WAY TO INNOVATE
TABLE OF CONTENTS Introduction Methodologies we shall use Customer Discovery Problem / Solution Fit Customer Validation Pivot Product / Market Fit Tools Business Model Canvas Customer Situation Context Customer Jobs Job Map SPA Treatment Adoption Behavior Curve Customer Persona Get out of the building Solution Generation Brainstorm Identify your Risky Assumptions Prioritize
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THE WAY TO INNOVATE
83% of new product launches fail. And 42% of failed startups indicated that the number one reason that they failed was that there was no market need for their product. These are some tough numbers for intrapreneurs looking to innovate. The good news is that the majority of these initiatives did not fail due to poor execution, failed partnerships or insufficient funding. Rather, they failed because they neglected to first validate whether or not there was a market for their idea. And that is a fixable situation. Welcome to the Innoleaps Way To Innovate. This document steps you through a process that helps to ensure that you have a viable business idea worth launching BEFORE you spend too much time and energy to develop and launch it.
Let's get started!
This document has over 30 tools to help you on your innovation journey, as shown below. The tools in the upper half are from the Lean Startup process The tools in the bottom half of the diagram are there to help you increase your Innovation Knowledge. But ďŹ rst, we have a bit about the phases of Lean Startup.
Welcome to the Search phase! The goal of this phase is to get market validation that there is a business opportunity of a size large enough to warrant Innoleaps attention within the minimum amount of time. This is done by: ● Deeply understanding the customer and the customer’s problem ● Brainstorming to see if our initial solution is the best way to meet this unmet customer need or if, through the additional insight gained, there is a better way ● Understanding the risks to bringing this solution to the market Identifying and testing the riskiest assumptions ● Building out a business model that shows how you will capture value from this innovation. There are two steps to Search: Customer Discovery and Customer Validation. The rest of this manual will cover these two phases - Execution is for another time!
You are now in the left hand box!
Customer discovery
Customer validation
Search
Growth Hacking
Company building
Execution
Customer Discovery
Lean Startup’s Search phase starts with Customer Discovery. This is where innovators talk with potential customers to really understand their problems and identify possible solutions that would meet their needs. Before diving into building a solution, this stage starts with understanding: 1
Who is the customer? ● ●
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What is their problem? ● ● ● ● ● ●
3
Who is the typical customer? What are their characteristics?
What problems are they facing? What needs are they trying to fulfil in their lives? Is this problem a big problem or a minor problem for the customer? What events occur to trigger this problem? When or where does it happen? With what frequency?
How is it solved today? ● ● ● ● ● ●
How is the problem solved today? What is the problem with the current solution? What is frustrating about this? What is time consuming about this? What causes this to go off-track? What is too costly or time consuming?
You are here!
Customer discovery
Customer validation
Search
Growth Hacking
Company building
Execution
Problem / Solution Fit Problem / Solution fit is when a team knows that they have a problem worth solving for a sizable population, and that their general solution concept sounds interesting to customers. Only once a team has Problem / Solution fit can they move onto the next phase, Customer Validation.
Problem / Solution Fit is when: ● Customers indicate that the problem / need that the team has identified is important to them and that they want it solved. Customers can indicate this by: ○ Wanting to buy and pay for the proposed solution right away ○ Actively trying to solve the problem during Customer Development interviews ○ Demonstrating a passion for the problem by, for example, talking a lot and asking a lot of questions ●
The team has identified a specific niche of early adopters.
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The team has formulated the value proposition as a single clear compelling and concise message.
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The team had explored the first steps towards value capture.
Customer Validation Customer Validation is where teams take their solution concept and, through market validation, develop it into a product or service that the market wants. There are two ways to gain market validation, depending on the size of your target market:
Large target market size If a team’s target market is large, they can gain market validation by testing their concept with a small subset of the market, and then, through the power of statistics, project out those results to determine if the market wants the product. They don’t need to worry so much about upsetting the market with a “bad” proposition, as they are testing it with such a small percentage of the market - maybe only a couple of hundred people - and the knowledge gained from these tests outweighs any potential costs.
The way to test a product concept with a large market is through running an experiment. There are four steps to running an experiment: 1. Identify the risky assumptions 2. Prioritise them 3. Set a Minimum Criteria for Success 4. Run a test
Small target market size If a team’s target market is small, they don’t have a large enough sample size to run a statistically relevant test on a subset. For example, if they only have 10 customers, they don’t want to potentially alienate even one of their customers with a test. In this scenario, they need to work with their customers to co-create the solution. This manual does not cover this scenario - if this is you - please see your innovation coach! There are solutions out there for you!
You are here!
Customer discovery
Customer validation
Search
Growth Hacking
Company building
Execution
Pivot Sometimes a team in the Customer Validation phase will learn something that invalidates some of their assumptions, and they will have to go back to Customer Discovery to learn more, before moving ahead. This is called a pivot. A pivot is a bit like using a GPS navigator. People don’t wake up in the morning and ask their GPS where they should go that day. They have a vision of where they want to go. However, if they run into an obstacle, they don’t keep ramming into it over and over again. They turn to their GPS to find a new route around the obstacle. A pivot is finding a new way to get to your destination when blocked. 66% of high growth startups pivot. And teams that do pivot once or twice (but not more), raise on average 2.5x more money, achieve 3.6x better user growth, and are 52% less likely to scale prematurely. Some 1 examples of famous pivots: • YouTube started out as a dating site • Flickr started out as an online game • Twitter started out as a podcasting directory
A pivot can be a great thing!
