Sell First, Build Later with the Lean Startup: Fundamentals, Tools, Methods and Ten-Steps

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Sell First, Build Later
Lean Startup, Customer Development & Business Model
Istanbul Coders Meetup
19 September 2013
© Copyright 2013 İsmail Berkan

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Who am I?
İsmail BERKAN:
• Startup advisor, mentor and entrepreneur
• Early stage startup specialist
• Management consultant
• International and diverse industry experience
• Total of 18+ years experience:
• 13 years of corporate IT
• 3+ years of management consultancy
• 2+ years of startups
• Computer Science + MBA
© Copyright 2013 İsmail Berkan 19 September 2013

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1: Fundamentals
2: New Toolset for Startups
3: Ten Steps for Tech Startups
Agenda

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1: Fundamentals

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So You Want to be a Millionaire?
1: Fundamentals
19 September 2013

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After all, all
startups feel like
assembling a
plane on the air...
19 September 2013

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Why Build a Startup?
• Change and improve the world
• Build an organization of lasting value
• Make customers’ lives better
1: Fundamentals
19 September 2013

What is a Startup?
"A startup is a temporary organization in
search of a scalable, repeatable, profitable
business model."
2010, Steve Blank
"A startup is a human institution designed to
create a new product or service under
conditions of extreme uncertainty."
2010, Eric Ries
1: Fundamentals
19 September 2013

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STARTUP
=
EXPERIMENT
1: Fundamentals
What is a Startup?
19 September 2013

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Why startups are not small
versions of a large company
1: Fundamentals
19 September 2013

Scalable
Startup
Large
Company
Transition
The Execution of
the Business Model
The Search for
the Business Model
Startups versus Companies
Startups Search Companies Execute
1: Fundamentals
Source: Steve Blank (The Startup Owner's Manual)
19 September 2013

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What's a Startup Idea?
Problem
(Input = Why)
Solution
(Output = What)
Startup idea Solution
1: Fundamentals
19 September 2013
Think
(Process = How)

Are You an Entrepreneur or a Wantrepreneur
Entrepreneur Wantrepreneur
Committed Only Involved
Self-Reliant Dependent
Self Starter Procrastinator
Risk Taker Risk Averse
Highly Optimistic Pessimistic
Lives life with reckless abandon Stays safe and alive
Loves being busy Loves feeling busy
Loves result-based strategies Loves couch-potato strategies
Sees failure as opportunity Sees failure as end of the world
1: Fundamentals

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What’s Your Purpose?
"Purpose acts as a guiding light, it gives you the motivation to work through the tough times.
Importantly it helps you say “No” to stuff."—Tom Holme, IDEO

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Passion
What do you
love to do?
Strengths
What are you
awesomely
good at?
Values
What is
important to
you?
Founder(s) True Purpose
(Destiny)
Business Idea
Do you have a big "why"
for doing this?
What problems do you want to solve?
What people will pay you to do?
Are you willing to commit your next 5 to 10 years on this idea?
Founder / Idea Fit
1: Fundamentals
“Don’t start a company unless it’s an obsession and something you love.”
Mark Cuban
19 September 2013
Happy
Spot

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“Simply put: we don’t build
services to make money;
we make money to build
better services. And we
think this is a good way to
build something.”
Mark Zuckerberg letter to shareholders
Facebook’s Purpose: give people the power to share
and make the world more open and connected.

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Steve Jobs explains the rules for success
Click the link below to watch the video (1m29s)
http://youtu.be/KuNQgln6TL0
1: Fundamentals
19 September 2013
WATCH THE VIDEO
CLICK TO

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"9 out of 10 new products FAIL and
many of those failures are
PREVENTABLE."
Steve Blank
Reality
1: Fundamentals
19 September 2013

90%
LOSERS
100%
WINNERS
Traditional Startup
(talent / guesses based)
Lean Startup
(science / facts based)
You
Normal
People
Average
people
Me
Me
You
Average
people
Normal
People
Bill Gates
Gifted/
Talented
people
Steve Jobs
Marck Zuckerberg
Lucky people
genius
10%
WINNERS
1: Fundamentals
Source: http://LeanSteps.co

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80%
of the software
developed is
being wasted
IAG Consulting, 2008CHAOS Report Standish Group, 2002 & 2006 Source: http://LeanSteps.co
1: Fundamentals
19 September 2013

