LEAN PRODUCT

MANAGEMENT GUIDE
How to successfully apply Lean Startup to
deliver better products to market faster

A Guide for Chief Product Officers, Heads Product,

Product Managers and Product Owners
1. LEAN STARTUP

Steve Blank defines a startup as an organization formed to search for a repeatable and
scalable business model.
This is the best definition and the only one I will refer to, because it captures the essence
of Lean Startup.

An organization can be a group of geeks in a garage, an innovation team or a product

team within a corporation.

A repeatable business model: because you want to sell to a lot of people, not just the
initial bunch of early adopters.

A scalable business model: because you want to be able to create a successful

business out of it. If your operational costs are too high or the technology you are
relying on is too expensive, you will not succeed.

But, most important of all, it is the concept of business model we care about. As Alex
Osterwalder says: “the right business model can be the difference between success and
failure for the same product”.

“The Lean Startup methodology provides a scientific

approach to creating and managing startups and get a
desired product to customers' hands faster. The Lean
Startup method teaches you how to drive a startup and
grow a business with maximum acceleration. It is a
principled approach to new product development.”

— Eric Ries
2. COMMON MISTAKES

Here, you can find a list of common mistakes that cause huge delays in time to market,
frustration and a terrible waste of money and human potential.

We can do much better, and Lean Startup is the key to avoiding these mistakes to deliver
awesome customer experiences, as fast as possible with minimum hassle by engaging
everyone in the organization.

Putting the Cart Before the Horse

This is the most usual mistake traditional companies make: scaling before having objective
evidence that you have built something people want and there exists a reasonable market
for your product (Product-Market Fit).

Usually, there is a goal, project or idea. Then, companies create a business model out of the blue,
fund the whole thing based on estimates and guesses on the future, put the whole infrastructure,
resources and people together upfront, and then they start building like crazy.

When working with traditional businesses we ask our clients to approach product
development the same way we do for innovation or startups. Management should act as
Venture Capitalists using innovation accounting to measure progress until Product-Market
Fit is reached, and then push for growth.

You don’t need 15 developers if you haven’t yet validated product-market fit, you will find
something better to do for them.

You don’t need the budget for the year assigned to projects and products from day one.

You don’t even need a scalable architecture from day one either. Your infrastructure needs to
grow alongside your customer base, otherwise you will be burning cash like crazy.

Some entrepreneurs also make the same mistake of jumping into scale phase before
achieving product-market fit. This is a huge mistake because scaling sucks cash like hell and
if you don’t have product-market fit you are doomed.
Build - Build - Build

This is the well-known pattern of waterfall and still today, of many so-called Agile
companies. They basically start building without understanding what problems they are
trying to solve beforehand, for whom, and if there is a market big enough out there willing to
pay for it.

Here, the problem is not so much scaling before Product-Market Fit, but a mindset of
delivery. A mindset of output over outcome. The measure of success and productivity is
deliver working software to production, regardless if that is solving a problem or providing
any business benefit at all. Like a feature factory.

In this scenario, you don’t know if there is a problem worth solving and if your solution fixes
that problem, but you are already building software. Bear in mind, building software is the
most expensive thing you will do, so try to reduce it as much as possible.

Here, the agile principle of “working software is the primary measure of progress” doesn’t
work, the only measure of progress is validated learning.

Measuring the wrong thing

Eric Ries coined the concept of vanity metrics. Those metrics that make you feel good but
are useless.

You need to know at every point in time what are the key metrics you are measuring and how
your experiments will impact those metrics.

There is also a key mistake most traditional companies make, which is measuring innovation
success with the same parameters they measure normal business operations.
We will talk about this later in the Innovation Accounting chapter.
Building Doesn’t Always Mean Software

Build doesn’t mean a full-fledged product. Building should mean the minimum thing you
can build that will validate a hypothesis and de-risk your business model.

It can be a live product, but it also means Landing Pages, Mockups, User Interviews or a
physical product or service simulating an online experience.

Innovator Bias

You have a great idea and you immediately think of a solution and start building it without
first validating if it solves any problem at all.

This is the typical situation when you have a solution looking for a problem to solve. It is
typical of new technologies, that are really cool but cannot become a viable business
model.
Here, you are basically skipping Problem-Solution Fit phase, as we will see later.

Sunk Costs Fallacy

This is mostly typical of traditional companies with project mentality and annual budgets.

This is a cognitive bias that occurs when you continue with a project because you have
already invested a lot of money, time, or effort in it, even when continuing is not the best
thing to do.

This is an irrational behavior that usually causes more economic losses than stopping
right away.

