The Best Lean Startup Tool In My Experience

tools

none of these will work: you need a “thinking” tool

There’s a specific agile tool which I think every early-stage product team should use, regardless of whether they’re following the Lean Startup methodology. Lean Startup drew its roots from agile software development. Eric Reis added Steve Blank’s idea of customer development to agile. Assuming we aren’t talking about re-reading Eric Reis’ book for the 17th time, the best Lean Startup tool is the dogeared post-it.

That’s it.

What? Why not some kind of fancy-shmancy online tool that defines, builds, and releases your product? In your sleep. There’s lots of those around. < grin >

Post-Its are placeholders for team discussions. Invented by accident at 3M, having slips of paper with adhesive turned out to be a fantastic tool for organizing ideas.

This harks back to the old Class-Responsibility-Collaboration (CRC) approach introduced in the early days of object oriented software design. Post-its and index cards helped create the internal design of a larger software program. If you don’t understand the problem domain well enough, then it’s hard to design good, clean software. Post-its allowed developers to note that they need to discuss something in detail at a later date. Once developers were ready, they huddled around a problem. They dissected the problem into sub-components. They formulated a solid hypothesis about the best way to solve a technical problem.

Over the years, software teams have attempted to create software versions of the same experience. There are lots of tools which approximate this effect. Of the ones which I think are probably as close as you can get with software: Jira and PivotalTracker.

Unfortunately, as soon as you get a team in front of computer screens you lose a lot of information. This holds true regardless of whether they are in the same room or in different time zones.

Here’s a handful of ways you can use Post-Its for your product development:

  1. General Brainstorming: A great way to pull out the gems from introverts in a group setting, you can write up Post Its individually, vote on them, and discuss them. In fact, this is a format we use at the Lean Startup Circle London #LeanCoffee sessions I help run.
  2. Marketing Copy: When speaking to customers, you hear the words which customers use to describe their problem. By tapping into the conversation already going on in their heads, you increase your own ability to convince them. Just because you know your solution will address their problem, doesn’t mean they do. Since you describe the problem exactly how they see it, you draw in their attention and fascinate them. When you have prospect language on postits, it’s easy to group post-its into similar themes. You can reorganize them based on whatever criteria you want.
  3. Developing An Unfair Advantage: Getting a team to think about their strengths is hard to do. But when you talk about your team’s strength, document them on post its. Have your discovered strengths hanging on a wall. Help everyone with day-to-day decision-making criteria, by focusing everyone on adding to those strengths. By building on your strengths, you are much more likely to succeed. You rapidly develop an unfair advantage, by reinvesting into your strengths.
  4. Verbalizing Your Unique Selling Proposition: Why should a prospect buy from you specifically? Immediately after they decide to buy your type of solution, this is the next question you must answer. It’s simple. It’s critical for your business. It’s also easy to forget about. Post-Its are a good way to organize your thoughts. You can add information about your competitors and alternatives. This will distill the one sound bite which will convince you and your prospects that your offering the best one possible.
  5. Identify Unmet Market Needs: Sometimes you may be struggling with identifying a problem worth solving. To build a successful product, you need to be addressing a difficult problem for your prospects. A good example of using post-its for this process is in the book Blue Ocean Strategy. You can map out the offerings of an entire industry against how customers “scratch their itch”. This identifies unmet needs in the customer’s process of solving their problem.
  6. Feature requests or bug reports: Post-Its are already the bread and butter tool of any decent development team. What about yours? Working from Post-Its, it’s much easier to deliver prototypes or new features faster. Post-Its capture nuggets of wisdom gleaned from direct access to customers or the product owner can be. Post-Its help gather together the relevant considerations for a new product. If everyone is looking at the same wall of post-its, it’s much easier to deliver.
  7. Long Term Planning and Vision: While there is often a strong focus on increasing certainty and clarity with tools like product roadmaps, you risk destroying value by pre-committing to things which don’t need to be committed to. A good example is the default setting of task dependencies within Microsoft Project. In contrast, if you continuously articulate your vision with post-its, you can adapt your vision as you learn. Even though Agile tends to be tactical and focussed on the short term, you can also track long term visions with post-its.
  8. Hypothesis Test Backlog: Post-Its help keep track of assumptions and hypotheses you still haven’t proven. This is the valuable “grunt work” which Lean Startup prescribes. A great way to keep track of what you still need to learn about your market, your product, or your business model, Post-Its allow you to adapt Lean Startup to your situation. Launch that product successfully!
  9. Map Features To Business Goals: Quite often product teams get lost in tons of feature ideas and “things to do”. It’s easy to feel overwhelmed. The most creative way I’ve applied post-its? Gojko Adzic’ Impact Mapping tool. Impact mapping helps you identify high level business goals. Then you organize your development around reaching those goals. It’s a powerful and subtle process.