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"More startups fail from
a lack of customers than from a failure of
product development."
Steve Blank
#1 Startup Risk = Customers
1: Fundamentals
Customer Risk + Market Risk + Product Risk + …
19 September 2013

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The #1 Reason Why Products Fail
It is because we waste time, money, and
effort building the wrong product.
Source: Ash Maurya
1: Fundamentals
19 September 2013

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• New Product Uncertainty:
• Unknown Problem
• Unknown Solution
• Unknown Customer
• The Path to Disaster
• Business model built on untested assumptions
• Market research serves to support your assumptions rather
than validate them
• Scale based on the business plan
• Lack of customers and markets
• Change business at scale (slow and expensive)
• Run out of money
• Poor execution due to lack of right skills
• Flawed business model
• External threats
• and many more…
• A Problem Not Worth Solving
• Building the Wrong Solution
• Can't Get Customers to Pay
• Can't Get Customers Cheaply Enough
More… Why They Fail
1: Fundamentals
19 September 2013

1: Fundamentals
19 September 2013
Steve Blank on Silicon Valley and Failure
http://www.flickr.com/photos/osterwalder/6787544663/
WATCH THE VIDEO
CLICK TO

Most Entrepreneurs Mis-Prioritizing Their Activities
Entrepreneurs are
doing good things, but
not doing them in the
right order. More than
80% of the time
entrepreneurs are
ignoring customer
demand in the right
product mix until after
they have started to
scale their business.
Harvard Business Review, Beating the Odds When You Launch a New Venture by Clark G. Gilbert and Matthew J. Eyring
19 September 2013

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Simple Complex
Source: Kathy Sierra
Featuritis versus The Happy User Peak
19 September 2013

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Techies:
Try it!
Skeptics:
No way!
Visionaries:
Get ahead!
Pragmatists:
Stick with the herd!
Conservatives:
Hold on!
Early Markets Mainstream Markets Late Market
Relative%ofCustomers
1: Fundamentals
The Early Stage "Black Hole"
19 September 2013

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The Five Why's Technique
It helps to determine a root cause of a problem.
This technique was developed as a systematic
problem-solving tool by Taiichi Ohno, the father
of the Toyota Production System.
1: Fundamentals
19 September 2013

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Problem — A new release disabled a feature for customers.
1st Why? — Because a particular server failed.
2nd Why? — Because an obscure subsystem was used in the wrong way.
3rd Why? — The engineer who used it didn’t know how to use it properly.
4th Why? — Because he was never trained.
5th Why? — Because his manager doesn’t believe in training new engineers
because he and his team are “too busy.” (a root cause)
Solution — Management will dedicate time and budget in training new engineers.
What began as a purely technical fault is revealed quickly to be a very
human managerial issue.
Five Why Example
Source: Eric Ries (The Lean Startup)
1: Fundamentals
19 September 2013

1: Fundamentals
19 September 2013
Eric Ries: Entrepreneurship Can Be Learned
http://youtu.be/gJOz6a1JvPs
WATCH THE VIDEO
CLICK TO

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2: New Toolset for
Startups

History of Management Tools
1602 19081700 20121800
The Dutch East India
Company, 1602-
1798. First «modern
company» issued
first stock
certificates.
First MBA
program was
designed in 1908
for big
businesses by
Harvard.
300 years start,
build and grow
without
formally trained
executives.
Formal
management
tools are more
than 100 years
old.
2010
The Lean
Startup –
"Creating
Value"
(2001-2010)
The Dot.com
Bubble –
"Making Money"
(1995-2000)
2000
Source: Adapted from Steve Blank (The Startup Owner's Manual)
19 September 2013

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Get out
of the
building!
Genchi Genbutsu (現地現物)
=
Go and See for Yourself
=
Go to the Source
=
Get out of the Building (GOOB)
&
Talk to People
19 September 2013

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Customer Development Model
Customer
Discovery
Customer
Validation
Company
Building
Customer
Creation
Pivot
Turn hypotheses
into facts
Identify scalable
and repeatable
sales model
Iteration Execute
The Search for a Business The Growth for a Business
Product/Market Fit
19 September 2013

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Hypothesis
Test
Design
ExperimentInsight
The Customer Development Insight Cycle
19 September 2013

A Product is
Customer + Problem + Solution
Don't
Start
Here
Start
Here
19 September 2013

Hypotheses and Assumptions
converting guesses into facts
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Victory is
measured in
learning.
19 September 2013
Source: Luxr.co

