3 Steps to Understanding Customer Needs

3 Steps to Understanding Customer Needs

The core of every business organisation’s mission is to answer customer needs.  In order to do so you must first identify and understand them.

Understanding your customers’ needs is essential but superficial knowledge is not enough to ensure your organisation’s profitability. To achieve product/market fit, the point where you answer needs better than your competitors, you must get to a deeper level of understanding of those needs.

Benefits of understanding customer needs

An added bonus to mastering customer needs (and providing a solution that fulfills them) is that every marketing dollar spent will yield higher returns than those of your competitors, who don’t have the same depth of knowledge.

A deeper level of understanding your customers’ needs will also ensure an overall better customer experience, which we already saw in a previous post on the customer experience journey, leads to higher profitability.

Ok, so now that you are convinced understanding customer needs is in your organisation’s best interest, the question you may be asking is how to go about mastering them.

First you have to identify the needs you will be fulfilling (hint; don’t stop at the needs attached directly to your product/service, also look at the ones surrounding the entire customer experience). Once you have zoomed in on the needs to fulfill, you must not only understand the needs but the whole story around them.[1] This process requires lots of effort, time and knowledge of data gathering techniques. It isn’t as straightforward as it may seem.

As a marketer a huge part of my role, aside from finding the right customers, is to identify and understand their needs. Over the years, I learned that there are three steps to any quest aiming to either identify or understand customers’ needs.

Those steps are; Listen, observe, and empathise

Listen

customer needs - Baker MarketingThe very first thing you should do when you have a business idea is to talk informally with potential customers. This mostly means listen to their answers.   It also helps you figure out who your early adopters are. If it’s not possible for you to talk directly to potential customers, find people who know your potential customers inside out, and talk with them.

Don’t forget to set objectives for your conversation. Examples of conversation objectives are; to see whether the needs you think exist actually do, how they are being filled and the relative importance of those needs. In order to maximise the amount of information you take in, not only do you have to limit how much talking you will do, but you need the proper mindset. Your mind should be open and devoid of as many filters as possible. Always remember that explaining your project in length and your view of the world is just taking time away from achieving your goal. Listen.

On a side note, many of the entrepreneurs I meet are worried that someone will steal their idea before they get a chance to develop it. Unless you have a truly patentable solution (very few are), and potential customers can either beat you to market (they already operate a company in the same field) or spill the beans (to an existing competitor), you have nothing to worry about. Honestly, initial business ideas are very rarely marketable. Even if they were, almost no one wants to put in the blood, sweat, tears and go through the hell that starting a new business entails. Furthermore, even if they did, they’d most likely end up with a completely different business than yours in the end. Lastly if the threat of theft is real, there are still ways to explore the needs of potential corporate customers without spilling your own beans.

Please do not let the fear of someone stealing your business idea prevent you from engaging with potential customers.

Observe

Customer needs - Baker MarketingObservation is essential to identify less obvious needs and understand all pertinent customer needs at a deeper level. Asking potential customers won’t yield the information you seek because people don’t or can’t always tell you the truth.

There are many categories of observation techniques.

 

Natural observation

Natural observation techniques allow you to observe your potential customers while they are naturally fulfilling the needs you want to address. Ideally, without them noticing you too much so their behaviours are not altered.

Such observation experiments will yield huge amounts of customer knowledge. Hence you need to ensure you set observation goals for your experiments. Your observation goals can pertain not only to your subjects’ actions but also their interactions, environments, and the tools they use.

You will most likely need to repeat such experiments many times to take in all the knowledge you will need. Alternatively, you can task multiple people to observe the same situation while giving them different observation goals.

Two of my favorite natural observation techniques are shadowing and A day in the life.[2]

Directed observation

These techniques are associated with a goal of understanding a specific thought process or behaviour in a given circumstance.

They require putting the customer in a specific situation or assigning him, or her, a task and then observing. This can be followed by a question period to help interpret what you observed. It can be done face to face, remotely with cameras or on the web (such as A/B testing).

Third person observation

This technique is used in addition to one of the previous ones where the observer is someone who has a vision of the world that is significantly different from you or anyone in your industry. This technique yields much richer interpretation/insights from the data you collect.

