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Business Success Process Step 1

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Carl Rainey

on 10 March 2015

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Transcript of Business Success Process Step 1

Build A Successful Business
Business Success Process - Step 1
Identify market opportunity
Conceive idea to address opportunity
Two models to start
Write business plan, then start
Test/prove the idea, then plan
Start/grow the business

Business Model Canvas
Portable, one-page diagram
Allows for brainstorming possible business models
Forces focus

Goal
Write Your Business Plan
The Lean Startup
Adapts lean ideas into entrepreneurs
Uses validated learning as a unit of progress versus high-quality physical goods
Provides guidance on how to make the many trade-off decisions:
whether and when to invest in the process
creating infrastructure
when to respond to feedback
when to invest in scaling up
Emphasizes fast iteration and customer insight, vision, and great ambition
Minimum Viable Product
MVP - "that version of a new product which allows a team to collect the maximum amount of validated learning about customers with the least effort." Eric Ries
Viability is determined by the market, not you
"Knowing" is a trap. Do you know or merely think you know?
Functionality above and beyond viable, does not make you more viable (best product rarely wins)
Don't release your MVP to the world, but rather to a select group
Customers
Identify customers and why they would buy from you
Distinguish between customers & users
Split broad customer segments into smaller ones
Put everyone on the same canvas at first
Then, sketch a canvas for each customer segment
Step 2 - Problem
List top 1 to 3 for each customer segment
List existing alternatives
Unique Value Proposition (UVP)
Why you are different and worth getting attention
Create your UVP
Be different, but make sure your difference matters
Target early adopters - not ready for mainstream
Focus on finished story benefits
UVP formula: Instant Clarity Headline = End Result Customer Wants + Specific Period of Time + Address the Objections
Pick your words carefully and own them
Answer: what, who, and why
Study other good UVPs - use what works
Solution
Determine a solution to your problem as late as possible - after customer interactions
Sketch out the simplest thing you could possibly build to address each problem
Channels
Failing to find a significant path to customers is among the top "fail" reasons
Initial goal is to learn, not to scale
The "customer discovery" process reveals the path to early customers
Free versus paid - no such thing as "free", time has a cost
Inbound: blogs, SEO, ebooks, white papers, webinars
Outbound: print, TV ads, trade shows, cold calling
Since value proposition has not been tested, its difficult to justify marketing dollars
First sell manually yourself, then automate or let others do it
Focus on retention before referral - build a great product then spread the word
Revenue Streams and Cost Structure
Revenue streams:
Product addresses top problems & worth solving, so charge
Lowering price to obtain customers delays product validation
Price defines you customer
Getting paid is the first form of validation
Cost:
What will it costs to interview customers?
What it will costs to build & launch your MVP?
What is your burn rate in terms of fixed/variable costs?
Key Metrics
Acquisition: how do users find you?
Activation: do users have a great first experience?
Retention: do users come back?
Revenue: how do you make money?
Referral: do users tell others?
Unfair Advantage
Something that cannot be easily copied/bought
Examples:
Insider information
Dream team
Personal authority
Existing customers
SEO ranking
Rank Your Business Models
Create a canvas for each business model
Objective:
model with a big enough market
market you can reach
customers who need your product
a product you can build
Weighting order:
Customer pain/pleasure level (Problem)
Ease of reach (Channels)
Price/gross margin (Revenue Streams/Cost Structure)
Market size (Customer Segments)
Technical feasibility (Solution)
Problem Interview
What You Need To Learn
Product risk - what are you solving?
How do customers rank the top 3 problems?
Market risk - who is the competition?
How do customers solve these problems today?
Customer risk - who has the pain?
Is this a viable customer segment?
Conduct Problem Interviews
Welcome - set the stage
Collect demographics - test customer segment
Demographics that you believe will drive how you segment & qualify early adopters
Tell a story - set problem context
Illustrate top problems with a story
Problem ranking - Test problem
State top three problems and ask for ranking
Explore customer's worldview - test problem
Go through each problem and ask how they address each - listen and watch
Do they offer up new problems
What solutions are currently used
Wrapping up - The hook and ask
Would you be willing to see the product when ready
Document results
Understand The Problem
Review results - adjust script as needed
Start to home in on early adopters - drop least favorable segments
Refine the problems - if you get a strong "don't need" - drop that problem, or "must have" - add to script
Understand existing alternatives - early adopter will use their existing solutions as standard to judge your solution
Pay attention to words customers use - this uncovers "key" words to use for your UVP
Identify potential paths to customers
Solution Interview
What you need to learn
Customer risk - who has the pain?
How do you identify early adopters?
Product risk - how will you solve these problems?
What is the minimum feature set needed to launch?
Market risk - what is the pricing model?
Will customers pay for a solution?
What price?
Testing your solution - build a demo
Demo needs to be realizable - use technologies in use
