Lean Startup is based on the scientific process, albeit more business focused, focused on learning fast when you know little. It’s the fastest known way to validate a product idea. Consider this a Lean Startup 101 introduction to how to use it in your business.
The first step of choosing a hypothesis to test is to map out your business with canvases. Business Model Canvas for the big picture, and any of the following three to figure out problem-solution fit:
- Lean Canvas for the product
- Javelin Validation Board
- Value Proposition Canvas
After you’ve settled on a vision you’re happy to start testing, you prioritize what will give you the strongest boost in confidence. You try to get data confirming it’s true.
Let’s say you’ve now settled on a specific assumption you’d like to test. Which means you need to map a fuzzy concept down to one metric.
Choose a Metric
Choosing this one metric is the next step (and one which is largely driven by intuition).
Which number represents what you want to change? Or captures what you want to monitor? This requires some analysis, but also some subjective skill.
For example, do you want to increase sales or profits? There aren’t really clear answers, because it depends on where you are and what you want to achieve. A venture funded startup interested in growth at all costs is happy to be unprofitable, as long their growth is up and to the right. A bootstrapper will be monitoring cash flows and profits like a hawk.
If you are just exploring an idea and a new market, gather data to confirm that the external environment matches your assumptions. For example, one startup I worked with was testing out an idea about lending and borrowing DIY tools to strangers. They wanted to build a peer-to-peer lending platform for these tools. They found that consumers were much happier to lend out tools to strangers, than to ask to borrow.
Once you have problem solution fit, focus on metrics that you can influence with your actions. Choose one that’s actionable. Dave McClure’s pirate metrics are useful here as a high level starting point: Acquisition, Activation, Retention, Revenue, Referral.
Choose a success signpost
For this particular metric, figure out what means “success” to you–before you run the experiment.
This is a common point where founders trip up. What’s “meaningful”? Conversion rate hurdles are a good example. If I choose a conversion rate that’s too high, and the experiment doesn’t pass, I’ll have to give up on my idea. If I set it too low, I’ll be building a business around a bad idea and end up with a zombie product. In this case, a meaningful conversion rate is one which gives you a customer acquisition cost which is less than the expected long term value of a customer.
Here’s an analogous situation I’ve seen offline. One team I worked with were gung-ho about an idea for a fitness app. They wanted to get 75% of the people they speak with confirm that the problem they wanted to solve exists. After speaking with 20 people, it turned out 30% confirmed that they had this problem. In this particular case, they’d been too aggressive about setting the success metric, as they would still be able to build a good business around 30% of a consumer market.