Empathise

Customer needs - Baker MarketingWhenever possible, put yourself in your customers’ shoes or, even better; take the time to get to know some of your favorite customers personally. This will enable a relationship of trust and maybe even friendship (personal bonus for you) to develop over time.

Get involved in activities or causes your customers are passionate about. This will give you an even deeper understanding of their values and what is important to them.

Sharing your customers’ values is a requirement to attract them into your community.  If you are unsure of what I am referring to here, see this previous post on community marketing.

The 360 view of customer needs

Customer needs - Baker MarketingApplying all of these techniques to understand your customers’ needs is required to get a 360 degree view of them. Using many different perspectives to master your customers’ needs will yield rich and actionable information. It will also facilitate innovation in your organisation.

 

Customer Feedback Flow

Customer needs - Baker MarketingStriving to understand customer needs is a continuous process. Set up processes and assign resources in your organisation to make it an integral part of your business activities.

These processes can be as simple as a quick questionnaire you send out on a regular basis, or an automatic feedback one, after a certain task is completed.  Analytics reports, comments on social medias summaries or a managed (live or online) community feedback or observation reports are all valid continuous feedback processes that can yield precious information on your customers’ needs.

Be aware that this feedback is highly valuable to your organisation, if you act on it. Hence, reward your customers adequately (often a simple thank you is enough) for sharing their thoughts and concerns.

Mastering the understanding of customer needs is no small task.  Your rewards for listening, observing and empathising with your customers, will be a tighter product/market fit, greater customer satisfaction and higher profitability.

[1] Needs are always dependant other factors. E.g. The need for a given medicine will be dependant on experiencing specific symptoms at a level that requires relief and not being allergic or prone to adverse effects to said medicine.

[2] The following book describes these techniques : This is Service Design Thinking – M. Stickdorn, J. Schneider et al. – John Wiley & Son

Lean Startup Tools – The Concierge Phase

Lean Startup Tools – The Concierge Phase

 

This is the last of an 8-post series on applying Lean Startup in the various phases of a start-up. In this post we’ll take a look at the tools that will accompany you in your efforts to maintain a lean startup practice in your company during the concierge phase.

Lean Startup Principles and fundamental tools

The tools suggested in this post are but the tip of the iceberg of the tools that exist to help you adhere to the principles of Lean Startup. They will vary according to the specifics of your business model.  A great place to find apps to help you with your productivity is the Slack apps directory. Using thes tools doesn’t mean you are following a Lean Startup approach. You can only do this by putting into practice, on a daily basis, the various principles that underly Lean Startup.

Top Lean Startup Principles:
(Click on the theory to see an example of a book on the topic)

Theory Principles
Lean Production Customer focus; Efficient use of resources; Just in time; small batches;
Customer Development Understand your customers’ needs then develop your product/service; Use continuous feedback from your markets to make decisions (feedback loop)
Design Thinking Have a 360 view of needs, problems, issues; Empathize with your customers before you start designing your product; test multiple prototypes before going to market; transparency of information and process
Agile development Develop in iteration; test your developments with users  before going to the next step; use agile planning tools

 

There are also fundamental tools that come with the Lean Startup approach. These tools are:

  • Management tools:
    • Business model canvas or the Lean Canvas for planning.
    •  Experiment board to guide you with your first experiments.
    • Kanban boards to ensure you are not creating bottlenecks in your production
  • Metrics: Use data to make decisions whenever possible.
  • Innovation accounting:
    • Keeping a log of your experiments
    • Innovation options to calculate the maximum value of your start-up and the associated level of risk.

Here are ideas of tools or types of tools to look for when applying the Lean Startup approach in the concierge phase (last phase) of your start-up.

 

Applying Lean Startup - Concierge Phase - Baker MarketingProduct development tools

If your product is an application or software

Continuous deployment (or delivery for certain markets) espouses most of the Lean Startup principles. It requires a slew of tools. Atlassian offers many of them with apps such as Bitbucket, JIRA  and Bamboo.

If you’re creating a physical product

You may want to look at integrating your suppliers into your corporate Slack, if not already done. In order to do so, you should get the secure ($) version of Slack.

You’ll also want to establish processes that will ensure your marketing/product design and production teams communicate regularly in order to ensure market needs and trends are communicated asap throughout your value chain. Common work tools for these teams and spaces (physical or virtual) where they can easily meet on a daily basis should be available.

