The four stages of innovation

In the Lean Startup we have to know what phase of the lifecycle of the product we are at. There are four phases:

Business modelling

Problem/solution fit phase

Product/market fit phase

Scale

Business Modelling

In the first phase, the business modelling phase, we quickly try to sketch out and test the biggest parts of our business model.

Business modelling is about understanding how you will create, distribute and capture value. The traditional approach to this was making a business plan, but we have found out that business plans that too long to make, and by the time they're done they're already outdated. They're filled with wrong assumptions, wrong numbers and usually lead to failure.

In the Lean Startup we have two alternative tools to solve this problem: Business Model Canvas and Lean Canvas. Which one you pick depends on the context of your audience and workshop participants.

In our Business Modelling Facilitator training we go through both of these tools by going through each of the blocks of the two tools, explaining the structure and relationship of the canvasses. We also compare the tools conceptually and discuss which tool is preferable in different settings.

When you're happy with your business model, you proceed to the problem/solution fit phase.

Problem/Solution Fit

The questions innovators should ask themselves here are:

Do you have a problem that's worth solving?

Do you have a solution that would actually solve the problem?

To answer the first question, you use problem interviews. To do this you have to get in touch with people that are in your customer segments and interview them. In the problem interviews you try to figure out if they have a problem worth solving. You want to approach this with a scientific mindset.

A common mistake for entrepreneurs is going into problem interviews or interview situations trying to convince the users, the customers, that you have a good idea and that they should sign up to use your product. You don't want to lead your interview subjects on, but you want to figure out what they're actually thinking without trying to sell them anything.

In the problem interview you try to follow a structure. Start out with getting demographics from your customers. After you have the basics, you can start with the questions.

The problem interview is an experiment, and you need to have a test as a part of the interview. As an example, you can have three different problem statements that you have been working on and you're not sure which one is the best. You can ask the customers to rank their problems to let you know which one is their most important one to solve. If you have a theory about what the biggest problem is, you can interview a certain amount of people and see how many will actually put your problem as the biggest problem.

In this phase your goal is to speak with enough customers - at least ten, but it can be hundreds. Before you're done, you should be able to identify an early adopter, you should have found a must have problem to solve and you should be able to describe some existing solutions.

When you're satisfied the next step is the solution interview. Here you test the outline of your solution, how you're actually going to be solving the problem that you have identified.

You start by interviewing a group of customers, some of which you've already spoken with and some new early adopters that you have identified but are fresh to the process, and you walk them through your solution using a demo. A demo should be easily changeable, a paper based prototype for example, and simple enough so that in between two interviews you can change it based on what you have learned from the first interview.

When you have gone through the solution with the interview subject, you should test your pricing and ask for commitments. You should tell the customer the price of the product, and not let them guess what the product should be priced at. The best commitment for you to have here is for the customer to sign up or even buy the product and have it delivered later.

When you're happy with the answers to your questions, you have a problem that's worth solving and a solution to that problem, you can move to the product/market fit phase.

Product/Market Fit

The question you need to answer here is, is there a viable market for your product, is there enough of a market to support your business and can you get traction in your market.

In this phase you build your first version of the product, a Minimum Viable product (MVP), and release it into the market. It's minimum because it's the smallest thing you can build, and it's viable because it has to actually solve the customers’ problem.

Eric Ries defines an MVP as that version of a new product which allows a team to collect the maximum amount of validated learning about customers with the least effort.

Popular MVP approaches are Wizard of OZ and Concierge MVP. In both cases we don't build the full product but rely on human beings carrying out the work instead of the technology.

When you have built your MVP you don't release it to everyone. You start out by doing MVP interviews. You meet with users face to face and show them the product, because you want to see their reaction and how they use it. If there is a sign up flow, make them go through it and see if they have any problem. You use this early phase to iron out your biggest bugs, mistakes and usability issues. You should also test the pricing – if you can't sell your product face to face to live customers, selling it online to a lot of people is going to be very hard.

You proceed from this phase to the last phase – scaling, when you have a product that's working and is gaining customers, a product that is solving customers problems and is getting traction in the market.

Scale

Ash Maurya describes traction as the rate at which a business model captures monetizable value from its users.

When you have a product that does well in the market, you need to accelerate the growth to succeed in the marketplace. You need to grow even quicker.

This is where you start to see that the kind of experiments we do in the beginning are really different from the kind of experiments we do towards the end of the lifecycle.

In the beginning you did the business modelling phase where you can do big changes by simply erasing something from the Lean Canvas and putting in something else. Those changes came at a very low cost. In the scaling phase, you have a product that works and you're actually doing small experiment to increase your numbers by just a little.

This is the right place to use one of our most important tools and something you do when you have enough traffic - A/B testing. As an example, you can show people two different versions of the same webpage. Half will see the old version of the page, and the other half will see a page with a different button colour or an added feature that you want to test. This will show you which page performs better, and here you're looking for tiny improvements. If you go from a 3% conversion rate to a 4% conversion rate, that is a major win in this setting.

While the philosophy and concepts behind everything here are the same all the way, the actual experiments and what you do will change a lot during the lifecycle of the product. Going through all of this can take years.

Our Lean Startup board game Playing Lean is a great way to learn the Lean Startup concepts, and really understand them by simulating an environment where you have to use experiments to figure out what your customers really need, build features to your product that will meet their needs, market it and sell to get the customers in.

 

 

 

 

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