More Visibility + Less Structure = More Learning

If your goal with Lean Startup is to de-risk a product idea as soon as possible, you need to identify where you are going. To do that quickly, you need “signal”. Signal will help you achieve that faster.

A smattering of post-its on a physical wall are a true “information radiator”. Anyone and everyone can jump in, comment, or move the post-its around. This means you engage everyone’s head.

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Post-Its are a thinking tool. They help your team think clearly about

  • your problem
  • your product
  • your role in delivering a solution to that problem.

With Post-Its, it’s not really about using post-its themselves. Using PostIts means that you interact more effectively: in-person, on-location, face-to-face.

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As you can see, the lack of structure which post its give you, help you to discover and learn about your problem much faster. By using a software tool, you are hard-wiring in assumptions which may not be true for you or your product.

Stay light. Move fast. And share this with your network. 🙂

[image: infinity studio]

What Exactly Are Financial Options Then?

In order to understand real options, you need to understand financial options. Financial options are the biggest tectonic shift in finance of the 20th century. The main concept behind financial options is simple. In non-financial terms, an option gives you the right, but not the obligation, to buy or sell something at a pre-specified price, only up until a pre-specified time.

Options give you many new opportunities to make money and customize exactly which risks you want to bear. You can:

  1. position for a large market move upwards, with a much lower level of exposure to risk.
  2. minimize your future losses if you expect the market will go south.
  3. prepare to buy something for a lower price, if you predict certain conditions will arise.
  4. lock in a cash flow stream, without being exposed to market risk.
  5. allow for a core exposure to market risk, while still dabbling in various options on the side.
  6. conserve capital via limiting risk, so that there is more cash available for future investment.

In short, options allow you to assemble the exact financial risks you want to bear while discard those you don’t. As a result, you customize your risk profile in a more powerful (and accurate) way than investors who don’t use options. This high granularity will clearly make you more profitable in a highly volatile environment.

Types of Options

When you initially buy an option, you aren’t sure what will happen. Instead, you have a hunch that it will. You are betting on a particular event happening in the future, without bearing the full risk of it happening. With financial options, this typically refers to how the price of the something in the market changes.

There are two main types of options: puts and calls. From the point of view of an option buyer, a put prevents a big loss, but costs a bit up front. It’s the option to sell something at a pre-agreed price.

A call is the opposite. It enables you to get a big gain, but it also costs a bit up front. It allows you to buy something in the future at a pre-agreed price.

In both cases, when you exercise the option, you already know what happened. You know why you want to use it-when you do.

Underlying

The asset an option gives you the right to buy or sell is called an underlying. It’s the “what” of an option. What are you betting about?

What can be an underlying?

The price of the option is actually different than that of the underlying itself. It’s independent. This is because of the unique characteristics of each option.

Time

Every option has a couple of characteristics which affect its price, not just the underlying, i.e. the pre-specified price & time at which you can buy the underlying.

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For example, consider these two bets (options):
1. betting that Poland will win the world cup at the next world cup
2. betting that Poland will win the world cup at least once in the next 100 years

If Poland does win the next world cup, you would win both of these bets. They have the same underlying. Simultaneously, they have different pre-specified expiry dates. Because of this difference, each bet will have a different value, even though the underlying is the same.