“A pivot is a change in strategy without a change in vision"
Eric Ries
Product / Market Fit Product / Market fit is that critical point when a team discovers that they have a product that the market wants, and they are ready to start scaling it. When teams have Product / Market fit, they are ready to leave Customer Validation, and the entire Search phase.
That point is known as Product / Market fit. And it acts as kind of a Chinese Wall.
When working with Lean Startup, teams are experimenting with only a few customers. They are focusing on learning, until finally, one day….Eureka!
A team should never do Growth Hacking before they have Product / Market Fit. There are some exceptions – like when a team wants to embed virality into a product - but in general, teams should never growth hack before hitting product / market fit.
They have got all the answers they need and it is time to begin scaling with Growth Hacking.
Lean Startup
To the left of Product / Market Fit, teams work with Lean Startup. To the right of Product / Market Fit, teams start scaling with Growth Hacking.
Product Market Fit
Growth Hacking
Unfortunately, “74% of high growth internet startups fail due to premature scaling.” Premature scaling is where a team comes out of the gate strong and immediately starts adding more users. And whereas often they will initially gain traction, since they never look the time to get product / market fit, early successes will often tend to fizzle out quite quickly. In the below graph, this type of scenario is represented by the grey line. One study found that startup teams characterised by the type of growth represented with the grey line, also tend to: ● Have 3 times as many team members at the same stage as other more successful start-ups.
Product Market Fit
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Write 3.4 times more lines of code in the Customer Discovery phase and 2.25 times more code in the Customer Validation phase Outsource 4-5 times as much of their product development Be 60% more likely to focus on Customer Validation while still in the Customer Discovery phase Be 2.2 times more likely to be focused on Growth Hacking while still in the Customer Validation phase Not pass the 100,000 user mark.
Note: The above points represent correlation, not causation. A team could have all the above traits of money and people etc., and with discipline, still stay on the blue line.
Product / Market Fit Quotes There are a variety of opinions on how to identify when a team has Product / Market fit. Such opinions can vary widely, since it is really hard, in the heat of the moment, to tell if a team has Product / Market fit Determining this is often best done together with your Innovation Coach!
"You can always feel when product / market fit isn't happening. The customers aren't quite getting value out of the product, word of mouth isn't spreading, usage isn't growing that fast, press reviews are kind of 'blah', the sales cycle takes too long, and lots of deals never close. And you can always feel product / market fit when it's happening. The customers are buying the product just as fast as you can make it -- or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company checking account. You're hiring sales and customer support staff as fast as you can. Reporters are calling because they've heard about your hot new thing and they want to talk to you about it. You start getting entrepreneur of the year awards from Harvard Business School. Investment bankers are staking out your house." Marc Andressen Founder of Netscape Partner at Andressen Horowitz
"If you have to ask whether you have product / market fit, the answer is simple. You don't." Eric Ries
"... when you stop wondering if your product actually solves a problem and you start wondering how you're going to deal with all the people trying to buy your product and how to get even more of them to your storefront." Sean Ellis, First Marketeer at Dropbox
Four Myths of Product / Market Fit Myth #1: Product market fit is always a discrete, big bang event Myth #2: It's patently obvious when you have product market fit Myth #3: Once you achieve product market fit, you can't lose it. Myth #4: Once you have product market fit, you don't have to sweat the competition Ben Horowitz Andressen Horowitz
Business Model Canvas What is it? The Business Model Canvas is a template for developing or documenting new and existing business models. It was initially proposed by Alexander Osterwalder in 2008. It is a hands-on tool that fosters understanding, discussion, creativity, and analysis. More information on it can be found in Alexander Osterwalder’s book, “Business Model Generation�
What is the goal? The goal is to align a team on all the business activities an organisation will undertake, in order to deliver value to the customer. When to use it? Creating a Business Model Canvas is an iterative process. Teams initially draft one at the beginning of the Lean Startup process, before talking to customers.
Example Here is a Business Model Canvas that's been filled out for Netflix.
• Film / Media companies
• Postal Service
• Web developm. • Movie licensing • Marketing
• Video / DVD rentals
• Direct to consumer
• Home movie watchers
• Delivered by post
• DVD Mgmt
• Product
• Subscription via website
• Web platform
• Licensing fees
• Sales/marketing
• Platform development
Instructions The building blocks of any business can be described with the nine blocks of the Business Model Canvas. Teams often want to use post-it notes when working with the Business Model Canvas as text may change over time. The nine blocks are:
What the organisation delivers to its customers 1. Value Propositions: In this box, a company concisely defines the product/service it delivers to customers through various elements such as newness,
• Rental fees
• Subscription Fees
• Sales income
performance, customisation, "getting the job done", design, brand/status, price, cost reduction, risk reduction, accessibility, and convenience/usability. 2. Customer Segments: These are all the people, groups or institutions for which an organisation creates value. Every organisation serves one or more distinct customer groups, who may require different value, channels or relationships. Target customers must be defined as specifically as possible, in order to articulate the business model well enough.