You can see this irrational behavior everywhere all the time.

The solution to this problem is Lean Startup and data.

 3. WHAT IS PRODUCT–
MARKET FIT

This is the most important milestone in the life of a product.

Product-Market Fit is being in the right market

6. Test with with the right product. It is a key milestone in the
5. UX Customers life cycle of any product (or feature). It is the
PRODUCT intersection between value generated and value
4. Feature Set
captured.
3. Value Proposition
Marc Andreessen coined the term product-market
fit in a well-known blog-post titled “The only thing
Product Market Fit
that matters.” In that post he wrote, “Product-market
fit means being in a good market with a product that
2. Underserved Needs
MARKET can satisfy that market.”
1. Target Customer
Credits: Dan Olsen

If you are generating value but not capturing value back from the market, you might be
an NPO but not a business.

Product-Market Fit is the point in the life cycle of a product

(or feature) where you can objectively verify quantitatively
that you are capturing monetizable value from the market.
 VIABILITY
(Business)
It is the point where Feasible, Viable and Valuable DESIRABILITY
intersect for first time. You have mostly developed (Human)
Valuable (your product meets real customer needs
and does so in a way that is better than the
alternatives), but you are starting to validate
Viability (is it profitable?) and Feasibility (can it be INNOVATION

built at scale?). FEASIBILITY

(Technical)

We develop our business model by reducing these

three main risks.

The Business Model Canvas Designed for: Designed by: Data: Version:

Key Partners Key Activities Value Propositions Customer Relationships Customer Segments

Feasibility Key Resources

Desirability Channels

Build, Borrow, Buy? Customer Development

Viability
Cost Structure Revenue Streams

Sanity Check
At the beginning, we mostly tackle Desirability (is it usable and valuable for customers?), as
we move towards Product-Market Fit we work on reducing the risk of Viability and when we
scale we mostly deal with Feasibility risk.

As you can imagine, these are not independent and sequential phases, but it is important
that you keep in mind these three fundamental risks. For technology companies, Viability
and Feasibility intersect from the beginning, and you shouldn’t wait too much to evaluate
technical risks.

Credits: Strategyzer by Alex Osterwalder

 4. BUILD – MEASURE – LEARN

Build-Measure-Learn cycle was coined by Eric Ries in his book Lean Startup, and like many
other concepts from Lean Startup, it has been widely misunderstood. But, it is important
that you understand this: build, doesn’t necessarily mean software or physical product.

There’s much more...

Ideas

Learn Faster Learn Build Build faster

Split Tests
Customers Development
Five Whys
Customer Advisory Board
Falsifiable Hypotheses
Product Owner
Accountability
Customer Archetypes
Cross- functional Teams
Semi- autonomous Teams
Smoke Tests
Unit Tests
Usability Tests
Continuous Integration
Incremental Deployment
Free & Open-Source
Cloud Computing
Cluster Immune System
Just-in-time Scability
Data Code Refactoring
Developer Sandbox
Minimum Viable Product

Measure
Measure Faster Measure Faster

Split Tests Funnel Analysis

Continuous Deployment Cohort Analysis
Usability tests Net Promoter Score
Real-time Monitoring & Alerting Search Engine Marketing
Customer Liaison Predictive Monitoring

The basic rule here is: the type of build, the kind of measures and the quantity of learning
will depend on two factors: - the stage in the product life cycle you are in the amount of
money you have.

Credits: Eric Ries

 Hypotheses

Design
Insight Experiments

Test

Some people prefer to draw this feedback loop as follows:

Hypothesis: a problem your customers have, an underserved need of your customers or a risk in
your business model

Design: the best way to test the hypothesis

Test: expose artifact to customers

Validated learning: what did you learn and what was the impact on any metrics. They can be
qualitative (WHY) and/or quantitative (WHAT, HOW, HOW MUCH, WHEN)

Credits: Steve Blank

The benefit of the second cycle is that it reduces the chance of falling into the build trap we saw
earlier. But, it doesn’t really matter, as long as you use it properly.

These cycles go on forever. It is the engine of Lean Startup.

For some teams this cycle will last a few days, others will take a whole week or two. It depends
on the stage of the product lifecycle you are currently in.

As an example, a Design Sprint shoves the whole cycle in 4-5 days to work on a single challenge,
problem. You can use a Design Sprint to create the delivery backlog for the next few agile
iterations in order to solve a particular problem, tackle a specific goal or design your first
Minimum Viable Product (MVP).
 5. MINIMUM VIABLE
PRODUCT

Minimum Viable Product (MVP) is probably the term that most confusion and arguments has
ever created. So, first of all, we want to be clear on what we think is the best definition of an MVP.

