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DRS Pro TransferMinimum Viable Products (in a Lean Startup)Prof. Dr. Hannes RotheDepartment of Information SystemsFreie Universität BerlinDRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt ftr)1
What is a Lean Startup?or why should we care about prototyping?DRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt ftr)2
What is the difference between startupsand existing companies?human institution designed to deliver a new product orservice under conditions of extreme uncertainty”“A startup is a(Eric Ries 2009)? ? ?DRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt ftr)3
What is the difference between startupsand existing companies?aStartupDRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt ftr)is not a smallversion of a bigcompany4
What is the difference between startupsand existing companies?temporary organizationdesigned to searchfor a repeatableand scalablebusiness model.”A startup is “a(Steve Blank 2011)Source: S. Blank (2011): Why the lean start-up changes everything.DRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt ftr)5
What is the difference between startupsand existing companies?unknown.Startups search for assumptions about theExistingCompaniesexecute whattheyDRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt ftr)know.6
“Business modeling is [ ] the managerial equivalent of the scientific method – youstart with a hypothesis, which you then test in action and revise when necessary.”(Magretta, 2002)H1: A change in anIndependent Variable leadsto a change in a DependentVariablef.e.If we place a product moreprominently, it can be soldmore oftenSource: J. Magretta (2002): Why Business Models matter, p. 5.DRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt ftr)7
Test the Problem, then your solution.Ref. b/1/10/Business Model Canvas.png/1280pxBusiness Model Canvas.pngDRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt ftr)8
How do we validate our Business Model?DRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt ftr)9
We want to learn as fast as we can Hence, we want to reduce the time betweenBuild Measure Learn Build Measure Learn Build Measure Learn ---Ref. Ries (2011): The lean startup: How today's entrepreneurs use continuous innovation to create radicallysuccessful businesses.DRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt ftr)10
We want to learn as fast as we can We need to test “leap-of-faith”-hypotheses:a) Value Assumptions and b) Growth AssumptionsRef. Ries (2011): The lean startup: How today's entrepreneurs use continuous innovation to create radicallysuccessful businesses.DRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt ftr)11
Once we have a Minimum Viable Product A MVP is the basis for an agile, incremental and iterative development of abusiness model.In case parts of our problem assumptions arewrong, we change the Business Modelfundamentally (before our capital runs low).We call it:pivotNewGuessRef. Ries (2011): The lean startup: How today's entrepreneurs use continuous innovation to createradically successful businesses.DRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt ftr)NewGuess12
Minimum Viable ProductWhat is a MVP?"The minimum viable product is that versionof a new product which allows a team tocollect the maximum amount of validatedlearning about customers with the leasteffort.“(Eric Ries, 2009)“[ ] a bare-bone[s] product that includes justenough features to allow useful feedback fromearly adopters”(Carmen Nobel, 2013)Ref. um-viable-product-guide.htmlNobel, C. (2013). Teaching a 'Lean Startup‘ Strategy. Harvard Business School.image: Margot Duane 2012 flickrDRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt ftr)13
Minimum Viable ProductWhy an MVP?Ref. Croll/Yoskovitz (2013): Lean analyticsDRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt ftr)14
Customer DevelopmentWhere do we start?“a group of stupid hippies turnedthe bike world on its ear”“I don’t think Schwinn Designers were really thinkingabout us, when they design those early fat tire bikes.”Ref. E Ries (2011): The lean startup: How today's entrepreneurs use continuous innovation to create radicallysuccessful businesses; S Blank (2013): Why the Lean Start Up Changes Everything.Images and citations from Klunkerz: A Film About Mountain Bike HistoryDRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt ftr)15
