How to Raise a Lean Startup – III
September 30, 2013 2 Comments
I practice Scrum / XP in the software projects I manage. As part of the same, the team iterates over sprints during the development of the project. The sprints are kept as short as possible (usually a week long) so that feedback loop is short. At the end of each sprint, the team gets feedback on whether they built the right product or not. Likewise, for a ship cruising on the ocean, frequent checks of the current route vis-a-vis the planned route are preferred so that course corrections (if any) are short.
Ries illustrates the same spirit of short feedback loops in the diagram below:
The aim is to quickly show something to the customer so as to seek his acceptance and then move onto the next iteration to add some more features or perhaps remove some existing feature based on the feedback received. Ries puts it eloquently, “…the goal of the MVP is to begin the process of learning, not end it. Unlike a prototype or concept test, an MVP is designed not just to answer product design or technical questions. Its goal is to test fundamental business hypotheses”.
While the entrepreneur is incorporating feedback and working to improve the product, how does he ensure that he is on the right track. This is where innovation accounting comes into play. It comprises of prioritising product features, selecting a target market, and critiquing the vision in the light of market feedback. Innovation accounting has the following steps:
- Using an MVP to have a firm grasp on the current position of the startup
- Trying to move this baseline to where the startup would like to be by tuning it up
- Finally, arriving at a decision on whether to pivot or persevere
The entrepreneur should be careful in measuring the data lest he finds himself obtaining vanity metrics (that wrongfully depict the startup to be in a healthy or improving condition) instead of real metrics.
The above helps the entrepreneur in deciding whether to pivot or persevere. While persevering is relatively easy to understand – iterating through the build-measure-feedback loop continuously while tuning the product continuously – pivoting requires a little explanation. Pivoting doesn’t mean throwing away everything and starting from scratch. It is about reusing whatever has been built to the extent possible and then building on top of it to target customers afresh. Pivots can be of one of the following types:
Zoom-in Pivot: what was earlier only a feature of the product becomes the product now and other features are either abandoned or assume lesser significance.
Zoom-out Pivot: the product itself is insufficient and thus more features are added to it to create a new product.
Customer Segment Pivot: the product solves a real customer problem but it would better serve a different customer segment than the one it is being currently targetted to.
Customer Need Pivot: the need being solved currently is insignificant as compared to the one that can be solved without repositioning too much.
Platform Pivot: this is a pivot from selling a product that solves a particular need to let customers use it as a platform for provide similar services.
Business Architecture Pivot: this is a pivot between high margin, low volume business (usually B2B) and low margin, high volume business (usually consumer products).
Value Capture Pivot: a different feature can be monetised instead of the one currently being so.
Engine of Growth Pivot: the company can pivot among the engines of growth – viral, sticky, and paid. This usually requires a pivot in capturing value as well.
Channel Pivot: a pivot in the distribution channel of the product / service.
Technology Pivot: the company can pivot on the technology that provides a better cost advantage or better performance