An MVP is the smallest version of a product or service

that contains the minimum functionality required to
validate that you are heading in the right direction.

Conditions of a good MVP:

It must address all the key benefits you identified in your Value Proposition
It must provide value to the customer
It must capture monetizable value back (in terms of money, time or information)
It must be functional, reliable, usable and delightful

Not This
Delightful this Delightful

Usable Usable

Reliable Reliable

Functional Functional
On the above figure, the pyramid on the left illustrates the misconception that an MVP is just a
product with limited functionality. Instead, the pyramid on the right shows that, while an MVP has
limited functionality, it should be “complete” by addressing also reliability, usability, and delight.

What is not an MVP:

Phase 1 of a project
A product with limited functionality
Landing Page or an email campaign
Wireframe or Mockup

So, we don’t consider a valid MVP any marketing tests like Marketing materials, Landing Pages,
Smoke Test, Explainer Video or Ad Campaigns. Those are powerful techniques for validating
Problem-Solution Fit but you won’t raise a Series A investment because many people watched
your funny video.

We consider valid MVPs all those which demonstrate traction: Crowdfunding campaigns, Wizard of
Oz & Concierge, Live Products, Fake door/404 Page and Product Analytics and A/B Testing.

You can still use Wireframes, Mockups or Interactive Prototypes to either test an MVP, other
parts of the business model or additional features. But these won’t let you validate traction, so
we cannot consider them valid MVPs.

As an example, let’s talk about the MVP Tesla’s founder Elon Musk used to validate the riskiest
assumption of his business model. The assumption that customers of luxury cars would be
willing to buy an electric car.

Instead of tackling it all at once, he first launched a high-performance electric sports car— the
Tesla Roadster. The biggest problem to solve for an electric car was to match the range of a
regular car on a full tank of gas.

To solve this problem, Tesla didn’t build a car from scratch. Instead it licensed the rights to use
the body of the Lotus Esprit.

Tesla essentially took out the internals from the Lotus, fitted it with its own battery and motor, and
sold it at a pretty high price tag. By starting at the premium high end, Tesla was able to limit its scale
of production and really focus only on getting the product right: testing Product-Market Fit.
6. PRODUCT LIFE CYCLE

There are three stages in the life cycle of any idea:

Problem-Solution Fit
Product-Market Fit
Scale

We are using Ash Maurya’s framework as a backbone and we will be matching other
author’s frameworks so everything makes sense and you can choose the one you like most.

SALES

Scale
Product-Market
Fit

TIME

The first stage is about determining whether you have a problem worth solving before
investing into building a solution.

A problem worth solving boils down to three questions:

Is it something customers want (Desirable/Valuable)
Will they pay for it? (Viable)
Can it be solved? (Feasible)
During this stage, we attempt to answer these questions using a combination of qualitative
customer observation and interviewing techniques.

We define our value proposition and derive a minimum feature set to address the right set of
problems, which we also know as MVP.

Once you have a problem worth solving and your MVP has been built, you test how well your
solution solves the problem. In other words, you measure whether you have built something
people want.

During this stage you use both qualitative and quantitative metrics for measuring
product-market fit. Achieving traction or product-market fit is the first significant milestone for
any startup or product. At this stage, you have a plan that is starting to work - you are signing up
customers, retaining them, and getting paid. Here is where you are mainly testing viability of
your business model.

SALES
RISCK
INVESTMENT Scale
Product-Market
Fit

TIME

After product-market fit, your focus shifts towards growth, or scaling your business model.
Here, is where you start tracking traditional metrics like revenue, profit, cost of sales,
operational costs, …

Ideal time to raise funding

. .. ...
Problem/Solution Product/Market Scale
Fit Fit

Your Goal: Learning Your Goal: Growth

Investor’s Goal: Growth Investor’s Goal: Growth

Credits: Ash Maurya

 There is a before and after achieving product-market fit. Before product-market fit everything
is about learning and pivoting, you are finding a plan that works and using innovation
accounting to measure progress. After product-market fit you focus on growth, optimizations
and continuous improvement. Here is where you start sucking cash like crazy and
implementing growth hacking and agile at scale.

SALES EXECUTION

RISCK
INVESTMENT EXPLORATION Scale
Product-Market
Fit

TIME

Let’s analyze the three phases one by one.

1 Problem-Solution Fit
At this stage you basically want to answer two questions:
Is there a problem worth solving?
Do I have a solution for that problem?