19 September 2013
The Customer Development Process
by Steve Blank
http://youtu.be/NXR_O_Hwuws
WATCH THE VIDEO
CLICK TO

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Build.
Measure.
Learn.
19 September 2013

19 September 2013

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+
incremental
releases
make products
customers want
+
reduce waste
Lean Startup
19 September 2013

19 September 2013
The Lean Startup in 150 Seconds
by Joone Studios
http://youtu.be/WAdikBfKeD8
WATCH THE VIDEO
CLICK TO

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STOP
WASTING
PEOPLE’S
TIME & MONEY
19 September 2013
Source: Luxr.co

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What are the Lean Startup Principles?
• Nail it then scale it
• Rapid hypothesis testing about market, pricing,
customers (customers & markets unknown)
• MVP (minimum viable product)
• Low burn by design (no scaling until revenue)
• Metrics, iteration, agile development
• Learn fast (fail fast), pivot or persevere
19 September 2013

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The Startup Build-Measure-Learn Loop
LEARN BUILD
MEASURE
IDEAS
PRODUCT
Minimize TOTAL time through the loop
DATA
IDEAS
• Experiments
• Validated learning
(The Startup
OODA Loop)
19 September 2013

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There’s much more…
IDEAS
PRODUCTDATA
BUILDLEARN
MEASURE
Code Faster
Unit Tests
Usability Tests
Continuous Integration
Incremental Deployment
Free & Open-Source Components
Cloud Computing
Cluster Immune System
Just-in-time Scalability
Refactoring
Developer Sandbox
Minimum Viable Product
Measure Faster
Split Tests
Clear Product Owner
Continuous Deployment
Usability Tests
Real-time Monitoring
Customer Liaison
Learn Faster
Split Tests
Customer Interviews
Customer Development
Five Whys Root Cause Analysis
Customer Advisory Board
Falsifiable Hypotheses
Product Owner Accountability
Customer Archetypes
Cross-functional Teams
Semi-autonomous Teams
Smoke Tests
Funnel Analysis
Cohort Analysis
Net Promoter Score
Search Engine Marketing
Real-Time Alerting
Predictive Monitoring© Copyright 2013 İsmail Berkan
19 September 2013

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What is an Minimum Viable Product
(MVP) ?
"The minimum amount of effort you
have to do to complete exactly one
turn of Build-Measure-Learn
feedback loop."
Eric Ries
19 September 2013

Don’t be misled…
MVP a functioning product
MVP Experiment
(Think: Minimum Viable Experiment)
19 September 2013

The Minimum Viable Product (MVP)
19 September 2013

PRODUCT
Minimum Viable Product and Pareto Principle
MAIN PROBLEMS
(80%)20%
MAIN CAUSES
SMALL
PROBLEMS
(20%)
MVP
"For many events, roughly 80% of the effects
come from 20% of the causes." (Pareto Principle)

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Running Effective Experiments
Source: Ash Maurya (Running Lean)
19 September 2013

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Maximize for Speed, Learning and Focus
Source: Ash Maurya (Running Lean)
19 September 2013

Traditional Product Development
Unit of Progress: Advance to Next Stage
Waterfall Requirements
Specification
Design
Implementation
Verification
Maintenance
Problem: known
Solution: known
19 September 2013
Source: Eric Ries

Product Development at Lean Startup
Unit of Progress: Validated Learning About Customers ($$$)
Problem: unknown
Solution: unknown
Customer Development
Hypotheses,
Experiments,
Insights
Data,
Feedback,
Insights
Agile Development (XP)
19 September 2013
Source: Eric Ries

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Reduce INVENTORY, RISK, and WASTE
19 September 2013

Transition
Scalable Startup
Company
Source: Eric Ries
19 September 2013

Piano Stairs
by TheFunTheory.com
http://youtu.be/2lXh2n0aPyw
WATCH THE VIDEO
CLICK TO

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One-page Business
Model
versus
50-page Business
Plan
19 September 2013

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So, we need a language in
order to talk about your
startup.
19 September 2013

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"No business plan survives first contact with customers."
Steve Blank
"Burn your business plan before it burns you."
Alexander Osterwalder
Business Model versus Business Plan
20 minutes
A single diagram of
your business
Several weeks or months
A document investors make
you write that they don't read
19 September 2013

