Lean Startup Investor – Quick Reference Guide Part 3

November 8, 2012

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Part 3 focus on "Where are we?" A major focus of a startup is to figure out where it is at right now, face the hard facts, and then design experiments to move the metrics closer to what they laid out in the business plan. Ries calls this the 3 Learning Milestones

1.) Establish the Baseline: Set metrics that are not "vanity metrics" i.e. "website visitors". Make sure your metrics are Actionable, accessible and Audit-able.

    a) Actionable: demonstrate a clear cause and effect relationship so that you can take definitive action in response to it.

    b) Accessible: be easily understood and available widely to people in the company.

    c) Auditable: be able to go back to the source of data to prove that the metrics were telling the truth and the entire story.

2.) Pivot: At several points you will need to make a decision about if you business strategy looks as though it has a chance or not. If not, then it is time to Pivot. A Pivot is a fundamental change in the business strategy. This is where the true entrepreneurial mindset comes in to play. A true entrepreneur, according to Ries, is learning how to build a sustainable enterprise, not make a single product idea a success. There are several pivots but 5 basic pivots. It is important to know that each pivot is only the next hypothesis and that is not necessary the answer and must be rigorously tested like everything else.

    a) Zoom-in: Where a single feature of your product becomes the entire product.

    b) Zoom-out: Where your product is too narrow to support a business, and you decide to make a broader product.

    c) Customer Segment: Based on an intimate understanding of the customers developed during your iteration process, you realize that the need you were solving for is not very important. But you find new needs you can solve instead.

    d) Business Architecture: This is where you go from a high margin, low volume solution to a low margin high volume solution.

    e) Technology: Where you realize you solve the exact same problem using a completely different and more often less expensive technology.

3.) Persevere: If things are going well and you can see a path to great success and profits, keep working the idea you've started with, but be sure to make you decision to persevere and all future decisions on cold hard facts.