This phase uses the Build-Measure-Learn cycle to discover who is your target customer and
what are their problems/needs.

Problem-Solution Fit is the equivalent to Customer Discovery in Steve Blank’s Customer

Development Model and the equivalent to Alex Osterwalder’s Value Proposition Design phase.

Build
Talk to people, go to conferences, go where your customers are
and talk with them. You can also complement that, with:

Problem Interviews
Solution Interviews
Surveys
Landing Pages
Marketing Materials
Learn
The goal of this phase is to find the real target customer and their true needs
and problems. You will need to do several iterations going deeper, asking WHY
5 times many times. If you stay in the surface you will target the wrong
customer segment or you will address the wrong customer needs, or both.
You want to understand the underlying need of the customer, the real root cause.
Before achieving Product-Market Fit you will change course several times.
That means you are learning. That’s what we call pivoting.

Measure
Most measures are qualitative here, although you can still
do some experiments and validate with data, like CTR for a
given Landing Page, etc.

Tools
Design Thinking
Ethnographic Research
User Personas
Value Proposition Canvas (by Alex
Before achieving Product-Market Fit you will change course several times.
That means you are learning. That’s what we call pivoting.
Osterwalder)
Lean UX Canvas (by Jeff Gothelf)

Warning
Learn to differentiate between WANTS and NEEDS. You are looking for
underlying needs, specially unknown needs or those needs currently
underserved by the market
When using User Personas focus the study in the needs, not in the demography
and psychology. The most important is to cluster markets by needs
Surveys are more effective at verification than learning. So, a word of caution
here. Use surveys to verify learnings rather than to learn something.
2 Product-Market Fit

This is the Holy Grail of any startup founder, product manager or innovation team.

In Steve Blank’s Customer Development model this phase corresponds to Customer

Validation phase, because it is when you start creating customers.

In Ash Maurya’s model this is where you start getting traction and capturing back
monetizable value from the market.

At this stage you basically want to answer one question, which divides into two
sub-questions:

Is there a viable market for the product? Have I built something people want?

Is the market big enough to support our business?

Can we get traction in the market? Are customers willing to pay? Does our value
proposition serve their needs better than competitors?

Build
In this phase you are going to basically use one thing: MVP (Minimum Viable
Product).

The outcome of the previous stage is a Value Proposition that you will
validate with customers by creating and iterating an MVP.

You will use MVP with different levels of fidelity depending on what you are
testing. We want to prioritize testing product, so the typical MVPs we will use are:
Wizard of Oz, Concierge, Live Product, Fake Door, 404 Page and A/B Testing.
 Credits: Dan Olsen

You will test initial versions of the MVP by creating MVP prototypes such as: Wireframes,
Mockups, Interactive Prototypes or even Life Product. And, you will test them by
interviewing customers or observing them using it.

At this stage we recommend you start populating your Lean Canvas or Business Model
Canvas if you haven’t done it before.

Measure
The key measure here is traction. However, what traction means will depend
on your type of business.

Some products or services are designed to capture one-time value (e.g. cars,
wedding planners or real estate). Other products are designed to capture
recurring value through repeated use (e.g. SaaS, Social Networks, Online
Marketplaces, ecommerces, etc).

The first is primarily driven by the experience of the service, which can
effectively be measured using activation metric. The second also relies on a
good first experience, but success is driven through repeat usage - making
retention the more indicative measure of “building something people want”.
Product-Market Fit Question

Sean Ellis developed a survey question to assess your level of

product-market fit. In the survey, you ask the users of your product
the question, “How would you feel if you could no longer use [product
X]?” The four possible responses are:
Very disappointed
Somewhat disappointed
Not disappointed
N/A

Ellis found that products for which 40 percent or more of users reply “very
disappointed” tend to have product-market fit. There can be some
variability in that threshold based on the product category, but it is a good
general rule of thumb.

Tools
Lean Canvas / Business Model Canvas
Innovation Accounting
User Testing

Scale

It is not the purpose of this booklet to talk about scaling.

This stage corresponds to the last two stages of Steve Blank’s Customer
Development Model: Customer Creation and Company Building.

Just a few recommendations:

Before scaling you must be able to demonstrate Product-Market Fit.
Scaling sucks cash like crazy; make sure you pay attention to your finances, specially your CCC (Cash
Conversion Cycle).
Your business model is never finished. Shit happens: a new competitor might enter your market or a
new technology might transform delighters into table stakes. Keep driving incremental innovation and
scanning the market and tendencies.