3. Customer Relationships: Companies create relationships with their customers, which may include: Personalised Assistance, Self Service, Communities, Co-creation, single or ongoing transactions, direct to consumer, via franchisees, etc. They must also keep in mind whether the primary purpose of those relationships is intended to acquire or retain customers or to grow revenue. 4. Channels: A company must market, sell, and deliver products and services to the customer. This can happen via a store, the postal service, through a digital platform, through a network of care providers or in any number of other ways.
How the organisation delivers the value proposition 5. Key Partners: Organisations in today’s modern world either cannot or choose not to do everything themselves. For example, they may often partner with other suppliers to deliver key subcomponents of their product or service offering. In addition, complementary business alliances may also can be considered through joint ventures or strategic alliances between competitors or non-competitors.
6. Key Activities: This box contains the most important activities that the organisation will do to make its business model work and deliver the Value Proposition to the customer. 7. Key Resources: This box details the human, financial, physical and intellectual resources that are necessary to create value for the customer.
Finances 8. Cost Structure: This describes the most important monetary outflows while operating under different business models., which may include both fixed and variable costs. 9. Revenue Streams: This block describes how an organisation will create revenue through delivery of the product or service to the customer. It can include economies of scale and/or scope, in addition to revenue streams such as usage fees, subscription fees, license fees, rental fees, brokerage fees, or advertising to name a just a few.
What are the instruments you need? ● Business Model Canvas Template ● Pen ● Post-it notes
Customer Situation Context What is it? The Customer Situation Context tool helps innovators to think about the perspective of their customer or user. It provides: ● A better understanding of a customer’s situation. ● A new insight into things teams might not know. ● An indication of the assumptions which may need to be validated.
When to use it ● To prepare for customer interviews ● When a team thinks they have identified a problem, but can’t immediately get into customer interviews. What is the goal? The goal is to have a better understanding of a customer’s context. If a team does this before speaking to actual customers, they will write assumptions about what the customer’s problem is, when they experience it, and how they currently solve it. That’s OK. Over time, the team will need to get out of the building and speak with real- life customers to validate or invalidate their assumptions.
Instructions ● Answer the questions in each field of the document ● Any fields which cannot be answered indicate a likely need for further research. ● All fields should be validated through customer interviews. What are the instruments you need? ● Customer Situation Context Template ● Pen ● Post-it notes
Customer Jobs What is it? Customers need to accomplish various tasks, and will use a potential solution when they perceive that it will help them to achieve their goals. For example, a customer may “hire a car” to execute the job of “getting to work.” Or a customer may “book a restaurant” to execute the job of “having dinner.” A customer problem occurs when the job can not be executed easily, predictably and reliably. Jobs-To-Be-Done is a methodology that helps innovators to better understand their customers. The Jobs-To-Be-Done methodology was inspired by the work of Theodore Levitt, a Harvard Business School professor in the 1960s - 1980s, who famously said, “People don’t want a quarter-inch drill. They want a quarter-inch hole.” It was later popularised by Clayton Christensen in his book “The Innovator’s Solution.” . In the above example, a drill is nothing more than a point-in-time solution to help a customer get a hole.
One might imagine that at some point in the future, people will use a new technology to make a hole (perhaps laser-nano-particle beams?). If an innovator were to spend all their time thinking about how to innovate the drill – coming up with a new handle or a better battery or an easier way to change a drill bit – then they would completely miss the entire shift in approach and quickly be left behind. Therefore, when looking to innovate, focusing on the drill is fundamentally the wrong unit. Teams need to focus on what the customer wants to get done. Don’t make a better drill, make a better way to make a hole. What is the goal? The goal of identifying the job is to get a better understanding of what target customers are trying to accomplish in the world. Innovators want their product to make their customer’s lives easier and so the starting point for this is to understand what they are trying to accomplish.
When to use it? Teams must work to identify the customer’s job at the start of their innovation process, before speaking with potential target customers. Of course, at this point in time, they will only be making assumptions about what the customer needs. After speaking with actual customers, teams will have more knowledge and can update the customer’s job based on what they actually know.
Example Intercom is a company that helps brands such as Louis Vuitton and H&M to manage their customers. With Intercom, the brands can have one unified way to manage their customer input, regardless of the channel that generates it. Intercom had created for its customers (the brands), a map that shows the brands where all their customers are.
A snapshot of this is at the bottom of the page. When looking to improve their map, they went out and interviewed their customers to figure out for what jobs their customers were using the map. It turned out that customers were using the map to: ●
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Show off how many customers they already had when talking with potential new customers and partners at trade shows 2. Show off how many customers they had on twitter 3. Show off how many customers they already had to investors during pitch presentations
Based on this learning, Intercom decided that it would not be important to improve the geographical accuracy of the map, improve clustering, or to improve country/city borders. Rather, the most important thing they could do would be to make the map look good, hide sensitive data automatically, and make it easier for customers to share. Below is the resulting map that they created. Their customers loved it. Instructions Try and put yourself in your customer’s shoes and think about what they are trying to accomplish. When you think of a job, write it down on a post-it note. Customer jobs should always start with an action verb.
