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Books In Minutes: Zero to One

Before We Start…

This post is a trial read of my paid newsletter Books In Minutes. Reading books is the best way to gain well-formed and organized knowledge that the author had created with incredible effort. The knowledge will not be outdated. 

However, we are all occupied with fragmented information flashes in front of our faces every single minute. That's why I wanted to change the blog post series Book Recap into a daily newsletter, where I will share my recap on the chapter I read everyday to you, so that you can learn genuinely as well in just a few minutes read. Make one chapter progress with me every day. Don't underestimate what you can achieve in a month.

Without further due. Lets get started!

Read In Minutes

This is my second time reading @peterthiel‘s Zero to One. Here are my takeaways compilation, you can also read it on Twitter.

Chapter 5 – Last Mover Advantage

A great business is not only about becoming the monopoly of the business, but also enduring in the future. The value of the business is not whether it is profitable now, it is the sum of all the money it will make in the future.

Here are the 4 qualitative characteristics of a monopoly that would last:

  1. Proprietary technology – the technology that makes it 10x better than the closest substitute.
    For example, Google’s search algorithm, PayPal’s online payment on eBay, Amazon’s online bookstore, Apple’s iPad…
  2. Network effects – the product is more useful as more people use it.
    For example, Facebook.
  3. Economies of scale – a business having the costs that do not scale as it grows.
    For example, software business.
  4. Branding
    For example, Apple.

Be careful, no technology company can be built on branding alone.

And there are 2 steps to build a monopoly:

  • Step 1: start small and monopolize

    Start with a very small but existing market and dominate it. It is best that the small group of people is concentrated together and served by few or no competitors.

    It is a red flag targeting on 1% of a $100 billion market.
  • Step 2: scale up

    Once the niche market is dominated, expand into related a slightly broader market.

Caution: do not make disruption the goal

Disruption does not make you a monopoly, it makes you one of the competitors.

To succeed, you must study the endgame before everything else.

José Raúl Capablanca

Being first in the market does not ensure you the last man standing.

Originally tweeted by Lance Chen (@lancechentw) on April 9, 2021.

Chapter 6 – You are not a lottery ticket

Many successful people ascribe their success to luck, but if that's the case, we are just reading stories about people who won the lottery.

If you treat the future as something definite, it makes sense to understand it in advance and to work to shape it. But if you expect an indefinite future ruled by randomness, you’ll give up on trying to master it.

Originally tweeted by Lance Chen (@lancechentw) on April 10, 2021.

Chapter 7 – Follow the money

Many things in the real world are not distributed in bell curve, it is in power law – the wealth distribution, venture capital.

But we don't observe it easily, because it is a lagging indicator. For example, companies invested by a venture firm will show differences after years, it only becomes clear over time.

It's easy to come up with the strategy of "Don't put all eggs in one basket" when we can't see clearly yet which to choose, like how venture firms do. But as startup founders we can't devote ourselves into too many things, we must have the power law in mind:

You should focus relentlessly on something you’re good at doing, but before that you must think hard about whether it will be valuable in the future.

Originally tweeted by Lance Chen (@lancechentw) on April 11, 2021.

Chapter 8 – Secrets

People tend to classify things into either easy or impossible. But the hard things are the most important ones, and people stopped looking for them. Here's why:

  1. Human being has already explored the entire planet. It feels like nothing is inaccessible.
  2. We were taught to do exactly what is asked of, otherwise we receive no credit. Follow the instructions and make one small step at a time.
  3. Looking for secrets is risky. No one wants to be lonely and wrong.
  4. It’s easy to make money from an established system. Why bother?
  5. The world is flat. “There must be someone else doing it already.”

The actual truth is that there are many more secrets left to find, but they will yield only to relentless searchers.

The best place to look for secrets is where no one else is looking.

The golden mean between telling the secrets to nobody and telling to everybody is founding a company.

Every great business is built around a secret that’s hidden from the outside.

Originally tweeted by Lance Chen (@lancechentw) on April 12, 2021.

Chapter 9 – Foundations

A startup messed up at its foundation cannot be fixed.

Here’s what could possibly go wrong and how to prevent it from happening:

  1. co-founders: “choosing a co-founder is like getting married, and founder conflict is just as ugly as divorce”. People avoid to think about it beforehand, because it is not cool.

    Solution: share a prehistory before starting a company together.
  2. employees and managers: bureaucratic and ineffective teams cannot get things done.

    Solution: beside cash, offer equity. “Equity can’t create perfect incentives, but it’s the best way for a founder to keep everyone in the company broadly aligned.”
  3. investors: investors on the board might want to take the company public while founders want to stay private.

    Solution: keep the board small and choose the members wisely.

Originally tweeted by Lance Chen (@lancechentw) on April 13, 2021.

Chapter 10 – The mechanics of mafia

Company culture doesn’t exist apart from the company itself: no company has a culture; every company is a culture. A startup is a team of people on a mission, and a good culture is just what that looks like on the inside.

