MGT 420 FINAL

Natural environment

Ecological and environmental forces such as weather, climate, climate change, and associated factors like water shortages.

AIDA

Attention - consumer's awareness of a product/brand (typically requires advertising) Interest - consumer becomes interested in product/brand by learning about the benefits and features Desire - consumer forms a favorable opinion about the product/brand Action - consumer develops purchasing intention or makes purchasing decision

Target Market and Customer

Exploratory research the initial collection and analysis of information used when very little is known about a subject; it forms a foundation for later research Descriptive research the collection of information to determine the status of something, such as in developing a customer profile Historical research the study of the past to explain present circumstances and predict future trends Focus group a group of people whose opinions are studied to determine the opinions that can be expected from a larger population

Consumer Demographics

•By tying consumer needs to demographic info it is possible to find special groups of consumers w/special needs (i.e., the target) •Research begins with listing consumer needs, advantages, benefits sought, likes, dislikes •Must be fairly specific, but not related to a currently-existing product (e.g., flavor vs. texture) •The example indicates that three separate products might be required -products must be significantly different -large enough potential customers in each group -customers must be reached by promotion -needs must be long-lasting to make it worthwhile •This determines your ability to segment a market

Porter's Forces Model:

- Industry Analysis - External Analysis - Five Forces Model/Analysis

Social forces

Societal values, attitudes, cultural factors, and lifestyles that impact businesses. Social forces vary by locale and change over time.

Create Alignment

(Channel) Partners: Bring (channel) partners on board, and explain your value proposition. Marketing: Craft marketing messages based on the jobs, pains, and gains your products and services are helping with. Employees: Help all employees understand which customers you are targeting and which jobs, pains, and gains you are addressing. Sales: Help sales understand which segments to target and what customers' jobs, pains, and gains are. Shareholders: Explain to your shareholders how exactly you intend to create value for your customers. 1.(Channel) Partners: Help them understand why customers will love your products and services by highlighting pain relievers and gain creators. 2.Marketing: Align customer-facing messaging all the way from advertising to package design. Point out which pain relievers and gain creators to focus on. 3.Employees: Explain how the value proposition fits into the business model, and outline how exactly your products and services will create value for customers. The Value Proposition Canvas is an excellent alignment tool. It helps you communicate to different stakeholders which customer jobs, pains, and gains you are focusing on and explains how exactly your products and services relieve pains and create gains. Sales: Highlight which attributes of your value proposition are most likely to sell by relieving pains and creating gains. Align sales scripts and pitch decks. Shareholders: Clarify how the (new or improved) value proposition will bolster your business model and create a competitive advantage The Value Proposition Canvas is an excellent alignment tool. It helps you communicate to different stakeholders which customer jobs, pains, and gains you are focusing on and explains how exactly your products and services relieve pains and create gains.

Constructing a strategic group map:

- Identify the competitive characteristics that differentiate firms in the industry. - Plot the firms on a two-variable map using pairs of differentiating competitive characteristics. - Assign firms occupying about the same map location to the same strategic group. - Draw circles around each strategic group, making the circles proportional to the size of the group's share of total industry sales revenues.

What is Industry Analysis?

- Is it an analysis of firms - Industry analysis focuses on the industry (e.g., airline industry, automobile industry etc.). Understanding the industry can help in understanding factors that can enable/hinder opportunities for profits and competitive advantage

Variables selected as map axes:

- Must not be highly correlated. - Must reflect key approaches to customer value and expose sizable differences in the marketplace positions of rivals. - May be quantitative, continuous, discrete and\or defined in terms of distinct classes and combinations.

Start the Research Process

- Research secondary data before researching primary sources because it is easily obtained and inexpensive. - Secondary data: information that has already been collected by someone else - Secondary research - existing database, can costly to attain proprietary database - The most common methods of gathering primary data about customers are: • observation • interviews • surveys - Primary data: information that is collected for the first time, is current, and relates directly to the collector's study

What to Test: Testing the Square

- Test if and how much your customers care about how you intend to help them. Design experiments that produce evidence showing that your products and services kill pains and create gains that matter to customers.

Experiment Library

-Every experiment has strengths and weaknesses. Some are quick and cheap but produce less reliable evidence. Some produce more reliable evidence but require more time and money to execute. - - CTA (Call to Action): Used in an experiment in order to test one or more hypotheses. -Consider cost, data reliability, and time required when you design your mix of experiments. As a rule of thumb, start cheap when uncertainty is high and increase your spending on experiments with increasing certainty. - •What customers say and do are two different things: Use experiments that provide verbal evidence from customers as a starting point. Get customers to perform actions and engage them (e.g., interact with a prototype) to produce stronger evidence based on what they do, not what they say. • •Direct personal contact VS Indirect observation • During direct personal contact with customers, you can learn why they do or say something and get their input on how to improve your value proposition. However, your presence might lead them to behave differently than if you weren't there. •In an indirect observation of customers (on the web, for example) you are closer to a real-life situation that isn't biased by your interaction with customers. You can collect numerical data and track how many customers performed an action you induced. • •Use Experiments to Test: 1. Interest and relevance: Prove that potential customers and partners are genuinely interested and don't just tell you so. Show that your ideas are relevant enough to them to get them to perform actions that go beyond lip service (e.g., e-mail sign-ups, meetings with decision makers and budget holders, letters of intent, and more). 2. Priorities and preferences: Show which jobs, pains, and gains your potential customers and partners value most and which ones they value least. Provide evidence that indicates which features of your value proposition they prefer. Prove what really matters to them and what doesn't. 3. Willingness to pay: Provide evidence that potential customers are interested enough in the features of your value proposition to pay. Deliver facts that show they will put their money where their mouth is.