For example, instead of saying “transportation,” make this an action and say “get to work.” Write one customer job per post-it note. Once the team has exhausted all potential options for customer jobs, teams take the post-it notes and work together to cluster them and identify trends or themes. Sometimes, post-it notes can be combined or consolidated. Other times, the clustering process helps uncover other customer jobs that teams did not originally consider. What are the instruments you need? ● Post it notes ● Paper ● Pen
Job Map What is it? A job map details the step-by-step process a person completes in order to accomplish a given job. As a result of habit, speed of decision-making or simply a lack of focus, we’re often unaware of each specific step we undertake when executing a common job, such as “getting dressed in the morning” or “getting updated on world affairs”. However, if an innovator wants their product to change someone’s behaviour, then they will need to fully understand each and every step in the job map process, in order to begin to understand how to influence their customer’s behaviour.
An example of a job map for a customer wishing to paint a wall is below:
What is the goal? The goal of a job map is to create better understanding of the entire process that a customer goes through in order to successfully execute a job. This will provide insight into developing a product. When to use it? Teams should construct a job map after having identifying the customer jobs. Like most tools in Lean Startup, the job map is, at first, a guess about what the actual job is. Over time, as teams Get Out of the Building and talk to more and more customers, they adjust the job map based on what assumptions they validated and invalidated. Therefore, over time, the job map becomes more and more based on facts.
Decide wall needs painting
Choose a color
Choose a paint
Gather necessary tools
Prepare wall
Apply paint
Confirm wall is desired
Remove supplies
SPA Treatment What is it? The SPA Treatment is a tool created by Justin Wilcox at Customer Development Labs, which helps teams to identify and prioritise target customer segments . This tool is often used in conjunction with the Adoption Behavior Curve. What is the goal? At this point in time, teams may have several assumptions about the identity of their target customer segment. In fact, different people in the team may have different opinions on this - and yet, they are all just opinions until the team gets out of the building and talks to a sizeable number of customers. The SPA Treatment tool will help teams prioritize their hypotheses based on 3 criteria: 1. Size of the market 2.
How much these customers can pay for a solution
3.
The degree of access you have to them, in order to speak with them about their pains and needs.
This tool is designed to be an alignment tool that gets teams talking about the segment they wish to target. It is not designed to give a team “The Perfect Answer.” Rather it is designed to get a team on the same page and moving and iterating towards “The Perfect Answer.” When to use it Identifying and prioritizing segments is an iterative process. Teams start this process at the beginning of their innovation journey, before talking with customers. At this stage, it is based more on assumptions than facts. Over time, as teams do actually talk with their customers, they can update their SPA Treatment priority targets with more and more data. Teams may find that their initial prioritization was wrong and that they need to change it. That’s OK. The SPA Treatment is intended to be a living document that teams use throughout the entire Search phase.
Instructions ● Identify Problem: The first step is to clearly understand the job that the customer is trying to get done. For more on this, see the job map tool. In the example on the next page, the problem is identified as the need “To lose weight.” ●
Identify Potential Target Segments: Next, teams consider which potential segments they can target. At this point, they may have several hypotheses, such as; overweight people, 1st marathon runners who recently joined a training program, supermodels, and brides preparing For their weddings. Teams write down all potential segments.
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Score: Then each segment is scored using three criteria: (1) Size of the potential market, (2) How much customers will pay for a solution, and (3) The degree of access Teams have to their target customers. Here the scoring is simply a quick-check indicator – not an in depth analysis. The goal is to determine a starting point, not a final or perfect answer. ○
- Size: You may think that there are a fair number of overweight people and so give this item a “2” rating, which is a medium ranking in the 1-3 ranking scale. This is not scientific. Rather, it’s just a quick estimation.
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Pay: You may also think that overweight people would be willing to pay a lot of money if offered a solution that would better enable them to lose weight (in other words, to better execute the job). In this case, you may decide to rate this a3. Access: You may believe that you have medium access to such a group of people – meaning that it won’t be too difficult for you to locate and speak with them about their needs - while not yet being plugged into a network of them – so you give this a2
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Multiply: Calculate the overall total for each potential target segment by multiplying the numbers in each rows. For example, for overweight people the score is 2x3x2 or 12.
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Rank: Determine which segment has the highest score. In this case, the overweight people category looks to be the most promising group. This is the segment you will want to target first.
What are the instruments you need? ● SPA Treatment Template ● Pen
Adoption Behaviour Curve What is it? The Adoption Behaviour Curve is another tool that was created by Justin Wilcox at Customer Development Labs. Its purpose is to help recognising who would be a good Early Adopter to target for Customer Development Interviews. Recognising an Early Adopter is not always self-evident. Therefore, the Adoption Behaviour Curve focuses teams on determining Externally Observable Characteristics. This helps in identifying Early Adopters, who can be interviewed so as to understand their actual pain points and problems. This tool is often used in conjunction with the SPA Treatment. What is the goal? Getting a customer to change behaviour and try a new product can be extremely difficult. Initially, the only people likely willing to try a new product are in fact Early Adopters.
When a company becomes big and successful, they may want to have a product that targets the broader market. However, at this stage of the innovation journey, it’s important to focus on the Early Adopters, create a product for them, and worry about evolving the product towards the mainstream once traction and validation have been achieved. Unfortunately, Early Adopters do not walk around with a big sign on their forehead that says, “Hi! I am an Early Adopter.” Therefore, teams have to translate this psychological state into Externally Observable Behaviours that they can use to find these people in the real world. The goal of this tool is to figure out who exactly a team’s Early Adopters are and what Externally Observable Behaviours they exhibit that would make them easy to find.