 

Applying Lean Startup - Concierge Phase - Baker MarketingMarketing tools

You will want to look into integrating as many of your data sources as possible (Analytics, CRM, Ticketing system, social media feeds, and manual data) into a robust business intelligence platform. One of the better and more agile one out there at this time is TableauQlik and Microsoft BI are also good choices. IBM’s SAS and Watson are better, since they integrate AI elements, but highly likely out of your price range.

If you’re running an on-line business then you need to start looking into an agile and powerful real-time analytics solution. Google, aside from its free version, has a module approach that is neat since you can only get the packages you use.  The entire 360 suite of 7 add-ons is very costly. You’ll need to make sure you get an ROI before investing in it. There are other options such as Clicky that also offers real-time analysis. Clicky integrates with Slack.

Whatever BI or analytics platform you get, the most important part is to ensure you have the resources and processes in place to maximise their returns for your company. Hence it must be part of most everyone’s job description to feed the BI databases on a regular, if not daily, basis.  You’ll also need someone to ensure the data in your system is clean and the analyses are correctly interpreted.

Your experiment logs should be scraped for pertinent market information regularly. They should have their own Slack channel (or section in your intranet).

By the end of the concierge stage, you may be cranking out multiple new products in rapid fire in order to get a larger wallet share of existing customers or to satisfy the needs of new segments. Applications such as LaunchLeap that help you get quick feedback from a large number of users will help you accelerate your experiments.

 

Applying Lean Startup - Concierge Phase - Baker MarketingHR tools and guidelines

If you aren’t outsourcing your recruiting and training then you’ll want to look for tools to make these processes more efficient.

Get a screening tool (with broad mesh) up on your website to reduce the time spent looking at non pertinent resumes.  Make sure your corporate values and culture are also reflected on your website and all your social media content.

Use your FB and LinkedIn corporate pages to get referrals for potential top candidates.

Invest in training video s available 24/7. These online videos make the on boarding process more efficient and transparent.

Encourage inter-employee training and coaching.  Having video, sound and recording capabilities on their computers or laptop will enable employees to share their knowledge with their peers either in real-time or asynchronously.

Have as few employee guidelines as possible. When they are absolutely necessary, keep them as broad as possible. Nothing kills creativity and initiative as well as guidelines. Just remember not to substitute good management with guidelines and you should be fine.

 

Applying Lean Startup - Concierge Phase - Baker MarketingFinancial tools

Finance is not my area of expertise so I won’t venture into suggesting accounting apps or platforms. What you will want to look for in your accounting system to support your Lean Startup approach are the following capabilities:

Integrating market information into your sales projections (by segment)

Enabling you to show only the financial data you want to specific categories of employees.

Although you want to remain as transparent as possible with your financial results, your growing staff and eco-system will require you to limit the financial information you share with some of them. If your system doesn’t allow you the flexibility to easily share some of the information with specific employees/partners/suppliers then you may be tempted to only share summarized data on a monthly or quarterly basis.

 

Conclusion

As you have now come to realise throughout this series of posts there is no one way to apply the Lean Startup approach.  There are however wrong ways to go about it. If whatever you are doing goes against or disregards Lean Startup principles, then it’s obviously not Lean Startup. Throwing in buzzwords like MVP and pivots won’t change this.

We also saw a variety of tools used in the practice of Lean Startup. These don’t even represent the tip of the iceberg. They will also become obsolete very soon. Newer and better ones will become available. The important message is to keep looking for tools that will make you more efficient and help you achieve the minimum in MVP.  These tools will also enable you to run experiments in a timeframe that was impossible only a few years ago.

These tools are the reason an iterative, experiment-based approach like Lean Startup is now viable.

Lean Startup is the essence of entrepreneurship. It’s about doing.  It’s about taking only the risks you have to take in order to answer a market need with a product or a service. It’s about having some core competences but mostly about how fast you can learn what is pertinent and apply your learnings. Finally, it’s about discipline, rigor and lots of hard work.

Lean Startup is rarely sexy but then again neither is starting and growing a successful business.

Applying Lean Startup in the concierge phase of your start-up

Applying Lean Startup in the concierge phase of your start-up

This will be the second to last post of a series of how to apply the Lean Startup approach to a new business.