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If you look at a variety of options for the same underlying but expiring on different dates, you can see this pattern. As you go further out in time, typically the later option will be more expensive. It compensates or charges you for the value of time. a bank also compensates or charges you for holding your savings with them or taking out a loan for the same reason.

 Strike Price

Assuming you have the same underlying, as the strike price (the pre-specified price) is lower on a put, the cheaper it is. Everyone thinks it’s unlikely the option will ever need to be used. There is less demand for each option where the strike price is further away from the current market price of the underlying.

Conversely, as the strike price gets lower on a call, the more expensive it is. Remember that as it gives you the ability to buy the underlying at a lower price. If it’s compared to the underlying, and the strike price is much lower than the underlying price, then you can buy the option and exercise it.

How options are different than stocks

Unlike stocks, all of the money you invest into an option will disappear when the option expires; this is the worst case scenario. Stocks have no predetermined lifetime, as they represent a claim on a company that is expected to be around forever. Accountants call such a company a “going concern”. In contrast, options always have a date by which they expire. It’s a necessary part of the option. Having the option to do something by next month or by the end of next year, even if it’s the same thing, will not cost the same amount. By holding an option, you might lose everything you invest, or you stand to gain a very large amount relative to the amount invested if the foreseen scenario happens.

What Exactly Are Real Options?

Unsurprising confession: when I was a scrappy young bachelor, I’d hit the clubs with friends. In a nightclub, anything can happen. I’ve started relationships, albeit not very healthy ones. Lots of Schwarzenegger bodies without Schwarzenegger minds emit intimidating body language. Even the roof can collapse (even though it’s unlikely).

By combining vodka and Red Bull, these muscleheads got the best of both worlds. Lots of energy, complete loss of inhibition, and a sense of being invincible came with this highly exotic cocktail. That combination, while it might have been great in a night club, in reality was a pretty dreadful combination elsewhere.

See, just because it may have been a good idea at the time, it doesn’t mean that the next day would have been so pleasant. The hangovers were terrible the following day.

They craved the loss of inhibition. I suspect some of these guys regretted doing things the next day. Saying things. Because they had alcohol, they had an excuse, in case somebody would hold them accountable, including themselves.

I like being in tune with my id as much as the next guy. I just don’t want to feel the need to explain myself to my conscience. The next day. Vodka and Red Bull was the easy way out. No need to think.

Effective planning requires that same level of conscientiousness. Time is precious. If you haven’t thought through what you’re trying to achieve, you are almost guaranteed to be wasting time. At least some.

Making sure that you’re moving towards your objectives, particularly in an uncertain environment, gives you much greater certainty.

Let’s say you want to make a decision among a couple of strategic alternatives. Each one has certain pros and cons. Each has consequences. Each constrains what you can do later. You’re also not sure how your competitors will react to each alternative. As a result, it’s not immediately clear which one would actually be the best choice. Each one has risk. Not choosing an option is also a risky option.
Enter real options analysis.

Real options help analyze the “big issues” for a company and its existence. They have to do with big milestones. In a corporate setting, having strategic clarity means that the whole company will find it much easier to execute. Everyone is “on the same page”. A strategic decision touches everyone. All stakeholders are affected.

This is analogous to the big milestones in a person’s life: birth, coming of age, marriage, death. All major religions and primitive cultures celebrate these milestones for people. They are important to everyone who knows that person. The community acts together.

Given that a corporation is a legal person created to maximize wealth and profits, real options help decide whether to take a specific path and when to do it.

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According to Sick and Gamba:

Properly managed options create value and reduce risk for the organizations that own them. They arise because of the interplay of 4 things:
1. Real assets: financial options are generally redundant and hence do not create of destroy shareholder value. Real options cannot be replicated by stakeholders and generally create
value.
2. Risk: volatility and risk-return relationships.
3. Leverage: variable costs and benefits work against either fixed costs and benefits or imperfectly correlated costs and benefits.
4. Flexibility: to manage the risk and leverage by accepting upside risk potential and reducing downside risk.