Recruit the talented and personally similar people in the early days of your startup. Here are the two answers to why a recruit should join you instead of the others:

  1. Mission – not just why the mission is important in general, but why except your company, no one else is going to get done.
  2. Team – why your company is the unique match for the recruit personally, is the team the kind of people they want to work with?

don’t fight the perk war, … You probably can’t be the Google of 2014 in terms of compensation or perks, but you can be like the Google of 1999 if you already have good answers about your mission and team.

Finally, a startup might not fail because of competition in the external environment, but probably because of competition internally. The solution is to make every person in the company responsible for doing just one thing.

Originally tweeted by Lance Chen (@lancechentw) on April 14, 2021.

Chapter 11 – If you build it, will they come?

Customers will not come just because we build it, we have to make that happen.

Nerds like us think advertising, marketing, and sales are just tricks, no one will be scammed. The product itself is either good or bad, and we can tell without getting tricked by its surface. But it is not true, the "trick" actually works on every one.

advertising doesn’t exist to make you buy a product right away; it exists to embed subtle impressions that will drive sales later.

People underestimate the importance of sales because it is hidden intensionally. The grandmaster level of sales is selling to you without you noticing.

The two most important metrics for sales:

  • Customer lifetime value – the total net profit earned on average during the time a customer uses the product
  • Customer acquisition cost – the amount of money spent on average to acquire a new customer

CLV must exceed CAC

There are 5 distribution methods in terms of product prices, and most company will find only one of the methods works best for it

  1. complex sales – the average sale is around seven figure. Complex sales requires close personal attention in every detail, and it takes quite a long time for each deal to close. It might happens just 1-2 times a year, and it is often the CEO themselves who do the sales.
  2. personal sales – the average sale is between $10,000 and $100,000. The point is to establish a process that a sales teams can use to distribute the product to a wide audience.
  3. DEAD ZONE – you would want to avoid to price the product in the range that you can’t afford salespeople and advertising is not effective, say $1000.
  4. marketing and advertising – the product has lower price, around $100, but is not fit for viral distribution.
  5. viral marketing – the core functionality of the product encourages users to invite their friends to become users.

Whoever is first to dominate the most important segment of a market with viral potential will be the last mover on the whole market.

poor sales rather than bad product is the most common cause of failure

Look around. If you don’t see any salespeople, you’re the salesperson.

Originally tweeted by Lance Chen (@lancechentw) on April 15, 2021.

Chapter 12 – Man and machine

computers are complements for humans, not substitutes.

How the rapid evolution of technology that changes human society now is fundamentally different from how globalization has done.

Humans supply jobs and demand resources, and we compete for them, because we are all alike. Globalization strengthens that.

Computers supply functionalities in specialized areas, and require only electricity, not even demanding it.

More importantly, we have intentionality. We are good at making decisions in complicated situations and bad at repetitive tasks and large amount of data. While computers are the opposite, they are good at processing data efficiently, but struggle to identify cats perfectly.

We’re impressed with small feats accomplished by computers alone, but we ignore big achievements from complementarity because the ham contribution makes them less uncanny.

the most valuable companies in the future won’t ask what problems can be solved with computers alone. Instead, they’ll ask: how can computers help humans solve hard problems?

Originally tweeted by Lance Chen (@lancechentw) on April 15, 2021.

Chapter 13 – Seeing green

Only a few clean tech companies survived after the bubble popped in the late-2000s even though it was a promising trillion dollars market.

Every startup must have answers to the seven questions:

  1. the engineering question – do you have a technology that is 10x better than your nearest substitute?
  2. the timing question – “Is now the right time to start your particular business?”
  3. the monopoly question – “Are you starting with a big share of a small market?”
    1% of a large market means competition.
  4. the people question – “Do you have the right team?”
  5. the distribution question – can you sell the product and grow the market?
  6. the durability question – “What will the world look like 10 and 20 years from now, and how will your business fit in?”
  7. the secret question – “Have you identified a unique opportunity that others don’t see?”

An entrepreneur can’t benefit from macro-scale insight unless his own plans begin at the micro-scale.

Originally tweeted by Lance Chen (@lancechentw) on April 17, 2021.

Chapter 14 – The founder’s paradox

Founders are usually unusual in the way of having extreme opposite traits at the same time. These characteristics make us possible to lead companies beyond just incrementalism.

But be careful,

The lesson for founders is that individual prominence and adulation can never be enjoyed except on the condition that it may be exchanged for individual notoriety and demonization at any moment.

Our job is to bring out the best work from everyone at the company, not just ours.

Originally tweeted by Lance Chen (@lancechentw) on April 18, 2021.

Chapter conclusion – Stagnation or singularity?

Among the four possible patterns for humanity's future – recurrent collapse, plateau, extinction, and takeoff (posthumanity) – described by Nick Bostrom, takeoff, in which we create new technology to make a monotonically better future, is more likely to happen.

