes them similar isn’t their age, gender, or geography, but that they both were struck by a “big idea” and decided to act upon it.

Now, what differentiates them is how they look a year later

How did they end up in such different places?

One Year Ago…

his manager told him that their parent company (following on from a recent acquisition) would be shutting down their offices

He does have this one augmented reality/virtual reality (AR/VR) idea that he’s been noodling around in his head for a few months already…

Off to the Races

Steve wastes no time getting to work.

he should be able to launch the first version of his product in three months

Six Months Later

Steve is starting to get nervous. The product isn’t up to his standards

Steve hits up some of his close friends and tries to recruit them, offering up generous equity in exchange. But they don’t see what he sees and find it hard to justify leaving their secure, well-paying jobs

He decides to hit the pitching circuit and raise money

He debriefs Susan later, who reluctantly bursts his bubble: ”Sorry, Steve, but ‘you’re too early for us’ and ‘let’s touch base in six months’ are code for ‘we’re not interested, but we’re too polite to say no!’”

Catch-22

Now, let’s turn to Larry. He too was hit by an awesome idea a year ago, but unlike Steve, he doesn’t start with a build-first or investor-first approach.

A Traction-First Approach Is the New Way Forward

While this explosion in startup activity represents an incredible opportunity for all of us, it comes with a dark cloud: more products translates to more choices for both investors and customers, making it harder to stand out.

Investors today don’t value intellectual property, but traction. Traction isn’t about being first to market, but first to market adoption.

how do you demonstrate traction without a working product?

starting with problems before solutions.

if his product doesn’t solve a big enough problem for his customers, no amount of technology, patents, or giveaways can save his business model.

Larry spends half an afternoon sketching out a business model design for his idea using a 1-page template (Lean Canvas)

He then tests the viability of his business model using a quick back-of-the-envelope calculation (rapid viability test), and from there builds out a traction roadmap that highlights his key milestones. This helps him map out a bottom-up go-to-market validation strategy.

A key difference of his validation strategy from Steve’s is that he prioritizes testing what’s riskiest versus what’s easiest in his business model

here’s the really counterintuitive bit: you don’t need a working product to uncover problems worth solving, or even to land your first batch of paying customers

Larry manages to define his minimum viable product (MVP) in less than eight weeks, with a growing customer pipeline.

A minimum viable product (MVP) is the smallest solution that creates, delivers, and captures customer value

Larry is following a Demo-Sell-Build playbook.

he spends the next four weeks building out a first version of his solution which is aimed not at everyone, but at his ideal early adopters. Once his MVP is ready, he doesn’t do a big-bang marketing launch, but rather soft-launches his product to just 10 early adopters and starts charging them from day one.

Mindset #5: Tackle your riskiest assumptions in stages.

A nice side effect of starting small is that Larry can afford to provide a high-touch customer experience. This lets him sidestep a few

shortcomings of his MVP and still overdeliver on value,

he recognizes that he can’t scale his business on his own. So he invests a third of his time in pitching his vision to potential cofounders. He doesn’t look for people just like him, but rather searches for people with complementary skill sets

Too many teams take a divide-and-conquer approach to testing their business model, where they split their focus based on individual team member strengths

Larry instead harnesses the full potential of his team by getting them to collectively focus on what’s riskiest rather than what’s easiest in the business model

he establishes a regular 90-day cycle

Each 90-day cycle is broken into 3 key activities:

Modeling Larry’s team kicks off each 90-day cycle by updating and reviewing the business models (using a Lean Canvas and traction roadmap)*

Prioritizing The team then collectively prioritizes the riskiest assumptions and proposes a number of possible validation strategies*

Testing As it’s hard to know which campaigns will work at the outset, instead of making a few large bets, the team makes many small bets*

Each 90-day cycle ends with a cycle review meeting where the team reviews what they did and what they learned, and plans for what’s next.

This Model-Prioritize-Test flywheel allows the team to systematically search for a repeatable and scalable business model

What Determines Success Isn’t Differing Skill Sets But Differing Mindsets

Steve is operating like an Artist and is primarily driven by his love for his product (solution).

