Talk I gave at the Chinese Entrepreneur's Organization

1. The Lean Startup
Calvin Chin
@calvinwuchin
chen@qifang.cn

2. Intro

3. geek
ABC
husband
father
social entrepreneur

5. Qifang
Qifang is a web service for students and schools to
find funding and recipients for loans and
scholarships, manage relationships and data, and
Students
share in a community of borrowers, lenders and
donors.
qifang.cn
Schools
Funding

6. Social
Ventures
non-
profits social change profitability corporations
&
NGOs

7. technology
Social
Innovation
social change profitability

8. Agenda
• the bad news
• the good news

9. the bad news

10. startups fail

11. Probability of Success
Individual Event Probability
Company has sufficient capital 80%
Management is capable and focused 80%
Product development goes as planned 80%
Production and component sourcing goes as planned 80%
Competitors behave as expected 80%
Customers want product 80%
Pricing is forecast correctly 80%
Patents are issued and are enforceable 80%
Combined Probability of Success 17%
If just one of the variables falls to 50%, the overall probability
goes to 10%.
Source: Source: Zider, B., Harvard Business Review

12. common mistakes

13. 1. team

14. team
• only one founder
• vote of no confidence
• thought partnership
• moral support
• fights between founders
• usually due to people not situation
• face conflicts and misgivings early
• lack of documentation
• bad engineers
• business people have difficulty judging who is a good product developer
Source: Paul Graham

15. 2. location

16. location
• startup hubs
• experts
• resources: supporting industries
• sympathy
• serendipity
Source: Paul Graham

17. 3. flawed concept

18. flawed concept
• Marginal niche
• avoid competitors, end up avoiding customers
• intimidated by big ideas
• Derivative
• limited by who you are derivative of
• feature not a product not a company
• solve a problem no one is solving
Source: Paul Graham

19. 3. timing

20. timing
Error Result
revenue grow faster than employees inadequate customer service
revenues grow slower than employees burn rate too high, run out of cash
bad early customer experience, first
PR grows faster than quality of code (product)
impressions
too many cooks; culture of slowness and low
employees grow faster than code (product)
effort
Source: Joel Spolsky

21. 4. funding

22. funding
• Expensive
• time consuming to raise
• time consuming after, investor management
• Raising too little
• distractions: keeping day jobs
• lack of effort
• Raising too much/spending too much
• hiring too many people
• corrupts company culture
• harder to change direction
Source: Paul Graham

23. 5. launch

24. launch
• launch too late
• perfect is the enemy of the good
• afraid of customer rejection
• chase customers with customization and features
• launching without customer understanding
• not getting hands dirty
• sacrificing customers for profit maximization
Source: Paul Graham

25. How do you lower
your risks?

26. the good news

27. new models

28. new funding models

29. new funding models
Accelerating Model defined
FCS Adoption and proven
Valuation
(Adoption Curve)
Low-burn
experimentation
phase
<?>
Time Risk (ß)
Seed Capital
(angels?) Series A Expansion
(or founder liquidity)
Source: Benchmark Capital

30. accelerators
• Incubator 2.0
• Funding+ model
• Mentorship
• Network
Source: ReadWriteWeb

31. social venture capital
Angel Investors social venture capital Philanthropy
Venture Capital
Bank Financing
patient capital Foundations
Government Grants
Financial Social &
Returns Environmental
Returns
• Multiple Priorities
• Single bottom line: economic returns
• Double-bottom line: economic returns + social returns
• Triple-bottom line: economic returns + social returns + ecological returns

32. new operating model

33. The Lean Startup

35. many think startups are just
small large companies
large
company = ⨏( large company
)
“if you want your company to be big, act like it is big...”