Until now in this series on applying Lean Startup, we started with an introduction, then looked at the ideation phase, the discovery phase and the pre-sell phase (also known as the Death Valley).

 

Congratulations!

Applying Lean Startup in the concierge phase - Baker Marketing Either because you have made it this far in reading this series or, even more important, you have successfully crossed the Death Valley (pre-sell phase) and came out of it with the holy grail of a product/market fit (when the hockey blade becomes the stick on your revenue chart).

You now find yourself in the concierge phase.

 

What is the concierge phase

The boxes below presents a very high level summary of usual situations your start-up can expect in the concierge phase.

Product

Application

  • Your core features all work pretty well
  • You created your first (official) road map to additional features

Physical product

  • If you are outsourcing, you are either looking at optimizing your suppliers or taking steps to bring production in-house
  • If you are manufacturing in–house, you are looking at getting decent equipment to start producing at a larger scale

Market

  • You are looking at more efficient tools to learn about your customers, markets, and environments
  • You are exploring new customer segments
  • You are aggressively growing your initial markets
  • You are constantly reassessing the total size of your markets
  • If you are an innovator in your market; you are keeping an eye out for the chasm (1)

[1] The saturation of the early adopters market and passage to the early majority  (re. The innovation adoption curve)

 

Processes

  • You are feeling the need to put processes down on paper so your teams has a more homogenous approach
  • You realise you need a lot of processes and procedures but don’t want to bog down your agility

HR

  • You are on boarding team members at a rapid rate
  • Job definitions are getting more specialised
  • Your core team is trying to find a fit with their new, more limited, roles in the company (spoiler alert – some won’t adjust)
  • Your core team feels as though they spend more time coaching new resources than getting work done

 

Finance

  • Money is coming in at a decent rate from sales
  • Labour costs need to be controlled as they are growing faster than your sales at times
  • Extra office space and equipment mean increasing your bank margin or taking out (mostly) short term loans
  • Investors are now calling you and want to hear about your scaling strategy

 

Too busy for Lean Startup

 

Applying Lean Startup in the concierge phase - Baker MarketingYou are now running a small business that is experiencing the fastest growth rate it ever will, short of an acquisition.

It is easy and oh so tempting to abandon the build, measure, learn approach. After all, you know your initial market’s needs very well by now and you are crazy busy fulfilling orders, fixing issues and well, running a company.

It is a trap most entrepreneurs will fall into. Until their growth rate slows down, stalls and starts to plummet. The dirty secret of the concierge phase is that most companies’ revenues during this period don’t look like a straight hockey stick handle. That straight upward slope is just the trend of your revenues. The revenues themselves go up and down regularly. If you want your slope average to be positive and steep, you need to minimise those downs. Most times these down periods will happen for the following reasons:

  • Your customer needs are changing due to a shift in the market (often due to a new competitor)
  • You experience process or production failures
  • Your initial early adopters market is getting saturated and you didn’t react quickly enough to open new markets
  • Your early adopters markets are saturated and you haven’t figured out how to sell to the early majority customers.

Continuing to apply the Lean Startup approach during your concierge phase will ensure that any new features or internal processes will answer the needs of your customers (external and internal). It will also ensure that market changes are captured and acted upon. This does mean that many of your processes must incoporate Lean Startup elements in them. In some cases, it can also mean that the you will need the build, measure and learn processes themselves to be written down and into job descriptions.

Incorporating Lean Startup in your processes is the key to keeping your company innovative and agile as it grows.

Your product, processes, marketing and overall strategy will adapt continuously. When you need to cross the chasm to reach your early adopters, the Lean Startup approach will be your natural bridge to the other side.

In our next and final post of this series, we’ll take a look at the tools that are most useful in the concierge phase.

[1] The saturation of the early adopters market and passage to the early majority  (re. The innovation adoption curve)

What the 2016 Presidential Election Can Teach us About Understanding Customer Needs

What the 2016 Presidential Election Can Teach us About Understanding Customer Needs

Would you have taken a bet that offered you 10 to 1 odds that anyone but Donald Trump would be elected President back in July 2016?  I’m guessing you would have.  I know I would have and probably bet a bundle. After all, it was obvious that most Americans thought Trump’s views were too extreme. The British parliament even debated on banning Trump from the UK.  Well we’d both be poorer now and scratching our heads as how this outcome came to be.