As a decision-making tool, real options help you “cut to the chase” at any given moment. They estimate a financial value on each strategic choice, without forcing you to spend anything. Based on a few things you know or you can estimate, you can easily calculate an implied financial value for each choice. As a result, if you have a limited amount of resources, you create a metric that makes the choices comparable. You can compare $ to $.

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You can also compare that value to the cost of choosing (buying) that option. Because both are denominated in financial terms, it’s easy to compare what you expect to get from making a particular decision, to the cost of choosing it.

Net Profit (Real Option) = E(Value) – E(Price)

At any given moment, you only exercise those options, where you expect to get the greatest net profit. If the value generated by an option exceeds how much it costs you to do what it represents, then you do it. As a result, you make money.

Because you have limited resources, you only choose to buy the real options you can afford at that moment. Naturally, you only choose to buy options that are independent of one another at that moment. You can also sort your options based on the attractiveness of their valuation relative to their cost.

If you choose one option, then a number of related options become worthless. For example, if you choose to become a red raincoat specialist, you won’t be attractive to an army purchaser who want their soldiers to be camouflaged. Ouch.

As the environment changes, you can recalculate the values of each option. Note that the value of an option may increase or decrease because of factors completely beyond your control, such as a disruptive technical innovation. Volatility is an input into calculating the value of a real option, so it’s taken into account as your environment changes.

This is a crucial insight into what real options give you. By nature, people prefer to be wrong than to be uncertain. This human tendency screws up many decisions. It forces decisions which aren’t needed yet. It’s better to keep track of options until either they are worthless, or you are certain that they will generate net profit profit.

non.alcoholic.vodka

non.alcoholic.vodka

Real options prevent “vodka and red bull” thinking, often arising during tense strategic negotiations, as they help you wait until it’s pretty clear that a particular alternative is the best one possible.

Thanks to real options, anyone in your company can use a bit of spreadsheet magic, based on numbers which other people in their company know, and determine the best possible strategy. All information is embedded into the assumptions which feed data into the formulas. Of course, this information needs to be shared across departments. Like many analytic exercises, calculating strategic real option values helps build bridges across departmental boundaries.

How does Automated Testing make anyone more money?

When developers start talking about test-driven development and automated testing, most product managers get antsy. They want to invest lots of time, without actually creating any new features. Oodles of cash disappearing, with seemingly nothing to show for it. Sounds like a terrible business idea.

Or is it?

By getting rid of waste in your product development, there are three main business reasons why automated acceptance testing will make you more money. Not only does acceptance test driven development (ATDD) help reduce really important structural costs and risks, automated tests bestow an existing product with a lot of sales and marketing mojo. A decent automated test suite helps the developers execute really fast on new ideas. Magic.

Enforcing well thought out specifications

First of all, a test can be used to enforce a specification. These specifications exist to be sure that the functionality isn’t changing, once it’s understood. Conversely, missing tests highlight missing understanding at the initial stage.

Historically, specifications have been written by reams of business analysts (BAs), negotiated, and nailed down as the ideal solution to a particular problem worth solving.

The spec would be tossed over the wall. Developers then try to make sense of it all. They turn it into code. Then testers use those same specs to confirm (manually) that the specifications been hit. Sounds great in theory.

In practice, you play Chinese Whispers. What the client said isn’t quite what the BA’s heard, which isn’t quite what the developers heard, which then is not what the testers heard.

This is hard work, particularly if you aren’t really clear your big-picture business goals. If it’s not clear what the main goal was, then it’s very difficult to justify having the specification handed over in this way.

In contrast, if those initial specifications are turned into acceptance tests, you are forced to take apart this bigger vision into specific functions in the code. Once the developers write code which passes those tests, the tests are essentially enforcing the original scope as specified. By converting the specification into code, the original spec becomes immortal like the code itself. Acceptance tests are testing the code from the point of view of the client or end user, typically exercising code all the way through the system. Unlike unit tests, they aren’t testing individual methods or classes.

