Weekly Accelerator Updates

Week 8: Lean Experimentation

Week 8 Update

  • Week 7 Recap
  • How Founders Harness Their Personal Power to Create Successful Ventures
  • Lean Experimentation 101
  • Purchase Intent Testing Deep Dive
  • Project Management Deep Dive
  • Additional Resources

Week 7 Recap

Last week, we did a deep dive into financials. We looked into revenue models, and discussed how to make and test assumptions, forecast revenue, and create an operating plan. Your financial dashboard is a reflection of the health of your business. Your pro-forma projections are a window into the nature of the business you are building. You should be reviewing your projections on a regular basis as you gather data about your market and your customer.

We also explored how you might invest in your own personal and professional growth. All too often, entrepreneurs put all of their energy into building their businesses and don’t spend enough time working on their own leadership skills. We need to hold space for ourselves to reflect on whether we are in the right role, whether we are effective leaders in our businesses, whether we have the humility to see what we need to improve, and most importantly, how we might feel confident stepping into our power in an authentic way.

This week, we will turn our attention to using experimentation to test the usability of your product, and test your economic buyer’s purchase intent.

How Founders Harness Their Personal Power to Create Successful Ventures

Entrepreneurs are visionaries. We see problems to solve in innovative ways, and opportunities to build wealth and create change. Our laser-focus is our human super-power – when we get started, there is no stopping our dedication and commitment to seeing our venture become viable, profitable, and meaningful.

Yet, with all of this focus on the business and the challenges we need to overcome to succeed, we don’t spend time on ourselves, as founders. This lack of self-focus decreases our effectiveness, makes us less efficient, and has the potential to negatively impact on our goals.

In Dr. Ali Hill’s virtual session this week, she shared wisdom about scaffolding you, the entrepreneur, towards success and offered a framework for how to build a sustainable practice around self-awareness, self-reflection, personal growth, and professional success.

She also reminded us that you, the entrepreneur, are at the center of your venture, and it is critical that you stay connected to your strengths, challenges, likes, dislikes, emotions, and feelings. Far from being secondary or tertiary in importance, you are the foundation of the business and the key to its viability.

Be sure to take advantage of Dr. Ali Hill’s 1-on-1 virtual sessions tailored to your individual goals.

Lean Experimentation 101

We have spoken at length about using lean experimentation to test your hypothesis. But how do you run a clean experiment? Here is a primer to help you get started.

Lean experimentation fundamentals

A Lean Experiment is a structured way for entrepreneurial teams to test their hypotheses. Here’s how it works:

  • State a testable hypothesis. For example: you might want to test your hypothesis that your economic buyer might be intrigued enough to sign up for an infosession.
  • Define the Minimum Viable Product (MVP) with which you can test this hypothesis. For example: This could be a landing page that describes your offering, with a call to action to sign up for that infosession.
  • Define the experiment. For example: you might send a personal email to 100 potential economic buyers, describing your solution and offering an infosession on your new product or service, with a link to the landing page where people can read more about your solution and sign up. You might consider scheduling an automated follow up email in 3-5 days to remind them to sign up.
  • Specify the duration of the experiment. For example: you might give your potential economic buyers one week to sign up.
  • Currency. This is something you might extract in lieu of real money. For example: The economic buyer’s email is a kind of currency (more on this later).
  • Metrics. This is the behavior you are measuring. For example: you might log the email open rate, read rate, click-through rate, and sign up rate to the infosession (using only the last metric for your experiment, counting actual sign ups for the infosession).
  • Threshold. This is the last and most important element: you must state the “pass” threshold on the metrics you are collecting that will allow you to consider your hypothesis to be validated. For example, you might state that 5 sign up’s out of 100 emails sent means that your hypothesis is validated and you can persevere and move on to the next experiment.

Writing a good hypothesis

Ben Yoskowitz, author of Lean Analytics, has a great format for this:

I believe [target market] will [do this action / use this solution] for [this reason].

The reason why this works is because it forces the entrepreneur to develop clarity around key concepts that matter.

