Below is a free retelling of the book Running Lean, by Ash Maurya. The rating of Amazon is 4.8 out of 5. The book, as far as I know, has not yet been translated into Russian.

Here is the essence of the book in the amount of less than 1% of the volume of the book, in my estimation. All questions are covered as I understood them, which does not necessarily coincide with the way the author wanted to convey them.

I admit that I am violating someone's rights: the retelling of the license does not require, but the illustrations are taken from the book. I wrote to the author in an attempt to clarify this question, but received no answer.
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Kgigi author's blog: practicetrumpstheory.com .

Retelling structure

• Introduction to the Running Lean Process
  • The three most important methodologies
  • Roadmap
• Process Description Running Lean
  
  • Make a "Plan A"
    
    • Determine who the customers are
    • Create business models
    • Rank business models
  • Test and change plan
    
    • Prepare for experiments
    • Risk categories and four phases of plan testing
      
      • Phase 1. Understand the problem
      • Phase 2. Find a solution
      • Phase 3. Validate quality
      • Phase 4. Quantify
• Three stages of a startup
  
  • The ratio of the three stages of the startup and the four phases of the testing plan
  • Keep the focus right
  • Attract funding on time
  • Scale correctly

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Introduction to the Running Lean Process

Running Lean is a systematic process of building a profitable business plan; the process that leads you from Plan A to a plan that works before you spend all your resources.

The three most important methodologies

Running Lean uses, among others, three key methodologies: Customer Development, Lean Startup, Bootstrapping.

Customer Development is a methodology for continuously receiving feedback from the consumer, parallel to the product development process. The methodology was created by Steve Bank, a description of which can be found in his latest book, The Startup Owner's Manual: The Building Guide for the Great Company. Key idea: "Get out of the building." (Steve Blank)

Lean Startup - a methodology for using short fast iterations for testing hypotheses. Lean Startup - a synthesis of methodologies Customer Development, Agile Software Development and Lean (Toyota Production System). The methodology was created by Eric Ries, a description of which can be found in his book The Lean Startup. (The network has a retelling in Russian of Arkady Moreynis).

Bootstrapping - the development methodology of the company on her own money.

Roadmap

The Running Lean process consists of the following steps.

1. Drawing up "Plan A". Plan A will consist of business models, each of which will consist of hypotheses.
2. Systematic testing in four phases of your plan hypotheses and a parallel plan change. Your plan here will be transformed from Plan A to a plan that will work.

Process Description Running Lean

Make a "Plan A"

Determine who the customers are

Start making Plan A with identifying your potential customers. (Hereinafter: "customer" == "consumer" == "customer", "user" == "user").

Remember:

• the consumer should always be the focus of your attention;
• Separate consumers and users (for example, a search engine: a consumer is an advertiser, a user is one who is looking for);
• allocate small consumer segments.

Create business models

When planning, use the business model in the Lean Canvas format described below, and not the business plan. A business plan is static, rigid and in most cases does not withstand market scrutiny. Lean Canvas - the format of a one-page presentation of the business model, an adaptation of the Business Model Canvas by Alexander Osterwalder. Adaptation is to give the entrepreneur a better point of view (rather than an investor, for example) and it is better to take into account the risks of most Internet startups.

For each consumer segment, create your own business model, filling it in the order listed below. Each part of the business model is your hypothesis to be tested.

Problem

List the top three issues for your customers and rank these issues by importance.

List existing alternatives.

Consumer segments

Highlight early adopters.

Highlight consumers, users, and all their roles.

Unique Value Proposition (UVP)

UVP is the essence of your product in a few words that can be put on the landing page header.

Remember the following.

• Be different. But let your distinction be significant, for which purpose make UVP a direct answer to problem number 1.
• Appeal to early followers.
• Focus on the end result or, in other words, on why the consumer buys the product. (An example is a resume composing service. "Professional design templates for resumes" are just a feature of the product. "An attractive resume that stands out from the rest" is only an intermediate result. "A dream job" is the end result and should be contained in UVP .)
• A good formula for drawing up UVP according to Dane Maxwell (Dane Maxwell): End result + Time to receive it + Counter argument against objection. Example: “You’ll have hot fresh pizza in 30 minutes, you don’t have time — you’ll get it for free.” (Instant Clarity Headline = End Result) 30 minutes or it's free. ”)
• Carefully select the words and make them "part" of the product. (Examples. "Performance" - BMW. "Design" - Audi. "Prestige" - Mercedes).
• Answer UVP in the questions: what is your product? Who are your customers? Why do your customers need your product?