Demo needs to look real
Demo needs to be quick to iterate - quickly change & test
Demo needs to minimize waste
Demo needs to use real-looking data
Testing your pricing
Don't ask customers what they'll pay, tell them
Must demand a fair price - validates offering
Don't lower sign-up friction, raise it
Don't want "on-the-fence" users
Want "all in" early adopters
Don't make it to easy for customers to say "yes", it increases desire
Conduct Problem Interviews
Welcome - set the stage
Collect demographics - test customer segment
Demographics that you believe will drive how you segment & qualify early adopters
Tell a story - set problem context
Illustrate top problems with a story
Problem ranking - Test problem
State top three problems and ask for ranking
Explore customer's worldview - test problem
Go through each problem and ask how they address each - listen and watch
Do they offer up new problems
What solutions are currently used
Wrapping up - The hook and ask
Would you be willing to see the product when ready
Document results
Conduct Solution Interviews
Welcome - set the stage
Collect demographics - qualify early adopter
Tell a story - set problem context
Illustrate top problems with a story
Demo - Test solution
For each of three problems
Using demo, illustrate how you will solve problem
Ask
What part of demo resonated with you the most?
Which could you live without?
Any missing features?
Test pricing - more art than science
customer accepts, but with a little resistance
Wrapping up - ask for referrals (for interviews)
Document results
Solution Interview Exit Criteria
Can you identify the demographics of an early adopter
Have you identified a must-have problem
Can you define the minimum features needed to solve this problem
Have you determined a price the customer is willing to pay
Can you build a business around it
Reduce Your MVP
The danger the Solution interview brings is providing more features than needed initially
To reduce waste and speed up learning, pare down until all you have left is the essence of your product - your MVP
Here's how:
Clear your slate - don't automatically assume any features must be included on your MVP
Start with your #1 problem - your unique value proposition is to make a compelling promise and your MVP must deliver on that promise
Eliminate nice-to-haves and don't needs - unless it is a prerequisite
Repeat above step for #2 & #3
Consider other customer feature requests - may make your MVP complete or usable
Charge from day 1, but collect on day 30 - provides you 30 days to get the back end collections right
Focus on learning, not optimization - scaling came come later
Measure
Actionable metric
Metric that ties specific & repeatable actions to observed results
Must understand difference between a vanity metric & a micro metric
Metrics are people first - metrics are people to
Metrics can't explain themselves - they identify where things go wrong, but not why. People can tell you why
Don't expect users to come to you - product users aren't interested in your solution. Especially when things go wrong. You must reach out
Not all metrics are equal - segment metrics into different buckets
Simple funnel reports aren't enough - these work by letting you specify a reporting period over which the number of key event occurrences are counted. Issues:
Inaccurate conversion rates
Dealing with traffic fluctuations
Measuring progress - product changes ties to results
Funnels vs Segmenting funnels (cohort, allow for split tests)
Validate Customer Lifecycle
Make feedback easy - in person or phone instead of email, forums, or discussion boards
It shows you care
Allows additional questions
Not all customers are equal
Troubleshoot customer trails - covers the full customer lifecycle and force an outcome that leads to quick, actionable learning
Acquisition & activation - are you driving enough traffic to support learning
Retention - users come back and use again
Revenue - get paid. Those that didn't buy, why
Referral - get testimonials
Launch - ready when 80% of early adopters make it through conversion funnel
Unique Value Proposition
Key - If I am your ideal prospect, why should I buy from you rather than any of your competitors
Because factor - if you don't have a "because" you are lost
The "because" frames your argument
6 Ways To Stand Out
#1
Focus on your "only factor"
An appealing offer without exclusivity is diluted by number of competing options
Exclusive offer without appeal has force undermined by lack of attraction
#2
Provide clear evidentials - evidence, numbers, etc
Value accepted is contingent upon value believed
Value believed is contingent upon value understood
#3
Strengthen the process-level value proposition
try not to use a Send or Submit button
Not this: "send", "submit", "complete", etc
But this: "get your free trial", "become migraine free", "get free access", etc
Click here to get ...
#4
Build a compelling narrative - tell the story
Builds upon the value proposition
#5
Use valuable images
images should help sell the story
communicates the nature of the offer
#6
Link to your brand equity
Brand is the aggregate experience of the value proposition
As the customer experiences this value
Customers develop a belief about its source - think Apple
Example:
Harley-Davidson (HD)
Project Rushmore (PR) - overhaul of the process HD uses to design, build, and market new motorcycles
Uses crowd-sourcing to learn from customers - injects into PR
Customer research
from existing HD customers & competitive brand owners
focus groups, formal clinics, informal question-and-answer sessions, web panels, etc
Result - 8 new touring models/100 design changes
Business Model Explanation
Developed less than 5 years ago by Alexander Osterwalder as part of his PhD dissertation.
Synthesized all of the components in to a book Business Model Generation, published in 2010.