Customer DevelopmentWhere do we start?Has or can acquire a budgetHas put together a solutionout of partsHas been actively seeking asolutionIs aware of having a problemHas a problem„earlyvangelist“Ref. S. Blank n-by-subtraction-the-minimum-feature-set/DRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt ftr)16
Build faster Enter the Lean Startup Cycle witha testable MVP in front of realcustomers.A Lean Design(Agile Development, Free or OpenSource, Cloud Computing,Refactoring etc.)Usability or UX Tests(Hallway Testing, HeuristicEvaluation, A/B Tests, Usabilityquestionnaires, CognitiveWalkthrough etc.)Ref. Ries (2011): The lean startup: How today's entrepreneurs use continuous innovation to create radicallysuccessful businesses.DRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt ftr)17
Measure faster Beware Analysis Paralysis:Get out of the buildingand talk to your customers about their Issues(Interviews, Observation)and your Solution(Interviews, make use of webanalytics, usability & UX testing,funnel analysis (f.e. AARRR), cohortanalysis)Ref. Ries (2011): The lean startup: How today's entrepreneurs use continuous innovation to create radicallysuccessful businesses; A Maurya (2012): Running Lean; Lean Analytics (2013)DRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt ftr)18
Learn faster Your Learning Goals depend on your currentstate:In the end you want . E Ries (2011): The lean startup: How today's entrepreneurs use continuous innovation to create radicallysuccessful businesses; S Blank (2013): Why the Lean Start Up Changes Everything.DRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt ftr)19
Minimum Viable Products (in a Lean Startup)Prof. Dr. Hannes RotheDepartment of Information SystemsFreie Universität BerlinDRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt ftr)20
Minimum Viable ProductInterviewDRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt ftr)21
Minimum Viable ProductConcierge MVP (Wizard of Oz MVP)Expected process by rocessingPick uporder fromwarehouseShippingBehind the curtainIncomingorderPick up orderfrom a nearbylocal shopOrderprocessingShippingShoes merchantwas sold for about900 Mio. US toAmazon in 2009„[Be] the [wo]man behind the curtain.“„Fake it until you make it“Task and ToolsService is done step-by-step,manually and in person, as if it wasdone (semi)automatic.See also Ries (2010): The Lean StartupImages: Wikipedia Jorge Royan (cc by-sa 3.0), Cover of L.F. Baum „Wonderful wizard of OZ“, G. M. Hill, 1900DRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt ftr)22
Minimum Viable ProductConcierge MVP (Wizard of Oz MVP)AnotherexampleLinguistic students at your faculty needbooks without marked paragraphsCreate a simplelanding page, find andsell books by hand.How many peoplevisited your site andordered these books?Ref. um-viable-product.html.Image: Wikipedia Johannnes Jansson/norden.org (cc by 2.5)DRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt ftr)23
Minimum Viable ProductVideo MVP“It drove hundreds of thousands ofpeople to the website. Our betawaiting list went from 5,000 peopleto 75,000 people literally overnight.It totally blew us away.”(Drew Houston, CEO Dropbox)https://www.youtube.com/watch?v w4eTR7tci6ATask and ToolsA video displays briefly thevalue proposition / valuecreation by a service orproduct offering.Ref. Video made with VideoScribe; Another example http://innovationsmarathon.de/team-7DRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt ftr)24
Minimum Viable ProductLanding Page / s and ToolsIllustrate your value proposition(product or service offer)Critical aspect: Assess your successwith suitable measures.LandingPageKPIARRR MethodLean AnalyticsImages. Screenshots from Facebook.com and Google.comDRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt ftr)25
Minimum Viable ProductLanding Page / Ads1.In 10 Minutes Scribble alanding pagea) a Landing Page forour productb) Develop searchterms to acquiretarget customers2.Present your page (2 Min.)„Catch-Phrase“Call to actionRef.: Osterwalder et al. (2014): Value Proposition DesignAssess Costs-per-Click (Google) on s: cc by sa Chris Harrison 2007 Flickr, cc by sa Ftiercel 2012 WikipediaDRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt ftr)28
Minimum Viable ProductCrowdfundingSell it before you build itImage: Pebble TechnologiesBut only 36,85 % of projectsattain their project goals onKickstarter.Tasks and ToolsAssess market demand, get feedbackabout product or service and testmarketing channels.CrowdfundingMaybe you also secure initial fundingCrowdinvestingRef. g-success-rate/DRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt ftr)29