This scenario is similar to one where an entrepreneur believes that everyone will want to buy the product he/she is making. After all, the product solves an obvious and important problem that so many people have. You wouldn’t think twice about buying it, so why would anyone else.

Let’s see the factors that can lead us to be so bad at predicting our customers needs.

There are realities you don’t even know exist

Customer needs - Baker MarkeitngExperience, environment and nature,  are  responsible for shaping beliefs and thought processes.  They differ from one person to the next.

Although nature (human biology) may be similar from one person to the next, environments are not. This is harder to remember given most people we exchange with on a daily basis share similar environments to ours. Experience,  which is the sum of all the various situations we were in and how we reacted to them since birth, differs even more greatly from one person to the next.

Although we all know that others don’t think like we do or have the same reality, we sometimes forget to what extent they differ from ours.

This explains why designing an experiment, that captures other people’s realities, is so difficult. It also explains why it is so difficult to interpret other people’s answers accurately. The less we know about our respondents’ experiences and current reality, the more difficult it is to interpret their answers. Hence, we will tend to fill in the blanks with elements of our own reality. This will give us a distorted view.

The lesson learned here is:

  • try to understand your respondent’s environment as much as you can before asking them questions

It will ensure you ask the right questions with words that will mean the same to them as they mean to you. It will also enable you to interpret their answers correctly.

Things change, sometimes overnight

Customer needs - Baker MarkeitngUnforeseen events happen and change realities and the choice set we have. In the political sphere this could mean email scandals. In the product world it could mean new regulations, new competitors or technologies that pop up overnight.

These new realities can sometime remove existing problems. They can also give potential customers more choices as how to solve their problems. Finally, they can leave them so uncertain about their choices, that they will need a lot more time and energy to evaluate their options. This situation is well captured in the innovation adoption curve.

The lessons learned here are

  • You need to act fast on survey results as environments can change quickly
  • When the respondents’ choice sets are in flux, you may have some of them who can’t or won’t make choices

We are willing to put up with a lot to stay true to our identity

Customer needs - Baker MarkeitngCertain behaviours we have take root in our own self image. When US voters identify themselves as Republicans or Democrats they don’t only refer to how they cast their ballot. They often refer to a part of their sets of beliefs. However strongly they feel against a representative of the party, they won’t vote against their identity. They’ll just find a way to rationalise their decision. This is part of the concept of cognitive dissonance.

Some consumers may see the value proposition you offer them clearly but won’t purchase your product.  Because part of their identity ties in to doing the work the way they always have done it.

The lesson learned here is:

  • You may need more time and effort to convince your customers to adopt your product/service when it affects their identity

Why do polls/surveys get it wrong?

Customer needs - Baker MarkeitngWe won’t reveal (to strangers) actions, beliefs or views that we think will affect their image of us negatively. This is cognitive dissonance at work.

This is why it is so important to test your market on their actions rather than on what they say. Especially when you don’t know how important cognitive dissonance is for a particular choice.

The lesson learned here is:

  • Cognitive dissonance will skew your survey results significantly

Here is one last lesson to keep in mind. However wrong you may have been at predicting an outcome there is always something you can learn from the thought process that led you there. You can learn from it and improve your future predictions.

Lean Startup Tools – Discovery Phase

Lean Startup Tools – Discovery Phase

This post follows Lean Startup Experiment – Discovery Phase. It will help you find Lean Startup tools that will accelerate your experiments significantly. Many of these Lean Startup tools increase productivity and can also be used on a daily basis in your business.

None of these tools, aside from the Javelin board and the experiment log template were developped specifically to be used within the Lean Startup approach. They are simply productivity tools that enable fast and efficient Lean Startup experiments.

Lean Startup experiment - Baker MarketingLean Startup Tools

Lean Startup tools make continuous experimentation throughout your startup feasible. Many of those tools are free or cost very little. None of the tools presented in this post were developed specifically for Lean Startup.  They are simply productivity tools that are used by the Lean Startup community to increase their productivity.

The following are some of the tools I find most useful and often recommend when entrepreneurs are in the discovery phase. Keep in mind there are hundreds if not thousands more of these tools out there. A bit of googling and asking around will yield you many options to accomplish the same task.

