Startup Launch

ENTP 3320 & 6360

Brian Hoang

Week 2
The Lean Startup Methodology
The Money Gong

1. Execute a transaction*
2. Receive money in the bank**
3. Smash the Money Gong
4. Tell the class about your deal
5. Sign the Money Gong

*Must be qualified and meaningful.

**If your top metric isn't revenue,

then we'll negotiate.

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Recap (from the last class)

• The best founders are customer-obsessed.

• Design Thinking focuses on empathizing with humans.

• The goal (when you start out) is to learn, not sell.

Let's say you understand your customers' needs.

How do you zoom out and validate a business model?

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Today's agenda

• Lean Startup

• Business Model Canvas

• Minimum Viable Product (MVP)

• Formulating hypotheses

• Validating hypotheses with an MVP

• Interpreting data and iterating

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 This Semester Eventually

• Is there a burning
desire?
Minimum Minimum
• Is there a viable Product-
Viable Sellable
business model? Market Fit
Product Product
• Is it feasible to execute
the business model?

Assumptions Test Hypotheses Refine Offering Repeatability

5
Design Thinking – Overview

• Originated from the field of design.

• Used to design products/services.

• Zooms in on humans to empathize

with their lives and needs.

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Lean Startup – Overview

• Originated from manufacturing.

• Primarily applied to startups.

• Zooms out to test a business model

as quickly and cheaply as possible.

• Is there a sustainable market and

product-market fit?
MVP

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Lean Startup – Process

1. Build: Develop a minimum viable product (MVP).

2. Measure: Test the MVP in the market and gather data.

3. Learn: Decide if the business model is viable or if a pivot is necessary.

4. Iterate: Refine assumptions and retest until product-market fit is established.

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What is an MVP?

• Minimum Viable Product: the most basic version of a product that allows
you to learn the most from customers with the least effort.

• The earliest testable product (not the Minimum Sellable Product).

• Should be minimalistic, quick, and cost-effective.

• Just enough functionality to allow early adopters to give valuable feedback.

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"If you’re not embarrassed by the first version of your product, you’ve launched too late.”
- Reid Hoffman, co-founder of LinkedIn

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Lean Startup – Example

Product: A collapsible bike helmet.

Without Lean Startup:

• Company spends a year making a helmet with multiple designs and colors.
Upon launch, they realize users like the collapsibility but find it too heavy.

With Lean Startup:

• Company releases a basic MVP and finds demand for a lightweight design.
Iterations result in a much lighter design that leads to increased adoption.

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Lean Startup – Example

Product: A solar-powered phone charger.

Without Lean Startup:

• Company launches a bulky charger thinking more solar panels mean faster
charging. But users end up finding it inconvenient to carry.

With Lean Startup:

• Company starts with an MVP of a single-panel charger. Feedback highlights

a balance between size and efficiency. Iterations result in a foldable design
with optimized charging speed.

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Lean Startup – Example

Product: A workout assistant app.

Without Lean Startup:

• Company invests in an app with virtual trainers, dietary plans, and social
features. Upon launch, they find users only engage with the virtual trainers,
leading to wasted development time and resources.

With Lean Startup:

• Company launches an MVP focused solely on the virtual trainer. Feedback

shows high engagement and requests for specific exercise routines. The
company then iterates on this feedback and avoids superfluous features.
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What's the "end" goal?

• Product-Market Fit: when a customer segment demonstrates:

ØStrong demand (e.g. organic growth)

ØHigh satisfaction / low churn

ØHigh engagement (e.g. usage, feature requests)

ØA willingness to pay a sustainable amount

• The key is establishing repeatability. But the target is always moving.

• The MVP helps reduce your risk and reach PM fit as quickly as possible.

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Start with the BMC

• Business Model Canvas: a framework used to break down a business.

• Helps organize assumptions & formulate hypotheses (so you can

prioritize).

• Also helps innovate beyond the product/service.

• Template available on eLearning.

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 Business Model Canvas Challenge Description: Designed by: Date: Version:

KEY PARTNERS KEY ACTIVITIES VALUE PROPOSITION CUSTOMER CUSTOMER SEGMENTS

RELATIONSHIPS

KEY RESOURCES CHANNELS

Internal External
COST STRUCTURE REVENUE STREAM(S)

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The components

• Customer segment(s): Who are you creating value for? Businesses and/or
consumers? What does your ideal customer look like? How do they
behave? How big is the market? Are there adjacent markets?

• Value proposition: Which of your customers' problems are you solving?