  • Target market: What is your target market? if you cannot state that you cannot find people from within that market to test your hypothesis.
  • Observable action: What observable and measurable behavior do you think you can elicit from your target market? This is utterly critical because by now, you will have done a lot of detailed interviews and you will know a lot about your customer – but all of it is through their words. People will often say one thing and do something else. On the other hand, if your hypothesis involves an observable action, you can set up an experiment and try and get your research subject to do that action. Whether they do it or not gives you much more accurate data about the likelihood that you are on the right path.
  • Reason for action: Why do you believe your target market will do the action? This you can check AFTER your target market does or does not perform the action to see if you are right or not. Stating it up front clarifies your assumptions about why it is that your target market will do the things they do and again, this is critical knowledge that can guide you towards problem-solution fit.

The Riskiest Assumption Test

When you think about your hypotheses, you will often come up with a very long list. Which one should you tackle first? That’s where the riskiest assumption test (RAT) comes in.

The RAT is the assumption that, if proven wrong, will make the whole venture fail. A lot of people define the RAT in a broad term that requires building the venture to test it (and it takes months if not years). That is the wrong approach. The right approach is to write out all your hypotheses, see which one is the riskiest, then see what you can do about deconstructing that RAT into its components and then see which component is the riskiest… and rinse and repeat.

Purchase Intent Testing Deep Dive

 

In the above experiment, we have shown how you might apply Lean Experimentation techniques to test for purchase intent. You show the target customer your product concept, then you make an offer that is framed in the context of exploring a purchase, and see if they engage.

Making an offer and extracting “Currency” or “Payment”

You typically will be structuring a series of experiments in which your offers go from low commitment (“sign up to be notified”) to medium commitment (“register for an infosession”) to high commitment (“join our beta”, “preorder” or “buy”).

Key within this methodology is the idea of extracting “currency” or “payment”. At the lowest level of commitment, an email address is a type of currency since no one wants junk mail. At the highest level of commitment, you actually collect money from your customer which goes into your bank account.

Example offers and currencies: B2C

Following are some examples of offers and corresponding currency that you might try to extract from your potential customer for B2C businesses and increasingly B2B / B2G businesses that has a self-guided due diligence and fulfillment option.

  • An offer to sign up to learn more – the currency is the email address.
  • An offer to sign up for an infosession – the currency is again the email address. If the person actually attends the infosession, you have just validated the person’s interest and they have become a qualified lead.
  • An offer to join a free private beta – the currency is their email and time. Note that free betas tend to get less engagement than paid betas because the customer does not have skin in the game.
  • An offer to pre-order your product – the currency is their email (and if you can make it happen, you can collect their payment information). The commitment level is much higher if you can collect the payment information.
  • An offer to join a paid private beta. The currency is email and payment. This is often the first true indication that the new venture has a financial future – if the value presented to the customer is high enough they will gladly pay to try out your product.
  • An offer to buy your product at the correct price. This is the ultimate test. If you offer the product at the target price and you can get people to buy it – congratulations, you have acquired true paying customers and you are well on your way to building a viable business.

Example offers and currencies: B2B

For B2B, a lot of times it takes months to close a deal. For that reason, the following intermediate steps are important indications of validation of purchase interest and intent.

  • Being introduced to your economic buyer’s administrative assistant. For B2B businesses, this is often the first sign of potential purchase intent – because nobody wants to book meetings with people they don’t want to see.
  • Getting a meeting scheduled with a major stakeholder. Succeeding in negotiating a meeting time is a big validation point.
  • Actually scoring the meeting with the stakeholder. If your stakeholder does not cancel on you and made time to see you – that is a great indication of interest.
  • An offer to sign a letter of intent (LOI) or memorandum of understanding (MOU). This largely applies to B2B businesses – getting your prospective economic buyer to put down their intention to do business with you on paper is a huge validation point.

Be careful about crowdfunding

Many new tech ventures have successfully launched a crowdfunding campaign on Kickstarter and Indiegogo and validated that they can drum up interest from the backers on these types of platforms. This can work to your advantage – there are case studies where startups raised a big round with a good valuation after exceeding their crowdfunding goals by a large margin.

However, you need to be aware of two things.

First, crowdfunding is almost never a good first source of revenue for a new venture.