 

Lean Startup tools - Baker MarketingLean Startup tools to organise

These applications are great as they often work as a checklist as well as organisers. The following Lean Startup tools are all free or have free parts to them. Click on the titles for links.

LeanStack

Ash Maurya has graciously made his Lean Canvas application, which is very well made, free for your first project. It will help you keep a record of the various iterations, enable you to share with other team members and print your canvas.

Business Model Fiddle

Free business model canvas application developed by Johan Steenkamp. It has some really great features such as various colours for your post-its, picture and sketching capabilities as well as communication features for your team.

Budgeto

This is a great tool to start figuring out your cost and revenue model. It will act as a check list of all the items you need to take into consideration in your revenue statement.  As you progress in your startup, Budgeto will also take care of most of your accounting needs.

 

Lean Startup tools - Baker MarketingLean Startup Tools to communicate/collaborate

Slack

If you don’t yet know about Slack, you must. It’s an instant messaging app, on stereoids, that allows you to connect just about any other popular productivity tool such as Dropbox, Google docs or Hangouts, Skype, Trello and hundreds more. It’s mobile friendly so it will enable you to keep in touch with your team wherever you are.

Trello

Trello is one of the many simple and intuitive project management tools out there. Trello is the only full application that still offers free access. It is very powerfull and still simple to use. Other project management platforms such as Asana and Basecamp are even more complete but don’t offer any free versions.

Dropbox

Definitely one of the best ways to share large files and documents. It’s as simple to use as can be and is entirely free unless you are a power user.

Lean Startup experiment - Baker MarketingLean Startup tools to run my first experiments

Javelin Experiment Board

Javalin first developed the Experiment Board for the Lean Startup Machine a couple of years ago. They are now developing it in an app and are still in the testing phase. Until the app is out, you can get a Google docs version of it and print it out.  Watch this great video tutorial, from Grace Ng, of how to use the Experiment board.

 This is Service Design Thinking

This book contains over a dozen techniques to help you conduct offline experiments. Each technique is well explained and illustrated with an example.  If you’re not familiar with data gathering techniques, it’s the best place to start.

SurveyMonkey

Powerful online survey creation and data analysis application. It’s free for basic forms and data crunching. It has more survey question options and data analysis capabilities than AYTM and GCS.  You must provide your own participants list.

Google Forms and Consumer Surveys

Google Forms enables you to create surveys that you can send to your own participants list. Google Consumer Surveys provides the participants and you only pay for completed questionnaires. Pricing starts at $0.10USD per completed survey.

AYTM -Ask your target market

Similar to Consumer Surveys AYTM offers highly targeted participants to answer  your surveys.

Pricing starts at about $1USD per participant. AYTM boasts over 25 million survey or experts panel participants.

Experiment log

As of writing this post, I haven’t seen any experiment log templates or application to facilitate the keeping of a journal of your experiments.

Hence, I created one for my own use that I will share with you. It’s a simple Excel spreadsheet that you can modify as you see fit. The important part is to keep your rows constant over time so you can have a base to compare.

Keeping an experiment log is a pain and requires some time and effort. Hence, if you don’t plan on going to VCs for funding, it’s not a must to keep one.

An added benefit of the log is that of a training tool when you onboard other members. Careful reading of this journal will help your new recruits know about your young corporate history and learn from you previous mistakes and wrong turns.

Note: I will add the experiment log template to this post very soon.

 Lean Startup tools - Baker MarketingTapping into the Lean Startup community

Some of the most important resources found in Lean Startup are its local and international communities.  It is by far the entrepreneurial community that is the most generous with its time and knowledge that I have encountered.

Locally, you have Lean Startup Circles members that meet periodically to learn, practice and exchange on Lean Startup experiments, tools and resources. Circles have experienced coaches that can help you with any part of your experiments.

You can locate the Lean Startup Circle nearest you by consulting the list on the Lean Startup wiki. Most of them, such as the Montreal LSC, have a Meetup page, Facebook page and/or website where you can register to become part of the community.

Once you are part of a Lean Startup Circle community you will gain access to the Lean Startup Slack channels by asking your local organisers. These channels encompass hundreds of members that form a help community.

If you are stuck somewhere in your experiment, are looking for a tool, experiment design ideas, want to know how to go about testing a foreign market, your local and virtual Lean Startup communities will be there to help.

