Lukas Fittl gave a presentation on lean startup essentials. He discussed (1) why startups should use the lean startup methodology to iteratively test ideas with customers rather than executing fully formed plans, (2) how to conduct customer discovery through interviews, online tests, and conferences to gather qualitative feedback, and (3) gave a case study of his own startup where he pivoted from a direct-to-consumer model to licensing technology to hosting companies after learning customer needs through market testing.

1. Lean Startup Essentials
Lean Startup
Essentials
Lukas Fittl
lukas@fittl.com
STARTup Live Hagenberg
14th May 2011

2. Lean Startup Essentials
Agenda
Today’s focus: The early stage
• 10 - 20min blocks, quick Q&A after each
• 1: Why? & The Canvas
• 2: Customer Discovery
• 3: Case Study

3. Lean Startup Essentials #1
Part 1:
Why? & Lean Canvas

4. Lean Startup Essentials #1: Introduction
About Me
• 2nd time entrepreneur
• 2007-2010: Soup.io
• The Efficient Cloud
“Heroku for Europe” to
“PaaS technology for hosting providers”
(Seedcamp 2011 company)
• Collaborated with Ash Maurya
on the Lean Canvas

5. Lean Startup Essentials #1: Introduction
Whats the Lean Startup?
• A methodology on how to create order in
the (unavoidable) chaos of a startup.
• Iterative approach to learning & building
(as in: agile vs. waterfall)
• Summarization of entrepreneurial
learnings.

6. Lean Startup Essentials #1: Introduction
Where this all comes from
• Steve Blank - Customer Development
• Alex Osterwalder - Business Model Canvas
• Eric Ries - The Lean Startup
• Ash Maurya - Lean Canvas

7. Lean Startup Essentials #1: Lean Startup
Most startups fail from a lack of
(paying) customers.

8. Lean Startup Essentials #1: Lean Startup
Startups are not just a small
version of a big company.

9. Lean Startup Essentials #1: Lean Startup
Startup:
Temporary organization used to
search for a repeatable and scalable
business model.
As defined by Steve Blank.

10. Lean Startup Essentials #1: Lean Startup
Your initial goal:
Improve likely success rate of your venture,
and reduce risk of failure.
Enable yourself to actually
make the jump into a full-time entrepreneur.

11. Lean Startup Essentials #1: Lean Startup
Your Process:
Likely entirely chaotic.
No one implements the lean startup
as a strict process.
Similar to agile adoption (e.g. Kan-ban)
you need to make a slow transition
into more structured thinking.

12. Lean Startup Essentials #1: The BM Canvas
So, we need a language
in order to talk about your
startup.

13. Lean Startup Essentials #1: The BM Canvas
Product is only one of the
critical aspects that make your
company work.

14. Lean Startup Essentials #1: The BM Canvas
The Business Model
Canvas

15. Lean Startup Essentials #1: The BM Canvas
Alex Osterwalder - Business Model Generation

16. Lean Startup Essentials #1: The BM Canvas
Day Month Year
No.
Who are our Key Partners? What Key Activities do our Value Propositions require? What value do we deliver to the customer? What type of relationship does each of our Customer For whom are we creating value?
Who are our key suppliers? Our Distribution Channels? Which one of our customer’s problems are we helping to solve? Segments expect us to establish and maintain with them? Who are our most important customers?
Which Key Resources are we acquiring from partners? Customer Relationships? What bundles of products and services are we offering to each Customer Segment? Which ones have we established?
Which Key Activities do partners perform? Revenue streams? Which customer needs are we satisfying? How are they integrated with the rest of our business model?
How costly are they?
What Key Resources do our Value Propositions require? Through which Channels do our Customer Segments
Our Distribution Channels? Customer Relationships? want to be reached?
Revenue Streams? How are we reaching them now?
How are our Channels integrated?
Which ones work best?
Which ones are most cost-efficient?
How are we integrating them with customer routines?
What are the most important costs inherent in our business model? For what value are our customers really willing to pay?
Which Key Resources are most expensive? For what do they currently pay?
Which Key Activities are most expensive? How are they currently paying?
How would they prefer to pay?
How much does each Revenue Stream contribute to overall revenues?
This work is licensed under the Creative Commons Attribution-Share Alike 3.0 Unported License.
To view a copy of this license, visit http://creativecommons.org/licenses/by-sa/3.0/
or send a letter to Creative Commons, 171 Second Street, Suite 300, San Francisco, California, 94105, USA.