But that future will not happen on its own, we have to create it from 0 to 1.

Nick Bostrom’s The Future of Humanity: https://www.nickbostrom.com/papers/future.pdf

Originally tweeted by Lance Chen (@lancechentw) on April 19, 2021.

Tweets Collection

Your Turn

Now that you have gained insights into this chapter. Enjoy reading the whole chapter when you have some time.

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Books In Minutes: The Lean Startup Chapter 12 – Innovate

Before We Start…

This post is a trial read of my paid newsletter Books In Minutes. Reading books is the best way to gain well-formed and organized knowledge that the author had created with incredible effort. The knowledge will not be outdated. 

However, we are all occupied with fragmented information flashes in front of our faces every single minute. That's why I wanted to change the blog post series Book Recap into a daily newsletter, where I will share my recap on the chapter I read everyday to you, so that you can learn genuinely as well in just a few minutes read. Make one chapter progress with me every day. Don't underestimate what you can achieve in a month.

Without further due. Lets get started!

Read In Minutes

The 3 Prerequisites for Building a Startup Team

Ries thought that as startups grow into larger companies, they could still be innovative. There are three prerequisites for both standalone startup teams and internal startup teams to succeed.

Secure resources

It is common sense that more resources do not guarantee a startup to succeed. Unsecure resources also jeopardize a startup’s chance to succeed. Division leaders in larger companies spend large effort in allocating as many budgets as they can because they know the budgets could be tampered with later. A startup team cannot afford its already limited resources to be unstable.

Running Independently

In the sense of both running without approvals and running without external help. Both kinds of external dependencies slow down the team’s speed to go through the Build-Measure-Learn feedback loop. Having a cross-functional team could decouple the external help dependency. To run without approvals requires the parent organization to create a sandbox for the team to run experiments without hurting the parent organization itself.

Credits

Credits could come in the form of financial, such as equity or bonuses, or non-financial, such as title, or simply let the name of the creator be transparent to the end-users.

Innovation Sandbox

It is often that the innovation team needs to run experiments that have conflict in interest to their parent organization. Creating a sandbox for the innovation team could contain the impact of the experiments but not constrain the methods they use. Here are the seven rules to create a sandbox:

  1. The team can create a experiment that affects only the sandboxed parts of the product, or only certain customer segments or territories.
  2. The team must see the whole experiment through from end to end.
  3. The experiment cannot be ran longer than the predefined amount of time.
  4. The experiment cannot affect more than the predefined number of customers.
  5. The experiment has to be evaluated on the basis of a single standard report with no more than five to ten actionable metrics.
  6. Every team and product inside the sandbox must use the same metrics to evaluate success.
  7. The team that creates an experiment must monitor the metrics and customer reactions, and stop the experiment if something catastrophic happens.

The 4 Phases of a Product in a Company

There are four phases of a product a company must manage:

  1. The work requires the ability to make an idea into a product from nothing to a new segment of customers and markets
  2. The work requires the ability to grow. PR, marketing, sales, and business development come into play
  3. The work requires operational excellence. The product gets commoditized, the market gets crowded.
  4. The work requires the ability to optimize cost.

The problem of many companies is that employees often follow the products as the products move from phase to phase, whereas each phase requires very different strengths. Having cross-functional teams could solve the problem by handing the product to a different team during different phases.

This reminds me of Bill Gross’s EPAI personality types, that every person has dominance in one of the entrepreneur, producer, administrator, and integrator personalities, and has weaknesses on the others.

Your Turn

Now that you have gained insights into this chapter. Enjoy reading the whole chapter when you have some time.

If you do not have a copy yet, here is my affiliate link to purchase a Kindle version from Amazon (meaning I will get a cut if you purchase through this link). Or you could get one from a retailer on its website.

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Books In Minutes: The Lean Startup Chapter 11 – Adapt

Before We Start…

This post is a trial read of my paid newsletter Books In Minutes. Reading books is the best way to gain well-formed and organized knowledge that the author had created with incredible effort. The knowledge will not be outdated. 

However, we are all occupied with fragmented information flashes in front of our faces every single minute. That's why I wanted to change the blog post series Book Recap into a daily newsletter, where I will share my recap on the chapter I read everyday to you, so that you can learn genuinely as well in just a few minutes read. Make one chapter progress with me every day. Don't underestimate what you can achieve in a month.

Without further due. Lets get started!

Read In Minutes

Being Adaptive

The core of the Lean Startup is to speed up the Build-Measure-Learn feedback loop. Inevitably, we bump into problems that eventually slow us down if we do not fix them. That’s why we see processing in small batches could be faster than larger batches in the last post. Stuffing newsletters into envelopes one at a time is faster than performing one step on all envelopes; the team is required to investigate the problem that occurs during continuous deployment; Toyota has an andon cord in its production line.

However, fixing just the problem in front of us could be inadequate. Imagine that exact problem happens over and over again. Ries introduced the Five Whys method to tackle these problems.