Create a high-concept pitch at this stage, a phrase that would clearly convey the essence of the product, building on existing solutions. Examples: YouTube - “Flickr for video”, “Aliens” (movie) - “Jaws in space”, Dogster - “Friendster for dogs”. High-concept pitch is not used for UVP, but may be useful in other circumstances when you need to convey the essence of your decision.

Decision

Do not rush to describe the solution. Quite often, it turns out to be significantly changed after the first interviews with potential consumers.

Channels

Inbound vs Outbound

Channels of access to consumers can be divided into two groups.

1. Inbound. Consumers find you yourself. Examples:
   
   • Blogs
   • SEO
   • EBooks
   • White papers
   • Webinars
2. Outbound. You find consumers. Examples:
   
   • Sem
   • Advertising
   • Exhibitions
   • Cold calling
   • Interview

Do not spend resources on channels of the second group (Outbound) before you have tested the business model. (Interview - exception).

Direct sales vs automatic sales

First give more time to direct sales, in which you have personal contact with the consumer. This is the best source of feedback. ("First sell manually, then automate.")

Income

Set the price immediately if you intend to make money on the product. The reasons are as follows.

• Price - part of the product: the consumer perceives the product differently depending on the price.
• The price determines the consumer segment that you are targeting, and, accordingly, all other parts of the business model.
• Consumer willingness to pay is a form of validating your business model's hypotheses.

A freemium model is more of a marketing tactic than a business model. As a rule, it is better to use the Free Trial approach.

Costs

Consider the cost of a version of the product that is mature enough so that you can charge a price for it.

Key metrics

Use the so-called. Pirated Metrics by Dave McClure's Pirate Metrics. They are so called because their first letters form the exclamation "AARRR". There are five such metrics, each denotes the share of customers (conversion) that have passed to the next stage in interaction with the product. The sequence of these steps is called a conversion funnel.

• Acquisition - the share of customers (potential) attracted through marketing channels and who have found interest in the product (who did not immediately leave the site).
• Activation - the share of customers who have received positive experience in using the product.
• Retention - the proportion of customers who reuse the product.
• Revenue (revenue) - the proportion of customers who pay for the product.
• Recommendation (Referral) - the proportion of customers who recommend a product (share a link, send invitations).

Each stage can be broken down into sub-steps and conversion can also be measured for them. For example, at the stage of Attraction, you can take all who came to the web page for 100%, and then measure the proportion of potential customers who closed the site on the page with UVP, with a product tour, price, etc ...

Determine which metrics you will use and what exactly your metrics will measure in your product.

Remember the following.

• You should be able to trace the connection of any of your actions (changes in the landing page, for example) with the results (number of registrations, for example).
• You should be able to reach people for numbers. (For example, you should be able to email everyone who signed up but did not pay).

Unique advantage (Unfair Advantage)

“A unique advantage is something that cannot be easily copied or purchased.” (Jason Cohen, A Smart Bear blog).

Examples:

• insider information;
• support of a unique expert;
• dream Team;
• personal authority;
• community;
• existing customers;
• high positions in search results.

Rank business models

Rank business models from potentially more successful to potentially less successful. When assessing success, consider the total risk of hypothesis falsity: the model is more successful than this risk. Otherwise, you may have your own ideas about success: ease of implementation, possible turnover, possible margins, etc. can play a role ...

Risk

Uncertainty - the presence of more than one scenario.
Risk - uncertainty, in which there is at least one negative scenario.

Risk is assessed by evaluating

• and the likelihood of a negative scenario,
• and the magnitude of the losses in such a scenario.

Your Plan A will consist of several possible business models, each of which is a set of hypotheses. Each hypothesis carries a risk.

Ranking Risk Assessment

Use for ranking the following order of parts of the business model in which the risk contained in them is reduced.

1. Problem. (The importance of the problem for the consumer.)
2. Channels. (Ease of access to the consumer.)
3. Income and expenses. (Margin value.)
4. Consumer segments. (Their size.)
5. Decision. (Technical ability to implement the solution.)

That is, for example, the highest magnitude of the risk of error in determining the importance of the problem for the user: if you make a mistake here, then everything else will not matter.

Get advice

Seek advice at the stage of ranking business models.

Your advisers may be

• potential client,
• potential investor
• another entrepreneur with special expertise, or practical knowledge that is relevant to you.

Ask specific questions. Examples are as follows.

• “What do you think is the most risky part of the plan?”
• “Did you cope with the risks? How?"
• “How would you test the risks?”
• “Do you know someone who could give advice on these issues?”

Remember the "Paradox Consultant": "Hire consultants for good advice, but do not follow the advice, but use the wisdom that you will extract from them." (“The Advisor Paradox: apply it.”). (Venture Hacks).

