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The search for Product-Market Fit

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Jérôme Kehrli
Jérôme Kehrli

A presentation of the search for Product-Market Fit with the principles, practices and processes that lead to it, from the Lean-Startup and Design Thinking perspective

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1 © Jerome Kehrli @ niceideas.ch The search for Product-Market fit
2 Agenda Introduction – Product Market Fit1 Lean Startup Fundamentals2 Design thinking Fundamentals3 Reaching Product / Market Fit - Different perspectives4 The Measure Obsession5 Conclusion and take Aways6
3 1. Introduction – Product/Market Fit
4 A startup “A startup is a company that's in the initial business stage.” (Most of the time …) “A startup a human institution designed to create a new product or service under conditions of extreme uncertainty” (Eric Ries - Lean Startup) “A startup is a company or project initiated by an entrepreneur to seek, effectively develop, and validate a scalable business model. (Wikipedia)
5 The top reasons why startup fail Most frequently cited reasons for startup failures Source : CB Insights - https://www.statista.com/chart/11690/the-top-reasons-startups-fail/
6 From Product-Market Fit to “Lean Startup” Marc Andreessen (Andy Rachleff) Alex Osterwalder Eric Ries Ash Maurya Steve Blank 2007 2011 2011 2012 2013
7 Rachleff's Laws Rachleff's Law of Startup Success: The #1 company-killer is lack of market. When a great team meets a lousy market, market wins. When a lousy team meets a great market, market wins. When a great team meets a great market, something special happens. The market always wins! Rachleff's Corollary of Startup Success: The only thing that matters is getting to product/market fit. Product/market fit means being in a good market with a product that can satisfy that market. Source : June 25, 2007 / Marc Andreessen - The only thing that matters (blog post)
8 Other definitions … @franciscohmello (Francisco @ Hackernoon): “Product/market fit is when a startup has built a product that can satisfy a market that’s big (has many potential customers) and that easily and intensely buys/uses that product.” Dan Olsen – The Lean Product Playbook “Product-Market fit is that you have build a product that creates significant customer value. This means that your product meets real customer needs and does so in a way that’s better than the alternatives. For some people it goes even beyond and includes having a validated revenue model. For others, it also includes having a cost effective customer acquisition model. I believe Product-Market fit is another way of saying “profitable” glosses over the essential aspects of the idea.”
9 So what is Product-Market Fit ? Viability FeasibilityDesirability PMF A confirmed business model that can make the company real money Large market of people who really need this problem solved A product that you are able to actually build and that properly solved the problem Source : https://medium.com/@briantod/about-product-market-fit-what-ive-learned-about-the-goal-the-process-and-the-nuance-e7b317740f43
10 Another View Source : https://startupdevkit.com/guide-to-product-market-fit-with-everything-you-need-to-know/ Competition How are you different ? Product What do you do best? Demand What are your customers looking for? PMF Market Relevance Market Opportunity Market Fit
11 Being in a good market with a good product. Myths about Product-Market Fit Ben Horowith’s 4 myths about Product Market Fit 1. Product market fit is always a discrete, big bang event 2. It’s patently obvious when you have product market fit 3. Once you achieve product market fit, you can’t lose it. 4. Once you have product-market fit, you don’t have to sweat the competition. Source :https://blog.pmarca.com/2010/03/20/the-revenge-of-the-fat-guy/
12 “Build it and they will come” is a recipe for disaster for most ventures (there are exceptions) A startup is not a scaled-down version of an established company. A new born learning to walk is not a scaled-down version of a marathon runner. A startup fails when its product does not fit into a receptive, enthusiastic, profitable and accessible market segment. Premature scaling during the iterative and empirical search phase most of the time leads to the annihilation of the startup Initial assumptions are always wrong. Only measured and validated learnings count. A first move advantage is a mythical concept and often leads to failure. The path to failure
13 Startups require an iterative and empirical approach to search for Product- Market Fit with a business model to earn the venture’s survival, sustainability and growth. Failing fast and failing early is key to startups When assumptions fail, new assumptions are made and pivots may be performed in an iterative way as long as the sweet spot of Product-Market Fit is not reached. Successful startups first understand and build their customer segment and then only iteratively improve their product features and functions. Collecting direct feedback from the customers is key to test and validate any faulty assumption / hypothesis about the product viability and demand The path to success …
14 More from Marc Andreessen “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. You could eat free for a year at Buck’s." Source : https://hackernoon.com/product-market-fit-heres-why-youre-probably-confused-about-it-1dr73zgd
15 Dan Olsen’s PMF Pyramid Source : https://www.mindtheproduct.com/the-playbook-for-achieving-product-market-fit/ Product-Market Fit UX Feature Set Value Proposition Product: SolutionSpace Underserved needs Target Customer Market: Problem Space
16 Target Customer UX Feature Set Value Proposition Underserved needs A first high-level process Product-Market Fit 1. Identify precisely your target customer 4. Identity the minimum feature set and design your MVP – Minimum Viable Product 5. Implement your MVP 2. Meet your target customer (many of its representatives) and make sure you capture a precise picture of its needs 3. Shape a solution to its needs, design your value proposition and meet your customer again, confirm your solution 6. Meet your customer, test your MVP, confirm your assumptions or adapt and repeat the process.Meet your customers !
17 Searching Product-Market Fit (1/3) Ideas Build Product / Proto. Meas- ure Data Learn Problem -Solution Fit Product -Market Fit Busi- ness Model The Lean Startup perspective Searching Product-market fit is applying the Build-Measure-Learn feedback loop comprehensively throughout the product identification and design lifecycle and the business plan definition to shape a product fulfilling perfectly the customer needs. 1 Customer Discovery 2 Customer Validation 3 Get new Customers 4 Company creation Identify a problem Generate demand Product- Market Fit Design / Implement the Minimum Viable product Re-adapt the product The “Four steps to the Epiphany” perspective (also Lean Startup) Product-market fit is the result of the search phase, when the solution to the customer problem is clearly identified along with its feature set, market potential, business plan, foreseen evolutions, etc.
18 Searching Product-Market Fit (2/3) The “MVP”-centric perspective (somewhat again Lean Startup) For many, searching product-market fit is iterating around a minimum viable product. It is the result of a process centered around the MVP design iterations, when the MVP and what we learned from it enabled to identify the product fulfilling the market needs. Possible products Market 4. Product-Market Fit 2. Value Proposi- tion 3. MVP 1. Target Audience Problem- Solution Fit Product-MarketFit The “Lean Canvas / Value Proposition” perspective (Did I mention Lean Startup ?) For others, Product-market fit happens when you succeeded in designing great value propositions that match your customer needs and jobs-to-be-done and helps solve their problems.
19 Searching Product-Market Fit (3/3) The “Design Thinking” perspective Product-market-fit is what happens when applying successfully Lean-Startup principles to the last design-thinking process stages to reach maturity and the growth stage. Empathize Define Ideate Build Market Fit Prototype / Test Problem Space Solution Space With the people you are designing for Insights and opportunities With idea- generation techniques the idea to make it tangible and to allow user testing Design thinking Lean Startup Different perspectives depending on your culture but all related to Lean Startup in the end which all boils down to the very same thing: “Product-market fit means being in a good market with a product that can satisfy that market” Reaching product-market fit is about finding the good market and designing the product to satisfy it
20 2. Lean Startup Fundamentals
21 Lean Startup Lean Movement (1990) Lean thinking is a business methodology that aims to provide a new way to think about how to organize human activities to deliver more benefits to society and value to individuals while eliminating waste. The aim of lean thinking is to create a lean enterprise, one that sustains growth by aligning customer satisfaction with employee satisfaction, and that offers innovative products or services profitably while minimizing unnecessary over-costs to customers, suppliers and the environment. The Lean Movement finds its roots in Toyotism and values performance, visual management (Kanban) and continuous improvement (Kaizen) Lean Startup (2010) Marc Andreessen (Andy Rachleff) Alex Osterwalder Eric Ries Ash Maurya Steve Blank 2007 2011 2011 2012 2013
22 Key Principles •You don't have to work in a garage to be in a startup. The concept of entrepreneurship includes anyone who works within Eric Ries' definition of a startup : •A startup is a human institution designed to create new products and services under conditions of extreme uncertainty. •That means entrepreneurs are everywhere and the Lean Startup approach can work in any size company, even a very large enterprise, in any sector or industry. Entrepreneurs are everywhere •A startup is an institution, not just a product, and so it requires a new kind of management specifically geared to its context of extreme uncertainty. •In fact, Ries believes "entrepreneur" should be considered a job title in all modern companies that depend on innovation for their future growth Entrepreneurship is management •Startups exist not just to make stuff, make money, or even serve customers. They exist to learn how to build a sustainable business. This learning can be validated scientifically by running frequent experiments that allow entrepreneurs to test each element of their vision. Validated learnings •To improve entrepreneurial outcomes and hold innovators accountable, we need to focus on the boring stuff: how to measure progress, how to set up milestones, and how to prioritize work. This requires a new kind of accounting designed for startups-and the people who hold them accountable. Innovation accounting •The fundamental activity of a startup is to turn ideas into products, measure how customers respond, and then learn whether to pivot or persevere. All successful startup processes should be geared to accelerate that feedback loop. Build-Measure- Learn
23 The feedback loop Ideas Build Prototype / Product Measure Data Learn Select the riskiest assumption or hypothesis Build a Prototype, an MVP, a simple mock-up, a schematic, etc. whatever you can put in front of your customer to test Your assumption of hypothesis on the market Get feedback from the market, test the customer reaction, measure his behaviour during the experience, interview, live test, application usage, etc. whatever is the best way to get data. Understand the feedback and learn if your assumption is confirmed or contradicted, if your hypothesis is valid or wrong. If it is confirmed, move on to the next assumption or hypothesis to be tested. If it is contradicted, review your hypothesis, adapt you plan and come up with something different. A prototype, a Minimum Viable Product, a simple mocked-up application, slides, whatever works and is cheap and fast to build..