Whatever it is the customer wanted, automated acceptance tests confirm that that’s what they get. Each time the tests are run. There could be edge cases which were missed in the original specification, but if there wasn’t a test for it, then it wasn’t initially specified.

Alternatively, the acceptance tests can be modified or expanded, as you discover new requirements, but then that’s a very conscious decision. Chris Matts has previously pointed out that writing your specifications as automated acceptance tests increases the amount of communication on a team, which maximizes learning and the embedded real options in your development process. By minimizing the Chinese Whispers between BAs and the manual testers, you are much more likely to deliver what you expect, and everyone is clearer on what needs to be done.

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When you could use acceptance test driven development, you get a high level of certainty in the moment. You’re delivering what you expect. If you manage to build out your acceptance test suite, you genuinely verify the relevant edge cases. It’s much more likely that you’ll capture side effects of changes you didn’t consider earlier.

In the end, you also deliver a much higher quality product.

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Tests reduce the cost of release

Second of all, releasing software, particularly when regression tests take a long time, can be quite problematic. Not only is the release itself quite a headache, it costs some extra time. But that’s not the real problem.

The real problem lies with unreleased features. If you have a big backlog of unreleased features, it’s like having a pile of a pile of boots without soles in a shoe factory. You can’t sell it, yet you’ve already bought the raw materials and started the work. Those boots have near zero value, because they aren’t done. The same thing happens with unreleased features. Any feature which is dev-done but not released is like a sole-less boot.

Typically, the cost of release is a big reason why companies don’t release half-finished software. What’s the fastest way to reduce that cost? Automated acceptance tests, and an automated release process. While it will take a lot of time and aspirin for the related headaches, having this in place can put an entire software business on a completely different footing (You got sole, baby!).

Moreover, with a regression test suite, you can have much great certainty that none of the changes in a release candidate have broken pre-existing functionality. With automated unit and acceptance testing, you can completely eliminate the regression test component of a release. As soon as the manual testing is done for a given new feature, and/or any new test for that feature, you’re ready to release. Your cost of release goes down significantly in terms of time, developer time and everything. And your turn around time is much, much faster.

Lowered lead times

Third of all, this big business benefit ties the above together. Typically, customers expect to wait a long time after requesting new software or a new feature. In many cases, they may be willing to pay for it. Even if not, it’s clear that this particular request would have a lot of value in their eyes.

There’s an easy way to measure and quantify this. Lead time is the amount of time between a customer’s request and when that customer actually gets what he wants. While a lot of effort goes into producing this, ultimately this is all the customer really cares about. They want to know what’s in it for them.

Yet, it’s inevitable that your lead time will grow as your code base gets larger. The more parts you have, the more interconnections you have. This grows exponentially, unless each part has it’s own set of tests.

Tests keep your lead time linear. They’re an insurance policy. If customers do request a particular feature, with relatively high level of confidence, you can give them what they want without breaking anything else. That new feature is contained behind a test suite, so you don’t need to worry your pretty little face about that.

Imagine a big company being as nimble as a startup. Most of the real life examples have famously large test suites. In addition to massive test suites, Google even wrote and open-sourced their own testing framework.

If you can minimize lead time, that tends to put a lot of upward pressure on revenues (that’s a good thing). At this point, we aren’t just talking about containing costs, we’re talking about earning more revenue. Generating new business. To be blunt, this is what all of your costs are subtracted from when calculating profits.

The investment that pays for itself

As with any business decision, deciding to build an automated test suite is an investment. Depending on the details, it will take your geeks some time to build this automated test thingy. There is a lot more to automated testing than well-intentioned “software craftsmanship”. At the same time, you can be sure to reap significant bottom line benefits in an existing software product business.

Even if users are clamoring for new features, dedicating some time to creating automated test suites will eventually make your product more profitable. The trick is to focus your testing efforts on areas where you expect to get high pay-offs. Prioritize these efforts rigorously, to make sure that this test suite pays for itself each time you release.