“A business model describes the rationale of how an organization creates, delivers, and captures value.”
It is a visual tool

Steve Blank on a business model: how a company
creates value for itself
while delivering products/services for customers

The objective of this module is to show you how to use the model to visually and quickly identify what your plans are for your business
9 Building Blocks
Each block is important, but the importance changes as you develop your business
Step 1 - Customer Segments
Identify who your customer segments are
New segment if that group needs
a different channel
must have a different price point
require a different type of relationship
For whom are we creating value?
Who are our most important customers?
Business Model Canvas
Local Food Project
New ice cream business
Owner spent 2 years attending ice cream classes
Dairy Farmer - 100 milking cows, use part of this milk
Know where your milk comes from - local
Non-homogenized, unique (high-end)
Hand-crafted, artisan product
Market - high-end restaurants (Milwaukee & Chicago)
Starting with many assumptions
9 Building Blocks
Step 2 - Value Proposition
A value proposition solves a customer problem or satisfies a customers need or want
What is it that you will do to meet those expectations?
This is not simply a listing of products or services
Starts as the benefits not the features: Product market fit.
What value do we deliver to the customer?
Which one of our customer’s problems are we helping to solve?
What bundles of products or services are we offering to each customer segment?
Which Customer needs are we satisfying?
As we learn, it becomes more than these
9 Building Blocks
Step 3 - Channels
What are your customer touch points?
This section could involve distribution, communication and sales
Through which channels do our customer segments want to be reached?
How are we reaching them now?
How are our channels integrated?
Which ones work best?
Which ones are most cost-efficient?
How are we integrating them with customer routines?
9 Building Blocks
Step 4 Customer Relationships
Focuses on your intended relationship with your customers
How do you get, keep, and grow customers?
Do you intend to offer personal service or be automated?
Will you have a focus on your community?
What type of relationship does each of our customer segments expect us to establish and maintain with them?
Which ones have we established?
How are they integrated with the rest of our business model?
How costly are they?
9 Building Blocks
Step 5 Revenue Streams
Take a look at how you intend to make revenue
You may have recurring sales or you might have one time only sales
This will make a difference when you create financial projections
For what value are our customers really willing to pay?
For what do they currently pay?
How are they currently paying?
How would they prefer to pay?
How much does each revenue stream contribute to the overall revenue?
9 Building Blocks
Step 7 Key Activities
Consider what you will do on a daily basis to be able to deliver your goods and services.
Key activities:
Production
Problem solving
Platform/network
Revenue streams?
9 Building Blocks
Step 8 Key Partners
Small and start up companies often have partnerships that are essential to the operations of their business
They may be with suppliers or vendors. However, they may be substantially more complex
Who are our key partners?
Who are our key suppliers?
Which key resources are we acquiring from partners?
Which key activities do partners perform?
9 Building Blocks
Step 9 Cost Structures
Take a look at steps 6-8 and you will be able to identify costs
What are the most important costs inherent in our business model?
Which key resources are most expensive?
Case Study - New Cranberry Red Potatoes – CSA/FM
High in potassium (helps keep blood pressure low & bones healthy)/anthocyanins (anti-inflamimatory antioxidant)
Potatoes in pounds received by WI consumers monthly - 2.62 (source: ctre.iastate.edu/marketsize/default)
Market formula – Dane County
Family households - 116,752, US Census Bureau 2010
Families >$60K – 50.1%, US Census Bureau 2012
Average family size – 2.95, US Census Bureau 2010
% of population attending Farmer’s Market (FM) – 3%, FM Manager 2012
% capture rate = 2% Assumption
Formula
116,752 X .501 = 58,492.752 families
58492.752 X 2.95 = 172,553.6184 people in families >$60K
172,553.6184 X 0.03 = 5176.608552 People > $60K attending FM
5176.608552 X 0.02 = 103.53217104 people buying Cranberry Red Potatoes
103.53217104 X 2.62 = 271.25 lbs. sold monthly at FM
271.25 lbs./2 = 135.625 packages
125.625/4 = 34 2 lb packages weekly
Advantages
Quickly see what you need to know
Make a decision (go, no-go, re-think/re-tool)
Customer focused
Session 4
Writing the Business Plan
Lean Business Planning