24 Four steps to Epiphany: customer development 1 Customer Discovery 2 Customer Validation 3 Get new Customers 4 Company creation Identify a problem Generate demand Before Product-Market Fit (BMPF) Search / Steering Phase (Small funding team) (Startup) After Product-Market Fit (APMF) Execution / Acceleration Phase (Scale the team / formal roles) (Scale-Up) Design / Implement the Minimum Viable product Re-adapt the product Source : Steve Blank (various blog posts) Product- Market Fit Steve Blank studied the inherent patterns empirically validated in successful and failed startups and offers key insights to improve the probability of finding Product-Market Fit
25 Four steps to Epiphany: customer development Problem Solution Fit • State your hypothesis • Test Problem Hypothesis • Test Solution Hypothesis Product Market Fit • Develop Business Model • Develop MVP! • Sell to early adopters • Pivot • Scale Execution • Marketing Roadmap • Position development • Launch • Create demand Scale organization and operations • Sell to mainstream customers • Mission-centric culture • Departments … Identify a problem Design / Implement the Minimum Viable product Generate demand Re-adapt the product Product- Market Fit 1 Customer Discovery 2 Customer Validation 3 Get new Customers 4 Company creation Our focus today
26 A focus on practices 1 Customer Discovery 2 Customer Validation 3 Get new Customers 4 Company creation Identify a problem Generate demand Design / Implement the Minimum Viable product Re-adapt the product Pivot Get out of the Building Problem Interview Solution Interview A/B Testing Measure Obsession Pizza teams Build Vs. Buy Feature Teams Get out of the Building Scaling Agile MVP Fail Fast Growth Hacking Gamification / Viral Marketing ... Pivot Get out of the Building Problem Interview Solution Interview Measure Obsession MVP Fail Fast
27 Steve Blank Pre-Product/Market Fit : “One single good customer development interview is better for learning about your customers / product / problem / solution / market than five surveys with 10,000 statistically significant responses.”
28 Problem Interview
29 Solution Interview
30 The Minimum Viable Product is an engineering product with just the set of features required to gather validated learnings about it - or some of its features / aspects - and its continuous development. The Minimum Viable Product should have just that set of initial features strictly required to have a valid product, usable for its very initial intent, and nothing more. In addition these features should be as minimalist as possible but without compromising the overall User Experience. A car should move, a balloon should be round and bounce, etc. Eric Ries defines the MVP as: "The Minimum Viable Product is that version of a new product a team uses to collect the maximum amount of validated learning about customers with the least effort." MVP (Source : Les pratiques des géants du web / Stephen Perrin – OCTO Technology – http://fr.slideshare.net/sperin/les-pratiques-des-geants-du-web)
31 Minimum and Viable ?
32 MVP
33 Sidenote : Product Design artifacts Source : https://www.slideshare.net/LeanStartupConf/a-playbook-for-achieving-productmarket-fit Hand- Sketch Static Wireframe Mockups Clickable Wireframe Clickable Mockups Interactive Prototype MVP Fidelity Interactivity
34 Fail fast means getting out of planning mode and into testing mode, eventually for every component, every single feature, every idea around your product or model of change and drop things that are not working as fast and cheap as possible. It’s totally OK to fail, as long as you fail fast. Fail fast, Learn faster, Succeed sooner ! So how do you know when to turn, when to drop an approach and adapt your solution? How can you know it's not too soon? Measure, measure, measure of course! (Fail fast ≠Fail often) Fail Fast
35 “A startup pivots when it changes its product to answer a new or different need identified by customer / market feedback in its learning (search) phase” Pivot
36 When the startup changes its product to meet either this new need or the former need in a different way, it is said to have performed a Pivot. A startup can pivot several times during its existence. A pivot is ultimately a change in strategy without a change in vision. It is defined as a structured course correction designed to test a new fundamental hypothesis about the product, business model and engine of growth. Pivot or Persevere
37 Repeat a thousand times: I will never again say “I think that …” but always “I will measure if …” (We’ll come back to this later …) Obsession of measure
38 The Lean Canvas 1 12 3 4 5 5 6 7 MarketProduct
39 Hints and Pitfals Pirates Metrics (by Dave McClures) Awareness (when users know you) Acquisition (when users find you) Activation (users have a first experience) Retention (users come back) Revenue (when you make money) Referral (when users tell others) For new products, the initial battle is about how to get noticed ? How will you get the customer’s attention ? Distinguish between customers and users, customers pay you, users don’t. One of the riskiest item on your canvas ! Start testing from day 1 ! - Social networks - Newsletter - Ads - Friends - Events - SEO - Etc. Early adopters will help you test and refine your product AND BUSINESS MODEL Examples: - Insider Information - Personal authority - A dream team - Existing customers - “Right” celebrity endorsement - Large network effect - Community - SEO ranking - Patents - Core values Calculate your break-even point
40 Lean Startup : test your plan ! Using the "Build - Measure - Learn" diagram, the question then becomes, "What hypotheses should I test?". This is precisely the purpose of the initial Lean Canvas, Test your plan !
41 Problem Solution Fit Problem-SolutionFit
42 Product Market Fit on the Lean Canvas Product-MarketFit
43 The Value Proposition Canvas Describe what a specific customer segment needs to do. It can be tasks they try to do, problems they need to solve or the needs they try to satisfy. It can also be legacy processes or tasks that need to evolve. Also indicate the precise context in which this happens, with its constraints, etc. Describe the benefits your customer expects, desires or would be happily surprised by. This includes functional utility, efficiency, social gains, positive emotions, cost savings, etc. Distinguish improvements from new benefits. Describe negative emotions, difficulties, undesired costs and situations and risks that your customer experiences or could experience before, during or after getting the job done. List all the products and services your value proposition is built around, those that help your customer get a functional, social or emotional job done or satisfy his needs. Products and services can be tangible, digital, financial, etc. Describe how your products and services create customer gains. How do they create the benefits your customer expects, desires and would be surprised by, including functional utility, social gains, positive emotions or cost savings. Describe how your products and services alleviate customer pains. How do they eliminate or reduce negative emotions, undesired costs, situations and risks your customer is experiencing before, during or after getting the job done.
44 3. Design thinking Fundamentals
45 Design Thinking is an iterative process in which we seek to understand the user, challenge assumptions, and redefine problems in an attempt to identify alternative strategies and solutions that might not be instantly apparent with our initial level of understanding (Creative thinking, Outside-the-box thinking, ...), a way of thinking and working, a collection of hands-on methods. Design Thinking revolves around a deep interest in developing an understanding of the people for whom we’re designing the products or services. Experience says customers are not likely to communicate their needs clearly. It’s not how the human brain works. We have a natural tendency to think in terms of solutions. It is based on the assumption that designers’ work processes can help us systematically extract, teach, learn, and apply these human-centered techniques to solve problems in a creative and innovative way Design thinking originated in the late 60's in the development of creative techniques rose significant interest in the 2000s went mainstream in academy and R&D departments in the 2010s Design thinking
46 1. Empathize 2. Define 3. Ideate 4. Prototype 5. Test Design thinking Process Design thinking starts with Empathy and uses collaborative and participatory methods, repeating all 5 steps as many times as needed to achieve a complete solution Observe and listen to the problem or situation without preconception. Make it yours Define and express the problem based on the evidences of the observation Generate as many ideas as possible for potential solutions to the defined problem (brainstorming), then converge. Research and build working examples of ideas. Apply example prototype to original situation or problem
47 Different views Steph Di Russo – Understanding Design Thinking in Complex Environment “This argument is valid, albeit in a very crude form, as it is crude to say that anyone who picks up an instrument is a musician” “It’s talent, mastery and experience that together classifies a professional from an amateur” Tim Brown- IDEO: “Design thinking is for everybody!” Source : https://www.slideshare.net/ChrisJackson43/i-design-think-therefore-i-am-a-uxer
48 1. Empathize 2. Define 3. Ideate 4. Prototype 5. Test Design thinking Framework 1. Empathize Observe and listen to the problem or situation without preconception. Make it yours. - Interviews - Shadowing / “Live my life” sessions - Seek to understand - Non-judgmental 2. Define Define and express the problem based on the evidences of the observation - Personas scenarii - Roles and objectives - Decisions - Challenges - Pain Points - Stakes and assets 5. Test Apply example prototype to original situation or problem - Understand impediments - What works ? - Role Play - Iterate Quickly 3. Ideate Generate as many ideas as possible for potential solutions to the defined problem (brainstorming) - Share ideas - All ideas worthy - Diverge / Converge - “Yes and” thinking - Prioritize 4. prototype Research and build working examples of ideas. - Mockups - Story Board - KISS - Fail fast - Iterate quickly
49 Traditional thinking vs. Design thinking Traditional thinking Design thinking Style Directed Emergent Process Planning of flawless intellect Enlightened trial and error Path to success Avoid failure, secure Fail fast Factor of success Expert Advantage Ignorance advantage Right answers Right questions Rigorous Analysis Rigorous Testing Subject experts Process experts Rituals Presentations and meetings Experiments and experiences Communication Telling Showing Base Headquarters In the field Customer involvement Arm’s length customer research Deep customer immersion Periodic Continuous Activities Thinking and planning Doing
50 Empathize and Define
51 Example Customer I need a faster car Designers (5-whys – Kaizen) Need to go to work faster faster! Designers - Faster Horse? - Faster car? - Faster train? Designers Let’s think outside the box. Where does men travel the fastest? How? No air, no friction! Designers Designers In space! How to do it on earth? Remove friction! Designers
52 Design Thinking is essentially a problem-solving approach specific to design, which involves assessing known aspects of a problem and identifying the more ambiguous or peripheral factors that contribute to the conditions of a problem. It contrasts with a more scientific approach where the concrete and known aspects are tested in order to arrive at a solution. Design Thinking is an iterative process to identify alternative strategies and solutions that might not be instantly apparent with our initial level of understanding. often referred to as ‘outside the box thinking’, as designers are attempting to develop new ways of thinking that do not abide by the dominant or more common problem-solving methods – just like artists do. At the heart of Design Thinking is the intention to improve products by analyzing how users interact with them and investigating the conditions in which they operate. Design Thinking offers a means of digging that bit deeper to uncover ways of improving User eXperiences. Take away