Larry, on the other hand, is operating like an Innovator. Innovators turn inventions into working business models.*

The Stakes Are Much Higher This Time

it has become cheaper and faster than ever to introduce new products, which means there is a lot more competition than before—

Speed of Learning Is the New Unfair Advantage

Succeeding in the New World Requires New Mindsets

Here are the 10 mindsets that power each of the 3 activities in the Continuous Innovation Framework

You Can’t Afford to Wait for an Idea Whose Time Has Come

“Have you seen what Virtuoso X just launched? It’s your idea, Steve!!!”

He decides to reach out to Mary for advice. Steve used to report to her in his previous startup. Like him, she too had taken the severance package after their startup got acquired and then shut down*

Steve Learns About Minimum Viable Products

Mary listens patiently and then asks him a simple question. “Would you rather spend the next six months pitching to investors or pitching to customers?”

really. A minimum viable product is the smallest solution you can build that delivers monetizable value to your customers

You need to find the smallest solution that solves a big enough customer problem and deliver that

Investors today don’t fund ideas, or product development, but traction

Don’t Start with an MVP

I’ve concluded that my MVP isn’t good enough

I announced my product launch in a few online communities, like Product Hunt and Hacker News

Okay. And who are these users? Have you talked to them?”
Steve looks a bit surprised. “Talked to them? No. But I’ve been measuring everything they do using analytics

Steve clears his throat. “Keep talking to my users? I’ve never talked to any of them.”
It’s now Mary’s turn to look confused. “Huh? Then, how did you define your MVP?”

simply throwing your best guess at a solution, no matter how small, over the fence, and calling that an MVP, doesn’t guarantee any better results.”
“Doesn’t the Lean Startup Build-Measure-Learn loop help you iterate and refine the MVP?” Steve asks.
“In theory, yes, but a lot of teams just get stuck.

you find yourself going around in circles, trying out one idea after another, and are never able to break through. The build trap ensues

how does one start with a reasonably good idea?”
“That is the right question, Steve. You do that by focusing on problems before solutions

We first sketched out several variants of our idea on a Lean Canvas, which is a rapid idea modeling tool. That helped us identify and home in on several promising customer-problem-solution possibilities. We then set up some two dozen customer interviews to validate our customer and problem assumptions. Once we did that, defining the solution was a piece of cake. But even then, we didn’t rush to build out an MVP. We built a demo instead and assembled an offer that we delivered to prospects over many more interviews.

Think of it as Demo-Sell-Build versus the more traditional Build-Demo-Sell approach

It took us about 90 days to go from just a napkin sketch to problem/solution fit, where we secured our first 5 paying customers

you end up with a mafia offer.”
“A mafia offer?”
“Yes—an offer your customers cannot refuse. You know, from the movie The Godfather. Unlike in the movie, you don’t strong-arm your customers, but instead show them something so compelling they just can’t turn it down.

This process, like any, has its fair share of sand traps and pitfalls. The biggest one is our own bias or love for our solution—our Innovator’s Bias. We selectively, and even unconsciously, choose to only pay attention to what justifies building the solution we’ve already envisioned

Uncovering problems worth solving isn’t limited to just the MVP phase…it’s key for everything that comes next also

There Is a Systematic Approach to Entrepreneurship

The Continuous Innovation Framework uses 90-day Model-Prioritize-Test cycles,

About Me

Steve, not Larry, is the hero of our story.

How This Book Is Organized

One of the most significant milestones for a startup is getting to product/market fit

The reality, of course, is that 80% of products never get there.

the early stages of a product are riddled with extreme uncertainty, but they don’t have to be messy. With the right mindsets and thinking processes, the early stages can be systematically traversed much like you would a labyrinth

Part I: Design

deconstructing your initial vision (or Plan A) into a business model. I’ll then show you how to stress test your business model design to avoid the most common pitfalls that trip up early-stage products. Finally, you’ll learn how to communicate your idea clearly and concisely to others and get them to see what you see.