Lean Startup tools - Baker MarketingThe next phase

Once you have acquired sufficient knowledge on your various stakeholders and have attained a certain level of validation with your business model, you will want to put it to the test.

The next phase will be about validating your business model where it counts; in the market. It is the true acid test. This phase is also sometimes referred to as the Valley of Death. It is when most start-ups end up dying in the Lean Startup approach.

This phase will also be when you start developing your product/service. The good news is if you can’t find any way to have your product/service fly in the market, you will not have spent months or years working on it.

The next post will guide you through this phase using Lean Startup. It will show you how Lean Startup can help transform, some (no, not all) ideas that would have died, into lucrative ventures. We will also present tools and tactics that can help you survive these difficult times.

The Lean Startup Experiment – Discovery Phase

The Lean Startup Experiment – Discovery Phase

This is the fourth post of a series that will try to show how Lean Startup can be useful at various phases of an organisation’s life.  This post is the continuation of Lean Startup in the Discovery Phase – Part 1 and will show you how to conduct a Lean Startup experiment in the discovery phase of your project

Your first Lean Startup experiment

In Lean Startup all ideas that impact your business model are to be considered as assumptions to be validated. Hence, experimentation is the hearth of Lean Startup. A Lean Startup experiment can be summarised by the Build, Measure and Learn loop.

Build

Build Measure Learn - Baker MarektingIn order to build a Lean Startup experiment, you first need to transform your assumption into a hypothesis. A hypothesis has the form of a simple, objective statement that can be validated (or invalidated). This may seem simple but it is often one of the most difficult parts of the experiment.  It entails that you already have a significant understanding of your experiment participants’ lingo, environment and mindset.  Hopefully, you obtained some of this knowledge during your ideation phase when you informally discussed your project.

Your hypothesis must also produce results that will be actionable whether you validate or invalidate it.  If, for example, you state your hypothesis as: Customer segment A will always prefer my product to the other solutions presented, all you need is one potential customer to choose another solution to invalidate your hypothesis. What action will you take if you invalidate your hypothesis? None; as your business doesn’t require 100% of a customer segment to adopt your product to be viable.

Simply dropping the word ‘’always’’ in your hypothesis statement will allow you to take action if you validate your hypothesis (you’ll go forward with the segment) or invalidate your hypothesis (you will either pivot on your segment choice or adapt your product further to fill the needs of this segment).

It is also interesting to note that this hypothesis statement contains an unverified assumption. You assume that the ‘’other solutions presented’’ will be the most important substitutes to your product. The experiment, if well designed, will allow you to verify this as well. You may find out that your target segment uses other substitutes that you didn’t account for.

Once you have stated your hypothesis clearly, you need to design a Lean Startup experiment that will enable you to validate or invalidate it. As you now know, you will have a whole lot of these Lean Startup experiments to conduct during your start-up process. Therefore you will be thinking of designing not just any experiment, but the experiment that will require the least amount of resources to achieve your goal.  If your product requires expensive machinery to produce, you certainly don’t want to build the entire factory to validate your assumption. You’ll need to be creative and find ways to get your machine’s concept across to the people in your experiment in the least costly way (in $, time and other resources) possible.

The way you will have found to get your product concept message across will be your Minimum Viable Product (MVP). Hence, in this particular example, your MVP could take the form of a drawing on a napkin, on a computer (2 or 3D), in a video, a physical model with or without moving pieces or using a similar product that you supplement with explanations of what your product will do differently. Whatever you feel is necessary and sufficient (no more, no less) to get the message across.

You also need to keep in mind that your Lean Startup experiment should be replicable. This means that in a year from now, if someone else needed to audit your results, they could replicate your experiment and get similar results. In other words, don’t choose a period, a setting or participant profiles that will skew your results.

Measure

Build Measure Learn - Baker MarektingOnce you have identified your MVP, you will need to decide what metric (data) you will be collecting and well as the standard it will need to measure against. In the example cited above, you would be collecting how many people in your experiment chose your product over other solutions that were offered to them. The standard, by definition, would have to be above 50% of your sample given your hypothesis states a preference.  Any results below 50% of participants in the experiment choosing an alternative solution would not show a preference. If your hypothesis statement did not imply a comparison but simply an interest in using your product, the standard (% of participants in this case) could be set at whatever you feel would be sufficient to demonstrate clear interest.