53 4. Reaching Product / Market Fit Back to the Different perspectives
54 Now back to the four perspectives 1. The Lean Startup Perspective 2. The MVP-Centric Perspective 3. The Lean Canvas-Centric Perspective 4. The Design Thinking Perspective Ideas Build Prod-uct Meas-ure Data Learn Problem- Solution Fit1 Customer Discovery 2 Customer Validation PMF Ideas Build Prod-uct Meas-ure Data Learn Business Model Ideas Build Prod-uct Meas-ure Data Learn Product-Market Fit Possible products Market 4. Product-Market Fit 2. Value Proposi-tion 3. MVP 1. Target Audience Problem- Solution Fit Product-Market Fit Empathize Define Ideate Build Market Fit Prototype / Test With the people you are designingfor Insights and opportunities With idea- generation techniques the idea to make it tangible and to allow user testing
55 2.1 – Reaching PMF – The Lean Startup Perspective (1/2) Ideas Build Prod- uct Meas- ure Data Learn Problem -Solution Fit Identify a problem Generate demand Design / Implement the Minimum Viable product 1 Customer Discovery 2 Customer Validation 3 Get new Customers 4 Company creation PMF Re-adapt Ideas Build Prod- uct Meas- ure Data Learn Business Model Ideas Build Prod- uct Meas- ure Data Learn Product- Market Fit The Lean Startup way to product market fit “4-steps to the Epiphany” as a high level process Lower-level process is represented by the Lean-Startup Feedback Loop First Problem-Solution Fit Then Business-Model validation Eventually Product-Market Fit MVP happens late in the process, most assumptions are verified during interviews with mock-ups and prototype (Lean-by-the-book)
56 Customer-centric – Get out of the building / work with your customers Understand your customer’s problem Understand if your solution works for your customer! Understand your market! Little investment up-front – MVP developed at the latest stage, after Problem-Solution Fit Data-driven: make an hypothesis, test it, measure, learn Product-Market Fit is reached when the metrics measured from the MVP confirms it. ADVANTAGES Little investment on MVP, everything remains theoretical before Problem-Solution Fit and Business Model validation – Lean by the book! Only when most assumptions are verified one moves to developing MVP (which requires money!) KEY ASPECTS DRAWBACKS While this approach - working a lot upfront before starting to work on an MVP - is seducing (less investment required), it is also challenging. The first feedback we get from the MVP often challenges a lot the initial assumptions, even though they were validated with customers. This is because users and customers have a strong tendency not to be able to clearly state what they need and want before something concrete us put in front of them 2.1 – Reaching PMF – The Lean Startup Perspective (2/2)
57 2.2 – Reaching PMF – The MVP-Centric Perspective (1/2) Possible products Market 4. Product-Market Fit 2. Value Proposi- tion 3. MVP 1. Target Audience The MVP-Centric approach puts the iterations on MVP at the center of the process Fundamental Idea Jump to the MVP development stage as fast as possible - without neglecting Problem / Solution fit though - and iterate on MVP as long as required to reach PMF Getting IRL – In Real Life – and live as fast as possible to optimize feedback Very relevant approach for online and very wide audience services
58 Some believe that reasoning on a concrete MVP is the best way MVP-centric Build MVP, put it live in real-life and start getting feedback Feedback and metrics collection automation is key A/B Testing / UX Metrics / etc. Significant investment up-front – Need to develop the MVP Problem-Solution fit is not neglected, but shorten as much as possible to reach the more concrete MVP stage faster Product-Market Fit is reached when the metrics measured from the MVP confirms it (as usual) ADVANTAGES People have difficulties reasoning on abstractions and customers have trouble expressing clearly what they need as long as they don’t see anything concrete (the infamous “that’s not what I wanted” Moving AFAP to the MVP enables to address this and get feedback on the real-thing as fast as possible Very well suited for online and wide audience services (e.g. Netflix, Google, Facebook, etc.) KEY ASPECTS DRAWBACKS More up-front investment, need to develop the MVP and put it live Does not apply to all businesses / products - how to develop an MVP in Pharma, Bio-tech or heavy industry? 2.2 – Reaching PMF – The MVP-Centric Perspective (2/2)
59 2.3 – Reaching PMF – The Lean-Canvas Perspective (1/2) Problem-SolutionFit Product-MarketFit The Lean-Canvas centric approach puts a strong emphasis on the theoretical work and customer representatives / market experts interviews instead of the MVP The Lean Canvas and the Value proposition Canvas form a formidable tool to drive researches with customers towards Product- Market fit and discussion with Investors. They sum up the findings and validated assumptions based on theoretical work (such as prototype, academic research, scientific findings, etc.) leads to theoretical product market-fit before actually building anything on the product Developing, evolving and maintaining these canvas is Useful during the search phase for every startup Essential when an MVP is not possible or very expensive. These canvas provide a guiding line for the theoretical search phase. Describe what a specific customer segment needs to do, achieve or needs they need to satisfy. Describe the benefits your customer expects, desires or would be happily surprised by. Describe negative emotions, difficulties, undesired costs and situations and risks that your customer experiences List all the products and services your value proposition is built around Describe how your products and services create customer gains and benefits them. Describe how your products and services alleviate customer pains.
60 2.3 – Reaching PMF – The Lean-Canvas Perspective (2/2) Designing a lean-Canvas, maintaining and evolving it , along with a Value proposition canvas, always makes sense and should always be done to drive the initial assumptions on the Problem solution fit, the Business Model and the Product Market-Fit and their evolutions. But most of the time, coming back over and over again to the Lean Canvas is dropped in favor of iterations around the MVP and it’s predominant usage to capture customer feedback and converge to Product-Market Fit When working with and around the MVP is not possible – heavy industry, Bio-Tech, Pharma, etc. – the lean canvas and its maintenance remains the principal guideline when searching for Product Market Fit Every customer interview, expert consulting, scientific research should lead to evolving the Lean Canvas and the Value Proposition Canvas. The Lean canvas is the Big Picture of the Business Plan leading discussions with investors The Lean canvas is the map to the data points that need to be collected before talking to investors. ADVANTAGES The Lean-Canvas helps create a quick visualization of an idea, share it and get feedback The Value Proposition canvas helps capture how Product Market fit will be reached Sometimes – when working with an MVP is not possible – every single word on these canvas capture an essential assumption that has been verified and that is key to build the eventual product and the company. KEY ASPECTS DRAWBACKS Again, if working with these canvas is important in the initial stage and perhaps at later stage when discussing with potential customers and investors, iterating and evolving these canvas takes a lesser importance in favor of working with an MVP as e move forward in the search phase.
61 2.4 – Reaching PMF – The Design-Thinking Perspective (1/2) Empathize Define Ideate Build Market Fit Prototype / Test Problem Space Solution Space With the people you are designing for Insights and opportunities With idea- generation techniques the idea to make it tangible and to allow user testing Design thinking Lean Startup The Design-Thinking Perspective is actually a way to structure and formalize the Problem-solving approach in the search phase. There’s some overlap between Lean Startup and Design Thinking Design thinking emphasizes on Problem / Solution Fit, MVP design and UX as ultimate results from a Design perspective, while Lean Startup focuses on reaching Product Market Fit before scaling. Both are very complementary! The design thinking process is a very good fit for the Lean-Startup Search Phase Lean Startup doesn’t give much processes and tools on how to get to Problem / Solution Fit (aside from some general principles, Get out of the building, Problem / Solution interview, etc.), how to design the MVP, etc. This is where Design thinking kicks in Applying the Design-thinking process to the required brainstorming in the Lean-Startup search phase is a striking fit.
62 2.4 – Reaching PMF – The Design-Thinking Perspective (2/2) Lean-Startup insists on the need to reach Problem Solution Fit, a working Business Model and eventually Product Market fit and gives principles and practices to it (Get out of the Building, Converge to MVP, Lean Canvas, etc.). But Lean startup doesn’t give much recipe for how to conduct brainstorming, how to search for solution, how to design the MVP, etc. Here comes Design thinking! The Design thinking process can be applied every time a solution to a problem, a design job or simply a brainstorming exercise has to be performed in the search phase … or after. Design thinking and Lean Startup share some genes (getting feedback, iterate, etc.), but they are rather very much complementary with each other. ADVANTAGES Helps structuring the search for solutions to various problems and aspects in the search phase Problem-Solution fit (striking application for the design thinking process) MVP Design Commercial and marketing issues Very much relevant only when a lot of thoughts need to be put in the design of the product or the search for a solution to the customer problem. KEY ASPECTS DRAWBACKS When the solution is clear after the sets of interviews with key customers, or on the contrary when searching for a solution requires a lot of scientific research, Design thinking is out of scope. If the solution is crystal clear, a structured brainstorming process such as design thinking is not required. If the solution requires a lot of scientific research, design thinking is not of a great help
63 5. The Measure Obsession
64 “In god we trust, all others must bring data “ (Source : Les pratiques des géants du web / Stephen Perrin – OCTO Technology – http://fr.slideshare.net/sperin/les-pratiques-des-geants-du-web)
65 Honestly there is no magic silver bullet and it can in fact be pretty difficult to pick up the right metric that would be most helpful to validate a certain hypothesis. However, metrics should at all cost respect the three A's. Good metrics are actionable, can be audited are accessible An actionable metric is one that ties specific and repeatable actions to observed results. The actionable property of picked up metrics is important since it prevents the entrepreneur from distorting the reality to his own vision. We speak of Actionable vs. Vanity Metrics. Meaningless metrics such as "How many visitors ?", "How many followers ?" are vanity metrics and are useless. Ultimately, your metrics should be useful to measure progress against your own questions. How to choose good metrics ?