Test and change plan

Iteratively

• take potentially the most successful business model of the plan,
• test its hypotheses (i.e., test them for truth in experiments),
• change erroneous hypotheses.

So your plan will constantly change from Plan A to the one that will work.

Prepare for experiments

Experiment is a cycle in which you implement an idea, measure the result and extract a lesson from the data.



Remember the following.

• Take the minimum possible step, after which it is possible to learn a lesson. (!!!)
• Formulate falsifiable hypotheses (those that can be refuted).
• Track the connection between the result and your specific actions. (This also applies to the organization of measurement of metrics).
• Focus on one key goal (metric) you need to achieve.

Examples of hypotheses

The bad: "Fame as an expert attracts early followers." Good: "A blog post will give 100 new registrations."

Examples of experiment organizations

The bad: to create for the experiment the full version of the product, to check its relevance. Good: to create for the experiment something besides the product itself, which will allow to check its relevance.

Team

Conduct experiments in a team.

Remember the following.

• Ideal team size: 2-3 people.
• Mandatory team competencies: marketing, development, design.

Interview

Use the interview as the main tool for experiments.

Remember the following.

• An interview with potential clients is a study of what you do not know, what you do not know.
• Therefore, a questionnaire survey is relevant only for quantitative verification.
• Therefore, in an interview you only set the context, and then most of the time you listen.
• Do not ask what the client wants, evaluate what he does. (Examples. 1. The client says that there is a problem, - find out how he solves it. Perhaps - in any way. That means, the problem is not so acute. 2. The client says he would buy, - offer to pay part of the payment now and guarantee a refund means.)
• Stick to the same interview scenario. (To track the connection between the result and specific actions. In another way, an interview is a different result).
• Speak first with a variety of people, do not limit yourself to only early followers.
• Count on 20-30 minutes for one interview.
• Expect to interview 30-60 people. (Stop when new interviews will not give new information).
• Document (sample) the interview results immediately upon completion.
• Thank for the interview (discount, early access to the service, etc ..).
• Use those channels of access to interviewees that you have included in the business model.
• Conduct an interview with an assistant, it will help to be objective.
• Conduct interviews on the AIDA model: Attention, Interest, Desire, Action.

Dashboard

Share the results of the experiment with all team members. This is best done through the always-available, constantly updated information panel (dashboard). It is convenient to include in it:

• business model with a dedicated test part,
• hypotheses tested in the experiment (there may be several for one experiment),
• measurement results
• lessons learned
• next steps.

Risk categories and four phases of plan testing

It is advantageous to first test the part of the business model that has the maximum risk. At the same time, it is profitable, while conducting a regular experiment on testing parts with maximum risk, to test other parts that are possible and appropriate to test in this experiment. Based on the foregoing, firstly, it is convenient to distinguish three categories of risks:

• Product risks (whether the right product is built) (Product Risk);
• Consumer risks (whether there are ways to the customer) (Customer Risk);
• Market risks (whether a working business is possible) (Market Risk).

Each part of the business model will contain a risk of a certain category. Secondly, it is convenient to divide the testing into four phases, in each of which parts of a business model with risks from each category will be tested. So in four phases the whole business model will be tested. Graphically, it looks like this.



The unique advantage is not affected in any of the testing phases, because it can only be tested in real competition.

So test your plan in the four phases described below.

Phase 1. Understand the problem

Understand the consumer’s world view before confidently formulating solutions to their problems.

Instruments:

• interview;
• problem-oriented landing page (landing page), post in a blog, advertising in a search engine or a social network (all this can help gather feedback);
• “Design Thinking” methodology (“Rapid Contextual Design” by Karen Holtzblatt, Jessamyn Wendell, and Shelley Wood);
• “User Centric Design” methodology (Human-Centered Design Toolkit by IDEO).

You can use all the tools, but the interview is required.

Interview on the issue

What you need to know

• Who are the consumers. (Part of the business model - Consumer segments). (Risk group - Consumer risks).
• What kind of problems do consumers have? How do they rank them (top 3). (Part of the business model is the Problem). (Risk group - Product risks).
• How now consumers solve the problem. Who are the competitors. (Part of the business model is the Problem). (Risk group - Market risks).

Diagram of a sample interview script on an issue

Phase 2. Find a solution

Test solution in an interview.

Use in this experiment not the finished product, but the demo version (design prototype, for example).

Interview by decision

What you should know

• Who are the early followers. (Part of the business model - Consumer segments). (Risk group - Consumer risks).
• How to solve consumer problems. What is the minimum set of features (for early followers). (Part of the business model - Solution). (Risk group - Product risks).
• Will consumers pay how and how much. (Part of the business model - Revenues). (Risk group - Market risks).

