Thursday, December 27, 2012

On Remarkable Products: Seth Godin's Advice in Purple Cow

I guess I'm in the late majority because I just got around to reading Seth Godin's Purple Cow: Transform Your Business By Being Remarkable.  By now, the ideas in the book are less novel, but just as, or more, urgent.  And the writing is colorful and logical: a rare combination.  I expected another derivative marketing book; boy was I surprised.

The setup of the book reminds me of the setup in Daniel Pink's A Whole New Mind:  Why Right Brainers Will Rule The Future :  Consumers are less needy, more satisfied, have more choices, and less time to pay attention to ads or marketing about new products.  The old marketing and advertising strategies don't work anymore.

So what do you do?  Godin: Take your marketing budget and invest it in making your product remarkable.  But not remarkable to anyone.  Remarkable to the innovators and early adopters in your market who will be so impressed that they will spread the word for you about your remarkability.  These sneezers will sneeze your remarkability to the rest of the market.  To sum it up in one phrase:

be remarkable to market innovators.

The book replete with examples of remarkable products and some corollaries of the above thesis.

Corollary #1.  It's risky to be safe, or the inverse: safety is risky.  Now as an absolute, this is not true, but it points to the idea that getting to the remarkable requires taking some risks to do or find/create that remarkable rare bird of a product.  The desire to play it safe and avoid risks, especially among successful companies makes it harder to achieve the remarkable.

Corollary #2.  When you go out on the edge where the innovators are, you'll develop something that the market majority may not understand.   So, very bad can be a sign of good.  (This has to be balanced with other considerations such as can I make enough money from innovators before I cross the chasm to the marjority in the market.

Qualification. Its possible that in some markets, the innovators may not be merely bridges to the market majority but cash cows  for your purple cow.  His example: online banks that derive most of their deposits from the customers that use the online banking features.  Pearl Jam is an example because they made a big business out of selling their live concerts to the innovators.  It's a great example of growing the customers you already have.

Corollary #3.  Boring leads to failure.

Godin argues that targeting innovators is so important that you should pick markets that have innovators that can serve as sneezers.

Below are some examples of remarkable products.  Some of these companies may no longer seem remarkable because remarkability has an expiration date which may be reached when a product becomes popular and common and the company fails to continuously innovate.
In pursuit of the purple cow, here are some questions to ask yourself:
  • Which markets have the most innovative sneezers?
  • In a given market, what customers are most likely to be innovators?  A sneezers?
  • How would you Bronnify, Kiwi,-ize, Aeronize, South Park-ize your product?
  • If you won the lottery and gave it all to a team of designers and usability experts to design your next product, what would it look like when they were done?
  • What slogan would you write to appeal to the sneezers?
  • Who in your industry has a great tracking of launching remarkable products?  How would you recruit them or copy them?
  • Pick a remarkable company in a dull industry and do what they did.
  • What are you not doing as a result of fear?
  • How can you out do a company in your market that is already on the edge?

Thursday, December 20, 2012

The New Entrepreneurial Methodology

A new entrepreneurial methodology is emerging under name of lean startup (with customer discovery).  The spread of the methodology coincides with a worldwide spike of interest in and practice of entrepreneurship.

The methodology can be summarized as follows:
  1. Define a business model (the plan)
  2. From day one, develop personal relationships with customers.
  3. Run a customer-centered experiment to test your plan.
  4. Based upon what you learned in the experiment, revise your plan and your product and design and run more experiments, repeating the process until you find a plan that works.
Or to summarize it even more concisely, in six words:
  1. Business model
  2. Customer relationships
  3. Experiments
  4. Rapid cycle time
The uncertainty premise.   This methodology rests on one critical assumption:  that starting up a company to create something new or even something new to you is a highly uncertain venture.  Many startups today in the web and mobile space are doing just that.  On the other hand, if you've managed a beauty parlor for years and you want to start your own beauty parlor, there's less risk.

Ironically, entrepreneurs seem genetically programmed to underestimate their risks and to act as if they didn't exist.  This is bad for entrepreneurs but good for society which thrives on many people trying and failing to create new things.