66 Some examples 1. NPS - Net Promoter Score 2. CLV to CAC Ratio 3. Retention Ratio 4. Growth Rate There are many others! (Hint : search for “Pirate Metrics” by Dave McClure) Metrics Proposal Product- Market Fit
67 Net Promoter Score, or NPS, is a metric that has become a standard for measuring customer loyalty and satisfaction by many companies. Built on the power of one simple question — how likely is it that you would recommend your product to a friend or colleague? it’s now used by companies of all sizes in virtually every industry all over the world. While NPS is a good leading indicator of business growth, it can also be a vanity metric if used alone without looking at the context of why your customers would recommend (or not recommend) your product. If your company is committed to measuring NPS, here’s a tip that you can use to understand the ‘why’ behind your NPS score and potentially increase it. Follow up the standard NPS question with one additional question, “What would it take for you to recommend my product to someone you know?”, and target the people who are not your promoters, which means they rated their likelihood to recommend your product an 8 or lower. You can then analyze those open-ended responses to identify key trends in the data. Net Promoter Score (1/2)
68 Net Promoter Score (2/2) Source : https://www.netigate.net/articles/customer-satisfaction/nps-ultimate-guide-to-net-promoter-score/ Net Promoter Score = % Promoters - % Detractors Rule of thumb: - A positive value is OK - A value above 20% is what you want to reach - A value above 50% is extremely good
69 CAC - Customer Acquisition Costs - is the figure representing what it cost to your company in average to acquire a new customer. It’s the total cost of converting a prospect or convincing a potential customer to become an actual customer. It’s the total cost devoted to your sales and marketing effort – cross department, domains and worldwide. 𝐶𝐴𝐶 = 𝑆𝑎𝑙𝑒𝑠 𝑎𝑛𝑑 𝑚𝑎𝑟𝑘𝑒𝑡𝑖𝑛𝑔 𝑠𝑎𝑙𝑎𝑟𝑦 + 𝑀𝑎𝑟𝑘𝑒𝑡𝑖𝑛𝑔 𝑇𝑜𝑜𝑙𝑠 𝑐𝑜𝑠𝑡 + 𝐶𝑎𝑚𝑝𝑎𝑖𝑔𝑛𝑠 + … 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑁𝑒𝑤 𝐶𝑢𝑠𝑡𝑜𝑚𝑒𝑟𝑠 #over average customer lifetime period CLV – Customer Lifetime Value (or LTV in the literature) - is the figure representing how much money you make in average with one of your customer. CLV is more difficult to compute and not formula working out of the box can be expressed easily since one need to account upselling, sales model such as subscriptions vs. one time license, etc. One can however simplify it by considering incomes only incomes from new customers 𝐶𝐿𝑉 = 𝑇𝑜𝑡𝑎𝑙 𝐼𝑛𝑐𝑜𝑚𝑒 𝑓𝑟𝑜𝑚 𝑛𝑒𝑤 𝐶𝑢𝑠𝑡𝑜𝑚𝑒𝑟𝑠 ∗𝐺𝑟𝑜𝑠𝑠 𝑝𝑟𝑜𝑓𝑖𝑡 𝑚𝑎𝑟𝑔𝑖𝑛 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑁𝑒𝑤 𝐶𝑢𝑠𝑡𝑜𝑚𝑒𝑟𝑠 #over average customer lifetime period The CLV to CAC ratio gives you an indication of how much your business is profitable. The metric is computed by dividing LTV by CAC. It is a signal of customer profitability, and of sales and marketing efficiency. CLV to CAC ratio (1/2)
70 CLV to CAC ratio (2/2) Mike Volpe, former CMO, Hubspot Strong B2B companies in their growth stage should have an CLV/CAC ratio of 3-5. Jordan McBride, Marketing Manager, Price Intelligently The best rule of thumb is spending 33% or less of your customer’s lifetime value. Sources : https://www.klipfolio.com/resources/kpi-examples/saas/customer-lifetime-value-to-customer-acquisition-cost https://www.forentrepreneurs.com/startup-killer/
71 Acquisition isn't the whole answer. Retention is even more important! Definitions: N-Day Retention: The proportion of users who come back on the ‘Nth’ day after first use. Retention Curve: A line graph depicting the average percentage of active users for each day within a specified timeframe. At a high level, retention is a measure of how many users return to your product over time. It is the mathematical inverse of the customer churn (which can be another metric) “The point is, every improvement that you make to retention also improves all of these other things—virality, LTV, payback period. It is literally the foundation to all of growth, and that’s really why retention is the king.” - Brian Balfour, former VP Growth, Hubspot & Co-founder, Reforge A good way of visualizing retention rate is by plotting a retention curve: Retention can actually indicate if you have a product-market fit problem; if you plot out your retention numbers as a percentage of active users over time and you have a flat line that reaches zero instead of a curve that stabilizes—you need to solve a product-market fit problem, not a retention problem. Retention Ratio / Curve (1/2)
72 Retention Ratio / Curve (2/2) Source : https://amplitude.com/mastering-retention/why-care-about-user-retention
73 The Growth Rate is the rate at which your business is growing. Measuring the growth rate is tricky since Imagine a situation where the growth would be 10% monthly, composed by 40% new customers every months and 30% customers leaving or stopping to use the product In such a situation, even though the monthly growth seems interesting, the company is actually losing all its customers every 3 months! Under such conditions, the survival of the company is almost impossible after the hype effect passes. Growth Rate (1/2) Sources : https://tribecap.co/a-quantitative-approach-to-product-market-fit/ https://www.lightercapital.com/blog/how-to-establish-product-market-fit/ For this reason, the growth rate metrics needs to account the ability of the company to retain its customers, the churn rate, etc. This makes the growth rate computation a quite complicated metric to compute.
74 Growth accounting framework Working with Compound Monthly Growth Rate over past X months More information: https://tribecap.co/a-quantitative-approach-to-product-market-fit/ Product Market Fit is confirmed when these indicators – the cmgr3, cmgr6 and cmgr12 go up consistently Growth Rate (2/2)
75 6. Conclusion and take Aways
76 So there is a recipe for success. Entrepreneurship has a magic power, it triggers positive energies and it leaves people with an irresistible willingness to start doing things. However, all these positive energies can very easily become negative when they are not channeled in the correct direction. And by negative we mean: having quit a day job, having spent most of our savings, having re-mortgaged the house and ultimately having trouble explaining to our life partner, family and friends why we have done all of that and we still haven’t been able to succeed. That’s awful. Luckily there is a process that we can follow, developed after having worked with hundreds of entrepreneurs. Instead of starting to develop a product and hiring people immediately, these are the questions that we need to answer in order to build and launch a product that customers need and for which there is market demand: Which problem are we going to solve? Who has the problem in our market? Who are the early adopters? What is the value proposition able to satisfy their needs? How much are they willing to pay for it? What is the minimum set of features required for launch? The way to answer most of these questions is to engage with customers from the very early stage of a new business idea, get to know them profoundly, create a value proposition based on the insights captured that relies on the company’s key strengths to create a competitive advantage customers care about, and test and iterate that proposition on the market until we reach Product-Market Fit. Take Aways (1/2)
77 Most of this can be done before investing any substantial resource into the business, and that’s really the best thing about Lean Startup methodology. The most difficult thing is to resist from the instinct to jump into “build mode”. Instead, we invest some time to de-risk an idea before investing heavily in it. Everyone is in love with their idea, and the last thing we want to know is that it’s not a good one. But the sooner we realize an idea is flawed – i.e. there is no market need for it – the better it is. In terms of practical steps, this is a possible process to validate a new business idea and achieve product-market fit: 1. Compile a lean canvas to have clarity of a business idea (with Value Proposition Canvas) 2. Identify the riskiest assumptions for the business idea. Hint: usually these are the ones around target segment, problems and market size. 3. (Problem Interview) Conduct a round of qualitative interviews with target customers, to understand if they have the problem, how big it is, and what they currently do to solve it. 4. Run a collaborative workshop with the entire team to refine the value proposition based on customer insights collected so far. This is how disruptive ideas are generated! 5. Prepare a cheap and quick form of a prototype. 6. (Solution Interview) Conduct another round of qualitative interviews with target customers, to understand if the solution prepared solves the problem and if they are willing to pay for it. At this stage it is mandatory to attempt to get a commitment from them. 7. Iterate the solution, and conduct new interviews if they didn’t commit already. 8. (MVP) When we get enough commitment, we define a MVP (Minimum Viable Product) and start proper development (when an MVP is not possible – heavy industry, pharma, etc. – we conduct additional confirmation research and engage with more potential customers) 9. Put MVP on the market, collect feedback on MVP and evolve / adapt / pivot as required until reaching Product-Market-Fit Take Aways (2/2)
78 The Innovator's Dilemma? A new solution achieves PMF, and manages to capture the lion's share of the market. They become the dominant player, and stay that way, until new technology appears and supersedes their solution. By failing to stay ahead of changing technology, the incumbent company loses market share to a smaller, disruptive business, who in turn, go on to dominate the market. Rinse and repeat. In this narrative, the market for a product evolved over time, and the definition of Product/Market Fit changed with it. As a result of developing technology, a solution that fits the market in the here-and-now might not fit the same market in the future. PMF is like an ongoing health check for your business, allowing you to periodically test the key assumptions that underpin your business: Does the problem we solve still exist? Is the problem important enough? Is the market for our product still a 'good' market? An on-going health check
79 DevOps / Lean Startup / Agiliy– why are these important ? Maturity/Difficulty Agile Development (e.g. Scrum) DevOps Lean Startup Company-wide Kanban Scaling Agile / Agile corporation eXtreme Programming (XP) Practices Digital Company Dependency
80 Old School Product Management Report to: Marketing Output: Requirements / Specifications Methodology: Waterfall Product Lifecycles: Years Decision Making: Opinion Driven Modern Product Management Report to: CEO Output: Design, Prototype, UX Methodology: Agile Product Lifecycles: Weeks Decision Making: Data Driven Modern Product Management Source : https://www.slideshare.net/bussgang/product-management-101-the-search-for-productmarket-fit
81 TheperiodictableofAgilePrinciples andPractices The Periodic Table of Agile Principles and Practices https://www.niceideas.ch/roller2/badtrash/entry/periodic-table-of-agile-principles
82 Thanks for listening

More Related Content

The search for Product-Market Fit

  • 1. 1 © Jerome Kehrli @ niceideas.ch The search for Product-Market fit
  • 2. 2 Agenda Introduction – Product Market Fit1 Lean Startup Fundamentals2 Design thinking Fundamentals3 Reaching Product / Market Fit - Different perspectives4 The Measure Obsession5 Conclusion and take Aways6
  • 3. 3 1. Introduction – Product/Market Fit
  • 4. 4 A startup “A startup is a company that's in the initial business stage.” (Most of the time …) “A startup a human institution designed to create a new product or service under conditions of extreme uncertainty” (Eric Ries - Lean Startup) “A startup is a company or project initiated by an entrepreneur to seek, effectively develop, and validate a scalable business model. (Wikipedia)
  • 5. 5 The top reasons why startup fail Most frequently cited reasons for startup failures Source : CB Insights - https://www.statista.com/chart/11690/the-top-reasons-startups-fail/
  • 6. 6 From Product-Market Fit to “Lean Startup” Marc Andreessen (Andy Rachleff) Alex Osterwalder Eric Ries Ash Maurya Steve Blank 2007 2011 2011 2012 2013
  • 7. 7 Rachleff's Laws Rachleff's Law of Startup Success: The #1 company-killer is lack of market. When a great team meets a lousy market, market wins. When a lousy team meets a great market, market wins. When a great team meets a great market, something special happens. The market always wins! Rachleff's Corollary of Startup Success: The only thing that matters is getting to product/market fit. Product/market fit means being in a good market with a product that can satisfy that market. Source : June 25, 2007 / Marc Andreessen - The only thing that matters (blog post)
  • 8. 8 Other definitions … @franciscohmello (Francisco @ Hackernoon): “Product/market fit is when a startup has built a product that can satisfy a market that’s big (has many potential customers) and that easily and intensely buys/uses that product.” Dan Olsen – The Lean Product Playbook “Product-Market fit is that you have build a product that creates significant customer value. This means that your product meets real customer needs and does so in a way that’s better than the alternatives. For some people it goes even beyond and includes having a validated revenue model. For others, it also includes having a cost effective customer acquisition model. I believe Product-Market fit is another way of saying “profitable” glosses over the essential aspects of the idea.”