The Five Whys

How the Five Whys method work is to ask five why questions to identify the root cause of the problem and make incremental investments to ultimately prevent it from happening.

Taiichi Ohno, the architect of the Toyota Production System, gives the example:

  1. Why did the machine stop? (There was an overload and the fuse flew.)
  2. Why was there an overload? (The bearing was not sufficiently lubricated.)
  3. Why was it not lubricated sufficiently? (the lubrication pump was not pumping sufficiently.)
  4. Why was it not pumping sufficiently? (The shaft of the pump was worn and rattling.)
  5. Why was the shaft worn out? (There was no strainer attached and metal scrap got in.)

Like this example, at the root of every technical problem is a human problem. However, if we try to tackle the root cause whenever a problem occurs, we could very soon get exhausted. The investment of effort should be smaller if the problem is a minor glitch, and larger if it is an urgent one (again, small batches!).

Adapt to the Five Whys

It is easy that the Five Whys questions become the Five Blames, blaming other departments for causing the problems. Ries gave some guidance on how to adapt to the Five Whys method.

First, make sure that everyone affected by the problem is in presence when analyzing the root cause. This prevents the person that is left out becoming the target for blame.

Second, start with a simplified version of the Five Whys, which is formed of two rules:

  1. Be tolerant of all mistakes the first time.
  2. Never allow the same mistake to be made twice.

It could be used to build out the muscle and as a stepping stone to the Five Whys.

Third, it requires the buy-in of the execution leadership. To solve the root cause, additional products, features, or allocation of the team’s time might be essential, and there could be forces against the process. The executive leadership needs to sponsor and support the process.

Forth, start with minor problems that affect less. It might seem to be more effective to use Five Whys to solve urgent problems, but it is also easier to turn into Five Blames.

Last, appoint a Five Whys master to moderate the meetings, make decisions about which prevention step to take, assign and follow up works.

Highlights

Stop production so that production never has to stop.

Toyota

One of the most important discoveries of the lean manufacturing movement: you cannot trade quality for time. If you are causing (or missing) quality problems now, the resulting defects will slow you down later.

Adaptive processes force you to slow down and invest in preventing the kinds of problems that are currently wasting time. As those preventive efforts pay off, you naturally speed up again.

At the root of every seemingly technical problem is a human problem.

Your Turn

Now that you have gained insights into this chapter. Enjoy reading the whole chapter when you have some time.

If you do not have a copy yet, here is my affiliate link to purchase a Kindle version from Amazon (meaning I will get a cut if you purchase through this link). Or you could get one from a retailer on its website.

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Books In Minutes: The Lean Startup Chapter 10 – Grow

Before We Start…

This post is a trial read of my paid newsletter Books In Minutes. Reading books is the best way to gain well-formed and organized knowledge that the author had created with incredible effort. The knowledge will not be outdated. 

However, we are all occupied with fragmented information flashes in front of our faces every single minute. That's why I wanted to change the blog post series Book Recap into a daily newsletter, where I will share my recap on the chapter I read everyday to you, so that you can learn genuinely as well in just a few minutes read. Make one chapter progress with me every day. Don't underestimate what you can achieve in a month.

Without further due. Lets get started!

Read In Minutes

I now know I should be monitoring actionable metrics, and optimizing them until a point that I can decide to pivot or persevere. To grow effectively and sustainably, we could first identify which engine of growth the product suit best, and then focus on the metrics that run the engine. But first, let’s check out the four ways to achieve sustainable growth.

The 4 Sources of Sustainable Growth

A one-time activity that generates a surge of customers does not help in the long term. Ries has a simple rule for sustainable growth:

New customers come from the actions of past customers

  • Word of mouth – The product is so good that users proactively share it with others.
  • As a side effect of product usage – The product is naturally exposed to others when it is used.
  • Through funded advertising – The product is exposed to people through advertising. The money used for advertising should come from an excess of revenue.
  • Through repeat purchase or use – The product is designed to be got by a subscription plan or is purchased for repeated needs.

The 3 Engines of Growth

To find out what metrics we should focus on first, let’s determine what engine our product has.

The Sticky Engine

If the product is designed to attract and retain customers for the long term, it is equipped with the sticky engine of growth. The two metrics to focus on are the customer acquisition rate and churn rate.

The Viral Engine

The product is equipped with a viral engine if the usage of the product is designed to be exposed to people naturally. The metric to focus on is the viral coefficient, which is how many new customers out of ten could an existing customer recruit.

The Paid Engine

If the product requires in advance investment in money to drive the sales, it is equipped with a paid engine. The investment could be, for example, advertising or sales forces. The metrics to focus on are cost per acquisition (CPA) and customer lifetime value (LTV).

Start with just One Engine

Though possible, it is very complicated for a startup to operate more than one engine of growth at a time. Ries suggested us to focus on just one engine of growth in the beginning. If we already have our leap of faith assumptions made clear, we would know which engine of growth suits us best. Only after we operate the engine thoroughly should we consider pivot to another one.