Try to disrupt yourself by creating an innovation team that works on a radical change in one of the parts
of the business model canvas. For instance, check what would happen if a competitor would offer my
product or service for free?

Scale by applying the principles and practices of Lean and Agile.

EXPLORATION EXECUTION

Customer Customer Customer Customer

Discovery Validation Creation Building

Problem-Solution Product-Market
Fit Fit Scale
Organization
Proposed Business Scale
MVT Model Execution
Sales & Scale
Proposed
Funnel(s) Marketing Operations
Roadmap

PIVOT
 7. BUSINESS MODELING

A Business Model is a story about how an organization

creates, delivers and captures value.

A secure recipe for failure is to use the traditional approach of creating a business model out of
the blue, full of wishes, expectations and assumptions and take it for granted. Then hand it over
to a team for delivery. This is the traditional approach and the one which doesn’t work.
Using a Lean Startup approach, the business model is the underlying thread. Remember, we are
searching for a repeatable and scalable business model.
Some teams start by creating an initial version of the business model by using frameworks such
as Business Model Canvas or Lean Canvas; some teams don’t.
You can use Business Model Canvas or Lean Canvas as a dashboard that captures the riskiest
parts of your endeavour and keep it updated as you evolve.
It is also great practice to work in a few versions of the canvas in parallel to avoid falling
into a local maximum.

Document Identify riskiest Systematically test

your plan A parts of your plan your plan

At the beginning don’t waste too much

Understand Define Validate Verify
time through discussing about stuff like
Solution Qualitatively Quantitatively
Problem channels, partnerships or revenue
streams when you don’t even know if
there exists a problem worth solving.

A very good practice is to start your

Problem-Solution Fit quest by working
Problem/Solution Product/Market Scale with Value Proposition Design using
Fit Fit
Value Proposition Canvas from Alex
Osterwalder.

Time

Credits: Ash Maurya

8. LEAN ANALYTICS

Most probably, you already have a lot of experience in tracking your business’
bottomline with traditional metrics like revenue, profit, or cost of sales.

Here, we want to talk about measuring Product-Market Fit as the key milestone
in the development of a new product or feature.

But, first of all, let’s clarify a few important concepts with regards to metrics.

Innovation Accounting
Innovation Accounting is the alternative to traditional accounting when you are in
exploration mode. If you don’t have a business model yet, all your traditional metrics
will be zero or close to zero.

Sadly, this is one of the main obstacles to corporate innovation – using traditional
metrics like revenue to measure, or ROI to measure the progress of innovation.

“Innovation accounting is a system for translating

from the vague language of “learning” to the hard
language of dollars. It puts a price not just on
success but also on information. Innovation
accounting allows organizations to quantify learning
in terms of future cash flows”
—Eric Ries
 This is why Eric Ries coined this concept. To keep management and finance people at
bay and to emphasize the difference in measuring progress between exploration and
execution.

Rather than financials, innovation accounting is based on user behavior.

Vanity Metrics

Vanity metrics are those metrics that are only good for your ego. Numbers that sound
impressive but don’t reveal much about your underlying business.

If you have data on which you cannot act, it’s a vanity metric. You want your data to
inform, guide, to improve your business model, to help you decide on your course of
action, to help you pivot.

Whenever you look at a metric, ask yourself, “What will I do differently based on this
information?” If you can’t answer that question you probably shouldn’t worry too
much about this metric.

What Makes a Good Metric

A good metric is comparative. You must be able to compare it with previous periods of
time, customer segments or competitors.
A good metric is understandable. People must be able to remember it and talk about it.
A good metric is a ratio or a rate.
A good metric changes the way you behave. This is by far the most important criteria for
a good metric: what will you do differently based on a change in this metric?

Typical vanity metrics are the following:

Number of Hits, Number of Page Views, Number of Visits, Number of Unique Visitors,
Number of Followers/Friends/Likes, Time on Site, Number of Pages Visited, Emails
Collected, Number of Downloads.

Human-driven and Data-informed

Humans do inspiration, machines do validation. We should be data-informed, not

data-driven. This applies to product management as well as running a business. If we
only look at numbers awful things can happen.
Both qualitative and quantitative learning are important and complement each other.
Quantitative research tells you WHAT, HOW, HOW MUCH and WHEN, but not WHY.

That’s the reason we usually start with qualitative research to understand the relevant
problems and needs. Armed with this information you then proceed to quantitative
research to find out how many people is doing something.