  • 9. 9 So what is Product-Market Fit ? Viability FeasibilityDesirability PMF A confirmed business model that can make the company real money Large market of people who really need this problem solved A product that you are able to actually build and that properly solved the problem Source : https://medium.com/@briantod/about-product-market-fit-what-ive-learned-about-the-goal-the-process-and-the-nuance-e7b317740f43
  • 10. 10 Another View Source : https://startupdevkit.com/guide-to-product-market-fit-with-everything-you-need-to-know/ Competition How are you different ? Product What do you do best? Demand What are your customers looking for? PMF Market Relevance Market Opportunity Market Fit
  • 11. 11 Being in a good market with a good product. Myths about Product-Market Fit Ben Horowith’s 4 myths about Product Market Fit 1. Product market fit is always a discrete, big bang event 2. It’s patently obvious when you have product market fit 3. Once you achieve product market fit, you can’t lose it. 4. Once you have product-market fit, you don’t have to sweat the competition. Source :https://blog.pmarca.com/2010/03/20/the-revenge-of-the-fat-guy/
  • 12. 12 “Build it and they will come” is a recipe for disaster for most ventures (there are exceptions) A startup is not a scaled-down version of an established company. A new born learning to walk is not a scaled-down version of a marathon runner. A startup fails when its product does not fit into a receptive, enthusiastic, profitable and accessible market segment. Premature scaling during the iterative and empirical search phase most of the time leads to the annihilation of the startup Initial assumptions are always wrong. Only measured and validated learnings count. A first move advantage is a mythical concept and often leads to failure. The path to failure
  • 13. 13 Startups require an iterative and empirical approach to search for Product- Market Fit with a business model to earn the venture’s survival, sustainability and growth. Failing fast and failing early is key to startups When assumptions fail, new assumptions are made and pivots may be performed in an iterative way as long as the sweet spot of Product-Market Fit is not reached. Successful startups first understand and build their customer segment and then only iteratively improve their product features and functions. Collecting direct feedback from the customers is key to test and validate any faulty assumption / hypothesis about the product viability and demand The path to success …
  • 14. 14 More from Marc Andreessen “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. You could eat free for a year at Buck’s." Source : https://hackernoon.com/product-market-fit-heres-why-youre-probably-confused-about-it-1dr73zgd
  • 15. 15 Dan Olsen’s PMF Pyramid Source : https://www.mindtheproduct.com/the-playbook-for-achieving-product-market-fit/ Product-Market Fit UX Feature Set Value Proposition Product: SolutionSpace Underserved needs Target Customer Market: Problem Space
  • 16. 16 Target Customer UX Feature Set Value Proposition Underserved needs A first high-level process Product-Market Fit 1. Identify precisely your target customer 4. Identity the minimum feature set and design your MVP – Minimum Viable Product 5. Implement your MVP 2. Meet your target customer (many of its representatives) and make sure you capture a precise picture of its needs 3. Shape a solution to its needs, design your value proposition and meet your customer again, confirm your solution 6. Meet your customer, test your MVP, confirm your assumptions or adapt and repeat the process.Meet your customers !
  • 17. 17 Searching Product-Market Fit (1/3) Ideas Build Product / Proto. Meas- ure Data Learn Problem -Solution Fit Product -Market Fit Busi- ness Model The Lean Startup perspective Searching Product-market fit is applying the Build-Measure-Learn feedback loop comprehensively throughout the product identification and design lifecycle and the business plan definition to shape a product fulfilling perfectly the customer needs. 1 Customer Discovery 2 Customer Validation 3 Get new Customers 4 Company creation Identify a problem Generate demand Product- Market Fit Design / Implement the Minimum Viable product Re-adapt the product The “Four steps to the Epiphany” perspective (also Lean Startup) Product-market fit is the result of the search phase, when the solution to the customer problem is clearly identified along with its feature set, market potential, business plan, foreseen evolutions, etc.
  • 18. 18 Searching Product-Market Fit (2/3) The “MVP”-centric perspective (somewhat again Lean Startup) For many, searching product-market fit is iterating around a minimum viable product. It is the result of a process centered around the MVP design iterations, when the MVP and what we learned from it enabled to identify the product fulfilling the market needs. Possible products Market 4. Product-Market Fit 2. Value Proposi- tion 3. MVP 1. Target Audience Problem- Solution Fit Product-MarketFit The “Lean Canvas / Value Proposition” perspective (Did I mention Lean Startup ?) For others, Product-market fit happens when you succeeded in designing great value propositions that match your customer needs and jobs-to-be-done and helps solve their problems.
  • 19. 19 Searching Product-Market Fit (3/3) The “Design Thinking” perspective Product-market-fit is what happens when applying successfully Lean-Startup principles to the last design-thinking process stages to reach maturity and the growth stage. Empathize Define Ideate Build Market Fit Prototype / Test Problem Space Solution Space With the people you are designing for Insights and opportunities With idea- generation techniques the idea to make it tangible and to allow user testing Design thinking Lean Startup Different perspectives depending on your culture but all related to Lean Startup in the end which all boils down to the very same thing: “Product-market fit means being in a good market with a product that can satisfy that market” Reaching product-market fit is about finding the good market and designing the product to satisfy it
  • 20. 20 2. Lean Startup Fundamentals
  • 21. 21 Lean Startup Lean Movement (1990) Lean thinking is a business methodology that aims to provide a new way to think about how to organize human activities to deliver more benefits to society and value to individuals while eliminating waste. The aim of lean thinking is to create a lean enterprise, one that sustains growth by aligning customer satisfaction with employee satisfaction, and that offers innovative products or services profitably while minimizing unnecessary over-costs to customers, suppliers and the environment. The Lean Movement finds its roots in Toyotism and values performance, visual management (Kanban) and continuous improvement (Kaizen) Lean Startup (2010) Marc Andreessen (Andy Rachleff) Alex Osterwalder Eric Ries Ash Maurya Steve Blank 2007 2011 2011 2012 2013
  • 22. 22 Key Principles •You don't have to work in a garage to be in a startup. The concept of entrepreneurship includes anyone who works within Eric Ries' definition of a startup : •A startup is a human institution designed to create new products and services under conditions of extreme uncertainty. •That means entrepreneurs are everywhere and the Lean Startup approach can work in any size company, even a very large enterprise, in any sector or industry. Entrepreneurs are everywhere •A startup is an institution, not just a product, and so it requires a new kind of management specifically geared to its context of extreme uncertainty. •In fact, Ries believes "entrepreneur" should be considered a job title in all modern companies that depend on innovation for their future growth Entrepreneurship is management •Startups exist not just to make stuff, make money, or even serve customers. They exist to learn how to build a sustainable business. This learning can be validated scientifically by running frequent experiments that allow entrepreneurs to test each element of their vision. Validated learnings •To improve entrepreneurial outcomes and hold innovators accountable, we need to focus on the boring stuff: how to measure progress, how to set up milestones, and how to prioritize work. This requires a new kind of accounting designed for startups-and the people who hold them accountable. Innovation accounting •The fundamental activity of a startup is to turn ideas into products, measure how customers respond, and then learn whether to pivot or persevere. All successful startup processes should be geared to accelerate that feedback loop. Build-Measure- Learn
  • 23. 23 The feedback loop Ideas Build Prototype / Product Measure Data Learn Select the riskiest assumption or hypothesis Build a Prototype, an MVP, a simple mock-up, a schematic, etc. whatever you can put in front of your customer to test Your assumption of hypothesis on the market Get feedback from the market, test the customer reaction, measure his behaviour during the experience, interview, live test, application usage, etc. whatever is the best way to get data. Understand the feedback and learn if your assumption is confirmed or contradicted, if your hypothesis is valid or wrong. If it is confirmed, move on to the next assumption or hypothesis to be tested. If it is contradicted, review your hypothesis, adapt you plan and come up with something different. A prototype, a Minimum Viable Product, a simple mocked-up application, slides, whatever works and is cheap and fast to build..