Highlights

Startups don’t starve, they drown.

Shawn Carolan

Product/Market Fit: if you are asking, you’re not there yet.

Your Turn

Now that you have gained insights into this chapter. Enjoy reading the whole chapter when you have some time.

If you do not have a copy yet, here is my affiliate link to purchase a Kindle version from Amazon (meaning I will get a cut if you purchase through this link). Or you could get one from a retailer on its website.

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Books In Minutes: The Lean Startup Chapter 9 – Batch

In the Lean Startup, the goal is not to product more stuff efficiently. It is to – as quickly as possible – learn how to build a sustainable business.

Eric Ries
The Lean Startup

Before We Start…

This post is a trial read of my paid newsletter Books In Minutes. Reading books is the best way to gain well-formed and organized knowledge that the author had created with incredible effort. The knowledge will not be outdated. 

However, we are all occupied with fragmented information flashes in front of our faces every single minute. That's why I wanted to change the blog post series Book Recap into a daily newsletter, where I will share my recap on the chapter I read everyday to you, so that you can learn genuinely as well in just a few minutes read. Make one chapter progress with me every day. Don't underestimate what you can achieve in a month.

Without further due. Lets get started!

Read In Minutes

Small Batches Versus Large Batches

It is counter-intuitive that works like stuffing 100 newsletters into envelopes, sealing the envelopes, and putting on stamps would be more efficient to finish all the steps of one envelope at a time than to finish each step of all envelopes at a time. Here’s the reasons:

  1. The time spent on moving from one envelope to the other, and sorting, stacking, and moving the large piles of envelopes slows down the speed
  2. There are chances that something goes wrong later in a step that requires rework on what has been done

People familiar with computer science could also think of it as context switches. The more context switches there are, the more work CPU has to do to move data between memory and disk.

Why Toyota Has Thrived

The “one envelope at a time” method is called single-piece flow in lean manufacturing. In the post World War II time, Toyota could not compete against the carmakers that adopted mass production method. Going with the small batches strategy allowed Toyota to play it differently. It had these advantages:

  1. It allowed Toyota to produce diversified products for the fragmented market in Japan
  2. It allowed Toyota to join the market without having to invest in expensive machines for mass production
  3. It allowed Toyota to spot defects sooner

Continuous Deployment

People like me working in software must be very familiar with the term “continuous deployment”. It is exactly how small batches strategy being applied in the software world.

A small batch of features is added to a software at a time and released to the users. There are monitoring systems and automatic testing systems set up. Anytime the systems sense an error on the live environment, the latest added features got reverted, and engineers will be flooded with alert emails and slack messages. Everyone would stop what they are doing, and investigate the issues immediately.

Toyota’s Just-in-time Production Method

Traditional mass production adopting large batches strategy has this disadvantage: to avoid stockouts, a company produces large batches of products, and have them distributed to and stored at the retail stores. Later the products are found useless, it requires the massive effort again to deal with the waste.

Toyota played it differently,

  1. Whenever a customer orders a part from the dealer, the dealer offer the customer the product, and then inform its local restocking facility for a new one
  2. The local restocking facility offer the dealer the product, and then inform the regional warehouse for a new one
  3. The regional warehouse offers the local restocking facility the product, and then inform the factory to produce a new one

This is exactly the idea why the Build-Measure-Learn feedback loop should be worked in the reverse order.

Toyota’s Just-in-time Production Method Versus Traditional Mass Production

The Build-Measure-Learn Feedback Loop

A starup’s goal is not to produce product efficiently. It is to learn how to build a sustainable business as quickly as possible.

  1. Make a clear hypothesis
  2. Figure out what prove the hypothesis right or wrong
  3. Find out what metrics we need to make the judgment
  4. Build the MVP with only the features that are required
  5. Collect metrics
  6. Decide whether the hypothesis is right or wrong
  7. Make a new hypothesis

Highlights

It seems more efficient to repeat the same task over and over, in part because we expect that we will get better at this simple task the more we do it. Unfortunately, in process-oriented work like this, individual performance is not nearly as important as the overall performance of the system.

In the Lean Startup, the goal is not to product more stuff efficiently. It is to – as quickly as possible – learn how to build a sustainable business.

Your Turn

Now that you have gained insights into this chapter. Enjoy reading the whole chapter when you have some time.

If you do not have a copy yet, here is my affiliate link to purchase a Kindle version from Amazon (meaning I will get a cut if you purchase through this link). Or you could get one from a retailer on its website.

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Books In Minutes: The Lean Startup Chapter 8 – Pivot (or Persevere)

The word pivot sometimes is used incorrectly as a synonym for change.

Eric Ries
The Lean Startup

Before We Start…

This post is a trial read of my paid newsletter Books In Minutes. Reading books is the best way to gain well-formed and organized knowledge that the author had created with incredible effort. The knowledge will not be outdated. 