Part II: Validation

iteratively test your business model in stages using 90-day cycles, starting with the first validation stage: problem/solution fit.

Part III: Growth

The next step is launching your product (MVP) and iterating your way toward product/market fit.

maximize your product launch for speed and learning while constantly focusing on what’s riskiest. Rather than launch your product to everyone, you’ll learn how to use a stage-based launch to first test your business model at a small scale

Is This Book for You?

launching a new product either at a startup or a large company

Does It Work for Services and Physical Products?

yes

Practice Trumps Theory

I. Design

We live in an age of unparalleled opportunity for innovation

Yet, the odds of building successful startups haven’t improved much: most new products still fail.

The more interesting fact is that of those startups that succeed, two-thirds report having drastically changed their plans along the way. So, what separates successful startups is not necessarily starting with a better initial plan (or Plan A), but finding a plan that works before running out of resources

This book presents a systematic process for iterating from Plan A to a plan that works before running out of resources

There Is an “I” in Vision

The media loves to celebrate stories of visionaries who saw the future and charted a course to intersect it with a “groundbreaking” new product offering

The way these stories actually play out is never quite as simple as we’re led to believe

First, there is never a single customer adoption curve, but a whole family of them, with each customer segment adopting solutions at different rates.

It All Starts with an Idea Spark

what’s more important than acting on an idea is having a process to quickly separate good ideas from bad ideas.

While a strong vision is required to create a mantra and make meaning, you should strive to uphold a strong vision with facts, not faith. It is important to accept that your initial vision is built largely on untested hypotheses (or guesses).

Don’t Write a Business Plan; Use a Lean Canvas Instead

The reason entrepreneurs and innovators choose to forgo the heavyweight business plan isn’t because they are lazy. Rather, it’s because at the earliest stages of any new project, many assumptions are simply unknowable

you can’t afford to rely on static plans—you need dynamic models. The Lean Canvas (Figure I-1) is one such dynamic model

A Lean Canvas replaces a long and boring business plan with a 1-page business model that takes 20 minutes to create and that actually gets read

A key point I’d like to drive home, though, is the first Continuous Innovation mindset.
Mindset #1: Your business model is the product.

I purposely made the Solution box take up less than one-ninth of the entire canvas.

Your job, then, isn’t just building the best possible solution, but owning the entire business model and making all the pieces fit.

Recognizing your business model as a product is empowering. Not only does it let you own your business model, but it also allows you to apply well-known techniques from product development to building your company

The Business Model Design Playbook

A business model design blueprint helps you deconstruct your idea into a set of key assumptions (captured on a 1-page Lean Canvas). You then prioritize your riskiest assumptions and formulate a stage-based validation strategy for bringing your idea to life

Part 1: Design

Chapter 1. Deconstruct Your Idea on a Lean Canvas

Sketching Your First Lean Canvas

Sketch the canvas in one sitting While it’s tempting to iterate endlessly on the whiteboard, your initial canvas should be sketched quickly—ideally in less than 20 minutes*

If you’re part of a team, avoid creating a Lean Canvas as a group exercise

Know that it’s okay to leave boxes blank

Embrace a 1-page constraint: If you can’t describe your idea on a single page, it’s probably still too complex to explain. (one-pager)

Think in the present

Remember there is no right order for sketching a Lean Canvas

Next, we’ll look at each of the boxes in Figure 1-2 in detail

Customer Segments

(market segment)

Distinguish between customers and users

A customer is someone who pays for your product. A user does not.

Then identify any other actors (users, influencers, etc.) that will interact with these customers.

Model multiple perspectives

It helps to view your idea from the perspective of each actor in your business model.

I recommend keeping these perspectives on the same canvas and using a different color

Home in on early adopters

Your list of customer segments should represent the total addressable market (TAM) for your idea, while your early adopters represent a specific subset of your TAM.

This is your ideal starting customer segment (also called your ideal customer profile).

Problem

Problems, not solutions, create spaces for innovation

List the top one to three problems

While it’s tempting to brainstorm and list many possible problems, prioritize the top one to three issues that you believe are most pressing for your customers.