When to use it? Finding Early Adopters is an iterative process. Teams start this process at the beginning of their innovation journey, before talking with customers. At this stage, it’s more about assumptions than facts. Over time, as teams go out and talk with their target customers, they can update their Adoption Behaviour Curve with more and more facts. Teams may find that their initial thoughts were wrong and that they need to change their thinking. That’s OK. This is a living document that teams use throughout the entire Search phase. Below is a sample Adoption Behaviour Curve, with a further example on the next page which has been filled out for the problem of “I want to lose weight.”
Instructions 1. Identify Problem: The first step is to clearly understand the job that your customer is trying to get done. For more on this, see the job map tool. In the example on the next page, the problem is, “I want to lose weight.”
2. Identify Segment: Now, identify the segment you’re targeting. The SPA Treatment is a great tool to do so. In the example on the next page, the segment is, “Overweight people.” 3. Identify Early Adopters: An early Adopter is someone, (1) who has the problem, (2) knows they have the problem and (3) is trying to solve it. Externally Observable Behaviours for this segment would be people who go to the gym regularly, have a personal trainer, sign up for a 5K run, and buy vegetables. This person really wants to lose weight and is working at it. This is a person who would most likely be interested in trying a new solution. 4. Identify Early Majority: The early majority are people, who (1) have the problem and (2) know they have the problem, but who aren’t really trying to solve it. An example of this would be someone who works out sporadically, likes Weight Watchers, and reads health articles once in a while. They may say they want to lose weight, but they are not really trying to do so.
5. Identify Late Majority: The late majority are people, who (1) have the problem, but don’t really know they have it and aren’t really trying to solve it. This is someone who is overweight, but doesn’t really think this is a problem and is not trying to solve it. Externally Observable Behaviours may be that the person is overweight, while still eating fast food and shopping for plus sized clothing. 6. Identify Laggards: A laggard is someone who does not have the problem, does not know they have the problem, and is not trying to solve the problem. Externally Observable Behaviours for this type of person may be, for example, that they are Sumo wrestlers or American football players. These people are big, but that is how they want to be.
PRO-TIP: People often struggle to fill out the Laggard column. As this is ard to do -in some sense the laggards don’t really have the problem - and they will likely not be your primary target, you may want to leave this for last or ignore it.
What are the instruments you need? ● Adoption Behaviour Curve Template ● Pen
Customer Persona What is it? A customer persona is a brief snapshot that is representative of the ideal type of customer that a team wants to pursue. What is the goal? The goal of the Customer Persona is to develop a shared understanding of the ideal target customer. While every customer is unique and different, the persona is an idealised version of the customer that is representative of a target market. Having this in place helps teams design the product with the target customer in mind. While traditional research would create a detailed persona, in Lean Startup, teams make a quick and fast version that they use as a hypothesis and evolve over time as they get more market data. When to use it Creating the perfect Customer Persona is an iterative process. Teams begin this process as they embark on their innovation journey, before talking with customers. At this point, it’s based more on assumptions than facts.
Over time, as teams talk to customers, they can update the Customer Persona with more and more facts. Teams may find that their initial prioritisation was wrong and that they need to change it. That’s OK. This is intended to be a living document that teams use throughout the entire Search phase. Instructions Take a piece of paper and divide it into four quadrants. In each quadrant, teams fill in their best guesses for the idealised target customer. The quadrants are: ● Person ○ Demographics: Age, gender, urban/rural, etc. ○ Situation: Work & Family ○ Hobbies, Interests, Aspiration ○ Photo of how they look ●
Behavioural Demographics ○ What they do (in relation to the problem)
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Pain Points and Problems ○ Where they struggle with the problem
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Current Solutions ○ How they are currently solving the problem
Tips & lessons from others At this point in time, you don’t have the full answer. So don’t worry too much. Take a guess and then when you are talking with customers, validate your guesses. Some may be correct. And some guesses may be wrong - that’s OK - just update the persona with the correct information as you learn it.
What are the instruments you need? ● Piece of paper ● Pen
Get Out Of The Building What is it? Up until this point in time, all the tools we have used in the Way To Innovate have been a great way to focus the internal team and gain consensus. However, they still need to be updated with actual customer data. Getting out of the building and talking to customers is the best way to get market validation for these risky assumptions. What is the goal? Get actual customer feedback to validate or invalidate risky assumptions. When to use it Customer feedback is important at any stage of the process. However, it is extremely important in the beginning stages of Customer Development when teams are trying to understand the customer and what their problem is.
Example Elephant was a Rabobank Moonshot team that wanted to enable Dutch Small Medium Enterprises (SMEs) to sell their products online to small African producers in emerging markets via an e-commerce platform. The goal was to take advantage of the uptake of the use of smartphones and mobile data in rural Africa.
The team embarked on Customer Development meetings to validate their risky assumptions. They completed 22 interviews with SMEs, NGOs, Consultants/ Advisory companies, Universities, and Corporates. Through their interviews, they found out that several intermediaries already exist, including extension workers, cooperatives healthcare groups, distribution centers, and micro- finance agents. Additionally, the target small African producer oftentimes did not have any connectivity. The next page depicts a table of the team’s six risky assumptions, as well as whether or not their 22 Customer Development interviews validated or invalidated these assumptions. As you can see, the team learned a lot in their customer interviews, and as a result pivoted to an idea that better fit the needs of the market.