However, we are all occupied with fragmented information flashes in front of our faces every single minute. That's why I wanted to change the blog post series Book Recap into a daily newsletter, where I will share my recap on the chapter I read everyday to you, so that you can learn genuinely as well in just a few minutes read. Make one chapter progress with me every day. Don't underestimate what you can achieve in a month.

Without further due. Lets get started!

Read In Minutes

With the scientific method of creating a hypothesis and then testing it that we learned so far, we might think there will be clear evidences that tell us whether we should pivot or persevere. After all, it’s science. But the truth is, it relies on our judgment as humans.

The goal of creating learning milestones is not to make the decision easy; it is to make sure that there is relevant data in the room when it comes time to decide.

An Example of Pivoting

The CEO of Votizen, David Binetti, made three pivots before founded Votizen. The first product took him eight months and the metrics were not good enough for him after several improvements. The second product was to focus on one feature from the first product, it took him four months and the metrics were a lot better than the first one, but the revenue was not enough to support the business. The third product was identical to the second one, but selling to a different segment of customer. And this time, no customer was willing to pay. The fourth product, which is Votizen, showed the sign of an actual growth model that could work.

RatesFirst ProductSecond ProductThird ProductFourth Product
Time taken8 months4 months3 months1 month
Engine of growthStickyPaidPaidViral
Registration17%42%42%51%
Activation90%83%83%92%
Retention8%21%21%28%
Referral6%54%54%64%
Revenue1%0%11%

It is surprising to see that with each pivot, it took David less time to ship the product than the last one. The reason is not because features were added incrementally, in fact the opposite, many features were discarded. It is because they have learned critical things about customers and the market from the process that help them make clear hypothesis to test in the next round.

Longer Runway

When an entrepreneur is trying to cut costs in the hope to extend the company’s ten-month left runway, it could also cut its chance to learn from the Build-Measure-Learn feedback loop, which is the critical process in which the company find its way to sustainability. It is better to think it differently, how many pivots can still be made? Even better, figure out the ways to get to each pivot faster.

The Three Reasons Why Pivot usually Comes Late

We often hear entrepreneurs say they wish they have pivoted earlier. Here’s why:

  • Tricked by vanity metrics
    “The metric is going up and right, we must be right”, not if it is a vanity metric. It is hard for people to neglect what they have seen, after all, seeing is believing.
  • Unclear hypothesis
    “If you don’t know where you’re going, you might not get there.” Without a clear hypothesis, it is impossible to tell whether it is a failure or a success.
  • The fear of regret
    “If it fail because we are not putting enough effort and resources now…”

To overcome the late to pivot, or worse, sticking in the land of the living dead of not pivoting. Ries suggested to hold regular pivot or persevere meetings not shorter than a few weeks intervals and not longer than a few months interval. The meeting should have both business leadership and product development teams involved. The product development team should bring the results of their efforts to optimize the product over time, and how they are different from the expectations. The business leadership should bring detailed accounts of their conversations with customers.

10 Different Types of Pivot and What They Mean

  • Zoom-in Pivot
    All in on one of a previous features
  • Zoom-out Pivot
    Build out related features around the previous product to form a new product
  • Customer Segment Pivot
    Figure out the product solves problems, but for a different type of customer than originally anticipated
  • Customer Need Pivot
    Figure out the targeted customer has much more important problems than the one we’re solving
  • Platform Pivot
    Started from selling a product, and build out a platform that allows others to sell the same products; or the other way around, started from building a platform, and change to focus on selling a product
  • Business Architecture Pivot
    Change from high margin, low volume business to low margin, high volume business, or the other way around
  • Value Capture Pivot
    Change the combination of features and pricing
  • Engine of Growth Pivot
    Change from one of the viral, sticky, and paid growth model to another
  • Channel Pivot
    Change the distribution channel
  • Technology Pivot
    Change to a technology that can provide superior price and/or performance compared with the existing technology

Highlights

Startup productivity is not about cranking out more widgets or features. It is about aligning our efforts with a business and product that are working to create value and drive growth.

The goal of creating learning milestones is not to make the decision easy; it is to make sure that there is relevant data in the room when it comes time to decide.

The true measure of runway is how many pivots a startup has left: the number of opportunities it has to make a fundamental change to its business strategy.

Most entrepreneurs’ biggest fear is not that their vision will prove to be wrong. More terrifying is the thought that the vision might be deemed wrong without having been given a real chance to prove itself.

The word pivot sometimes is used incorrectly as a synonym for change. A pivot is a special kind of change designed to test a new fundamental hypothesis about the product, business model, and engine of growth.

A pivot is better understood as a new strategic hypothesis that will require a new minimum viable product to test.

Your Turn

Now that you have gained insights into this chapter. Enjoy reading the whole chapter when you have some time.

If you do not have a copy yet, here is my affiliate link to purchase a Kindle version from Amazon (meaning I will get a cut if you purchase through this link). Or you could get one from a retailer on its website.