17. Lean Startup Essentials #1: The BM Canvas
Key Partners Key Activities Value Customer Customer
Proposition Relationships Segments
Key Channels
Resources
Cost Structure Revenue Streams

18. Lean Startup Essentials #1: The BM Canvas
Customer Segments
• Narrowly chosen group of
Key Partners Key Activities Value Customer Customer
Proposition Relationships Segments
people that buy/use your
Key Channels
Resources
product
Cost Structure Revenue Streams
• Marketplace biz models =
2 cust segmens (or more)
• Matching Value Proposition,
Channels, Revenue Streams
and Customer Relationships

19. Lean Startup Essentials #1: The BM Canvas
Channels
• How does the customer learn
Key Partners Key Activities Value Customer Customer
Proposition Relationships Segments
about your product?
Key Channels
Resources
Cost Structure Revenue Streams
• B2B and B2C vastly different!
• SEM, SEO, Friend Invites, Social
Media, Direct Sales, Tradeshows,
PR, Content Marketing, etc.

20. Lean Startup Essentials #1: The BM Canvas
Value Proposition
• What’s the problem you’re
Key Partners Key Activities Value Customer Customer
Proposition Relationships Segments
solving for the customer?
Key Channels
Resources
Cost Structure Revenue Streams
• These might be things they’ve
already started building in
house, because there is an
active need

21. Lean Startup Essentials #1: The BM Canvas
Revenue Streams
• How much is the problem
Key Partners Key Activities Value Customer Customer
Proposition Relationships Segments
worth to the customer?
Key Channels
Resources
Cost Structure Revenue Streams
• Not how much it costs you to
implement the value proposition
• Avoid Free and Freemium!
(marketing tactic, not rev model)

22. Lean Startup Essentials #1: The BM Canvas
Customer Relationships
• How do you want to interact
Key Partners Key Activities Value Customer Customer
Proposition Relationships Segments
with your customers?
Key Channels
Resources
Cost Structure Revenue Streams
• Automated self-service vs.
many in-person meetings
• Determines the scalability
of your business model

23. Lean Startup Essentials #1: The BM Canvas
Key Activities
• What are the people in your
Key Partners Key Activities Value Customer Customer
Proposition Relationships Segments
company doing day by day?
Key Channels
Resources
Cost Structure Revenue Streams
• Create the product: Software
Development, DevOps, etc.
• Market the product
• Integrate the product, run
webinars, create whitepapers, ...

24. Lean Startup Essentials #1: The BM Canvas
Key Resources
• Which physical assets do you
Key Partners Key Activities Value Customer Customer
Proposition Relationships Segments
need for your company to work?
Key Channels
Resources
(set of test hardware, etc.)
Cost Structure Revenue Streams
• Which other assets?
(online platform, patents, etc.)
• Include/exclude HR, doesn’t
really matter (duplicate info)

25. Lean Startup Essentials #1: The BM Canvas
Cost Structure
• What are your HR costs?
Key Partners Key Activities Value Customer Customer
Proposition Relationships Segments
(rough estimate)
Key Channels
Resources
Cost Structure Revenue Streams
• Marketing channel costs
• Infrastructure costs
• It’s about Unit Economics,
not your made-up 5 year plan

26. Lean Startup Essentials #1: The BM Canvas
Key Partners
• Channel Partners
Key Partners Key Activities Value Customer Customer
Proposition Relationships Segments
Key Channels
• Strategic Partners/Alliances
Resources
Cost Structure Revenue Streams
• Suppliers
• Especially Important for
direct sales biz models

27. Lean Startup Essentials #1: The BM Canvas
Example: Tupalo
Key Partners Key Activities Value Customer Customer
Proposition Relationships Segments
Herold / Software Dev
European #1 Finding #1: Community #1 9-to-5 folks
Directories SEO information, looking for lunch
quality & location #2: Clear B2B options, etc.
of a business Product
#1 Long-tail
Key #2 Promoting a Channels mainstream
Resources business,
providing correct #1 Long-tail SEO #2 Business
Data about information to owners
customers #2 Direct Sales (restaurants, etc.)
businesses
Cost Structure Revenue Streams
HR (15 people) #1 Free
Infrastructure (4 servers)
#2 Hundreds/Thousands of EUR (recurring)
Business Data

28. Lean Startup Essentials #1: The BM Canvas
Example: Freckle
Key Partners Key Activities Value Customer Customer
Proposition Relationships Segments
Software Dev
Tracking time Tribe-like Freelancers
Marketing/ precisely without interaction
Copywriting effort Agencies
Easily invoice
Key clients with good Channels
Resources report on
performed work - Word of mouth
- Cross-sales
Existing
- Freebies
audience:
- Existing
Mailinglists,
audience
Twitter, etc.
Cost Structure Revenue Streams
HR (2 people) 12-50 USD / month (dep. on company size)
Hosting (1 server)

29. Lean Startup Essentials #1: The BM Canvas
Example: Garmz
Key Partners Key Activities Value Customer Customer
Proposition Relationships Segments
Marketing Marketing
Partners! #1 Mass- #1 Structured #1 Fashion
Biz Dev producing a work together designers
Fashion schools fashion garment
Software Dev #2 Online Shop #2 Trend-chasing
#1 Build up your hipsters
Key fashion brand Channels
Resources Fashion blogs
#2 Buy trendy
Partnerships
Production clothes #1 Fashion schools
Factory #1 Fashion events
#2 Word of mouth /
strong brand
Cost Structure Revenue Streams
Production! (super expensive) #2 100 EUR / piece
Prototyping
Payout to designer

30. Lean Startup Essentials #1: The BM Canvas
Live Example
Someone from the audience:
Pitch us your business
4 other people:
What’s the customer segment?
What are the channels?
What’s the value proposition?
What’s the revenue model?