What value are you offering? Through what product/service? What are the
key metrics? How are you unique and much better than competitors?

• Channels: How will you reach your customers? Physical (e.g. store, field
sales) and/or digital (e.g. web, mobile)? Social media, blogs, news
publications, search ads, etc? How are other companies reaching them?
Which channels are most effective? Cost-efficient?

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The components

• Customer relationships: How will you build relationships after acquiring

customers? Will they be impersonal and automated (e.g. eCommerce) or more
intimate (e.g. local store)? How will you maintain brand loyalty? Brand
ambassadors, communities, podcasts, etc? How much does it cost?

• Revenue streams: How will you make money? How much will you charge?
What's the pricing structure (e.g. freemium, licensing, subscription, unit sales)?
How much do customers currently pay for similar things?

• Key resources: What assets do you need to create and deliver this value to
customers (e.g. intellectual property, physical assets, offices, inventory,
logistics and supply chain infrastructure, a strong brand, distribution network,
funding, human capital)? Do you need specialized or field-based employees?
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The components

• Key activities: What must you be good at to deliver this value (e.g. designing
and manufacturing goods, shipping reliable software, recruiting contractors,
managing logistics, building memorable customer relationships, marketing,
customer service, establishing corporate partnerships)?

• Key partners: Who must you collaborate with to deliver this value (e.g.
suppliers, resellers, distributors, strategic partners)?

• Cost structure: What are your most important expenses? Which key resource
or activity will be most expensive? Are your major costs fixed (e.g. rent, payroll,
insurance, loans, licenses) or variable (e.g. utilities, raw materials, contract labor,
shipping, commissions, payment processing fees, packaging, manufacturing)?

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Formulating hypotheses

• Everything you add to the canvas is an

assumption (what you think is true).
• Now you can formulate core hypotheses
and design experiments to validate them.
• First, back to Design Thinking:
1. Desirability
2. Viability
3. Feasibility

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 Business Model Canvas Challenge Description: Designed by: Date: Version:

KEY PARTNERS KEY ACTIVITIES VALUE PROPOSITION CUSTOMER CUSTOMERS

RELATIONSHIPS

Feasibility Desirability
KEY RESOURCES CHANNELS

COST STRUCTURE REVENUE STREAM(S)

Viability

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Formulating hypotheses – desirability

• Do customers even want what you're selling?

• Who are those customers?

• Example hypotheses:
ØE-commerce fashion: "Shoppers will desire a virtual dressing room feature where they
can see how clothes look on an avatar that matches their body type."

ØFitness app: "Beginner gym-goers will want a feature in the app that shows animated
exercise demonstrations to ensure they're doing exercises correctly."

ØFood delivery service: "Busy urban professionals will want a premium food delivery
service that guarantees delivery within 20 minutes."

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Formulating hypotheses – desirability

• More example hypotheses:

ØElectric cars: "Potential electric car buyers in cold climates will want a battery that
performs efficiently in sub-zero temperatures."

ØBook subscription service: "Avid readers will prefer a subscription model where they
can rent physical books and have the flexibility to keep them longer if they want to."

ØElderly care technology: "The elderly, living alone, will desire a wearable emergency
alert system that can detect falls and alert emergency services."

ØRemote work software: "Remote teams will want a feature that mimics in-office
whiteboard sessions, allowing real-time collaboration."

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Formulating hypotheses – desirability

• More example hypotheses:

ØSustainable packaging: "Consumers concerned about the environment will prefer
products with compostable packaging even if it comes at a slightly higher price."

ØTravel planning app: "Solo travelers will desire a feature that connects them with local
hosts or tour guides for unique, personalized experiences."

ØEducational game for kids: "Parents will want an in-game dashboard to track their
children's learning progress and areas for improvement."

ØSmart home garden system: "Urban apartment dwellers with limited space will desire
a compact, automated home garden system that can grow fresh herbs and vegetables
year-round without manual watering or sunlight."

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Formulating hypotheses – viability

• Even if there's a need, is it worth finding a solution for?

• What are your expenses and revenue streams? Will you be profitable?

• Example hypotheses:
ØSubscription model: "We believe that consumers will pay $10 per month for premium
features of our app."

ØManufacturing cost: "We hypothesize that we can produce the product under $5 per
unit while maintaining acceptable quality."

ØMarket pricing: "We believe that our target market is willing to pay a 20% premium for
our eco-friendly product over traditional alternatives."

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Formulating hypotheses – viability

• More example hypotheses:

ØSupply chain: "We assume we can reduce production lead times by 15% by sourcing
materials locally."