The Lean Analytics Cycle

Throughout your process of finding a business model that is sustainable, repeatable

and growing, you will be repeating the same process over and over again:

Find a meaningful metric

Run experiments to improve until that
metric is good enough
Move to the next problem or stage of
your business

Start
Here

Choose a KPI you want to improve, such as

retention, revenue, or engagement,
preferably one that represents the most
fundamental business risk of your startup for
this stage of growth and this business model.
Draw a line in the
sand for that KPI
based on your
business model.
Pivot or give up.
Talk to customers
and draw a new line.

Yes No
Try again.
Did the KPI move past Figure out how to
the line in the sand? improve the KPI.

Without With
data data

Measure the effect the

change had on the KPI. Have a good idea
Analyze a cohort of you want to try:
users that experienced
-Brainstorming
the change. -Stolen from others
-User feedback
-Etc.
Cautions (test)
Identify “good” visitors,
users, or customers in
your data who are doing
what you want them to:
-Buying
-Signing up
-Sharing
-Contributing
-Bringing in more revenue
-Etc.

Implement the Design A/B or

winning solution. multivariate experiments.

Find an attribute the

Make changes to the
“good” users share What to these
business (product,
that’s correlated with “good” users have
market, pricing, etc.)
the KPI you want to in common?
that target this
change.
commonality.

Brave (just do it)

Credits: Lean Analytics

 Finding the Right Metric

In order to find the right metric you need four things:

Understand what business you are in

Understand what stage in the product lifecycle you are currently in
Understand what problem you are trying to solve
An analytics model

3 - UVP:
2 - Solution: Feedback scores, 6 - Unfair Advantage:
Respondents who try independent ratings, Respondents
the MVP, engagement, sentiment analysis, understanding of the
churn, customer-worded UVP, patents, brand
most-used/least-used descriptions, surveys, equity, barriers to entry,
features, people willing search, and number of new
to pay competitive analysis. entrants, exclusivity of
relationships

1 - Problem: PROBLEM SOLUTION UNIQUE VALUE UNFAIR CUSTOMER

Respondents who PROPOSITION ADVANTAGE SEGMENTS
have this need, 4 - Customer
respondents who are Segments:
aware of having the How easy it is to find
need groups of prospects,
unique word segmenrts,
KEY METRICS CHANNELS targeted funnel traffic
from particular source

OMTM (One
Metric that 5 - Channels:
Matters) Leads and customers
per channel, viral
coefficient and cycle,
COST STRUCTURE REVENUE STREAMS: net promoter score,
open rate, affiliate
8 - Cost Structure: 7 - Revenue Streams: margins, CTR,
Fixed costs, cost of costumers acquisition, Lifetime customer value, average revenue PageRank, message
cost of servicing nth customer, support per user, conversion rate, shopping cart reach
costs, keyword costs size, CTR

For instance, if you are running an e-Commerce in Product-Market Fit phase, we know that
Retention is the key metric, but it is a lagging indicator. You need to figure out what components
of your product are leading to your current level of Retention.
What Business Are You In?

To decide which metrics you should track, you need to be able to describe your business
model in a simple and practical way. You need to take a helicopter view and just think
about the really big components.

Here is where Lean Canvas or Business Model Canvas are really important.

A business model is a combination of things. It’s what you sell, how you deliver it, how you
acquire customers, and how you make money from them.

The next figure on the right shows a few possible combinations with some real world
examples.
15Credits: Lean Analytics

What Problem Are You Trying To Solve?

Let’s take for example you are developing some sort of social network. Your first MVP
shows some promising results but still far from what you need to demonstrate traction.

You have a large user base and you are already generating some advertising revenue, but
too low to justify further investment. So, you need to do something about it.

You think that growing your user base as fast as possible is the best way. So, you set a goal
to improve your viral growth.

Then, you need to analyze what parts of the process and detect areas for improvement.

Perhaps, you can do something to increase user engagement, or you can have more users
inviting friends, or you can increase the number of invites sent per user, or improve the
number of recipients who sign in.

After analyzing the baseline for each metrics and drawing a line in the sand for each one,
you decide that Avg. Invites Sent per User is the metric what will have the most impact.