Back to the methodology...

1.  Business model.  A business model is, while having a fancy name, a simple thing.  Its a simple representation of your plan that answers the questions:  
  • What am I offering (value proposition)?  
  • What are the customer groups that will buy my offer (segments)?  
  • Will customers actually buy what I'm offering (problem-solution fit)?  
  • Will enough customers buy from me (market size, product-market fit)?  
  • How will I get, keep, and grow customers (customer relationship)?  
  • How will I make money and will it cover my costs (revenue streams and cost structure)?  
  • What resources do I need to make it all happen (key resources)?  
  • What are my most risky assumptions (key assumptions)?  
A business model can be summarized in one or two pages.  It's simpler than a business plan, more useful and represents a complete picture of the business along with its key risks.

A business model is also a set of guesses.  The method helps you turn guesses into facts.

Lastly, a business model is a logical expression articulation of an entrepreneur's vision which is the creative powerhouse and engine behind the creation of new things in the world.

2.  Early and personal customer relationships.  Its important to develop personal relationships with customers early on even if your starting a business that doesn't require much ongoing customer contact.  Customers provide an early warning system for flaws in your business model.  They give you deep insight, often unintentionally, and that insight  leads to changes in your model, small and large.

3.  Rapid cycle time.  You won't succeed with your first business model.  Perhaps not with your second, third, or tenth.  This is a foundational fact.  

Let's engage in a thought experiment.  Imagine you could look into the future and know that your tenth plan is the one that will work.  You can't jump to ten because you're going through a learning process where one plan leads to the next.  At your current rate of learning, you will run out of time and money before you get to ten.  So the solution is to speed up the learning process.  The more quickly you can loop through a plan-test-revise cycle, the better your odds of success.  This is also called iteration.

4.  Experiments.  Experiments are what you do during an iteration.  The English word experiment derives from the Latin exper which means to try.  Startups use conversations, networking, presentations, and prototypes to try out their product and their business model on potential customers.  There is a lot of accumulated wisdom on different types of experiments and how to run them efficiently.  Experiments create learning experiences for entrepreneurs which lead to better plans.  To experiment is to engage in trial-and-error, or perhaps, more accurately, trial-and-learn.

One of the words repeated in this post is learning.  Entrepreneurship is a process of learning about customers and markets and using that learning to build a profitable business.  The startup methodology outlined here is about how to orchestrate the learning process.

Monday, December 17, 2012

A Startup In Images

What do you do?  Do the build-measure-learn loop, or in the words of Pearl Jam, "Do the evolution, baby!"

from Eric Ries.  Define an idea.  Build something to test your idea.  Measure customer responses.  Modify your idea based on what you learned.  Repeat the process.  The faster you move through the loop, the more your learn, the more likely you're idea will succeed.

What do you measure?  AAARR!, short for pirate metrics for web/mobile startups, which is short for acquisition, activation, retention, revenue, referral.

From Dave McClure.  This is pretty self-sufficient except for activation which is a happy and positive first experience with a product or service.  First impressions are pretty important.

How do you get to startup Nirvana?  Four steps (to the epiphany)

From Steve Blank.  Take a set of hypotheses about your business and turn them into facts by interviewing, presenting to, demoing to, and, in general, getting intimate with customers.  WARNING: startup founders will be first fired in the execution phase because they're not genetically programmed to execute.

How do you represent your hypotheses?  As a business model.

From Alexander Osterwalder.  A de facto standard for representing a business model is in terms of the nine concepts on the above graphic.

Startup Project Management in Four Dimensions

Management of a startup can be thought of as a four dimensional challenge-- the challenge to develop a valid business model, to find and develop customers, to develop artifacts that test the business model, and to perform those tests.  Each of the four dimensions require attention and management.

The goal of a startup is to create/find a good (valid) business model.  The customer is the ultimate judge of the business model through his buying behavior (and buy signals).  Experimentation is the means to discover more more quickly and more early in the process whether the business model is valid.