Minimum Viable ProductPaper PrototypeWebbasedi.e. myBalsamiq, Axure(Indesign, Powerpoint)Android & iOSi.e. Pop 2.0Paper & Pencili.e. pencil, fineliner,colored markers,scissors Sefelin, Reinhard, Manfred Tscheligi, and Verena Giller. "Paper prototyping-what is it good for?: acomparison of paper-and computer-based low-fidelity prototyping.“; Snyder, Carolyn. Paperprototyping: The fast and easy way to design and refine user interfaces, 2003.DRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt ftr)30
Minimum Viable ProductPaper PrototypeExample:https://youtu.be/9wQkLthhHKA?t 1m35sDecide whichuser tasksyou‘ll test.One person„simulates“the machinePrepare yourmockups.Multiple peopleobserve the user andher actionsDo yourusability test.At least one persontests the mockupand thinks aloud.Snyder, Carolyn. Paper prototyping: The fast and easy way to design and refine user interfaces. Newnes, 2003.Nielsen, Jakob. Designing web usability: The practice of simplicity. New Riders Publishing, 1999.DRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt ftr)31
Minimum Viable ProductPaper PrototypeCreate an iOS app tocapture and circulate notesfrom scientific conferences12Form groups of 2 or 3 and develop an app(10 Minutes)1 Person is a demonstrator1 Person is documentor1 Person is a tester(5 Minuten)Snyder, Carolyn. Paper prototyping: The fast and easy way to design and refine user interfaces. Newnes, 2003.Nielsen, Jakob. Designing web usability: The practice of simplicity. New Riders Publishing, 1999.DRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt ftr)32
Minimum Viable ProductProduct PrototypeCommon practice for buildinginformation systems (Software).1999200020032016Information systems (Hardware)Siehe Interview with NicholasWoodman (CEO GoPro)https://www.youtube.com/watch?v Gd-k-395KtAImages: Screenshots from google.com and web.archive.org; Gopro; Forbes.comDRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt ftr)33
Minimum Viable ProductProduct Prototype / Service PrototypeAlternative practice for prototyping your service. explore your customer group,location, and recipe.Image: http://www.eventinc.de/info/food-truck-berlin;see also http://www.woopwoopicecream.de/DRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt ftr)34
Summing up with the Dropbox StoryUsing MVPs within the Lean Startup CycleInitial core domain:(IT-based) startups(meanwhile also been seenin big companies of all kind)LeanStartupCyclePrototypical Procedure:„learn early, learn often“(adaptation from „release early, release often“)Ref.: Ries (2011), Maurya (2012), Blank (2013), http://theleanstartup.com/casestudies, Drew Houston ( 2010, Link)DRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt ftr)35
Summing up with the Dropbox StoryUsing MVPs within the Lean Startup CycleCase: Dropbox is Software as a Service2007 „Throw away your USB drive“11st Video MVP Call to Action(3 minutes screencast on Hacker News)2008 Private Beta Launch22nd Video MVP Landing PageEarly Adopters (Waiting List leaptfrom 5k to 75k within a day)2009 Landingpagesmultiple pages SEO/SEMexperiments„Put something inusers hands and getreal feedback ASAP“Typical happy customer„didn‘t realize [they]needed this“- SEO/SEM2010 Version 1.0Freemium model with WoMMarketing (2,8 mio. „referal Iinvites“ in30 days)Ref.: Ries (2011), Maurya (2012), Blank (2013), http://theleanstartup.com/casestudies, Drew Houston ( 2010, Link)DRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt ftr)36
Minimum Viable ProductMVP TypesProduct Prototype /Single Feature MVPConcierge MVPScope3D PrintRoleplaysWireframes„Sell it beforeyou build it“(Crowdfunding)Video MVPQuestionnairePaper PrototypeAdvertisementsPresentation/ InterviewLanding PageReachRef. Stefan Roock (2012) and Mathieu Garde (2014),images (cc by sa) Efude 2007 DeviantArt, Creative Tools 2012 Flickr, Jorge Royan 2006 Wikipedia,Shawan Zaln 2014 FlickrDRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt ftr)37
(1) Which of the the MVPtypes would be mostfeasible for you?(2) Which valueassumptions could youtest with the MVP?DRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt ftr)38
Am I riding adead horse?Upside down Horse by David Cerny Flickr Abi Skipp 2008 cc by 99DRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt ftr)39