36. large companies...
have culture
have customers
have departments
have meetings
have money
have time

37. Large Company
product development model
Product Alpha/Beta
Concept Development
Launch
Test
Source: Steve Blank

38. product development model
Product Alpha/Beta
Concept Development
Launch
Test
- create marketing/
- create demand
comunications - hire PR agency
Marketing materials - generate early buzz
- launch event
- branding
- create positioning
Source: Steve Blank

39. product development model
Product Alpha/Beta
Concept Development
Launch
Test
- create marketing/
- create demand
comunications - hire PR agency
Marketing materials - generate early buzz
- launch event
- branding
- create positioning
- hire sales VP - build sales
Sales - hire first sales staff organization
Source: Steve Blank

40. product development model
Product Alpha/Beta
Concept Development
Launch
Test
- create marketing/
- create demand
comunications - hire PR agency
Marketing materials - generate early buzz
- launch event
- branding
- create positioning
- hire sales VP - build sales
Sales - hire first sales staff organization
Business - hire first biz dev - do deals for FCS
Development
Source: Steve Blank

41. startups are not small big
companies
startup
≠ large
company ≠ ⨏( large company
)

42. product/market fit
product
? startup
market ∉
Source: Marc Andreesen

43. product/market fit
product
Depends on your model
- market traction
- 40% of customers “must have” your product
- means being in a good market with a product that
market can satisfy that market
before product/market fit after product/market fit
The customers are buying the product just as fast
as you can make it -- or usage is growing just as fast
You can always feel when product/market fit isn't as you can add more servers. Money from
happening. The customers aren't quite getting value customers is piling up in your company checking
out of the product, word of mouth isn't spreading, account.You're hiring sales and customer support
usage isn't growing that fast, press reviews are kind staff as fast as you can. Reporters are calling
of "blah", the sales cycle takes too long, and lots of because they've heard about your hot new thing
deals never close. 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...
Source: Marc Andreesen, Sean Ellis

44. problems/worries
search for a execution of a
business model business model
scalable startup transition large company
Scaling problems
Startup problems
- how do we make enough product?
- will people buy? product
- how do we keep inventory?
- how do we market? market
- how do we maintain quality?
- how do we pay our bills?
- how do we find enough good people?
- etc...?

45. operations/metrics
search for a execution of a
business model business model
scalable startup transition large company
Startup Accounting Traditional Accounting
- customer acquisition cost product - balance sheet
- viral coefficient - cash flow statement
market
- customer lifetime value - income statement
- average selling price/order size - predictable forecasting
- monthly burn rate
- etc...
Source: Steve Blank

46. customer development model
Customer Customer Customer Company
Discovery Validation Creation Building
Source: Steve Blank

47. Customer Development: Key Concepts
• Parallel/integrated process to Product
Development
• Measurable Checkpoints
• Customer milestones, not product milestones
• Pragmatic view on market types
• Emphasis on learning and discovery (before
execution)
Source: Steve Blank

48. Customer Development: Heuristics
• Inside your building, opinions; outside of the
building, facts
• Develop for the Few, not the Many
• ‘Earlyvangelists’ make your company and
know more than you
• Focus Groups are for big companies
• Minimum viable product
Source: Steve Blank

49. Hierarchy of Earlyvangelists
has or can acquire
budget
put together a makeshift
solution
actively looking for solution
is aware of having a problem
has a problem
Source: Steve Blank

50. customer development model
Customer Customer Customer Company
Discovery Validation Creation Building
- Stop selling, start listening
- Test your assumptions, hypotheses
- Customer Problem, Customer Solution (your product concept)
Source: Steve Blank

51. Customer Discovery: Exit Criteria
• What are your customers top problems?
• How much will they pay to solve them
• Does your product concept solve them? Chinese Social Startups Specifics:
• Do customers agree?
• What is the government view
on your project/issue?
• How much will they pay? • What structure/registration
should your project take?
• Draw a day-in-the-life of a customer • Are you in the right location?
• before and after your product
• Draw the org chart of users and buyers
Source: Steve Blank

52. customer development model
Customer Customer Customer Company
Discovery Validation Creation Building
- Develop a repeatable sales process
- Only earlyvangelists are crazy enough to buy
Source: Steve Blank

53. Customer Validation: Exit Criteria
• Do you have a proven sales roadmap
• Org chart? Influence map?
• Do you understand the sales cycle?
• ASP, ROI, etc...
• Do you have a set of orders validating the roadmap
• List price
• Does the financial model make sense?
Source: Steve Blank

54. customer development model
Customer Customer Customer Company
Discovery Validation Creation Building
- Creation comes after proof of sales
- ‘Cross the chasm’
- Strategy not a tactic
Source: Steve Blank