Instructions Conduct each interview with at least two people. That way, one person can maintain the connection and conversation flow with the interviewee and one person can take notes.
He once said, “If your mind is empty, it is always ready for anything, it is open to everything. In the beginner's mind there are many possibilities, but in the expert's mind there are few.” So while you are the expert relative to your product - how it's made and what the competitive landscape looks like - when it comes to your customer, you need to take the stance of being a beginner. Be a detective and lead with curiosity about the interviewee: Who are they? What are their big problems? What are their frustrations?
Teams should continue to conduct customer interviews until they are not really learning enough new information to justify the time investment. This often happens around the 10-15 interview mark, but may take significantly longer depending on the market segment and the complexity of the problem. Tips & lessons from others When conducting Customer Development interviews, the following five tips can be helpful: ● Learning Goal: It is important to set target goals in advance of the interview. Validating risky assumptions is a great goal but some teams may have additional goals as well. ●
Curiosity: Suzuki Roshi initiated the first buddhist monastery outside of Asia and is known for bringing Buddhism to the west.
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Focus on Problems: Customers are trying to accomplish tasks in the world and will use a potential solution if it helps them achieve their goal. When they struggle to get this task or job done, this is a problem. Try to uncover where customers have problems: What frustrates them? What causes the job to go off-track? What takes too much time?
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Neutrality: People often have a tendency to want to be helpful and tell you what they think you want to hear. Especially if you are paying them for an interview. So it’s important to be very careful and not tip people off or give them any indication of what you are looking for. This includes not just your words, but your tone of voice, facial expressions, and energy. And remember - don’t pitch your product! You are there to learn about the customer, not sell. Past or Present: Customers have a really hard time predicting what they will do in the future. Therefore, it is best to stick to how they have done things in the past. For example, asking someone how much they would pay for a service
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next week versus how much they have spent on this problem in the past may result in two very different answers. Specificity: When people generalise, you lose an incredible amount of detail. So instead of asking what people generally eat for breakfast, ask them what they had for breakfast this past morning. And perhaps the morning before that. The specificity will help you ensure that you are getting accurate data instead of fuzzy generalisations.
What are the instruments you need? ● A partner to go with you and take notes ● A pen ● A notebook
Solution Generation Brainstorm What is it? This is a creative brainstorming session where, just for a half hour or so, teams put their original idea to the side and throw open the gates to new ideas. At the end of this, some teams may decide that their original idea was the best. Or they may find a better idea. Or they may find ways to improve the original idea. What is the goal? Now that the team understands the customer and what they need, they are ready to work on the solution. Many teams start this process with an idea, but this is the time to check and see if the idea is actually THE BEST POSSIBLE solution to the customer’s problems. When to use it Teams conduct a Solution Generation Brainstorm after having thoroughly understood the customer and the customer’s problem. Example For students who struggle to relate theories they are studying to the real world, our product is a news feed that is presented to them at the right point in the curriculum so they can improve their understanding of the material they are studying.
Unlike textbooks which often present information out of context. We will know this is true when 40% or more of test cases click on at least 2 links from their newsfeed per week. Instructions Fill out the following statement to check and see if your solution meets the unmet customer needs.
For _________________ (target customer) who _____________(statement of problem), __________________(our product / service) will achieve _______________(outcome) that_____________________________ (statement of benefit / pain alleviation / gain creation)
Unlike__________________________ We will know this is true when we see ___________________________ (data)
What are the instruments you need? ● Piece of paper ● Pen
Identify your Risky Assumptions What is it? All business concepts have some assumptions in them. Your job now is to identify these assumptions so you can run an experiment to validate or invalidate the assumptions. What is the goal? If your product is going to fail, would you rather know now, before you spend a signiďŹ cant amount of time and money building it out or would you rather know after you had already spent all that time and money? Most innovators would rather know up front, whether or not there is a market for their business idea. Our goal here is to identify the riskiest assumption and then isolate it in order to create a test that provides market validation on just that one thing.
If the riskiest assumption proves false, well, then there is no need to test all the other risky assumptions - the business idea will not work as it is. The goal of this phase is to identify all risky assumptions inherent to a business idea and solution, so as to be able to test them and determine whether or not they are true. When to use it Understanding your risky assumptions is something that is important at all stages of your innovation journey. You will want to start this early in the process and continue reďŹ ning, validating, and invalidating your assumptions throughout the entire business lifecycle.
Example Below are some examples of good and bad risky assumptions:
Risky Assumption We believe that Americans have a problem eating healthy, exercising regularly, and quitting smoking. We will prove this by launching an app. We will know that we have succeeded when our users lose weight, exercise regularly, and quit smoking.
Good or bad? Bad: This is a bit too broad to be useful, combining eating, exercising, and smoking into one assumption. It is better to isolate each assumption into its own risk. Additionally, it is not fully measurable. For example, how much weight will they lose? If they lose a couple of grams is that considered a success? Finally, the causal link is weak. Will the weight loss be tied to the application? If a person is eating healthy and lifting weights, they may actually gain weight.