So, you develop an action plan to improve that metric during the next few iterations of
your MVP.
 Paid advertising
Banner on Informationweek.com.
Search engine mgmt. High pagerank for ELC in Kids’ toys

ACQUISITION
Social media outreach Active on twitter (i.e., Kissmetrics)

CHANNEL
How the visitor,
customer, or user finds
out about the startup
Inherent virality Inviting team member to Asana
Artificial virality Rewarding Dropbox user for others’ signups
Affiliate marketing Sharing a % of sales with a referring blogger
Public relations Speaker submission to SXSW
App/ecosystem mkt. Placement in the Android market

Simple purchase
Buying a PC on Dell.com
What the startup does Discounts & incentives
Black Friday discount, loss leader, free ship
SELLING
TACTIC

toconvince the visitor Free trial Time-limited trial such as Fitbit Premium
or user to become a Freemium Free tier, reying on upgrades, like Evernote
paying customer Pay-for-privacy Free account content is public, like Slideshare
Free-to-play Monetize in-app purchase, like Airmech

One-time transaction Single purchase from Fab

How the startup Monthly charge from Freshbooks
Recurring subscription
REVENUE
MODEL

extracts money from Compute cycles from Rackspace

its visitors, users, or Consumption charges
Advertising clicks PPC revenue on CNET.com
customers
Twitter’s firehose license
Resale of user data
Wikipedia’s annual campaign
Donation

Software
What the startup does Oracle’s accounting suite
in return. May be a Platform
PRODUCT

Amazon’s EC2 cloud

product or service; Merchandising
Thinkgeek’s retail store
TYPE

may be hardware or User-generated content Facebook’s status update

software; may be Marketplace
mixture Airbnb’s list of house rentals
Media/content CNN’s news page
Service A hairstylist

Hosted service
Salesforce.com’s CRM
VERY

How the product gets

DEL

Digital delivery
Valve purchase of desktop game
Physical delivery
Knife shipped from Sur la Table

User
Base
% of users who Analytics Model
are active An analytics model is a simple and repeatable
Active % of users process for using analytics to drive
Users sending invites improvements, business decisions and pivots.
OK
Invite Avg. invites
sent per sender
Candidate Don’t click An analytics model for a Social Network
Users or a User Generated Content business model
CR
Click CTR would be something like this (figure on the right):
Sign-in Fail
Process

Credits: Lean Analytics

 The UGC
Customer Lifecycle
Click-through, virality Page rank Acquisition costs

VIRAL/
Shared Content WOM/ SEARCH PAID
SHARING

VIRAL CONTENT
PROCESS

VISITORS Traffic
Accepted
Invites Viral growth
cycle time

Returners

Notifications
Cick-through
Signed in users

VIRAL INVITE PROCESS

CHURN AND
Voters REACTIVATION
(Like/RT/+1) PROCESS

Commenters

CONTENT
BAD GOOD Creators Time since
last visit

Voters Reactivations
(Like/RT/+1)

Churn rate

Abandoned

16OMTM, The One Metric That Matters

One of the keys to success of startups or new products is focus. Thus, at any given time there’s one
metric you should care about above anything else.

This means picking a single metric that’s incredibly important for the step you are currently working
through in your endeavour. In Lean Analytics book they call this the One Metric That Matters (OMTM).

The OMTM is the one metric you are currently focused on above anything else. You still monitor other
metrics but this one sets your direction and marks your decisions.

The OMTM is of most importance early on, before Product-Market Fit. As your business or product
scales, you will want to focus on more metrics.

The OMTM changes over time. When you are focused on acquiring users and converting them into
customers, your OMTM may be tied to which acquisition channels are working best or the conversion
rate from signing up to active user. When you are focused on retention, you may be looking at churn,
and experimenting with pricing, features, improving customer support and so on.
Product-Market Fit OMTM

Well, you finally reached product-market fit; what is the OMTM for Product-Market Fit?

When you are working on a new product, it doesn’t make sense to spend lots of money trying to
acquire or convert customers until you know your customers find your product valuable.

If customers find value in your product, they will continue to use it; otherwise, they won’t.

Retention is the macro-metric most closely related to Product-Market Fit. Hence, it is typically the
first OMTM for a new product.

Once you confirm strong Product-Market Fit with a healthy retention rate you can move to
Conversion and afterwards Acquisition.

The Stages of Lean Analytics

MAURYA LEAN LEAN STARTUP MCCLURE SEAN ELLIS LEAN ANALYTICS “GATE” NEEDED TO
CANVAS PIRATE GROWTH STAGE MOVE FORWARD
METRICS PYRAMID

Problem
Problem validation Acquisition I’ve found a real,
(of testers, poorly met nedd
prospects, a reachable
Solution etc.) Product/ Empathy market faces
Customer validation market fit
segments
MVP building Activation I’ve figured out
how to solve the
Unique value problem in a way
they will accept
STARTUP LIFECYCLE STAGE

proposition an pay for

MVP iteration, Retention
sticky engine. Stickiness

Solution I’ve built the right

Stacking product/features/
Organic growth, Referral the functionality that
viral engine odds keeps users
(Natural) channels
GROWTH RATE

Virality around

Revenue stream The users and

Monetization, features fuel
price engine Revenue growth organically
Revenue and artificially
Cost structure
Scale
growth I’ve found a
(Formal) channels
sustainable,
Attention scalable business
Inorganic growth, (at scale, with the right
beyond Lean Scale margins in a
customers.)
Unfair advantage healthy ecosystem

I can achieve a
successful exit
for the right terms

Credits: Lean Analytics

 Acquisition How do users find you?