  • This is because the money raised typically comes with perks that generally involve delivering the product or service in some finite time frame.
  • If you run a campaign and then try to bring your solution to market, your timelines can be very delayed from your backers’ expectations and this could backfire badly.
  • The best time to launch a crowdfunding campaign (especially for tangible products requiring mass production) is AFTER you secure initial funding, built your supply chain, and are about 6-9 months away from being ready to fulfill a first order in the expected quantities you need to distribute to your backers, if you were successful.
  • If you run into unexpected delays (which happens about 100% of the time for new ventures) and run late, your backers will get angry and that is never a pretty picture.

Second, a successful crowdfunding campaign simply means that your message resonates with the backers on these platforms. These backers are typically from the tech sector, and they trend young, male, highly educated and tech savvy. If your target customer does not match this demographic, one of two things can happen.

  • You may not meet your campaign goals and you would have spent all that energy for naught.
  • Worse, you could garner interest from backers and exceed your goals – thinking that you have validated purchase intent from your target market – and then fail to replicate that outside the crowdfunding platforms, because you have not done the work to validate purchase intent in your real prospective customer base. In that case you will have moved some units but you will not have built any knowledge that helps you build a viable business.

Crowdfunding, like VC funding, government grants, credit card debt and the like, is one of many ways to raise cash and run experiments. As long as you know what it is good for, you can use these platforms to your advantage.

Project Management Deep Dive

As you get deeper into lean experimentation, you will need to get really good at project management. Project Management is something that all teams need to do – and all teams need to continuously iterate on. There is no one way to do it. Process is good only if it serves your needs. For new venture teams, you will need a little process to stay organized, but not so much process that you get bogged down and stop being agile and nimble.

 

To get the best of both worlds, our best advice is to right-size processes for the size of your team and the activities you are engaged in. There are some overall principles that don’t change very much based on the size of the team:

  • Setting clear goals and objectives. Set goals and write them down – then check against them every week to see if you are still on target.
  • Define how your team works together. Use the RACI framework to clarify who is Accountable (i.e. the project manager), who is Responsible (i.e. who actively works towards the goals), who should be Consulted (i.e. someone who has input on your task – but does not have direct deliverables), and who should be Informed (just to keep them in the loop.)
  • Plan the work. You can plan towards a milestone and deliverable (e.g. shippable product, which is how hardware teams often plan – Smartsheets is a software platform that enables hardware teams to plan using “Gantt Charts” and more) – or you can plan by periods of time (e.g. 2-week sprints, which is how software teams often plan) That’s good for early stage teams. The best plan is usually a combination between a high level, multi-week plan that is the first part of an even higher level multi-year product roadmap, and a granular, 1-2 week long sprint plan.
  • Break down tasks and put it into a software system. Tasks should be achievable in a matter of hours, not days or weeks. Pivotal Tracker is a lightweight ticket-management system. For late stage software teams, Jira remains the market leader).  There are other software planning solutions – Trello, Asana, Wrike, Monday.com are all viable options.
  • Publish the plan and manage to it. Planning is the first step – managing against a plan is the path to success. In new venture creation things change quickly – teams should meet at least weekly if not daily to make sure they stay in sync. Teams should also establish asynchronous channels for instant and transient communications. For example, Slack, Discord, Google Chat are all viable options.
  • Regularly run retrospective and planning sessions. One excellent ritual from the Scrum process is the retrospective. At the end of a 1- or 2-week sprint, the team sits down and reflects on the past sprint and answer 3 questions: What went well? What could have gone better? What might we do differently next time? And then they can plan the work for the next sprint based on the takeaways from the last question. This ensures there is a way to take in information along the way and to achieve some improvement once every week or two.
  • Celebrate Successes. Teams are often better at finding things that could have gone better than things that went really well. One way is to make sure you spend as much time and coverage on “what went well” as you spend on “what could have gone better”. Another way is to develop an end of week ritual where you state and celebrate wins. Either way: successes should be celebrated along the way and not at the very end of a large deliverable.

Feel feel to watch the recording for our project management workshop that covers the above and more.

Additional Resources

The following are some resources that will help you accelerate your progress this week.

To learn more, check out our Knowledgebase section on testing purchase intent.