31. Lean Startup Essentials #1
Q&A

32. Lean Startup Essentials #2: Customer Discovery
Part 2:
Customer Discovery

33. You probably already
had a product idea

34. Lean Startup Essentials #2: Customer Discovery
And an implict
assumption about your
market

35. And now you’ve
mapped out a rough
biz model

36. Lean Startup Essentials #2: Customer Discovery
Now it’s time to focus on
qualitative feedback
from the market

37. Lean Startup Essentials #2: Customer Discovery
Listen to what customers
have to say - don’t execute
a fabricated value proposition

38. Lean Startup Essentials #2: Customer Discovery
Customer Discovery
Methods

39. Lean Startup Essentials #2: Customer Discovery
Customer Interviews
30 min in-person with
your prototypical customer
People like talking about their field -
explore their worldview.

40. Lean Startup Essentials #2: Customer Discovery
How to conduct an interview
1. Set context & tell your story
2. Tell your problem hypothesis
3. Listen to their worldview
4. Ask for follow up / references

41. Lean Startup Essentials #2: Customer Discovery
Online Market Tests:
Google Adwords
Fake Landing Page with
“Signup to be notified when we launch”
“Can we call you to ask a couple of Qs?”

42. Lean Startup Essentials #2: Customer Discovery
User Groups & Conferences:
Hand out cards with invite codes -
landing page with “join our soon-to-
launch beta programme”
SolidRails
European VPS cloud. Fully-integrated Rails hosting.
Your private beta access code: OEWO8C

43. Lean Startup Essentials #2: Customer Discovery
Amy Hoy’s
Sales Safari:
Lurk in online forums of your
customer segment, learn how they
talk about products & benefits

44. Lean Startup Essentials #2
Q&A

45. Lean Startup Essentials #3: Case Study
Part 3:
Case Study

46. Recap: What’s PaaS?
• The role model: Heroku
• Fully-integrated hosting for
Rails/Java/Django/etc.
• Many US clones popping up
• VMware’s Cloud Foundry - OSS PaaS

47. Rewind to Summer 2010
The idea back then:
Heroku for Europe

49. Efficiency!

50. Market Testing
• Invite codes at conferences & user meetups
• Google Adwords testing, e.g. RailsHosting.in
• Interviews with hosting providers
• Open ears to what the end-users want, and
what the industry currently sells (“cloud
hosting”)

51. Pivot
• Marketing channels hard to build up
• Hosting is a local market
• Product & engineering-driven company
much easier with B2B model

52. Pivot:
License technology to
hosting companies

53. Positioning
PaaS ? Cloud Foundry
OpenStack
IaaS OnApp
Eucalyptus
Mass-Market
“Cloud” Providers
Hosting Providers
Agencies SMBs Devs Startups Enterprises

54. Positioning
PaaS Efficient Cloud Cloud Foundry
OpenStack
IaaS OnApp
Eucalyptus
Mass-Market
“Cloud” Providers
Hosting Providers
Agencies SMBs Devs Startups Enterprises

55. Lean Startup Essentials #1: The BM Canvas
Example: Efficient Cloud
Key Partners Key Activities Value Customer Customer
Proposition Relationships Segments
System Software Dev
Integrators Offer Platform- Self-service #1 Mass-market
Sales as-a-Service Linux distribution hosting providers
hosting products (less than 50 ppl)
for Rails, Java, ..
#1 Mass-market
Key Have high Channels hosting providers
Resources margins for (50+ ppl)
mass-market Direct Sales,
customers Tradeshows, #1 Enterprises
Efficiency
Conferences
Trade Secret
#2 Developers
Open-Source
Cost Structure Revenue Streams
HR (5 people) Initial Iicense fee + monthly fee for updates
Test Infrastructure (6 servers) Var. 1: Per end-user, tiered by retail price
Var. 2: Per server / CPU cores
OSS “community edition” - Free

56. Lean Startup Essentials Literature
Literature

57. Lean Startup Essentials Literature
Steve Blank - The Four Steps to the Epiphany
steveblank.com

58. Lean Startup Essentials Literature
Alex Osterwalder - Business Model Generation
businessmodelgeneration.com

59. Lean Startup Essentials Literature
Eric Ries - The Lean Startup
lean.st

60. Lean Startup Essentials Literature
Ash Maurya - Running Lean
book.runningleanhq.com

61. Lean Startup Essentials Literature
Neil Davidson - Don’t Just Roll the Dice

62. Lean Startup Essentials
Thanks!
Lukas Fittl
lukas@fittl.com