Typically we are asked for the Break-even PointWhen will we break even (wins losses)𝑇𝑜𝑡𝑎𝑙 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡𝑠𝑅𝑥 𝐶𝑓 𝐶𝑣𝑥 𝑝 𝐶𝑓 𝑐𝑣 𝑥R: revenueCf: fixed costsCv: variable costsx: unitsp: pricecv: costs per unitWhich cost types are regularly most important for highly scalablebusiness models?DRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt ftr)40
Variable costs revenues for entrepreneursUnderstanding the customer funnelAcquisition: User gets in contact with product/serviceActivation: User successfully interacts for the first time with product/serviceRetention: User comes backReferral: User talks about product/serviceRevenue: User initiates a cash flowe.g., -beginners-guide-to-pirate-metrics/DRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt ftr)41
Variable costs revenues for entrepreneursUnderstanding the customer funnelAttract SellSupport /ResellLossKroenke (2013), Using MIS, S. 263DRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt ftr)42
Variable costs revenues for entrepreneursCustomer lifetime valueTimeLifetimeRest lifetimeRetention probabiltyValueAcquisitionpaymentsRepeatedpayments Current cashflowsBeginning of relationshipCurrent timeexpected referral (virality)Expected cashflowsEnd of relationshipRef. Bruhn, M.; Georgi, D.; Schusser, S. (2004): Einsatz des Customer Lifetime Value (CLV) im Commitmentgeschäft. In:Management von CRM-Projekten. Handlungsempfehlungen und Branchenkonzepte, Wiesbaden, S. 438.DRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt ftr)43
Variable costs revenues for entrepreneursDiving into customer acquisition costsHow about your customers?(lets compare selling to business with selling to consumers)DRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt ftr)44
Some Additional ReadingsBlank, Steve. "Why the lean start-up changeseverything." Harvard Business Review 91.5 (2013): 63-72.Maurya, Ash. Running Lean: Iterate from Plan A to a PlanThat Works. " O'Reilly Media, Inc.", 2012.Croll, Alistair, and Benjamin Yoskovitz. Lean Analytics: UseData to Build a Better Startup Faster. " O'Reilly Media, Inc.",2013.Ries, Eric. The lean startup: How today's entrepreneurs usecontinuous innovation to create radically successfulbusinesses. Random House LLC, 2011.Magretta, J. "Why business models matter." Harvardbusiness review 80.5 (2002): 86.Some videos on the topicLean Startup(Introduction)Value and ValuePropositionDRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt ftr)What is a “businessmodel”?59
Images Team (cc-by); et-verschil-tussen-succes-en-faillissement Building (cc-by); Lance Hancock from The Noun Project Books (cc-by) /Urval av de bocker som har vunnitNordiska radets litteraturpris under de 50 ar som priset funnits (2).jpg Screenshot – amazon Webpage, https://www.amazon.com (2014-10-24)DRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt ftr)60
BibliographyCooper, Alan. The inmates are running the asylum:[Why high-tech products drive uscrazy and how to restore the sanity]. Vol. 261. Indianapolis: Sams, 1999.Kleinaltenkamp, M. (2013). Nutzungsprozesse–die vernachlässigte Seite derWertschöpfung. In Theorie und Praxis des Dienstleistungsmarketing (pp. 1-25). SpringerFachmedien Wiesbaden.Kleinaltenkamp, Michael, Ilias Danatzis, and Carolin Wernicke. "Produktivität imGesundheitssektor–Wertschöpfung in Nutzungsprozessen." Dienstleistungen imGesundheitssektor. Springer Fachmedien Wiesbaden, 2014. 59-87.Lusch, R. F., Vargo, S. L., & Tanniru, M. (2010). Service, value networks and learning.Journal of the academy of marketing science, 38(1), 19-31.Maslow, Abraham Harold. "A theory of human motivation." Psychological review 50.4(1943): 370.Osterwalder, Alexander, et al. Value Proposition Design: How to Create Products andServices Customers Want. John Wiley & Sons, 2015.Rintamäki, T., Kuusela, H., & Mitronen, L. (2007). Identifying competitive customer valuepropositions in retailing. Managing Service Quality: An International Journal, 17(6), 621634.Smith, Adam. "An inquiry into the nature and causes of the wealth of nations: VolumeOne." (1776).Vargo, S. L., & Lusch, R. F. (2004). Evolving to a new dominant logic for marketing.Journal of marketing, 68(1), 1-17.DRS Pro Transfer 2018, Prof. Dr. Hannes Rothe (@cpt ftr)61
Thank you!Enterprise Fair: Digital Startup Ecosystem, Prof. Dr. Hannes Rothe (@cpt ftr)
Ref. Ries (2011): The lean startup: How today's entrepreneurs use continuous innovation to create radically successful businesses. Build faster Enter the Lean Startup Cycle with a testable MVP in front of real customers. Usability or UX Tests (Hallway Testing, Heuristic Evaluation, A/B Tes