Business Model Canvas

Copyright © 2013 The Board of Regents of the University of Wisconsin System





Sessions 1 - 3

Lean Business Planning

Business Model Canvas

Copyright © 2013 The Board of Regents of the University of Wisconsin System





Sessions 1 - 3

Overview of Sessions 1-3




Business Plan
Build A Successful Business

Businesses survival rate for new firms:
69% survive at least 2 years
51% survived 5 years or more
33% survived > 10 years
25% survived > 15 years
www.sba.gov/advo
Business Success Process
Feasibility/Proof of Concept
Lean Business Concepts
Business Model Canvas (BMC)
Making a Go, No-go or Re-Think/Re-Tool Decision
Case Study
Individual BMC
Test your solution
Assumptions Made Within Operations:
You assume your idea is good
You assume people will buy your product
You assume it will be hard
You assume people are actively looking for your solution
You assume people will love it so much that they tell hundreds of people
You assume they will say yes
You assume it will cost money
Problem with Assumptions
You only realize their accuracy after the launch
Very costly mistake!
Market Picture – Callan Rush - Luminary Training, Inc.





Assumptions
3-Step Process
List out your assumptions you're making
Identify those requiring immediate feedback before launch
Test identified assumptions - pivot, discard, or move forward

Market Questions
Answer These Four Questions
Recognize the problem
Purchase solution
From us
Can be built
The "Just Do It" method
Avoids management
Don't spend time analyzing strategy
Start building immediately, often after a few customer conversations
Customers don't really know what they want -
will take you down the wrong path (buy-ology Truth and Lies About Why We Buy by Martin Lindstrom)
A Two Step Approach to Business Planning
1. Use “lean” start-up techniques
Roots/History - started with auto manufacturing
Dr. Demming - 1950s, always learning - watch the process
Bootstrapping/Prove The Market - customer contact-sell
Eric Ries - 2009
Methodology - operating in an "unknown" environment. It's a search(to learn) for a business model to execute
2. Write a business plan - accomplished in a "known" environment
The Lean Startup
Not less or cheaper money
Not failing fast, failing cheap
Process around the development of a product
Way to test your vision before running out of money
To adjust, pivot, move forward, or stop
An approach to managing start-ups and
getting a desired product to customers' hands faster
The Lean Startup
Designed to teach you how to drive a start-up
Think big, start small
Do not make complex plans that are based on a lot of assumptions
Ideas may be cheap, but acting on ideas can be very expensive
About speed, learning, and focus
About engaging customers throughout the product development cycle
You make constant adjustments with the Build-Measure-Learn feedback loop

B-M-L









Phases
Build Phase
Minimum viable product (MVP)
the smallest solution you can build & delivers customer value
Bonus: And capture value
MVP Risks - increases exposure. Must out learn, out execute
Measure Phase - test/pilot solution with customer
Learning Phase
3 learning milestones
where you are now
devise experiments to move closer to ideal
making good progress toward ideal
Pivot or persevere
The idea that successful start-ups change direction but stay grounded in what they've learned
Examples
Dunlop new tire development
built test track - experts evaluate products
Bill Gates/Paul Allen – Microsoft
1973 - Traf-O-Data, to make traffic counters
1975 - Gates contacted Micro Instrumentation and Telemetry Systems (MITS), sold BASIC - "Microsoft"
Mark Zukerberg - Facebook - Harvard/Yale/World
Business Plan Session 2


Business Plan
Business Model Canvas
Recap/Questions about lean start-up
Learning about your Industry and Market-UW Librarian
Introduction of Business Model Canvas
Case Study
Individual Business Model Canvas
The Empathy Map


Empathy Map
Beyond Customer's Demographic
Better understanding
Environment
Behavior
Concerns
Aspirations
Customer Profile
guides the design of better value propositions
more convenient ways to reach customers
more appropriate customer relationships
Empathy Map Process
Name customer
Identify some demographics
income
education
age
etc.
Ask Following
What does she see in her environment?
surrounds her, who are friends, what types of offers exposed to, problems encountered
What does she hear - how environment influences her?
what do friends/spouse say, who really influences her & how, media channels are influential
What does she really think/feel - what goes on in the mind?
really important (may not say aloud), emotions- moves her, keeps her up, dreams/aspirations
What does she say/do?
attitude, telling others, look at potential conflicts between what is said & what she may truly think/feel
What is her pain?
biggest frustrations, obstacles to wants/needs to achieve
What does she gain?
truly want/need to achieve, how does she measure success, strategies to achieve goals
9 Building Blocks