Capture your vision on a single page business model

Business Model Environment Strategies
19 September 2013

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A step-by-step
blueprint that
puts ideas into
action
19 September 2013
Running Lean is systematic
process for iterating from Plan
A to a plan that works, before
running out of resources.
—Ash Maurya

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PRODUCT MARKET

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The Different Worldviews of a Startup
19 September 2013

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Entrepreneurs
Source: Ash Maurya
19 September 2013

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Customers
Source: Ash Maurya
19 September 2013

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Investors
Source: Ash Maurya
19 September 2013

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Advisors
Source: Ash Maurya
19 September 2013

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3: Ten Steps for
Tech Startups

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Founder/
Idea Fit
Customer/
Problem Fit
Problem/
Solution Fit
Product/
Market Fit
Bus. Model /
Scale Fit
Brainstorming
Idea Evaluation
Purpose
Founder(s)
Founding Team
Lean Canvas
Eco-System
Primary Users
Primary Payers
Target Problem
Customer Interview
Value Proposition
Low -fidelity MVP
Value Proposition
1-Page Sketching
Risky Hypotheses
Lean Experiments
Early Adopters
Blog
Features
Hi-fidelity MVP
Development Team
Mature MVP
Key Metrics
Satisfaction
Brand
Business Model
Revenue
Referrals
Bootstrap
Fund
Team
Product Dev.
Social Media
Promotion
Profit
START INTERVIEW EXPERIMENT SCALEBUILD
FOUNDER / MARKET FIT
Step 1: Understand the Startup Milestones
Source: Adapted from http://LeanSteps.co© Copyright 2013 İsmail Berkan 19 September 2013

The Lean Startup Hill
19 September 2013

Step 2: Brainstorm and Evaluate Ideas
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Step 3: Validate Founder/Idea Fit
• Check if you and team fit with "purpose/idea"
• Be passionate about the idea (love what you do)
• Have the right skills set to do the job
• Other:
 Have the right people on your team who shares the same vision
 Don't try to do it all by yourself
 Dedicate 100% of your/team time to a startup
 No parallel jobs or projects – one startup at a time
 Say no, if you’re not 100% excited
 Get out of your comfort zone
 Understand market and users before building anything
 Learn quickly from customers to build your product
 Get rid of any ego that may damage your startup
 Adopt and use the agile and lean tools
19 September 2013

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Step 4: Solve a Painful Problem
Vitamin
Pain Killer
Addictive Drug
Are we solving a BIG customer problem?
Magnitude of a pain/need
Rateofcustomerdelight
19 September 2013

Pain Pays
"Any big problem is a big opportunity… No one
will pay you to solve a non-problem."
—Vinod Khosla (Kleiner Perkins)
Shark Bite VS. Mosquito Bite
19 September 2013

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What is the problem?
19 September 2013

Understand the Problem and Customer
• Who has the problem?
• What is the top problem/pain?
• How is it solved today?
"Customers don’t care about your solution.
They care about their problems."
Dave McClure, 500 Startups
"Customers don't want software; they
want their problems solved."
Mary Poppendieck
19 September 2013

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Focus on the problems
not the solutions.
Learn early, learn often, and
learn fast!
19 September 2013

19 September 2013
Finding the Problem is the Hard Part
by Kevin Systrom, CEO of Instagram
http://youtu.be/XETaA1b6ep4
WATCH THE VIDEO
CLICK TO

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Step 5: Build a Killer Startup Team
Startups with multiple founders have a greater
chance of success than single-founder startups.
"Great things in business are never done by one
person, they’re done by a team of people."
Steve Jobs
19 September 2013

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The Startup Team: Must Have Skills
Most people are good at one or maybe two of these, but it’s
extremely rare to find someone who can wear all the hats.
The ideal team size is two or three people.
Vision
(Search for the business
model + Customer Dev.)
Sales & Marketing
(Position & Sell it)
Product
(Frame it/define it)
Technology
(Build it)
19 September 2013

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Is your team aligned?
19 September 2013
Source: Andreas Klinger

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Step 6: Create an One-Page Lean Canvas
FILL OUT ALL 9 BOXES OF THE CANVAS IN ORDER 1 THRO 9
19 September 2013

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Step 7: Get Out of the Building (GOOB)
1. Talk to potential customers
2. List your assumptions
3. Test the riskiest ones
4. Design experiments
5. Evaluate results
6. Change plans based on evidence
7. Launch small proof-of-concept products
8. Get a few paying customers
9. Make them really happy
10.Repeat, as needed.
19 September 2013
Source: Adapted from Luxr.co