ØOperational efficiency: "Implementing the proposed software will decrease our

operational costs by 10%."

ØGrowth rate: "By expanding to the European market, we anticipate a 25% growth in
sales within the first year."

ØPartnerships: "Forming a partnership with a major distributor will increase our product
reach by 40%."

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Formulating hypotheses – viability

• More example hypotheses:

ØBreakeven point: "We hypothesize that we will reach our breakeven point after selling
10,000 units."

ØCustomer acquisition: "We believe that by investing in targeted social

media advertising, we can acquire new customers at a cost of $15 per customer."

ØCustomer retention: "By introducing a loyalty program, we assume we can reduce

customer churn by 5%."

ØUp- and cross-selling: "By offering complementary products, we believe 20% of

existing customers will make an additional purchase."

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Formulating hypotheses – feasibility

• Even if there's a need and the finances are promising, can you realistically
build the product/service and execute the business model?
• Do you have the necessary resources and skills? If not, can you get them?

• Example hypotheses:
ØTechnology integration: "We believe we can integrate blockchain technology into our
platform within six months."

ØTool adoption: "Introducing a new project management tool will reduce project
coordination time by 20%."

ØNew feature development: "We hypothesize that developing a voice command feature
for our app is feasible and can be launched within four months."
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Formulating hypotheses – feasibility

• More example hypotheses:

ØData analysis capabilities: "By using machine learning, we assume we can
automatically categorize 90% of our incoming customer inquiries."

ØScale and load: "Our current server infrastructure should support up to 1 million
simultaneous users without performance degradation."

ØImplementation timeline: "Rolling out the proposed software update to all

locations will take no more than three weeks."

ØSystem compatibility: "We believe the new inventory system can be seamlessly
integrated with our existing sales software."

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Formulating hypotheses – feasibility

• More example hypotheses:

ØResource allocation: "Launching the proposed service will require a 15% increase in
our current team size."

ØHardware integration: "We assume that our software can be made compatible with the
latest virtual reality headsets in the market."

ØRegulatory compliance: "We hypothesize that the new product meets all regulatory
standards in our primary markets."

ØMobile expansion: "We hypothesize that our web platform can be adapted into a
mobile app within two months using our existing resources."

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How to build an MVP to validate hypotheses

• Minimum Viable Product: the most basic version of a product that

allows you to learn the most from customers with the least effort.

• How to build an MVP? Ask yourself two questions:

ØWhat is the core value that my product/service offers to customers?

ØWhat is the bare minimum that I need to deliver that value?

• Your MVP will be the intersection of these two answers.

• An MVP does NOT have to be a physical prototype.

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Examples of MVPs – Zappos landing page

• Idea: selling shoes online.

• Risk: buying a ton of potentially

unsellable shoes.

• MVP: a basic web page with

photos of shoes from a local store.

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Examples of MVPs – Dropbox explainer video

• Idea: a file-syncing service.

• Risk: building an entire hardware

infrastructure, apps, APIs, etc.

• MVP: a brief video pretending they

had a working product.

https://www.youtube.com/watch?v=w4eTR7tci6A

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Examples of MVPs – miscellaneous

Idea: an online marketplace connecting artisans with buyers.

• MVP: a Facebook group or Instagram page showcasing products and facilitating
purchases via direct messages.

Idea: a travel website for booking unique experiences.

• MVP: an email newsletter where users receive curated travel deals and book by
replying to the email.

Idea: a fitness training platform that offers personalized workout plans.

• MVP: a Google Form where users input fitness goals and receive a manually curated
workout plan via email.

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Examples of MVPs – miscellaneous

Idea: a recipe sharing platform for discovering new recipes.

• MVP: a simple Trello or Pinterest board where users can post and view recipe cards.

Idea: an eLearning platform that provides skill-based courses.

• MVP: a YouTube channel with initial course videos and a comment section for feedback
and Q&A.

Idea: a community forum that facilitates niche discussions and meetups.

• MVP: a Slack or Discord server with categorized channels for discussions and meetups.

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Examples of MVPs – miscellaneous

Idea: a long-distance ride-sharing app.

• MVP: posting ads in local Slack servers and Facebook groups, then scheduling and
driving customers yourself.

Idea: a marketplace connecting businesses with freelancers.

• MVP: a curated email newsletter or shared spreadsheet that features freelancers and
allows businesses to contact them directly.

Idea: a food delivery service.

• MVP: posting a phone number in local Slack servers and Facebook groups, then
buying and delivering food orders yourself.