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Books In Minutes: The Lean Startup Chapter 7 – Measure

Are you making your product better?

How do you know?

Eric Ries
The Lean Startup

Before We Start…

This post is a trial read of my paid newsletter Books In Minutes. Reading books is the best way to gain well-formed and organized knowledge that the author had created with incredible effort. The knowledge will not be outdated. 

However, we are all occupied with fragmented information flashes in front of our faces every single minute. That's why I wanted to change the blog post series Book Recap into a daily newsletter, where I will share my recap on the chapter I read everyday to you, so that you can learn genuinely as well in just a few minutes read. Make one chapter progress with me every day. Don't underestimate what you can achieve in a month.

Without further due. Lets get started!

Read In Minutes

Innovation Accounting

A startup would have some ideal business numbers that it would like to achieve at the beginning, be it the number of customers, or revenue and profit, and it is usually not quite there yet. Its job at the time is twofold

  • measure where it is right now
  • conduct experiments to learn how to get closer to the ideal state

Most startups have at least some traction, and many of them persevere too long and eventually die. Traditional business relies on accounting to grow on the right track, but startups are unpredictable in the same way. Ries invented a framework called innovation accounting to prevent this from happening.

To make use of innovation accounting one has to quantify its leap of faith assumptions first. For example, a manufacturing company would maximize its profitability of each customer, the cost of acquiring new customers, and the repeat purchasing rate of existing customers. A marketplace company would maximize the retention rate of both the sellers and buyers, where the sellers would want more buyers to purchase and the buyers would want more sellers to compete for lower prices. And then followed by the three milestones:

Baseline

The first milestone is to fill your growth model with some baseline data, such as conversion rate, signup rate and customer lifetime value. To collect these data, follow the two steps

  1. smoke test – put out a landing page with marketing materials to see if customers even have interests in the product before building anything
  2. MVP – select the riskiest assumptions and build prototypes to test them

Tune the engine

Decide which of your drivers of growth you want to improve and make changes to your prototype with the goal to improve the driver. If a change does not improve the driver, it should be marked as a failure.

Pivot or Persevere

Over time, if the drivers of growth do not get closer to the ideal state, it is time to pivot.

Answering the Question “Are you making your product better?”

Vanity Metrics and Actionable Metrics

No matter how hard working you are, the effort will be in vain if you look at the wrong metrics. Even worse, some metrics could trick you into believing you are making progress. Some common pitfalls are gross metrics like total registered users and gross revenue. While you are seeing the favorable hockey stick graph for these metrics, it could actually be the result of paid acquisition, which is to reinvest the revenue into acquiring more customers. Ries called this kind of metrics “vanity metrics”.

Ries called the alternative kind of metrics that genuinely helps judge the business “actionable metrics”, which is based on looking at changes happening in different cohorts. Let me explain.

Cohort Analysis

The idea of cohort analysis is to look at the performance of the same group of people that comes into contact with the product. Thus, one can know exactly how a change has affected each group of people independently.

Non-cohort analysis vs cohort analysis by time
Group users into cohorts by time

Now that we know what metrics we should be looking at, and how we should look at them, it’s time to tune the engine.

Split Testing (A/B Testing)

The idea of split testing, also known as A/B testing, is to offer different versions of a product to different cohorts of users at the same time, and measure the changes in behavior among the cohorts.

A/B testing "2 for 1" and "50% off", and measure the results
A/B testing and measuring the results

With cohort analysis and split testing, we can confidently conduct experiments and tell whether they make the product better or not. However, when it comes to execution, we are likely to fall into this common pitfall – looking at the wrong metrics on productivity just like how we looked at the wrong metrics for growth.

Specialists like engineers and designers would consider their productivity as how many tasks they have done. We would tend to go with this pipeline execution, that the founders, directors, or product managers do the analysis and decide where to go next, while the specialists keep on to the rest of the tasks. They would try to not bother each other as much as they can.

Part of the reason to do validated learning is to reduce the waste on meaningless tasks. While it seems high productivity that both parties are completing tasks, the lessons learned from the previous experiments would not be reflected fast enough to the next step. Slowing down would be the antidote to this problem.

Kanban

Kanban restricted each of its four task buckets – backlog, in-progress, built, validated – to maximum of three tasks. The team will soon find out that all buckets are full of tasks. Unless they make room from the validated bucket, meaning to confirm whether a split-test has effect on the target metrics, no one could keep going on to new tasks.

The best way to keep the wheels turning is to make every task “validatable”. The specialists would not bother to start any task that is not part of a split-test experiment. The following tasks will be removed once a related task is validated as non-effective. Every tasks will be narrated in a understandable way: without a clear hypothesis, it cannot be validated. There will be no “I am just the executor”, the team works as a whole. The team can then be more productive.

A full Kanban board
A full Kanban board

Highlights

Every product development, marketing, or other initiative that a startup undertakes should be targeted at improving one of the drivers of its growth model.