Session 3
Customer Development
(Hypothesis Generation/Customer Questions & Interviews)
Overview

Business Plan
Introduction
Recap of Business Model Canvas/Lean Canvas
Empathy Map
Introduction of customer development
Get out of the building
Hypothesis Generation-Customer Questions and Interviews
Case Study will be integrated into discussion
Individual Hypothesis Generations-Customer Questions
BMC


LC

So…what is a hypothesis?
A hypothesis is a statement that you can prove to signify that there is a market present that values your idea
You test these hypotheses in order to make a decision about your business model
Pivot or Persevere

Ignore the first 3 questions
Ask the wrong question "can it be built"?
Should ask "should it be built"?
Eric Ries



Age of Innovation -
Out Think
By G. Shawn Hunter

Innovation is now what “entrepreneurial” was to the 1990s
And what “excellence” was to the 1980s

The pursuit of “innovation” has been urgently added to the business buzz because the velocity of change demands that companies constantly innovate to remain relevant
Economic Downturns -
Out Think
By G. Shawn Hunter

Disney, CNN, Hyatt, Burger King, FedEx, Microsoft, Apple, Gillette, Merck, Hershey’s, Coors-the list goes on

All these organizations were started during economic downturns. Our greatest opportunities exist in such times,
but we need to let go of methods that worked in the past in part, because they’re not working anymore
Interview Process - AIDA
-
A
ttention: address the right problem
-
I
nterest: demo solution
-
D
esire: position MVP as prize
-
A
ction: purchase MVP
To Address The Assumptions
Use the Customer Development process
Called The Start-Up Path 4 Steps
Search for business model
Customer Discovery
Customer Validation
Execution of business model
Customer Creation
Company building
9 Building Blocks
Step 3 - Channels
Describes how a company communicates with and reaches its customer segments to deliver value proposition
Channel types
sales force (direct), web, stores, wholesale
Channel phases
awareness, evaluation, purchase, delivery, after sales
Customer Relationships
Personal assistance
Dedicated personal assistance
Self-service
Automated services
Communities - users exchange knowledge & solve each others problems
Co-creation
Generate revenue streams
Asset sale
Usage fee
Subscription fees
Lending/renting/leasing
Licensing/Brokerage fees
Advertising
9 Steps You Need To Ask When Developing Buyer Personas
1. What is their demographic information?
married, income, where, sex, age, children
2. What is their job/level of seniority? (B2B)
seniority < education need, shorter attention spans
3. What does a day in their life look like?
piece together their typical day, where would they rather be
4. What are their pain points?
How their problem affect their daily life, how it makes them feel
5. What do they value most? Or what they don't care about
What would make your persona get really excited about
6. Where do they go for information?
online, in-person, social networks, prefer to gather information
7. What experience are they looking for?
is it consultative- in-person, online, phone
8. What are their most common objections to your product?
be prepared to address them, use to educate, remove fears
9. How do I identify this persona?
the above point to your target-can tailor your communications
Early Adopters

Step 6
Key Resources
Resources needed can be:
Human
Financial
IP Related
Physical
What key resources do our value propositions require?
7 Ways to Stay Lean During Startup – Barry Moltz
Find real paying customers: not family
Landing a first customer doesn’t mean 10 more will follow: need to find a larger target market who will buy over extended time
Reputation only gets one chance: sell a poor-performing solution will not only result in loss of that customer , but everyone else told
Investors can be distracting: focus on paying customers instead of VCs
Track everything: constantly test products, marketing, & distribution. Only invest in what is traceable
Get bigger faster: myth-bigger company with try to buy you. Instead, the larger company will try to copy your success
There are no shortcuts to success: need passion & money to sustain the tough times. Many “overnight” successes actually take 10 years
New Cranberry Red Potatoes – FM
High in potassium & anti-inflamimatory antioxidant (pink mashed potatoes)
Potatoes in pounds received by WI consumers monthly - 2.62
Market – Dane County Farmer's Market (FM)
Family households - 116,752, US Census Bureau 2010
Families >$60K – 50.1%, US Census Bureau 2012
Average family size – 2.95, US Census Bureau 2010
% of Dane county pop attending FM – 3%, FM Manager 2012
Targets:
Married women with children
Women interested in food presentation
% capture rate = 2% Assumption
2 lb packaged
Interviewing Customers
http://customerdevlabs.com/2013/11/05/how-i-interview-customers/
Full transcript