Do users have a great first experience?

Activation

Retention Do users come back?

Revenue How do you make money?

Referral Do users tell others?

Retention rate measures what percentage of your customers are actively using
your product.

Obviously, if your MVP is an e-Commerce and nobody is visiting your site and
nobody is logging in, you won’t be able to test it and demonstrate traction. So,
acquisition and activation must work well enough to support learning.

What is the Exit Criteria from Product-Market Fit?

You can affirm you are ready to scale when:

Retain 40% of your users

Pass the Sean Ellis Test
 9. KILL, PIVOT OR
PERSEVERE

Douglas W. Hubbard wrote an amazing book titled “How to Measure Anything”. In an article
in CIO Magazine, he wrote:

“Even in projects with very uncertain costs, we

haven’t found that those costs have a significant
information value for the investment decision …
The single most important unknown is whether the
project will be cancelled. The next most important
variable is the utilization of the system, including
how quickly the system rolls out and whether some
people will use it at all.”

— Douglas W. Hubbard

In summary, will the project be cancelled? Will it be used? How quickly will it be used?

Hubbard is talking about killing an investment, product-market fit and scale.

This applies for any project or product. And, it is your responsibility as a Product
Manager to ask yourself this question after every iteration, but mostly when trying to go
to the next phase.

KILL - shall we stop investing in this idea/product/project?

PERSEVERE - shall we go on?
PIVOT - shall we correct course?
In order to answer this question you need data.

Kill
You must kill an idea when you cannot achieve Problem-Solution Fit, Product-Market Fit or
despite several attempts you cannot seem to scale sales.

Pivot
Pivot is a structured course correction in order to test a new fundamental hypothesis about
the product, the business model or the engine of growth. We are not talking about changes
in the interface or some functionality.
18Most successful companies went through one or more pivots. You can read about
Instagram, Youtube, Amazon, Hotmail, Twitter, and so many others.

Types of Pivots

+ -
Zoom-in: What was Zoom-out: What was Customer Segment: Customer Need:
previously considered previously considered A change in the A change in the problem
a single feature in a the whole product customer segment or need addressed by
product becomes the becomes a single you are targeting the product for a given
whole product feature of a much customer segment
larger product

Platform: Business Architecture: Value Capture:

Change from Switching from B2B This refers to the
application to to B2C or vice versa monetization or
platform and revenue model.
vice versa

Engine of Growth: Channel: Change the Technology: When a

Changing your engine mechanism by which new technology can
of growth (Sticky, a company reaches provide superior
Viral, Paid) their customers. benefits or
performance
 10 REFERENCES

These are the ten books any Product Manager, Product Owner, Chief Product Officer or
Head of Innovation must have on their library:

The Four Steps to the Epiphany by Steve Blank

The Lean Startup by Eric Ries
Running Lean by Ash Maurya
Lean Analytics by Alistair Croll
Business Model Canvas by Alex Osterwalder
Value Proposition Design by Alex Osterwalder
Lean UX by Jeff Gothelf
Lean Customer Development by Cindy Alvarez
Inspired by Marty Cagan
The Lean Product Playbook by Dan Olsen
Scaling Lean by Ash Maurya
How to Measure Anything by Douglas W. Hubbard
The Lean Enterprise by Trevor Owens
 11. ABOUT THE
AUTHOR

GERARD CHIVA has spent last 20 years in technology related roles. As an engineer, manager, consultant,
agile coach, team coach, executive coach and now business owner.

He is Managing Director of AKTIA Solutions, a Management Consulting Firm (AKTIA Solutions is an

evolution4all partner). He also helps companies as Lean Startup Coach, Lean and Agile Coach and Team
and Executive Coach.

He’s got a very broad expertise, combining professional coaching, management, consulting, engineering
and entrepreneurship. He has worked in different types of industries and different roles which provides
him a broad perspective on how organizations work.

He is a passionate of Lean, he writes blog-posts about these topics, is a youtuber, participates as a speaker
in conferences and he also teaches Lean Startup in BAU Design School in Barcelona.