  • 24. 24 Four steps to Epiphany: customer development 1 Customer Discovery 2 Customer Validation 3 Get new Customers 4 Company creation Identify a problem Generate demand Before Product-Market Fit (BMPF) Search / Steering Phase (Small funding team) (Startup) After Product-Market Fit (APMF) Execution / Acceleration Phase (Scale the team / formal roles) (Scale-Up) Design / Implement the Minimum Viable product Re-adapt the product Source : Steve Blank (various blog posts) Product- Market Fit Steve Blank studied the inherent patterns empirically validated in successful and failed startups and offers key insights to improve the probability of finding Product-Market Fit
  • 25. 25 Four steps to Epiphany: customer development Problem Solution Fit • State your hypothesis • Test Problem Hypothesis • Test Solution Hypothesis Product Market Fit • Develop Business Model • Develop MVP! • Sell to early adopters • Pivot • Scale Execution • Marketing Roadmap • Position development • Launch • Create demand Scale organization and operations • Sell to mainstream customers • Mission-centric culture • Departments … Identify a problem Design / Implement the Minimum Viable product Generate demand Re-adapt the product Product- Market Fit 1 Customer Discovery 2 Customer Validation 3 Get new Customers 4 Company creation Our focus today
  • 26. 26 A focus on practices 1 Customer Discovery 2 Customer Validation 3 Get new Customers 4 Company creation Identify a problem Generate demand Design / Implement the Minimum Viable product Re-adapt the product Pivot Get out of the Building Problem Interview Solution Interview A/B Testing Measure Obsession Pizza teams Build Vs. Buy Feature Teams Get out of the Building Scaling Agile MVP Fail Fast Growth Hacking Gamification / Viral Marketing ... Pivot Get out of the Building Problem Interview Solution Interview Measure Obsession MVP Fail Fast
  • 27. 27 Steve Blank Pre-Product/Market Fit : “One single good customer development interview is better for learning about your customers / product / problem / solution / market than five surveys with 10,000 statistically significant responses.”
  • 30. 30 The Minimum Viable Product is an engineering product with just the set of features required to gather validated learnings about it - or some of its features / aspects - and its continuous development. The Minimum Viable Product should have just that set of initial features strictly required to have a valid product, usable for its very initial intent, and nothing more. In addition these features should be as minimalist as possible but without compromising the overall User Experience. A car should move, a balloon should be round and bounce, etc. Eric Ries defines the MVP as: "The Minimum Viable Product is that version of a new product a team uses to collect the maximum amount of validated learning about customers with the least effort." MVP (Source : Les pratiques des géants du web / Stephen Perrin – OCTO Technology – http://fr.slideshare.net/sperin/les-pratiques-des-geants-du-web)
  • 33. 33 Sidenote : Product Design artifacts Source : https://www.slideshare.net/LeanStartupConf/a-playbook-for-achieving-productmarket-fit Hand- Sketch Static Wireframe Mockups Clickable Wireframe Clickable Mockups Interactive Prototype MVP Fidelity Interactivity
  • 34. 34 Fail fast means getting out of planning mode and into testing mode, eventually for every component, every single feature, every idea around your product or model of change and drop things that are not working as fast and cheap as possible. It’s totally OK to fail, as long as you fail fast. Fail fast, Learn faster, Succeed sooner ! So how do you know when to turn, when to drop an approach and adapt your solution? How can you know it's not too soon? Measure, measure, measure of course! (Fail fast ≠Fail often) Fail Fast
  • 35. 35 “A startup pivots when it changes its product to answer a new or different need identified by customer / market feedback in its learning (search) phase” Pivot
  • 36. 36 When the startup changes its product to meet either this new need or the former need in a different way, it is said to have performed a Pivot. A startup can pivot several times during its existence. A pivot is ultimately a change in strategy without a change in vision. It is defined as a structured course correction designed to test a new fundamental hypothesis about the product, business model and engine of growth. Pivot or Persevere
  • 37. 37 Repeat a thousand times: I will never again say “I think that …” but always “I will measure if …” (We’ll come back to this later …) Obsession of measure
  • 38. 38 The Lean Canvas 1 12 3 4 5 5 6 7 MarketProduct
  • 39. 39 Hints and Pitfals Pirates Metrics (by Dave McClures) Awareness (when users know you) Acquisition (when users find you) Activation (users have a first experience) Retention (users come back) Revenue (when you make money) Referral (when users tell others) For new products, the initial battle is about how to get noticed ? How will you get the customer’s attention ? Distinguish between customers and users, customers pay you, users don’t. One of the riskiest item on your canvas ! Start testing from day 1 ! - Social networks - Newsletter - Ads - Friends - Events - SEO - Etc. Early adopters will help you test and refine your product AND BUSINESS MODEL Examples: - Insider Information - Personal authority - A dream team - Existing customers - “Right” celebrity endorsement - Large network effect - Community - SEO ranking - Patents - Core values Calculate your break-even point
  • 40. 40 Lean Startup : test your plan ! Using the "Build - Measure - Learn" diagram, the question then becomes, "What hypotheses should I test?". This is precisely the purpose of the initial Lean Canvas, Test your plan !
  • 42. 42 Product Market Fit on the Lean Canvas Product-MarketFit
  • 43. 43 The Value Proposition Canvas Describe what a specific customer segment needs to do. It can be tasks they try to do, problems they need to solve or the needs they try to satisfy. It can also be legacy processes or tasks that need to evolve. Also indicate the precise context in which this happens, with its constraints, etc. Describe the benefits your customer expects, desires or would be happily surprised by. This includes functional utility, efficiency, social gains, positive emotions, cost savings, etc. Distinguish improvements from new benefits. Describe negative emotions, difficulties, undesired costs and situations and risks that your customer experiences or could experience before, during or after getting the job done. List all the products and services your value proposition is built around, those that help your customer get a functional, social or emotional job done or satisfy his needs. Products and services can be tangible, digital, financial, etc. Describe how your products and services create customer gains. How do they create the benefits your customer expects, desires and would be surprised by, including functional utility, social gains, positive emotions or cost savings. Describe how your products and services alleviate customer pains. How do they eliminate or reduce negative emotions, undesired costs, situations and risks your customer is experiencing before, during or after getting the job done.
  • 44. 44 3. Design thinking Fundamentals
  • 45. 45 Design Thinking is an iterative process in which we seek to understand the user, challenge assumptions, and redefine problems in an attempt to identify alternative strategies and solutions that might not be instantly apparent with our initial level of understanding (Creative thinking, Outside-the-box thinking, ...), a way of thinking and working, a collection of hands-on methods. Design Thinking revolves around a deep interest in developing an understanding of the people for whom we’re designing the products or services. Experience says customers are not likely to communicate their needs clearly. It’s not how the human brain works. We have a natural tendency to think in terms of solutions. It is based on the assumption that designers’ work processes can help us systematically extract, teach, learn, and apply these human-centered techniques to solve problems in a creative and innovative way Design thinking originated in the late 60's in the development of creative techniques rose significant interest in the 2000s went mainstream in academy and R&D departments in the 2010s Design thinking
  • 46. 46 1. Empathize 2. Define 3. Ideate 4. Prototype 5. Test Design thinking Process Design thinking starts with Empathy and uses collaborative and participatory methods, repeating all 5 steps as many times as needed to achieve a complete solution Observe and listen to the problem or situation without preconception. Make it yours Define and express the problem based on the evidences of the observation Generate as many ideas as possible for potential solutions to the defined problem (brainstorming), then converge. Research and build working examples of ideas. Apply example prototype to original situation or problem
  • 47. 47 Different views Steph Di Russo – Understanding Design Thinking in Complex Environment “This argument is valid, albeit in a very crude form, as it is crude to say that anyone who picks up an instrument is a musician” “It’s talent, mastery and experience that together classifies a professional from an amateur” Tim Brown- IDEO: “Design thinking is for everybody!” Source : https://www.slideshare.net/ChrisJackson43/i-design-think-therefore-i-am-a-uxer
  • 48. 48 1. Empathize 2. Define 3. Ideate 4. Prototype 5. Test Design thinking Framework 1. Empathize Observe and listen to the problem or situation without preconception. Make it yours. - Interviews - Shadowing / “Live my life” sessions - Seek to understand - Non-judgmental 2. Define Define and express the problem based on the evidences of the observation - Personas scenarii - Roles and objectives - Decisions - Challenges - Pain Points - Stakes and assets 5. Test Apply example prototype to original situation or problem - Understand impediments - What works ? - Role Play - Iterate Quickly 3. Ideate Generate as many ideas as possible for potential solutions to the defined problem (brainstorming) - Share ideas - All ideas worthy - Diverge / Converge - “Yes and” thinking - Prioritize 4. prototype Research and build working examples of ideas. - Mockups - Story Board - KISS - Fail fast - Iterate quickly
  • 49. 49 Traditional thinking vs. Design thinking Traditional thinking Design thinking Style Directed Emergent Process Planning of flawless intellect Enlightened trial and error Path to success Avoid failure, secure Fail fast Factor of success Expert Advantage Ignorance advantage Right answers Right questions Rigorous Analysis Rigorous Testing Subject experts Process experts Rituals Presentations and meetings Experiments and experiences Communication Telling Showing Base Headquarters In the field Customer involvement Arm’s length customer research Deep customer immersion Periodic Continuous Activities Thinking and planning Doing
  • 51. 51 Example Customer I need a faster car Designers (5-whys – Kaizen) Need to go to work faster faster! Designers - Faster Horse? - Faster car? - Faster train? Designers Let’s think outside the box. Where does men travel the fastest? How? No air, no friction! Designers Designers In space! How to do it on earth? Remove friction! Designers
  • 52. 52 Design Thinking is essentially a problem-solving approach specific to design, which involves assessing known aspects of a problem and identifying the more ambiguous or peripheral factors that contribute to the conditions of a problem. It contrasts with a more scientific approach where the concrete and known aspects are tested in order to arrive at a solution. Design Thinking is an iterative process to identify alternative strategies and solutions that might not be instantly apparent with our initial level of understanding. often referred to as ‘outside the box thinking’, as designers are attempting to develop new ways of thinking that do not abide by the dominant or more common problem-solving methods – just like artists do. At the heart of Design Thinking is the intention to improve products by analyzing how users interact with them and investigating the conditions in which they operate. Design Thinking offers a means of digging that bit deeper to uncover ways of improving User eXperiences. Take away