List existing alternatives

These solutions may not be from an obvious competitor

Steve tackles the Customer Segment/Problem quadrant

he digs up the original vision statement he wrote down a year ago: To create an alternate virtual world (a metaverse) as vast and rich as the real world and make it universally accessible and useful*

He is tempted to put down “everybody” under Customer Segments

He instead turns his focus to who he considers his ideal early adopters and writes down “software developers.”

Next, he turns his attention to listing out the top problems he plans to address

Unique Value Proposition

This is one of the most important boxes on the canvas and also the hardest to get right.

why is your product different and worth paying attention to?

Connect to your customer’s number one problem

Target early adopters

Your product is not ready for mainstream customers yet. Your sole job should be to find and target early adopters, which requires bold, clear, and specific messaging.

Focus on outcomes

A good UVP gets inside customers’ heads and focuses on the benefits they will derive from using your product—that is, the desired outcomes.

Keep it short

Answer what, who, and why

Create a high-concept pitch

popularized as an effective pitching tool by Venture Hacks in the ebook Pitching Hacks

YouTube: “Flickr for video

The high-concept pitch should not be confused with a UVP and is not intended to be used on your landing page

Steve crafts his UVP

Steve decides to use “no-code” as the keyword to position his UVP

Solution

Know that it is fairly common for your customer problems to get reprioritized or completely replaced with new ones after just a few customer conversations. For this reason, I recommend not getting carried away with fully defining your solution just yet.

Steve defines a solution

Channels

The initial goal of a startup is to learn, not to scale. So, at first, it’s OK to rely on any channels that get you in front of potential customers

if your business model relies on acquiring large numbers of customers to work, that path may not scale beyond the initial stages, and it’s quite possible you’ll get stuck later.

For this reason, it’s equally important to think about your scalable channels from day one so that you can start building and testing them early.

Steve outlines some possible paths to customers

plans to start with warm referrals, direct sales, conferences, and trade shows as initial channels, and possibly scaling later using advertising

Revenue Streams and Cost Structure

Revenue streams

A lot of startups choose to defer the “pricing question” to a later stage, but this is a mistake. Here’s why:

Price is part of the product

Price defines your customers

Getting paid is the first form of validation

Cost structure

Rather than thinking in terms of three- or five-year forecasts, it’s better to take a more stage-based approach

What will it cost you to define, build, and launch your MVP?

What will your ongoing burn rate look like (salaries, office rent, etc.)?

Steve thinks through his cost structure and revenue streams

Key Metrics

List three to five key metrics

list the top three to five metrics that you’ll use to measure whether your business model is working.

Prefer outcome metrics versus output metrics

Prioritize leading indicator metrics versus trailing indicator metrics

Study analogs

Research what metrics other companies in your product space/industry use to measure and communicate progress to their stakeholders.

Steve identifies a few key metrics

Unfair Advantage

This is usually the hardest section in the canvas to fill in, which is why I leave it for last. Most founders list things as competitive advantages that really aren’t, such as passion, lines of code, or features.

Imagine a scenario where your cofounder steals your source code, sets up shop in Costa Rica, and slashes prices. Do you still have a business?

“A real unfair advantage is something that cannot be easily copied or bought.” (moat)

What do you do if you don’t have an unfair advantage on day one?

Consider Mark Zuckerberg

Start with an unfair advantage story

While Mark didn’t have an unfair advantage on day one, he had an unfair advantage story. He knew his unfair advantage needed to come from large network effects. This clarity of focus helped Facebook

Leave the unfair advantage blank

If an unfair advantage story isn’t readily apparent, it is always better to leave the Unfair Advantage box blank

Embrace obscurity

Steve ponders his unfair advantage story

rely upon an unfair advantage story built on the “platform effect

Refining Your Lean Canvas

most entrepreneurs either go too broad or too narrow with their first canvases

While you might be aiming to build a mainstream product, you need to start with a specific customer in mind.

So, How Do You Avoid the Goldilocks Problem?

