This week’s guest blog post is by Norm Snyder, partner at Aronson, LLC. Snyder is also chair of NVTC’s Small Business and Entrepreneur Committee. Snyder shares highlights and lessons learned from the Committee’s recent Lean Startup panel.
Lean is a disruptive way of thinking that can shorten cycles for developing products, business startups and help ensure entrepreneurial success. Late last month, the Small Business and Entrepreneur Committee explored Lean Startup methodology with an expert panel led by Bob Smith, director of the George Mason University Small Business Development Center, serial entrepreneur, and venture and angel investor. The panel also included experienced Lean Startup entrepreneur practitioners Steph Hay from Capital One, Abhishek Motayed from N5 Sensors, Patrick Smith from Power Supply and B.J. Wiley Williams from Sohooked.
Bob Smith started with an overview of the Lean Startup methodology. Lean methodology stems from the father of the “Customer Discovery Method,” Steve Blank, Alexander Osterwalder, who invented the “Business Model Canvas,” and the work of Eric Ries, author of the widely read book The Lean Startup. According to Smith, the number one startup mistake is building something nobody wants; therefore, more startups flounder from a lack of customers than from product or technology failures. Do companies build product(s) that no one wants? Of course, we have all seen it.
Smith used the example of Segway, which spent over $100 million developing its personal transporter. Segway expected to sell 10,000 Segways per week by the end of 2002. According to Forbes, Segway sold 30,000 total units by 2008. What was supposed to become the mainstay of urban commuting is predominately used by mall security guards and tour groups. Segway’s failure wasn’t technical – they failed to solve a real world problem.
As discussed, Lean teaches us that startups are not smaller versions of larger companies. A good product, business plan, financial model and market research do not guarantee success. It’s easy to build a sound technical product and a financial model with the necessary hockey stick revenue/EBITDA chart. According to Smith, “No business plan survives first contact with customers.” Everyone has a plan… until they get punched in the face! So what’s an entrepreneur to do? Get out of the building! Realize the idea is only the starting point. A business model is how a company creates, delivers and captures value.
In other words, a business model is how a company makes money! Smith’s tool of choice is the Business Model Canvas. Discovering the “value propositions” is the center of the Canvas. The goal is to find the right solution to the right customer problem with strong enough demand to warrant launching a business. Who is the customer? What problem do they want solved? What value do they derive from the solution? Customer discovery is not an exact science. It is an iterative process of evaluating guesses. Get out there and interview potential customers, perhaps 100 to 200 people. Engage in a love story with your potential customers. Look for patterns and apply judgment when validating or invalidating your hypotheses. Refine, pivot, repeat as needed until you have uncovered the value. Keep focused on the benefits customers derive from the product. Remember value propositions or benefits are NOT the same as product features. Use this process to develop a minimum viable product (MVP) and not a product with all of the cool features possible. For an MVP, who is the customer? What is the specific problem the MVP addresses? How does it add value or help customers that will result in making money from selling the product?
After his helpful overview, Smith led the panel in a discussion with the following questions.
- How has your organization used Lean Startup? Why did this method work?
- What was the best and worst customer hypothesis you ever wrote?
- What are some best practices in customer discovery you recommend?
- What is the hardest interview you have conducted? What did you learn from it?
Among others, panelists shared these insights. In value proposition testing interviews, watch for body language shifts. For example, in their testing, a bank learned that moms hated touching ATMs by watching them. Radical specificity is your friend in conducting interviews. Meeting customers helps validate (or invalidate) the channel. Ask for forgiveness, not permission, in getting the difficult interviews. Be creative in getting customer interviews. A story was told about one entrepreneur getting multiple flu shots in order to secure interviews with medical professionals they wanted to talk to. Solve the market problem before you focus on the technical product development. Make sure you speak to the right customers, including those who have the power and ability to buy. The Lean Startup process allows the entrepreneur to be free to fail since you will be continuously innovating in response to customer feedback.
Remember, the customer is first, not the product. Constant innovation leads to entrepreneurial success.