  • 53. 53 4. Reaching Product / Market Fit Back to the Different perspectives
  • 54. 54 Now back to the four perspectives 1. The Lean Startup Perspective 2. The MVP-Centric Perspective 3. The Lean Canvas-Centric Perspective 4. The Design Thinking Perspective Ideas Build Prod-uct Meas-ure Data Learn Problem- Solution Fit1 Customer Discovery 2 Customer Validation PMF Ideas Build Prod-uct Meas-ure Data Learn Business Model Ideas Build Prod-uct Meas-ure Data Learn Product-Market Fit Possible products Market 4. Product-Market Fit 2. Value Proposi-tion 3. MVP 1. Target Audience Problem- Solution Fit Product-Market Fit Empathize Define Ideate Build Market Fit Prototype / Test With the people you are designingfor Insights and opportunities With idea- generation techniques the idea to make it tangible and to allow user testing
  • 55. 55 2.1 – Reaching PMF – The Lean Startup Perspective (1/2) Ideas Build Prod- uct Meas- ure Data Learn Problem -Solution Fit Identify a problem Generate demand Design / Implement the Minimum Viable product 1 Customer Discovery 2 Customer Validation 3 Get new Customers 4 Company creation PMF Re-adapt Ideas Build Prod- uct Meas- ure Data Learn Business Model Ideas Build Prod- uct Meas- ure Data Learn Product- Market Fit The Lean Startup way to product market fit “4-steps to the Epiphany” as a high level process Lower-level process is represented by the Lean-Startup Feedback Loop First Problem-Solution Fit Then Business-Model validation Eventually Product-Market Fit MVP happens late in the process, most assumptions are verified during interviews with mock-ups and prototype (Lean-by-the-book)
  • 56. 56 Customer-centric – Get out of the building / work with your customers Understand your customer’s problem Understand if your solution works for your customer! Understand your market! Little investment up-front – MVP developed at the latest stage, after Problem-Solution Fit Data-driven: make an hypothesis, test it, measure, learn Product-Market Fit is reached when the metrics measured from the MVP confirms it. ADVANTAGES Little investment on MVP, everything remains theoretical before Problem-Solution Fit and Business Model validation – Lean by the book! Only when most assumptions are verified one moves to developing MVP (which requires money!) KEY ASPECTS DRAWBACKS While this approach - working a lot upfront before starting to work on an MVP - is seducing (less investment required), it is also challenging. The first feedback we get from the MVP often challenges a lot the initial assumptions, even though they were validated with customers. This is because users and customers have a strong tendency not to be able to clearly state what they need and want before something concrete us put in front of them 2.1 – Reaching PMF – The Lean Startup Perspective (2/2)
  • 57. 57 2.2 – Reaching PMF – The MVP-Centric Perspective (1/2) Possible products Market 4. Product-Market Fit 2. Value Proposi- tion 3. MVP 1. Target Audience The MVP-Centric approach puts the iterations on MVP at the center of the process Fundamental Idea Jump to the MVP development stage as fast as possible - without neglecting Problem / Solution fit though - and iterate on MVP as long as required to reach PMF Getting IRL – In Real Life – and live as fast as possible to optimize feedback Very relevant approach for online and very wide audience services
  • 58. 58 Some believe that reasoning on a concrete MVP is the best way MVP-centric Build MVP, put it live in real-life and start getting feedback Feedback and metrics collection automation is key A/B Testing / UX Metrics / etc. Significant investment up-front – Need to develop the MVP Problem-Solution fit is not neglected, but shorten as much as possible to reach the more concrete MVP stage faster Product-Market Fit is reached when the metrics measured from the MVP confirms it (as usual) ADVANTAGES People have difficulties reasoning on abstractions and customers have trouble expressing clearly what they need as long as they don’t see anything concrete (the infamous “that’s not what I wanted” Moving AFAP to the MVP enables to address this and get feedback on the real-thing as fast as possible Very well suited for online and wide audience services (e.g. Netflix, Google, Facebook, etc.) KEY ASPECTS DRAWBACKS More up-front investment, need to develop the MVP and put it live Does not apply to all businesses / products - how to develop an MVP in Pharma, Bio-tech or heavy industry? 2.2 – Reaching PMF – The MVP-Centric Perspective (2/2)
  • 59. 59 2.3 – Reaching PMF – The Lean-Canvas Perspective (1/2) Problem-SolutionFit Product-MarketFit The Lean-Canvas centric approach puts a strong emphasis on the theoretical work and customer representatives / market experts interviews instead of the MVP The Lean Canvas and the Value proposition Canvas form a formidable tool to drive researches with customers towards Product- Market fit and discussion with Investors. They sum up the findings and validated assumptions based on theoretical work (such as prototype, academic research, scientific findings, etc.) leads to theoretical product market-fit before actually building anything on the product Developing, evolving and maintaining these canvas is Useful during the search phase for every startup Essential when an MVP is not possible or very expensive. These canvas provide a guiding line for the theoretical search phase. Describe what a specific customer segment needs to do, achieve or needs they need to satisfy. Describe the benefits your customer expects, desires or would be happily surprised by. Describe negative emotions, difficulties, undesired costs and situations and risks that your customer experiences List all the products and services your value proposition is built around Describe how your products and services create customer gains and benefits them. Describe how your products and services alleviate customer pains.
  • 60. 60 2.3 – Reaching PMF – The Lean-Canvas Perspective (2/2) Designing a lean-Canvas, maintaining and evolving it , along with a Value proposition canvas, always makes sense and should always be done to drive the initial assumptions on the Problem solution fit, the Business Model and the Product Market-Fit and their evolutions. But most of the time, coming back over and over again to the Lean Canvas is dropped in favor of iterations around the MVP and it’s predominant usage to capture customer feedback and converge to Product-Market Fit When working with and around the MVP is not possible – heavy industry, Bio-Tech, Pharma, etc. – the lean canvas and its maintenance remains the principal guideline when searching for Product Market Fit Every customer interview, expert consulting, scientific research should lead to evolving the Lean Canvas and the Value Proposition Canvas. The Lean canvas is the Big Picture of the Business Plan leading discussions with investors The Lean canvas is the map to the data points that need to be collected before talking to investors. ADVANTAGES The Lean-Canvas helps create a quick visualization of an idea, share it and get feedback The Value Proposition canvas helps capture how Product Market fit will be reached Sometimes – when working with an MVP is not possible – every single word on these canvas capture an essential assumption that has been verified and that is key to build the eventual product and the company. KEY ASPECTS DRAWBACKS Again, if working with these canvas is important in the initial stage and perhaps at later stage when discussing with potential customers and investors, iterating and evolving these canvas takes a lesser importance in favor of working with an MVP as e move forward in the search phase.
  • 61. 61 2.4 – Reaching PMF – The Design-Thinking Perspective (1/2) Empathize Define Ideate Build Market Fit Prototype / Test Problem Space Solution Space With the people you are designing for Insights and opportunities With idea- generation techniques the idea to make it tangible and to allow user testing Design thinking Lean Startup The Design-Thinking Perspective is actually a way to structure and formalize the Problem-solving approach in the search phase. There’s some overlap between Lean Startup and Design Thinking Design thinking emphasizes on Problem / Solution Fit, MVP design and UX as ultimate results from a Design perspective, while Lean Startup focuses on reaching Product Market Fit before scaling. Both are very complementary! The design thinking process is a very good fit for the Lean-Startup Search Phase Lean Startup doesn’t give much processes and tools on how to get to Problem / Solution Fit (aside from some general principles, Get out of the building, Problem / Solution interview, etc.), how to design the MVP, etc. This is where Design thinking kicks in Applying the Design-thinking process to the required brainstorming in the Lean-Startup search phase is a striking fit.
  • 62. 62 2.4 – Reaching PMF – The Design-Thinking Perspective (2/2) Lean-Startup insists on the need to reach Problem Solution Fit, a working Business Model and eventually Product Market fit and gives principles and practices to it (Get out of the Building, Converge to MVP, Lean Canvas, etc.). But Lean startup doesn’t give much recipe for how to conduct brainstorming, how to search for solution, how to design the MVP, etc. Here comes Design thinking! The Design thinking process can be applied every time a solution to a problem, a design job or simply a brainstorming exercise has to be performed in the search phase … or after. Design thinking and Lean Startup share some genes (getting feedback, iterate, etc.), but they are rather very much complementary with each other. ADVANTAGES Helps structuring the search for solutions to various problems and aspects in the search phase Problem-Solution fit (striking application for the design thinking process) MVP Design Commercial and marketing issues Very much relevant only when a lot of thoughts need to be put in the design of the product or the search for a solution to the customer problem. KEY ASPECTS DRAWBACKS When the solution is clear after the sets of interviews with key customers, or on the contrary when searching for a solution requires a lot of scientific research, Design thinking is out of scope. If the solution is crystal clear, a structured brainstorming process such as design thinking is not required. If the solution requires a lot of scientific research, design thinking is not of a great help
  • 63. 63 5. The Measure Obsession
  • 64. 64 “In god we trust, all others must bring data “ (Source : Les pratiques des géants du web / Stephen Perrin – OCTO Technology – http://fr.slideshare.net/sperin/les-pratiques-des-geants-du-web)
  • 65. 65 Honestly there is no magic silver bullet and it can in fact be pretty difficult to pick up the right metric that would be most helpful to validate a certain hypothesis. However, metrics should at all cost respect the three A's. Good metrics are actionable, can be audited are accessible An actionable metric is one that ties specific and repeatable actions to observed results. The actionable property of picked up metrics is important since it prevents the entrepreneur from distorting the reality to his own vision. We speak of Actionable vs. Vanity Metrics. Meaningless metrics such as "How many visitors ?", "How many followers ?" are vanity metrics and are useless. Ultimately, your metrics should be useful to measure progress against your own questions. How to choose good metrics ?