The way you do this is by splitting your first Lean Canvas (your “big idea canvas”) into additional canvases

For example, a photo-sharing service could be targeted at consumers or businesses. Within businesses, there could be many possible business models to consider. Each of these variants can and should be explored on a different canvas.

After you’ve short-listed your best variants, you can systematically prioritize and test your ideas over time.

How Do You Know When to Split Your Lean Canvas?

Your objective should be to describe a single business model story per Lean Canvas.

There are three basic business model archetypes: direct, multisided, and marketplace. If you find yourself mixing multiple types of models on one Lean Canvas, split them

Steve Splits His Big Idea Canvas into Specific Variants

he has identified too many customer segments

Do they all belong to the same business model?” Stever wonders.

Figure 1-16. Software Developers Lean Canvas

Figure 1-17. Home Construction Lean Canvas

Figure 1-18. Retail Furniture Lean Canvas

What’s Next?

It’s tempting to “rush out of the building” after completing your first Lean Canvas sketch

So what’s wrong with this approach?

The danger is getting stuck with a suboptimal business model six or nine months down the line

For an idea to be successful, it must constantly balance three types of risks: customer, market, and technical. These risks can be more easily visualized through what IDEO has popularized as the Innovation Trinity: desirability, viability, and feasibility

Before engaging in several weeks or months of customer validation, it’s prudent to spend a few more hours (inside the building) stress testing your business model and tightening up any obvious cracks or flaws in your thinking

Chapter 2. Stress Test Your Idea for Desirability

Desirability: Do customers want this?

As entrepreneurs, we are charged with building better products, but what does better even mean?

Defining Better

Defining better starts with recognizing that customers don’t care about solutions, but about achieving desired outcomes

A compelling unique value proposition either promises a better desired outcome, a better way of achieving the desired outcome, or both.

The way you craft a compelling unique value proposition is by first getting razor focused on who you are targeting and then understanding the obstacles (or problems) that stand in the way of them achieving their desired outcomes.

Mindset #2: Love the problem, not your solution

Our Innovator’s Bias Gets in the Way

entrepreneurs often unconsciously invent (or even fake) problems in order to justify the solution they already have in their mind

they ask “What problem could my solution solve?”

Meet the Innovator’s Gift

The basic premise of the Innovator’s Gift is simple: new problems come from old solutions.

you don’t want an innovative problem—one that no one understands or cares about. The secret is framing problems in terms of the existing obstacles with old solutions that prevent customers from achieving their desired outcomes

The main reason most people switched from cassettes to CDs wasn’t because of better sound quality, but the ability to instantly play a song

The main reason we then switched from CDs to MP3s wasn’t better sound quality either, but the ability to buy just the songs we wanted, and not the entire CD.

The reason we switched from MP3 players to the cloud was because “a thousand songs in our pockets” was no longer enough

what caused the switch in each case wasn’t solving new problems, but solving old problems that were always there.

This is the story of what all successful innovation looks like:

the [customer] realized that the [existing alternative] wasn’t the best choice for the [job] because of these [problems].

We can visualize this story on a customer journey diagram. (see 3-Act Customer Forces Story MadLib)

I can guarantee with high certainty that how we listen to music will change again. To what, I don’t know

Unpacking the Innovator’s Gift

The first step to applying the Innovator’s Gift to your product is understanding the theory of jobs-to-be-done (JTBD).

Framing the question this way allowed the team to uncover why people bought a milkshake, which led to very different insights than when you simply ask customers how to improve a milkshake.

I wondered if a similar approach could be applied not just to improve an existing product, but to identify opportunities for new products

Let’s start with my definition of a job-to-be-done

a job-to-be-done is the instantiation of an unmet need or want in response to a trigger.

All jobs start with a trigger

Triggers are what define the context that shapes the job-to-be-done.

Habits define what we do most of the time…

once we find a good enough solution for a specific job-to-be-done, we tend to remember it for the next time and hire it again

Hiring a solution is not the same thing as buying a solution

Hiring a solution is selecting and using a solution (whether previously purchased or not) in response to a job we find ourselves needing/wanting to do.