Some Real
MVP Examples
19 September 2013

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Fake Door MVP

19 September 2013
"How $40 Saved Us 9 Months and $2MM"
by Paul Howe, CEO of Need Feed
https://vimeo.com/24749599
WATCH THE VIDEO
CLICK TO

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Coming Soon Video Explainer MVP
Initial MVP
• Screen flow movie of mockups
• Landing Page – sign up if you are interested
• Posted on Hacker News and Digg
Result: 90,000 Signups in Three Days
19 September 2013

19 September 2013

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Take the photo Email the photo
Concierge and Flinstoning MVP
19 September 2013

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Crowdfunding MVP
19 September 2013

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Collect Email Adresses & Survey MVP
19 September 2013

19 September 2013

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Currency ($) Pitch MVP
19 September 2013

19 September 2013
How to test & validate a startup in 10 weeks
Danbits.com Case Study
http://vimeo.com/64520024
WATCH THE VIDEO
CLICK TO

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Step 8: Pivot or not Pivot
Don’t Let This Happen To You:
• Thinking and accepting pivot as a failure
• Pivoting away from your goals or purpose
• Unwilling to pivot
• Pivot too often and too soon
• Panic at the pivot
"A change in STRATEGY without a change in VISION."
Eric Ries
70% of every startup would possibly pivot
from the initial idea.
19 September 2013

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"I'm not leaving you. I'm pivoting to another man."
19 September 2013

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Fall in love with your customers,
market and business model not with
your product/service.
Step 9: Build the Right Product
“You’ve got to start with the customer
experience and work back toward the
technology – not the other way around.”
Steve Jobs
19 September 2013

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Discover
Your
Business
Model
Problem
Solution
Customer
Segments
Channels
Revenue
Streams
Cost
Structure
Key Metrics
Unfair Advantage
Unique Value
Proposition
19 September 2013

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Step 10: Get Funding
Only ask for funding when you have a:
• Successful customer/problem/solution fit
• Validated product with market
• Pivot successfully at least one time
• Significant traction
• Right team with complementary skills
• Delightful solution to a painful problem
• Scalable and growing market
• Repeatable sales and revenue model
• Clear and profitable business model
• Competitive advantage and it's better than competitors
• Marketing plan on how do you get customers
• Serial entrepreneur experience with successful exit
What do you need from investors:
• How much are you raising and how will you spend the money?
19 September 2013

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Source: Steve Blank
How to Get a VC Meeting
19 September 2013

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Source: Y Combinator

“Successful startups are the ones who
have enough money left over to try their
second idea.”
—Clayton Christensen, Author and Harvard Professor
Change or Fail Fast
19 September 2013

Summary
• Be Honest with Yourself & Discover Truth
• Know Your Purpose & Aim to the Happy Spot
• Get out of Your Comfort Zone
• Be Willing to Search & Discover Your Business Model
• Think Big, Start Small & Act Fast
• Build a Great Team with Complementary Skills
• Be Prepared for the Experiments
• Find a Big Customer Pain or Need
• Always Get out of the Building (GOOB)
• Validate All Unknowns & Assumptions
• Maximize Experiments for Focus, Speed & Learning
• Focus on the Problems & Customers, Not the Solutions
• Nail It, Then Scale It
19 September 2013

• Stay Lean & Agile
• Work on the Business Models not the Business Plans
• Code Faster, Measure Faster, Learn Faster & Succeed Faster
• Learn Early, Learn Often & Learn Fast
• Change (Iterate & Pivot) or Fail Fast & Fail Well
• Learn & Be Ready for the Pivot
• Don’t be Shy to Feel the Pain
• Scale Fast and Smart
• Waste No Time, Money or Resources
• Approach to the Right Investor at the Right Time
• Keep It Simple
• Sell First, Build Later
• Make Something People Passionately Want
Summary (Cont'd.)

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İsmail BERKAN
Email
ismail@ismailberkan.com
Twitter
https://twitter.com/ismailberkan
Linkedin
http://tr.linkedin.com/in/ismailberkan

Sell First, Build Later with the Lean Startup: Fundamentals, Tools, Methods and Ten-Steps

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Sell First, Build Later with the Lean Startup: Fundamentals, Tools, Methods and Ten-Steps