Running Lean

1. Deconstruct Your Idea into a Business Model

A Lean Canvas replaces long and boring business plans with a 1-page business model that takes 20 minutes to create and that actually gets read.

Visualize your idea. The Lean Canvas is a rapid idea capture tool that helps entrepreneurs deconstruct their ideas into key assumptions. It consists of 12 distinct boxes that cover all aspects of a business model, including customer segments, problems, unique value proposition, solution, channels, revenue streams, cost structure, key metrics, and unfair advantage.

Simplify and focus. Unlike traditional business plans that take weeks to write and are seldom kept up-to-date, a Lean Canvas can be sketched quickly in one sitting. This process forces entrepreneurs to distill their business model down to its essence, making it easier to communicate and test.

Key components of Lean Canvas:

• Customer Segments
• Problems
• Unique Value Proposition
• Solution
• Channels
• Revenue Streams
• Cost Structure
• Key Metrics
• Unfair Advantage

2. Love the Problem, Not Your Solution

New problems worth solving come from old solutions.

Avoid solution bias. Entrepreneurs often fall into the trap of inventing problems to justify their preconceived solutions. This "Innovator's Bias" can lead to building products that nobody wants. Instead, focus on understanding and loving the problem before jumping to solutions.

Find switching triggers. Successful innovations often solve old problems that people have been tolerating or working around. Look for "switching triggering events" that break existing solutions and cause people to switch to new ones. This approach helps identify real problems worth solving and increases the chances of creating a product that customers actually want.

Examples of successful switches:

• Cassettes to CDs: Instant song access
• CDs to MP3 players: Buy individual songs
• MP3 players to streaming: Access to millions of songs

3. Traction is the Goal: Test Viability with a Fermi Estimate

Traction is the rate at which a business model captures monetizable value from its customers.

Define success metrics. Start by setting a Minimum Success Criteria (MSC) - the smallest outcome that would deem your project a success in 3 years. This helps align your efforts and provides a benchmark for testing your business model's viability.

Use quick estimates. Instead of creating complex financial forecasts, use a Fermi estimate to quickly test your business model's viability. This back-of-the-envelope calculation helps determine if your idea has a chance of hitting your MSC based on key assumptions like pricing, customer lifetime, and conversion rates.

Key steps in Fermi estimation:

1. Set Minimum Success Criteria (e.g., $10M ARR in 3 years)
2. Determine required number of active customers
3. Calculate minimum customer acquisition rate
4. Estimate required number of leads
5. Adjust business model if necessary

4. Identify and Test Your Riskiest Assumptions First

If you don't know where you are going, any road will take you there.

Prioritize risks. Not all assumptions in your business model carry equal weight. Identify the riskiest assumptions - those that, if proven wrong, would cause your entire business model to fail. These are often related to the problem-solution fit, pricing, or customer acquisition.

Test systematically. Once you've identified your riskiest assumptions, design small and fast experiments to test them. This approach allows you to quickly validate or invalidate key aspects of your business model before investing significant time and resources.

Common risky assumptions:

• Customer problem existence and urgency
• Willingness to pay
• Customer acquisition costs
• Conversion rates
• Customer lifetime value

5. Start with Customers, Not Investors

If you can demonstrate any traction at all, it sets you apart from the pack.

Focus on customer validation. Instead of rushing to pitch investors, prioritize engaging with potential customers. This customer-centric approach helps validate your problem-solution fit and generates early traction, which is far more valuable to investors than a polished pitch deck.

Build a customer pipeline. Develop a systematic process for identifying, reaching out to, and learning from potential customers. This not only helps refine your product but also creates a base of early adopters who can provide testimonials and referrals.

Customer discovery process:

1. Identify potential customers
2. Reach out and schedule interviews
3. Conduct problem discovery interviews
4. Present solution concepts and gather feedback
5. Iterate based on learnings

6. Define Your Minimum Viable Product (MVP) Through Customer Discovery

A minimum viable product (MVP) is the smallest solution that creates, delivers, and captures customer value.

Start small and focused. Rather than building a full-featured product, identify the core value proposition that solves your customers' most pressing problems. This allows you to launch faster, learn quicker, and iterate based on real customer feedback.

Validate before building. Use customer interviews and low-fidelity prototypes to validate your MVP concept before investing in development. This "Demo-Sell-Build" approach, as opposed to "Build-Demo-Sell," ensures you're building something customers actually want and are willing to pay for.

MVP validation steps:

1. Define core value proposition
2. Create low-fidelity prototypes or mockups
3. Conduct solution interviews with potential customers
4. Gather pre-orders or letters of intent
5. Build only what's necessary to deliver core value

7. Craft a Compelling Pitch by Understanding Different Worldviews

Good entrepreneurship is NOT about brute-forcing your solution, but rather framing a business model story in terms of your audience's pre-existing worldview.

Tailor your message. Different stakeholders (investors, customers, advisors) have different worldviews and priorities. Craft your pitch to address their specific concerns and interests, rather than using a one-size-fits-all approach.

Focus on value and outcomes. Instead of dwelling on features or technology, emphasize the value your solution provides and the outcomes it enables for your target audience. This helps create a more compelling and relatable story that resonates with your listeners.

Key worldviews to consider:

• Investor worldview: Market size, monetization, defensibility
• Customer worldview: Problems, desired outcomes, ease of adoption
• Advisor worldview: Risks, opportunities, personal experiences
• Competitor worldview: Differentiation, positioning, market dynamics

8. Use the Hero's Journey to Create an Engaging Elevator Pitch

You are the guide character.

Make the customer the hero. In your elevator pitch, position your customer as the hero of the story, not yourself or your product. This approach makes your pitch more relatable and engaging, as it focuses on the customer's journey and transformation.

Structure your pitch like a story. Use the classic Hero's Journey structure to create a compelling narrative arc in your elevator pitch. This includes establishing the current situation (Before), introducing a triggering event, highlighting what's at stake, and positioning your solution as the guide that helps the hero overcome their challenges.

Elements of a Hero's Journey elevator pitch:

1. Introduce the hero (customer) and their current situation
2. Present the triggering event or challenge
3. Highlight what's at stake if the problem isn't solved
4. Position your solution as the guide or magical gift
5. Paint a picture of the transformed future state

Last updated: July 23, 2024