Diagram of an approximate interview scenario for a decision

Phase 3. Validate quality

In a qualitative study, be sure to create a sought-after product.

Instruments:

• interview,
• validation of the consumer life cycle.

Use both tools.

By this phase you should have the following.

• MVP. The minimum viable product ( Minimum Viable Product, MVP ) is the smallest thing you can build, but which already provides the consumer with some kind of value and for which the consumer will be ready to pay.
• Organized Continuous Deployment. In the creation of a software product, this methodology allows you to implement changes in the shortest possible time.
• Organized measurement metrics.
• Selling site.

MVP Interview

This interview should include usability testing. (For more on usability testing, see Rocket Surgery Made Easy by Steve Krug).

What you need to know

• Can you reach enough consumers. (Part of the business model - Channels). (Risk group - Consumer risks).
• What should be UVP. Whether consumers reach the stage of activation. Does MVP justify your UVP? (Part of the business model is UVP). (Risk group - Product risks).
• Whether consumers pay. Is the monetization correct? (Part of the business model - Revenues). (Risk group - Market risks).

The scheme of the approximate scenario of the MVP interview

Validation of the consumer life cycle

Ensure that 80% of early followers complete all stages of the conversion funnel. These consumers are selected by you with special care at the stages of testing the business model, so this percentage is so high.

Achieving the goal of 80%, continue to receive feedback in person or use the telephone line to support users.

Phase 4. Quantify

In a quantitative study on a wide audience, be sure to create a sought-after product.

Product Changes

Prepare to make changes to the product before launching it for a wide audience, since after launching errors and requests for a new functionality will sprinkle with the shaft.

Remember the following.

• The introduction of new functionality should be justified. ("Features must be pulled, not pushed").
• 80% of the time should be spent on improving the existing functionality and 20% on the new one.
• The introduction of new functionality should be validated in experiments as well as MVP validated.
• Use the information panel from the Kanban Dashboard methodology to monitor the implementation of the new functionality.

Quantitative research

Shawn Ellis Test

Use the following simple question to determine if there is sufficient initial demand for a startup product. (The author - Sean Ellis (Sean Ellis)).

“What would you feel if you couldn’t use the company's product anymore?” Answers:

1. Extreme disappointment.
2. A slight disappointment.
3. Would not feel disappointed. (Not such a necessary product).
4. I no longer use the company's product.

If more than 40% of respondents answer that they would be extremely disappointed by the inability to use the product, then this is a sufficient sign that you can ensure further growth of the company.

The figure of 40% was obtained by interviewing consumers of hundreds of startups.

Achieve this indicator.

Consumer retention test

Apply the same figure of 40% to the conversion funnel Hold metric: You have enough initial demand for further growth if you retain 40% of your “activated” users (here, the Activation metric is taken as 100%).

The indicator does not apply to the income metric, because it can give a false positive result: there will be users who will pay, although they will not use the product (because the payment card is linked to the account and an auto payment is set, for example).

Three stages of a startup

A startup goes through three stages in development.

1. Finding a solution for a problem (Problem / Solution Fit) - You make sure that people really have a problem, and you have a solution.
2. Product search for the market (Product / Market Fit) - You are convinced that your solution is the product that customers are willing to buy.
3. Scale - You increase the scale of your business.

The ratio of the three stages of the startup and the four phases of the testing plan

The first two phases of testing a business model are in the first stage of a startup development. The third and fourth phases of testing the business model are at the second stage of the startup development.

Keep the focus right

In the first two stages of startup development, focus on your own learning, that is, on finding a plan that will work. Experiments at these two stages often lead to significant changes in the business model. Such a change is called Pivot (a term coined by Eric Rees).

In the third stage, focus on the growth of the startup. Experiments at this stage lead to the optimization of a business model aimed at accelerating growth.

Attract funding on time

Attract external capital after passing the second stage of development of a startup. Passing the second stage is the first serious achievement of a startup. Here you have a scalable profitable business model, that is, a working profitable business plan. At this moment, both you and the investor have one goal (one focus) - growth.

Scale correctly

In the third stage, select the main growth mechanism. Eric Rees describes the following three.

1. Sticky - business is growing due to the fact that from the period in the period of retained customers (metric Hold) more than the outgoing (those who used, was counted metric Hold for one of the previous periods, but no longer use). Example - SaaS-solution, the client began to use and it became part of his life.
2. Viral - business grows due to the fact that your customers are actively sharing information about your product: on average, one customer must tell at least one new customer about your product. An example is a social network, the viral mechanism is part of its structure.
3. Paid — , ( ), , .… ( David Skok): LTV > 3 * COCA (LTV — customer lifetime value ( , ), COCA — cost of customer acquisition ( )).

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