55. Customer Creation: Key Concepts
• Grow customers from few to many
• Four customer creation activities
• Year One objectives
• Positioning
• Launch
• Demand creation
• Creation is different for different market types
Source: Steve Blank

56. customer development model
Customer Customer Customer Company
Discovery Validation Creation Building
- (re)build your company’s organization and management
- review your mission
Source: Steve Blank

57. Company Building: Key Concepts
• Management needs to change as the company grows
• Founders are casualties
Development-orientation
Process-orientation
Mission-orientation
• Sales Growth to match market type
Source: Steve Blank

58. Company Building: Exit Criteria
• Does sales growth plan match market type?
• Does spending plan match market type?
• Does the Board agree?
• Is your team right for the stage of the company?
• Have you built a mission-oriented culture?
Source: Steve Blank

59. Customer Product
||
Development Development
Source: Steve Blank

60. product development

61. the fundamental startup loop
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Source: Eric Ries

62. Continuous Deployment
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63. Continuous Deployment
• Deploy new software quickly
• Tell a good change from a bad change quickly
• Revert a bad change quickly
• Work in small batches
• Break large projects down into small batches
Source: Eric Ries

64. Rapid Split Tests
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65. Split-testing all the time
• A/B testing is key to validating your hypothesis
• Has to be simple enough for everyone to use and understand
• Make creating a split-test no more than one line of code
• AAA: actionable, accessible, auditable
• Measure the macro: split-test the small, measure the large
Source: Eric Ries

66. Five Whys
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Source: Eric Ries

67. Five Whys Root Cause Analysis
• Technique for continuous improvement of company process
• Ask “why” five times when something unexpected happens
• Make proportional investments in prevention at all five levels of
the hierarchy
• Behind every supposed technical problem is usually a human
problem. Fix the cause, not just the symptom.
Source: Eric Ries

68. Other strategies
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69. questions

70. appendix

71. Source: Steve Blank

72. Traditional Product Development
Unit of progress: Advance to next stage
Waterfall
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Source: Eric Ries

73. Agile
Unit of progress: a line of working code
“Product Owner” or
in-house customer
Problem: Known Solution: Unknown
Source: Eric Ries

74. Lean Product Development
Unit of progress: validated learning about customers ($$$)
Problem: Unknown Solution: Unknown
Source: Eric Ries

76. More on Earlyvangelists
1 Value your key differentiators – Your product will have benefits that only it can deliver along with benefits
that customers can get elsewhere. For example you are offering a product where the key benefits are related to
simplicity, scale and cost reduction.Your customer research has validated that all three of these are important to
customers in the space. You think you beat the other products in your market when it comes to simplicity and
cost reduction but nobody else offers scale. The easiest segment you could go after is one where scale really
matters because even though you think you might be better at simple, the difference between you and the
alternatives might not be meaningful for customers.
2 Don’t care much about the stuff you aren’t good at – In the early stages there will be gaping holes in
your product and other things that your product just doesn’t do all that well. Your best segment doesn’t care too
much that those things (at least not at the beginning).
3 Risks of adopting your product are lower for them – There will be reasons why customers will not adopt
your product related to the risk in doing so. For example some segments will have to migrate off of another
product in order to adopt yours or customers will have to trust that you can do what you say you can do. It’s
often a useful exercise to document all of the reasons people won’t adopt your product and then map that our
against your potential customer segments. Choose a segment that has the least barriers to adopting your product.
4 Segment is big enough or is a gateway to a big enough segment – Make sure that the segment you end
up with is big enough to get your business to where it needs to go. If it isn’t quite big enough then it should at
least be a good, clear pathway to a bigger segment. For example, having a beachhead of customers in mid-sized
services businesses might be enough to help you get into the market for independent consultants (where having
that base would address some of their concerns).
Source: April Dunford

77. • Customer Discovery – Achieve Problem/Solution Fit
• Customer Validation – Achieve Product/Market Fit
• Customer Creation – Drive Demand
• Company Building – Scale the Company
Source: Ash Maurya

78. Test the Riskiest Thing First
Depending on your business:
Minimum Viable Product
Distribution, Revenue, Business model
Minimum Feasible Product
Transistors/inch, Power usage, Cures cancer
Minimum Desirable Product
Engagement, Sustainable growth, Love <3
Source: IDEO, Andrew Chen