  • 66. 66 Some examples 1. NPS - Net Promoter Score 2. CLV to CAC Ratio 3. Retention Ratio 4. Growth Rate There are many others! (Hint : search for “Pirate Metrics” by Dave McClure) Metrics Proposal Product- Market Fit
  • 67. 67 Net Promoter Score, or NPS, is a metric that has become a standard for measuring customer loyalty and satisfaction by many companies. Built on the power of one simple question — how likely is it that you would recommend your product to a friend or colleague? it’s now used by companies of all sizes in virtually every industry all over the world. While NPS is a good leading indicator of business growth, it can also be a vanity metric if used alone without looking at the context of why your customers would recommend (or not recommend) your product. If your company is committed to measuring NPS, here’s a tip that you can use to understand the ‘why’ behind your NPS score and potentially increase it. Follow up the standard NPS question with one additional question, “What would it take for you to recommend my product to someone you know?”, and target the people who are not your promoters, which means they rated their likelihood to recommend your product an 8 or lower. You can then analyze those open-ended responses to identify key trends in the data. Net Promoter Score (1/2)
  • 68. 68 Net Promoter Score (2/2) Source : https://www.netigate.net/articles/customer-satisfaction/nps-ultimate-guide-to-net-promoter-score/ Net Promoter Score = % Promoters - % Detractors Rule of thumb: - A positive value is OK - A value above 20% is what you want to reach - A value above 50% is extremely good
  • 69. 69 CAC - Customer Acquisition Costs - is the figure representing what it cost to your company in average to acquire a new customer. It’s the total cost of converting a prospect or convincing a potential customer to become an actual customer. It’s the total cost devoted to your sales and marketing effort – cross department, domains and worldwide. 𝐶𝐴𝐶 = 𝑆𝑎𝑙𝑒𝑠 𝑎𝑛𝑑 𝑚𝑎𝑟𝑘𝑒𝑡𝑖𝑛𝑔 𝑠𝑎𝑙𝑎𝑟𝑦 + 𝑀𝑎𝑟𝑘𝑒𝑡𝑖𝑛𝑔 𝑇𝑜𝑜𝑙𝑠 𝑐𝑜𝑠𝑡 + 𝐶𝑎𝑚𝑝𝑎𝑖𝑔𝑛𝑠 + … 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑁𝑒𝑤 𝐶𝑢𝑠𝑡𝑜𝑚𝑒𝑟𝑠 #over average customer lifetime period CLV – Customer Lifetime Value (or LTV in the literature) - is the figure representing how much money you make in average with one of your customer. CLV is more difficult to compute and not formula working out of the box can be expressed easily since one need to account upselling, sales model such as subscriptions vs. one time license, etc. One can however simplify it by considering incomes only incomes from new customers 𝐶𝐿𝑉 = 𝑇𝑜𝑡𝑎𝑙 𝐼𝑛𝑐𝑜𝑚𝑒 𝑓𝑟𝑜𝑚 𝑛𝑒𝑤 𝐶𝑢𝑠𝑡𝑜𝑚𝑒𝑟𝑠 ∗𝐺𝑟𝑜𝑠𝑠 𝑝𝑟𝑜𝑓𝑖𝑡 𝑚𝑎𝑟𝑔𝑖𝑛 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑁𝑒𝑤 𝐶𝑢𝑠𝑡𝑜𝑚𝑒𝑟𝑠 #over average customer lifetime period The CLV to CAC ratio gives you an indication of how much your business is profitable. The metric is computed by dividing LTV by CAC. It is a signal of customer profitability, and of sales and marketing efficiency. CLV to CAC ratio (1/2)
  • 70. 70 CLV to CAC ratio (2/2) Mike Volpe, former CMO, Hubspot Strong B2B companies in their growth stage should have an CLV/CAC ratio of 3-5. Jordan McBride, Marketing Manager, Price Intelligently The best rule of thumb is spending 33% or less of your customer’s lifetime value. Sources : https://www.klipfolio.com/resources/kpi-examples/saas/customer-lifetime-value-to-customer-acquisition-cost https://www.forentrepreneurs.com/startup-killer/
  • 71. 71 Acquisition isn't the whole answer. Retention is even more important! Definitions: N-Day Retention: The proportion of users who come back on the ‘Nth’ day after first use. Retention Curve: A line graph depicting the average percentage of active users for each day within a specified timeframe. At a high level, retention is a measure of how many users return to your product over time. It is the mathematical inverse of the customer churn (which can be another metric) “The point is, every improvement that you make to retention also improves all of these other things—virality, LTV, payback period. It is literally the foundation to all of growth, and that’s really why retention is the king.” - Brian Balfour, former VP Growth, Hubspot & Co-founder, Reforge A good way of visualizing retention rate is by plotting a retention curve: Retention can actually indicate if you have a product-market fit problem; if you plot out your retention numbers as a percentage of active users over time and you have a flat line that reaches zero instead of a curve that stabilizes—you need to solve a product-market fit problem, not a retention problem. Retention Ratio / Curve (1/2)
  • 72. 72 Retention Ratio / Curve (2/2) Source : https://amplitude.com/mastering-retention/why-care-about-user-retention
  • 73. 73 The Growth Rate is the rate at which your business is growing. Measuring the growth rate is tricky since Imagine a situation where the growth would be 10% monthly, composed by 40% new customers every months and 30% customers leaving or stopping to use the product In such a situation, even though the monthly growth seems interesting, the company is actually losing all its customers every 3 months! Under such conditions, the survival of the company is almost impossible after the hype effect passes. Growth Rate (1/2) Sources : https://tribecap.co/a-quantitative-approach-to-product-market-fit/ https://www.lightercapital.com/blog/how-to-establish-product-market-fit/ For this reason, the growth rate metrics needs to account the ability of the company to retain its customers, the churn rate, etc. This makes the growth rate computation a quite complicated metric to compute.
  • 74. 74 Growth accounting framework Working with Compound Monthly Growth Rate over past X months More information: https://tribecap.co/a-quantitative-approach-to-product-market-fit/ Product Market Fit is confirmed when these indicators – the cmgr3, cmgr6 and cmgr12 go up consistently Growth Rate (2/2)
  • 75. 75 6. Conclusion and take Aways
  • 76. 76 So there is a recipe for success. Entrepreneurship has a magic power, it triggers positive energies and it leaves people with an irresistible willingness to start doing things. However, all these positive energies can very easily become negative when they are not channeled in the correct direction. And by negative we mean: having quit a day job, having spent most of our savings, having re-mortgaged the house and ultimately having trouble explaining to our life partner, family and friends why we have done all of that and we still haven’t been able to succeed. That’s awful. Luckily there is a process that we can follow, developed after having worked with hundreds of entrepreneurs. Instead of starting to develop a product and hiring people immediately, these are the questions that we need to answer in order to build and launch a product that customers need and for which there is market demand: Which problem are we going to solve? Who has the problem in our market? Who are the early adopters? What is the value proposition able to satisfy their needs? How much are they willing to pay for it? What is the minimum set of features required for launch? The way to answer most of these questions is to engage with customers from the very early stage of a new business idea, get to know them profoundly, create a value proposition based on the insights captured that relies on the company’s key strengths to create a competitive advantage customers care about, and test and iterate that proposition on the market until we reach Product-Market Fit. Take Aways (1/2)
  • 77. 77 Most of this can be done before investing any substantial resource into the business, and that’s really the best thing about Lean Startup methodology. The most difficult thing is to resist from the instinct to jump into “build mode”. Instead, we invest some time to de-risk an idea before investing heavily in it. Everyone is in love with their idea, and the last thing we want to know is that it’s not a good one. But the sooner we realize an idea is flawed – i.e. there is no market need for it – the better it is. In terms of practical steps, this is a possible process to validate a new business idea and achieve product-market fit: 1. Compile a lean canvas to have clarity of a business idea (with Value Proposition Canvas) 2. Identify the riskiest assumptions for the business idea. Hint: usually these are the ones around target segment, problems and market size. 3. (Problem Interview) Conduct a round of qualitative interviews with target customers, to understand if they have the problem, how big it is, and what they currently do to solve it. 4. Run a collaborative workshop with the entire team to refine the value proposition based on customer insights collected so far. This is how disruptive ideas are generated! 5. Prepare a cheap and quick form of a prototype. 6. (Solution Interview) Conduct another round of qualitative interviews with target customers, to understand if the solution prepared solves the problem and if they are willing to pay for it. At this stage it is mandatory to attempt to get a commitment from them. 7. Iterate the solution, and conduct new interviews if they didn’t commit already. 8. (MVP) When we get enough commitment, we define a MVP (Minimum Viable Product) and start proper development (when an MVP is not possible – heavy industry, pharma, etc. – we conduct additional confirmation research and engage with more potential customers) 9. Put MVP on the market, collect feedback on MVP and evolve / adapt / pivot as required until reaching Product-Market-Fit Take Aways (2/2)
  • 78. 78 The Innovator's Dilemma? A new solution achieves PMF, and manages to capture the lion's share of the market. They become the dominant player, and stay that way, until new technology appears and supersedes their solution. By failing to stay ahead of changing technology, the incumbent company loses market share to a smaller, disruptive business, who in turn, go on to dominate the market. Rinse and repeat. In this narrative, the market for a product evolved over time, and the definition of Product/Market Fit changed with it. As a result of developing technology, a solution that fits the market in the here-and-now might not fit the same market in the future. PMF is like an ongoing health check for your business, allowing you to periodically test the key assumptions that underpin your business: Does the problem we solve still exist? Is the problem important enough? Is the market for our product still a 'good' market? An on-going health check
  • 79. 79 DevOps / Lean Startup / Agiliy– why are these important ? Maturity/Difficulty Agile Development (e.g. Scrum) DevOps Lean Startup Company-wide Kanban Scaling Agile / Agile corporation eXtreme Programming (XP) Practices Digital Company Dependency
  • 80. 80 Old School Product Management Report to: Marketing Output: Requirements / Specifications Methodology: Waterfall Product Lifecycles: Years Decision Making: Opinion Driven Modern Product Management Report to: CEO Output: Design, Prototype, UX Methodology: Agile Product Lifecycles: Weeks Decision Making: Data Driven Modern Product Management Source : https://www.slideshare.net/bussgang/product-management-101-the-search-for-productmarket-fit
  • 81. 81 TheperiodictableofAgilePrinciples andPractices The Periodic Table of Agile Principles and Practices https://www.niceideas.ch/roller2/badtrash/entry/periodic-table-of-agile-principles