It takes a few successive hires of the same solution to turn it into our preferred way of getting the job done (i.e., for it to become ingrained in habit).

…Until we encounter a switching trigger

we realize that our existing alternative is no longer good enough to get the job done. That’s also when we begin to seek out a new and different solution

Figure 2-7. The Customer Forces Model

The Customer Forces Model is a behavioral model that describes the causal forces (PUSH, PULL, INERTIA, and FRICTION) that shape how people select and use (hire) a solution for a specific job-to-be-done

Therein lies the opportunity

Triggering events instantiate jobs-to-be-done that favor familiar solutions (existing alternatives). Switching triggers, on the other hand, create expectation violations that open spaces for new solutions. Entrepreneurs need to chase switching triggers.

Causing a switch starts with a promise of better

If a new solution is only incrementally better, the old way always wins. It wins because it’s already ingrained in habit. I label this resistance to change from the status quo as INERTIA

You additionally have to contend with the anxiety one feels whenever they embark on a new way of doing things that challenges their familiar old way. I label this resistance to adopting the new way as FRICTION

Causing a switch requires overcoming these resisting forces

How much better does a new way need to be than the old way to cause a switch? Think 3 to 10 times better. (status quo)

Emotionally better versus functionally better

You don’t have to deliver significantly better solely by being functionally better. Emotion helps.

if the unmet needs are not well understood by your customers, it’s far more powerful to switch your positioning to address their wants or desired outcomes (NeedsStack)

Emotionally better lives in the bigger context

Every product lives in two contexts: the solution context and the bigger context

Getting hired is only the first battle

Unless you can quickly deliver value and then establish yourself as the new status quo for the job, you could easily find your product on the firing block.

For now, though, let’s see how to use the Innovator’s Gift to stress test your idea for desirability.

Steve Challenges the Innovator’s Gift

So this begs my next question: are there any new jobs-to-be-done?” “I don’t believe so*

Chapter 7. Kick Off Your First 90-Day Cycle

Steve Calls a 90-Day Cycle Kickoff Meeting

“How do you create customers without a product?” Josh asks with a confused look on his face.

The Problem/Solution Fit Playbook

The first stage in the product life cycle (the “now” in the now-next-later rollout plan discussed in Chapter 4) is achieving problem/solution fit. This stage is about demonstrating sufficient demand for your product before you build it.

Customers Don’t Buy Products, They Buy a Promise of Something Better

An offer is made up of three things:

  • A unique value proposition
  • A demo
  • A call-to-action (CTA)

How to Make a Promise of Better

Based on my experience, I’ve mapped the effectiveness of each campaign, plotting scalability/reach versus conversion rate

Steve Calls a 90-Day Cycle Planning Meeting

the mafia offer campaign is the least scalable, but it packs in the most amount of learning per unit time. It also has the highest conversion rate of all the offer types because it’s delivered to prospects in person, one-on-one

“The mafia offer campaign is quite similar to direct sales once you start pitching,” Mary responds, “but it’s a lot more tactical on how to use discovery conversations to learn before you pitch. You don’t pitch anything until you uncover your early adopter criteria, identify your true competition, and deeply understand the problems.

The Mafia Offer Campaign

a compelling offer that:

  • Nails your customers’ top problem(s)
  • Demonstrates a solution for overcoming their problem(s)
  • Provides a clear way for them to get started

Building a Mafia Offer

Rushing to craft a pitch or build a landing page is a suboptimal way of building a mafia offer

I advocate using a more systematic three-step approach

1. Problem discovery

deeper dive into understanding your customer’s problems.

The fastest way to deeply understand your customer is through face-to-face interviews

The goal of problem discovery is uncovering problems worth solving with the status quo (i.e., existing alternatives). You do this not by pitching your solution, but rather by studying how people are currently getting the job done with existing alternatives.

2. Solution design

you’ll find opportunities for causing a switch (problems worth solving). The next step is designing or refining your product to fit and cause a switch

The Revenue Growth Loop

LTV > 3 x CAC

margins

older notes

His 2012 process

Edited:    |       |    Search Twitter for discussion

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