Mothers will take inspiration from our recommended recipes to create healthy meals for their overweight kids.
Bad: This one is hard to measure how will you know when the mothers take inspiration from your recipes? The internet can not currently measure inspiration, like it can clicks or saves. Additionally, a mother could take inspiration from a recipe’s use of, for example, pecans, and use it to make pecan ice cream for her kids. Inspiration in general is a little too vague.
Farmers in Northern California will pay money to get real-time data on their crops.
Good: This is very specific about the behavior your specific target group will exhibit.
Instructions With your team, brainstorm all the potential risks for the business. In general, innovators make assumptions about four types of business risks: 1. Technology or UX 2. Market 3. Pricing 4. Exogenous
When brainstorming risks, write them down on post-it notes. It is helpful to write each individual risk on a post-it note - one risk per post-it note. What are the instruments you need? ● Piece of paper ● Post-it notes ● Pen
As Lean Startup is extremely strong in helping you validate market and pricing risks, pay extra attention to these areas, in order to ensure you’ve got them covered.
Type of Risk
Example
How good is Lean Startup at addressing
Technology or UX (User Experience)
"Can I build this?" or "Can I build this in a way that a customer can easily use it?"
Middle
Market
"If I build this, will people want it?"
High
Pricing
"Will people pay me enough money for this to make it worth the time & effort?
High
Exogenous
Exogenous means “having an external cause or origin.” If someone was building an app to help manage diabetes, an example of an exogenous risk would be that a pharmaceutical firm makes a pill that cures diabetes.
Low
Prioritize What is it? Not all risks are created equally. Some risks will completely ruin your business, while others are more manageable. And some risks, if proven true, will mean that other risks are completely invalidated, eliminating the need to test them. Once an innovator understands All the risky assumptions involved in a business, prioritisation is then required, in order to understand which ones are the riskiest. This allows the innovator to sequence the experiments that need to be run, in order to provide marketvalidation.
What is the goal? Identify the riskiest assumptions When to use it Understanding which of your assumptions have the most risk is something that is important at all stages of your innovation journey. You will want to start this early in the process and continue refining, validating, and invalidating your assumptions throughout the Entire business lifecycle.
Example Some Stanford University students were launching a service for farmers. They were proposing to fly a drone over farmer’s fields and send back images, which software would then analyse to tell the farmer what needs to be done with the crop: increase nitrogen levels in one part of the field, decrease watering in another part, etc. etc.. Before building out the drone, attaching the camera and coding the software, these students decided to first use Lean Startup to identify their risky assumptions and get market-validation of whether or not they were true.
They identified three risky assumptions for their business: 1. Drones can take picture of the crops 2. Software can stitch together the images 3. The farmer can use the data
Of these three, they felt that the third risk, that the farmer can use the data, was the riskiest. While the drone not being able to take pictures of the crops and the software not being able to stitch together the images were both actual risks, they determined that these were smaller risks than the farmer not wanting the data. Not only did they have less confidence in the third assumption being true, but if the third one was false, working out the first two would be irrelevant. As a result of this insight, they stopped building their prototype. Instead, they rented a plane for an afternoon, attached a camera to it’s underbelly, flew over a couple of farmer’s fields, took some pictures and then came back and manually stitched together the pictures. They then took those images to a farmer to test whether or not the data was interesting to the farmer. Total cost for this experiment was around $500. As a result of this process, the team was able to isolate their riskiest assumption and test it quickly and individually at a very low cost.
Instructions Take the post-it notes generated during identification of your riskiest assumptions. Stick these to the wall or a flipchart with the riskiest assumptions being placed further up and the less risky assumptions being placed further down. Continue adjusting the placement of the postit notes until the entire team agrees upon the prioritisation order. This will provide a visual prioritisation of the risks. What are the instruments you need? ● A wall or a flip chart ● Post-it notes listing all identified risky assumptions
Minimum Success Criteria What is it? When running an experiment, it is critical to determine what success looks like, before conducting the experiment. Otherwise, our natural human tendency will be to find some way to interpret the results in a manner that confirms that we are brilliant with every experiment being successful. Writing down what will be considered validation versus invalidation BEFORE running the experiment keeps us honest. What is the goal? The goal is to set a team up for success in running an experiment. When to use it Identify the Minimum Criteria for Success before running an experiment or a test. Example A registry for drug research was recently created. To participate in this registry, scientists had to state up front what they planned to do and how they had defined their criteria for success. Such rules make it impossible to change the rules as they went along. And this had a huge effect. According to one analysis, prior to creation
3:http://www.npr.org/sections/money 2016/01/15/463237871/episode-677the-experimentexperiment
of the registry, more than half of the published studies of heart disease showed positive results. While subsequently, only 8 percent had positive results.3 Instructions Write down what will be considered success for the experiment. Examples of Minimum Success Criteria include: ● 6 out of 10 interviewees indicating they have this problem ● A click-through rate on an ad of more than 0.05% ● 5% of people signing up on a landing page What are the instruments you need? ● Pen ● Paper
"The first principle is that you must not fool yourself and you are the easiest person to fool." Richard Feynman,
American Physicist (1918-1988) Nobel Prize in Physics in 1965
Experiment What is it? An experiment is where teams run a test in the marketplace, in order to learn more about their customers and validate or invalidate their risky assumptions. There are almost as many possible experiments as there are risky assumptions. Teams will have to figure out the ideal experiment to quickly and inexpensively test an isolated risky assumption. What is the goal? The goal of an experiment is not to gain revenue or users but to learn. Therefore, an experiment is run with a small number of customers perhaps a couple of hundred or so and the focus is on learning. When to use it Experiments are run during the Customer Validation phase and beyond. Experiments should only be run once both the assumption to be tested and the Minimum Success Criteria have been identified.