The Business Model.  A valid business model is the ultimate goal of startup.

Customers.  When developing a startup, you may not need a lot customers at any given point to test your business, but over the course of your project you may "use up" a lot of customers.  Your initial ideas ideas may be flawed and initial prospects may not come back to you after an underwhelming initial experience.   It's important to embrace this reality and be willing to go through a good number customers.  

Customers need to be continually recruited to test out the business and this "recruitment" process needs to be managed.

The "Product".  The product is re-framed as the artifacts needed to test the business model.  The "product" eventually becomes the real product.

Experiments.  Experiments are the means the learn from customers about the busines model as presented by the "product".

Friday, December 7, 2012

Uncertainty and Entrepreneurship

One of the fundamental characteristics of startups which drives thinking about methodology and whether you actually want to do one is uncertainty.

Here's Eric Ries:
A startup is an organization dedicated to creating something under conditions of extreme uncertainty. 

And Steve Blank:
In a startup the search for a business model is chaotic, unpredictable and uncertain. 

No plan survives first contact with customers.

Conditions on the ground will change so rapidly that the original well-thought-out business plan becomes irrelevant.  Blog post

Alex Osterwalder:
Business model innovation remains messy and unpredictable, despite attempts to implement a process. It requires the ability to deal with ambiguity and uncertainty until a good solution emerges. -- Alex Osterwalder,  Blog Post

The world is so full of ambiguity and uncertainty that the design attitude of exploring and prototyping multiple possibilities is most likely to lead to a powerful new business model.  -- Alex Osterwalder,  Blog Post

He wasn't talking about startups but I'm remind of what Nietzche wrote:

I say unto you:  one must still have chaos in oneself to be able to give birth to a dancing star

Friday, November 23, 2012

The 4--No, Wait--6 Noble Truths of Entrepreneurship

The central truths of the Buddhist tradition are found in the The Four Noble Truths which begin with No. 1, loosely translated, "Life is difficult."  There should be something similar in entrepreneurship: a statement of the basic truths that apply in all cases.  I've attempted an itemization which I'm fairly certain will hold out and be uncontested for the rest of the day (assuming no retweets).  Here it is:

1.  Most startups don't succeed with their initial plan.  Customers will defy your expectations again and again.  Therefore the most important thing is to develop and test many plans--A, B,C, etc-- until you get to the plan that will work (its out there somewhere).  This is the fundamental startup truth and a lot follows from it. Its similar to the Buddhist "Life is difficult" and could also be stated, "Comedy is easy, entrepreneurship is harder."  But seriously, you need to get to Plan Z.

2.  Engage customers early and often.  The answers, however difficult to obtain, lie with customers.  They may not know the solution, but they live and breathe the problem and the need.  Develop your understanding and relationship with customers as you're building your product or service--not just in the beginning and not just at the end.  Don't disconnect with customers in the middle.

3.  Your real product is not your product; it's your plan.  Describe your plan simply in terms of  your value proposition, customer, market, and revenue model.  This plan is called a business model and needs to be written down before you write any "business plan".  Embrace the language of the business model and get it down on paper.

4.  Testing is the engine of progress.  Test your entire business model (which you just wrote down) starting with the biggest risks: features, customer acquisition strategies, pricing strategies, etc.  Don't just test your product.  How do you do it?  In small batches, with simple prototypes, with a product that has a few core features, with a revised product with one additional feature.  Test frequently so you don't have enough time to develop a lot of stuff.   You waste less time when the unexpected happens.

5.  Iterate fast and frequent.  Startup development IS a series of iterations with the following steps:  document your model, put something in front of customers, and measure the result qualitatively and quantitatively.  Based on the results refine your model or pivot to a different model.  Repeat the process until you run out of money or get to a working plan.  Think rapid cycle time.  The more iterations you can get in, the more pivots you can make, the more plans you can blow through, the more likely you will get to a good plan.

Paraphrasing liberally from Linus Pauling, the best way to have a good plan is to have a lot of plans.