In order to reduce the objectivity of standard setting, you should try to get the input from someone who is very familiar with the stakeholders in your experiment in respect to your product/service.

When measuring, you aren’t looking for statistically significant results. This would be ideal but too costly in time and other resources. Instead, you will simply be looking for a clear direction in the data. If your experiment data doesn’t show a clear direction, you will need to include more participants. Occasionally, your experiment will not show a clear direction. You gather whatever learnings you can from it and move on to designing another experiment to validate your assumption.

A word of caution here, despite wanting to go as fast as possible in your Lean Startup experiments you still want to conduct them in a way that will get you to validate or invalidate your hypothesis.  If your data collection methods are not done properly and your results are seriously skewed, you will have wasted your time and energy.  Hence, you still need to have some basic knowledge of primary data collection techniques. Here are a few good sources of basic information on data collection that you should take a look at if your knowledge on the topic is nil or very low.

Learn

Build Measure Learn - Baker MarektingDuring your first Lean Startup experiments, which should be conducted face to face with your participants (this would be the Get out of the building part), you will have the greatest amount of learnings.

While you conduct your experiment, you should always leave room for the unplanned. If a participant reacts in an unanticipated way, run with it and dig into it.

Try to avoid justifying your product/service. Embrace all the comments you will have, especially the negative ones. Dig as much as you can into those. They will give you the best insights. Let the participants talk and listen to the words used, observe body language and notice expressions they use. If at all possible video or tape-record your interactions.

Keep an open mind. It won’t help your start-up if the participants understand your point of view or for you to tell them how you understand their problem. It will however help you tremendously to understand their point of view and what they perceive their problems are or your solution to be.

Your first Lean Startup experiments will help you learn what your stakeholders think about your business model assumptions, as well as all the assumptions you didn’t know you didn’t know. On top of this, you are also learning how to conduct an experiment.

Expect to make mistakes, a lot of them, in the entire build, measure and learn process. That’s ok. Learn from them as quickly as possible and always keep your ultimate goal in mind. If you start an experiment and realise you didn’t state your hypothesis correctly, design it right or choose to collect the right metrics, make immediate changes. Don’t persist with 10-20 other participants with a flawed experiment. Your ultimate goal is to validate a hypothesis, not run an experiment. Similarly, if you had planned to involve 50 participants and you have a very clear direction after 15[1], stop.

The experiment log

Build Measure Learn - Baker MarektingIf at any point in time in your start-up process you will be going to venture capital firms for funds, you will want to record your experiments in a log. Your Lean Startup experiment log will document your progress as a start-up. It will show how you dealt with the unexpected, all your learnings and the progress made towards a product/market fit. The data collected in your experiment log will also serve as input in your innovation accounting. Innovation accounting, developed by David Binetti, is one of the more complex but exciting component of Lean Startup. You can learn more about innovation accounting in these previous posts on how innovation accounting is changing the rules, how it’s done and on the concept of innovation options.

Practice makes perfect

Practice Lean Startup - Baker MarketingAs you may have figured out by now, applying Lean Startup requires effort, lots of it, and discipline. Well, that is the reality of starting a business.  Lean Startup experiments have one purpose; to bring you closer to having a profitable business or perennial organisation.

You may not be very good at the whole build, measure, learn thing at first. That’s ok. Just keep at it and practice, practice, practice. It gets easier, much easier, I promise.  After a few Lean Startup experiments you will start getting the hang of it. Not only will you already have a better understanding of the mindset of your stakeholders, you will develop tools and processes that will make experimenting much faster. You will also develop skills that will enable you to identify critical assumptions quickly, as well as spot, absorb and act on useful information more efficiently.

After a few dozen Lean Startup experiments, the build, measure, learn process will become second nature to you and others, applying it, in your organisation.

Using Lean Startup is similar to buying an insurance policy. It does require more efforts initially than if you simply build your product and service and take it to market. The benefits are that you won’t be building a product or service that will never lead to a profitable business.

Our next post will present some of the tools to help you run your experiments faster, cheaper and more efficiently.

[1] As long as your sample is not completely biased. Your participants sample has to somewhat reflect the overall population of the stakeholders of your experiment.