Example Here are five examples of experiments - just don’t let this list limit you!
1. Landing pages: The goal of a landing page experiment is to test interest in a value proposition - not to collect email addresses or sell anything - although those can be nice by-products. The landing page describes a potential value proposition for a product that a team intends to make. Teams often include text that says something like, “Please notify me when you launch” and an option to leave an email address. Once live, the team will drive traffic to the landing page and then track the percentage of people who are interested enough to leave their email address. On the next page is an example of three landing pages that were launched to test three separate value propositions. By testing the conversion rate on each of these, it is possible to figure out which value proposition resonates the most with consumers.
2. Fake Door: A fake door is an experiment for a team that has a product up and running, and wants to run an experiment to learn whether or not they should add a new feature. Like the fake doors in a cartoon that don’t lead anywhere, a fake door on a website is a button that looks like it will take the customer to a page that will let them use the feature. In reality, it takes them to an error page or an apology page explaining that the feature is not yet available. The fake door is implemented before the feature is built, in order to gain an understanding of how many people would want to use it (as shown by people clicking on the button) and before spending the time and resources to build that feature. Polyvore is a shopping site and app where customers can give and receive styling ideas within their style community. Acquired in 2015 by Yahoo for $200M, when building out their product, they often used fake doors to test interest for specific features before dedicating engineering resources.
3. Concierge Treatment: A concierge experiment is one in which a team manually recreates the digital experience for a customer, in order to test whether or not the solution would work for the customer. While it is very expensive in the long-run to manually reproduce digital experiences, a concierge test is meant to be done in the short term as a way to determine if the digital experience should be built. Food on the Table is a startup that was founded in 2009, before being acquired by The Food Network in April 2014. They provide weekly recipe and grocery lists based on what’s on sale at a customer’s local store. Food on the Table determines a customer’s preferences - for example, spicy Cajun food and combines this knowledge with insights about what’s on sale a the customer’s local grocery store for example, chicken wings. Food on the Table will then notify the customer and provide them with some spicy Cajun recipes using chicken wings.
To make this work, the Food on the Table team needed a lot of stuff to happen: A list of stores and groceries, weekly updates on sales, recipes, algorithms to match customer preferences to recipes and promotions. But the founders did not start by their journey by building any of this out. Instead, they started with an experiment called The Concierge whether or not the market actually wanted such as service. The CEO signed up a customer who agreed to pay $9.95 per week to join the Food on the Table program. For this $9.95, the founder came to her house every week with a shopping list and selected recipes, carefully chosen based on both her preferences and promotions in the local store. The list was updated on the spot based on her desires and feedback. Clearly, a Concierge Test is not designed to make a lot of profit or even revenue. But each week, The Food on the Table team would learn more about what it takes to make their product a success. They kept adding more customers to their weekly visits, until they couldn’t handle the load any more. Only then did they started coding. One week they started sending lists and recipes via e-mail.
Then they wrote a piece of software to parse promotional store lists. Eventually, they started taking payments online. Only after validating the basic product with customers at their initial store, did they start expanding to other stores first within their region, before finally growing into a nationwide business.
4. Wizard of Oz: A Wizard of Oz test is similar to a Concierge test, but in a Wizard of Oz test, the customer does not know that there is a human standing behind a curtain and making it all happen manually. Zappos is an online shoe and clothing shop that Amazon.com acquired in an all-stock deal for about $1.2 billion in 2009. However it was not always so big. In 2009 when the founder of Zappos was thinking of launching the business, he did not start by building an ecommerce platform. He started by going to shoe stores, taking pictures of shoes (with the shoe store owner’s permission), and setting up a simple website with those pictures. When someone ordered a pair, he would get an email, go to the shoe store, buy the shoes, and mail them to the person. While this is not a very scalable approach, again, the goal of an experiment is to learn.
5. Faking It: There are many other ways to test and learn with customers that do not require building out an extensive product. OLIO is a startup that aims to help consumers reduce food waste by connecting people to exchange their surplus food. To get a deeper understanding of how users would interact with OLIO, the founders set up a WhatsApp group that allowed 12 strangers and one health food retailer to post their surplus supplies and save their neighbours’ food from going to waste. After the trial, the founders met up with 5 of the participants to discuss their experiences. They learned a lot about how users would interact with OLIO, and they were able to write off one feature they had expected users would want.
It turned out that participants would prefer to leave anonymous feedback, rather than 2-way public feedback, which could feel uncomfortable since they would likely bump into their neighbours fairly regularly. Another participant loved using the group so much that she persuaded the founders to reopen it, and they continued learning from the participants’ experiences. Instructions Setting up an experiment to accurately test a risky assumption is not easy. If not done properly, the data can be corrupted and give false positives or false negatives. It is therefore highly recommended to work with an experienced coach, in order to design an experiment that will give teams the required information.