6.  Prefer funding your startup with customer revenue over investor money.  This is the deeper meaning of bootstrapping.

Wednesday, October 10, 2012

Notes and Quotes from Alex Osterwalder's Business Model Generation

from Business Model Generation -- Notes and Quotes

On Applying Design Skills to Business Model Generation

What businesspeople lack is design tools that complement their business tools.
We are convinced that the tools and attitude of the design profession are prerequisites for success in business model generation.
(Osterwalder identifies six design skills or areas: customer insights, ideation, visual thinking, prototyping, storytelling, and scenarios.)
Business model innovation is not about looking back...[but] creating new mechanisms to create value and derive revenue.

On Play and Artistry

When an artist starts painting he often has a vague idea--not an exact image--in mind.  Rather than starting in one corner of a canvas and executing sequentially, he starts wherever his muse dictates and build the painting organically.  As Pablo Picasso said, "I being with an idea and then it becomes something else."  Picasso saw ideas as nothing more than points of departure.  He knew they would evolve into something new during their explication.

On Customer Insights

Osterwalder recommends the use of an Empathy Map to gain a deeper understanding of customers.
  • What does he see in his enviroment?
  • What does he hear?
  • What does he feel?
  • What does he say and do?
  • What is his pain?
  • What does he want to gain?

On Ideation

To come up with new or better options, you must dream up a grab bag of ideas before narrowing them down to a short list of conceivable options.  Thus, ideation has two main phases, idea generation where QUANTITY MATTERS and synthesis, in which ideas are discussed, combined, and narrowed down to a small number of viable options.  (Add testing and experimentation a la "lean startup".
Managing an existing business model is one thing; designing a new and innovartive business model is another.  What's needed is a creative process for generating a large number of business model ideas and successfully isolating the best ones.
Business model innovators need to think like artists

On Applying Ideation to a Business Model

It's important to apply ideation to all components of a business model because innovation can come from anywhere.

There are four epicenters of business model innovation: resources, value proposition, customer, and finance.   A key change in one can trigger changes in other that can lead to a profitable model.

  • Resource-driven.  Amazon Web Services was built on top of their retail infrastructure.
  • Value proposition-driven.  A cement maker delivers cement to job-sites in 3 hours vs. the typical 24 hours.
  • Customer segment -driven.  Deliver an existing solution to a new customer segment.  Inevitably, this changes other parts of the business model (variation on value proposition and costs and revenues)
  • Cost and revenue-driven.  Xerox couldn't sell copiers because they were too expensive.  They switched to a leasing as their pricing mechanism and the copiers were affordable to lots of businesses. 

On Prototyping

We see prototypes representing potential future business models:  as tools that serve the puprose of discussion, inquiry, or proof of concept.
A business model prototype can be...described with the Business Model Canvas.
It is important to understand that a business model prototype is not necessarily a rough picture of what the actual business model will actually look like.  Rather a prototype is a thinking tool that helps us explore different directions in which we could take our business model.
Making and manipulating a business model prototype forces us to address issues of structure, relationship, and logic in ways unavailable through mere thought and discussion.
We need to construct multiple versions of our prototype at different levels of refinement.
Interaction with prototypes produces ideas more readily than discussion.

On The Design Attitude

As businesspeople, when we see a prototype we tend to focus on its physical form or its representation, viewing it as something that models, or encapsulates the essence of, what we eventually intend to do.  We perceive a prototype as something that simply needs to be refoned.  In the design profession, prototypes do palay a role in pre-implementation visualization and testing.  But they also play another very important role: that of a tool of inquiry.

We believe it is important to think through a number of basic business model possibilities before developing a business case for a specific model.  This spirit of inquiry is called design attitude, because it is so central to the design professions...

The attributes of design attitude include a willingness to explore crude ideas, rapidly discard them, then take the time to examine multiple possibilities before choosing to refine a few--and accepting uncertainty until a design direction matures.

Napkin sketch.  Very rough idea
Elaborate.  More details, research market potential, some fact checking
Business case. More data, spreadsheets, financial scenarios
Field test.  You've decided on a potential model and want to test with customers.