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Validating hypotheses with an MVP

• You're now at the "Measure" phase of the Lean Startup process.

• With an MVP, you can deflect false positives by asking for commitments.

• Pick your top 3 hypotheses to focus on.

• The Mom Test still applies.

• Even if you've already validated what the general market cares about, it's
still important to learn about a specific customer's circumstances.

• Don't say "We do X. Want to buy it?"

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Everyone is lying to you

• The Mom Test:

ØTalk about their life – NOT your idea.

ØAsk about past specifics instead of future generics or opinions.

ØTalk less; listen more.

• Leads to questions that even your mom can't lie to you about.

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Signs of a bad meeting

• Ends with a compliment

• Too many hypotheticals

• No clear or timed next steps

• You didn't ask to commit anything of value

ØTime (e.g. scheduling the next meeting with clear goals, starting a product trial)

ØReputation risk (e.g. introducing you to a decision-maker, giving a testimonial)

ØCash (e.g. letter of intent, pre-order, deposit)

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Asking for a commitment

• The more a customer gives up, the more you can trust their validation.

• Always ask and be as specific as possible.

• It is better to be rejected than to never ask.

• If you get rejected, then dig into why.

Ø"Why not now?"

Ø"Is the problem not urgent?"

Ø"What will it take for you / our product to be ready?"

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Examples of commitments

• Time – "Are you willing to join our pilot program for 60 days?"
• Time – "Will you trial this with your team for at least a week?"
• Reputation – "Can you write us a testimonial after the beta test?"
• Reputation – "Can you intro me to your decision-maker / tech team / lawyer?"
• Cash – "Are you willing to sign a letter of intent?"
• Cash – "Are you willing to place a pre-order / deposit now?"
• Cash – "Are you willing to enter your card info now and start paying if you
don't cancel within 30 days?"

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Interpreting the data

• You're now at the "Learn" phase of the Lean Startup process.

• Synthesize your notes to determine how correct your hypotheses are.

Ø Are you targeting the right audience?

Ø Were there unexpected stakeholders?

Ø Do you need to add or remove features?

Ø Does the pricing model make sense?

Ø Are your cost projections accurate?

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Iterating – if your hypotheses were wrong

• Then pivot (i.e. create new hypotheses to test). Common types of pivots:

• Zoom-in: when a certain feature resonates with customers much more than
anticipated. Focus on scaling this feature.

• Zoom-out: when the primary feature is of little interest to customers. Focus

on a different feature.

• Customer segment: when you validate the problem, but for a different
audience than planned. Or you may need to broaden or narrow the audience.

• Customer need: when the problem doesn't matter to customers. Or you

discover a much more painful problem to solve.

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Iterating – if your hypotheses were right

• Then you may be on the right track. Some possible next steps:

• Validate further: reinforce the data by talking to more customers, testing in

different environments, and/or refining your metrics.

• Test new hypotheses: explore other features, markets, strategies, etc.

• Refine your offering: use your existing feedback to optimize your offering.

• Proceed with your plan: set the next goals for product development,
market penetration, and/or other investments. Potentially seek funding.

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Recap

• Lean Startup tests your business model

as quickly and cheaply as possible.

• Use the BMC and an MVP to reduce

risk and iterate to product-market fit.

• Ask good questions, get

commitments, and avoid bad data.

MVP

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 This Semester Eventually

• Is there a burning
desire?
Minimum Minimum
• Is there a viable Product-
Viable Sellable
business model? Market Fit
Product Product
• Is it feasible to execute
the business model?

Assumptions Test Hypotheses Refine Offering Repeatability

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Questions?

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Deadline to drop without a "W"

Sept 6

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Next steps
• This week’s assignment:
Ø Compose Business Model Canvas – Version 1 (due by 9/6 at 3:00pm)
Ø List your key hypotheses based on your BMC
Ø Brainstorm what a reasonable MVP could be for your idea

• Next week’s topics:

Ø Defining market segments
Ø Sizing markets
Ø Evaluating competition

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Sources
• https://visualisesolutions.co.uk/why-the-b-m-l-loop-of-lean-startup-is-misconstrued/
• https://theleanstartup.com/principles
• https://www.interaction-design.org/literature/topics/design-thinking
• https://www.thepowermba.com/en/blog/lean-startup-methodology
• https://blog.crisp.se/2016/01/25/henrikkniberg/making-sense-of-mvp
• Fitzpatrick, R. 2013. The Mom Test. ISBN: 978-1492180746

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