The sign of a successful pivot: the new experiments you run are overall more productive than the experiments you were running before.

Poor quantitative results force us to declare failure and create the motivation, context, and space for more qualitative research.

Your Turn

Now that you have gained insights into this chapter. Enjoy reading the whole chapter when you have some time.

If you do not have a copy yet, here is my affiliate link to purchase a Kindle version from Amazon (meaning I will get a cut if you purchase through this link). Or you could get one from a retailer on its website.

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Book Recap: The Lean Startup Chapter 6 – Test

How many of us were raised with the expectation that we would put our best work forward?

Eric Ries
The Lean Startup

Often times an entrepreneur’s vision is to build a high-quality, world-changing product. But before new products could be successfully sold to the mass market, they have to be sold to a special breed of customer called early adopters.

First products aren’t meant to be perfect, because early adopters care more about being the first to use a product: it is the new iPhone or basketball shoes in consumer products, and it is gaining competitive advantage before competitors do in enterprise products. Ries gave several examples of how each of them built their first product in the MVP way.

  • Groupon started with just a WordPress blog and manually generated coupon PDFs and email them to users.
  • Dropbox created a 3-minute video of the founder Drew Houston using the software to move files around seamlessly, and those files are full of Easter eggs of in-jokes of their targeted early adopters.
  • Food on the Table targeted just one customer in the beginning, and offered the customer a concierge treatment of their proposed features without any software built, in exchange for feedback and a check for $9.95 weekly.
  • Aardvark’s founders pivoted six times, with each only a two- to four-week of effort cheap prototype, before they settle on Aardvark, and eventually acquired by Google.

It is counter intuitive that quality and design is not necessarily what customer consider as valuable. Most modern businesses focus on producing high quality products, because they already know what attributes of the product the customer will perceive as valuable. However, it is not the case for startups as startups often do not know who the customer is. MVPs are meant to be testing one’s assumptions. The goal is to start the process of validated learning as soon as possible. Anything that does not contribute directly to the learning should be removed.

Another counter intuitive thing is releasing an MVP would not let competitors steal the ideas. As a startup, it is so difficult to let the world notice you, let alone stealing your idea. The bigger companies of your competitors are focusing on prioritization and execution. And the smaller companies should not be able to out-execute you, since the reason you pursue the idea is that you believe you can accelerate through the Build-Measure-Learn feedback loop faster than anyone else.

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Book Recap: The Lean Startup Chapter 5 – Leap

The Build-Measure-Learn feedback loop Ries introduced does not work out if only some of the three parts excel. A startup must focus on minimizing total time to complete a turn.

The feedback loop is written in execution order, but the planning actually works in the reverse order. The outcome of each time going through the loop would be used to determine whether to pivot. So we first figure out what we need to learn to decide whether to do the sharp turn or not. And then we figure out what we need to measure to gain that learning. And then we figure out what MVP we need to build to collect those measurements.

We all believe that Facebook has proven it’s two leap-of-faith assumptions, value hypothesis and growth hypothesis, right. People love to see what happens in others life, so they come back to Facebook everyday, and they love it so much that they share it to their friends by word of mouths. But how do I frame my leap-of-faith assumptions?

Randy Komisar has a great way of doing it using the concept of analog-antilog. When Steve Jobs was inventing iPod, Sony Walkman would be the analog, and Napster would be the antilog. People were already used to listen to music in a public place using earphones, but they were not willing to pay for music. In the iPod business, people would pay for music is one of the leaps of faith.

Once the leap-of-faith assumptions are made, we should quickly head to test the assumptions. But instead of going deep and wide to collect information like how Toyota planned for the Sienna 2004, with resources that would not be available to a startup. We could act like how Scott Cook started Intuit in 1982, just grab two phone books and start cold calling people asking if they feel frustrated paying bills by hand, and then growing his vision of having personal computers take care of paying bills.

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Book Recap: The Lean Startup Chapter 4 – Experiment

If you cannot fail, you cannot learn.

Eric Ries
The Learn Startup

Experiment

Startups are often struggling to answer these questions:
What should we…?
How should we…?
Which should we…?
Should we…?

And if they answer the questions with “let’s just do it, and see what happens”, they will be guaranteed to succeed with the result of “seeing what happens”. They will be sure to not gain any long term value to their business, which would be the result of validated learning, named by Ries.

Ries concretizes validated learning as doing experiment scientifically – develop a hypothesis, and then test it. More importantly, in a smaller scale. Ries shows five stories of variate size and type of businesses that conduct small scale experiments to start something new. Among all the stories, I like Zappos’ story the most. Here’s what happened.

Nick Swinmurn visioned a online store with a great selection of shoes. He started the experiment with the hypothesis that customers were willing and ready to shop shoes online. He then tested the hypothesis by going around the local shoe stores, and asking to take photos of their shoes to put on to the website, in exchange of buying the shoes at full price once a customer orders online. Till this day, Zappos’ shoe empire makes billions in revenue.

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Further Reading