- Now let's talk about Lean Startup
and hypothesis validation.
Steve Blank, a Silicon valley entrepreneur
and a professor at Stanford, UC Berkeley
and Columbia university, published a famous article
entitled "Why the Lean Startup Changes Everything".
In his article he stated,
"launching a new enterprise, whether it's a tech startup,
a small business or an initiative within a large corporation
has always been a hit or miss proposition".
According to the old formula, you write a business plan,
pitch it to investors, assemble a team,
introduce a product and start selling as hard as you can.
And somewhere in the sequence of events
you'll probably suffer a fatal setback.
The odds are not with you.
As new research by Harvard business school's
Shikhar Ghosh shows, 75% of all startups fail.
Imagine, there is a way to predict
which product initiative or undertaking
is going to be successful,
actually before building it,
rather than after it's delivered to customers.
How can we learn from the customers?
What they need before we deliver anything to them?
The worst ways to ask customers what they need.
Of course, they would tell you they want a faster horse.
According to the famous quote attributed to Henry Ford,
"no one could think of a car,
they just wanted to move faster
within the confines of what they were familiar with".
Whether he was asked whether he listened to his customers,
Henry Ford presumably said
that if he asked what customers needed
they would have said that they needed a faster horse.
The lean startup approach
relies on the concept of validated learning.
This principle describes learning generated by prototyping
or implemented an initial idea,
and then measuring this against customer feedback
and this way validated effect.
Typical steps in validated learning
include the following.
Specify the goal.
Specify the metrics.
Act to achieve the goal
and analyze the metric,
whether it's progress in achieving the goal
or improve it and try again.
As Eric Ries stated in his book, "Lean Startup",
build, measure, learn.
Each test is a product hypothesis.
And once the test is completed,
the validating learning tells us
whether to pivot or try something else,
or persevere as Eric Ries attributed.
In order to organize and structure validation experiments,
companies use a simple template,
which is sometimes referred to as the
"lean validation canvas".
Look at the template on your screen.
It allows to make assumptions,
put the most probable hypothesis first,
look at the measures related to validating this hypothesis
and then record pivot or persevere decision.
Step by step,
the validation canvas is used to record each customer,
their problem to solve, the riskiest assumption,
the experiment and the results.
There are multiple types of lean startup experiments.
For example, if we believe that customers
are liking opportunity to take a small business loan,
if their credit history is at risk, we can do several ways.
We can offer them such a loan
and see whether the risk is worth taken.
We can at least let them apply for the loan
and see which loans can be underwritten, which cannot.
Either way we will know, are customers interested?
Are they ready?
Is it really a risky proposition?
So that's the exploration.
Interaction with the customer that focuses on their problem.
The other type of lean startup experiment
is called GAMBA, observing the customer.
The third one is the pitch,
which is interaction with the customer,
with the attempt for the customer
to buy or subscribe to your service.
Another and very interesting example
is called concierge experiment.
A company called seamless, which is similar to grub hub,
it delivers food from multiple restaurants upon order.
First, when the concept came up about 10 years ago,
there was a lot of concerns whether the model would survive
because you can go to a specific restaurant
and other food from there.
If you like Chinese food, you will go to Chinese place.
If you want American food
you will go to a diner and so forth.
However, without even having any contracts with restaurants
seamless decided to offer this service
in a specific area of San Francisco,
and what they did once they received an order
through the web form?
They would just go, buy food and deliver it themselves,
even at a loss.
Within one month, they knew that the model is viable
and that allowed them to build a very
strong and profitable business around it.
And as you know,
it has been confirmed now a few years later.
So that that's about lean startup
and how can you use it to validate product need.
Now, let us talk about modern product practices,
how they take this concept to the next level.