Bringing It All Together: The Testing Process

1. " What did I test already?" Use the Value Proposition and Business Model Canvases to track which elements you have tested, validated, or invalidated. 2. "What am I testing, and what did I learn?" Track the tests you are planning, building, measuring, and digesting to learn and make your insights and follow-up actions explicit. 3. "How much progress did I make? Keep score of how much progress you are making. Use all the tools you learned about to describe what you need to test and how you will do so in order to turn your idea into reality. The Testing Process 1. Shape your Ideas 2. Extract your Hypotheses 3. Design your Tests 4. Enter The Learning Loop 5. Capture Learnings and Next Actions 6. Measure progress Measure your progress: The Progress Board: Use the progress board to manage and monitor your tests and assess how much progress you are making toward success.

10 Testing Principles

1. Realize that evidence trumps opinion: Whatever you, your boss, your investors, or anybody else thinks is trumped by (market) evidence. 2. Learn faster and reduce risk by embracing failure: Testing ideas come with failure. Yet failing cheaply and quickly leads to more learning which reduces risk 3. Test early; refine later: Gather insights with early and cheap experiments before thinking through or describing your ideas in detail. 4. Experiments does not equal reality: Remember that experiments are a lens through which you try to understand reality. They are a great indicator, but they differ from reality. 5. Balance learnings and vision: Integrate test outcomes without turning your back on your vision. 6. Identify idea killers: Begin with testing the most important assumptions: Those that could blow up your idea. 7. Understand customers first: Test customer jobs, pains, and gains before testing what you could offer them. 8. Make it measurable: Good tests lead to measurable learning that gives you actionable insights. 9. Accept that not all facts are equal: Interviewees might tell you one thing and do another. Consider the reliability of your evidence. 10. Test irreversible decisions twice as much: Make sure that decisions that have an irreversible impact are particularly well informed.

Testing Step-by-Step: Overview of the Testing Process

1.Extract your Hypotheses: (What needs to be true for your idea to work?) Use the Value Proposition and Business Model Canvases to identify what to test before you "get out of the building." Define the most important things that must be true for your idea to work. •Business Hypothesis: Something that needs to be true for your idea to work partially or fully that hasn't been validated yet. 2. Prioritize Your Hypotheses: (What could kill your business) Not all hypotheses are equally critical. Some can kill your business, whereas others may only matter once you get the most important hypotheses right. Start prioritizing what's critical to survival. 3. Design, Prioritize, and Run Your Experiments with the Test Card: Structure all of your experiments utilizing the Test Card exercise found on pg. 204. Step 1. Design an experiment , Step 2. Design a series of experiments for the most critical hypotheses , Step 3. Rank Test Cards , Step 4. Run experiments 4. Capture Learnings: Structure Your insights with the Learning Card found on pg. 206. Completing this exercise will allow you to uncover what is: 1.Invalidated: Go back to the drawing board and pivot: Find new alternative segments, value propositions, or business models to make your ideas work when your tests invalidate your first attempts. 2.Learn More: Seek Confirmation and Deepen your understanding: Design and conduct further tests when quick and early experiments based on a small amount of data indicate the need for drastic actions. 3.Validated: Expand to the next building block and execute: Move on to test your next important hypothesis when you are satisfied with your insights and the data reliability. When you are satisfied with the quality of your insights and the reliability of the data, you may directly start executing based on your findings. 5. Make Progress: The only thing standing between you and finding out what customers and partners really want is the consistency and speed with which you and your team can propel yourself through the design/build, measure, learn cycle. This is called cycle time.

What to Test: Testing the Rectangle

1.Key Partnerships: That you will have access to the partners required for your model to work? 2.Key Resources: That you will have access to the resources required to create value? 3.Key Activities: That you will be able to perform the activities required to create value? 4.Cost Structure: That you can generate more revenue than costs incurred? 5. Channels: Through which channels will you be able to reach customers? 6. Revenue Steams: How you will generate revenues from customers? 7. Customer Relationships: How you will succeed in acquiring and retaining customers? 8. Value Proposition: What value you are creating for your target customer segment (that is, removing a major pain, delivering significant gains, performing an important job)? 9. Customer Segments: For whom are you creating value (target market) - Test the most critical assumptions underlying the business model your value proposition is embedded in. -Remember, even great value propositions can fail without a sound business model. -Provide evidence showing that your business model is likely to work, will generate more revenue than costs, and will create value not only for your customers but for your business. •Don't neglect testing your business model You can fail even with a successful value proposition if your business model generates less revenue than it incurs costs. Many creators are so focused on designing and testing products and services that they sometimes neglect this obvious equation (profit = revenues - costs) resulting from the building blocks of the Business Model Canvas.

Functional MVP's:

1.Learning Prototype: Functioning prototype of your value proposition with the most basic feature set required for learning. 2.Concierge model: You are manually performing the tasks to validate your assumptions 3.Wizard of Oz: Set up a front that looks like a real working value proposition and manually carry out the tasks of a normally automated product or service. Types of Experiments ● 1.MVP: Learn with Functional MVP's: Use prototypes designed specifically to learn from experiments with potential customers and partners. This includes learning prototypes and wizard of Oz MVP's. ● •Learning Prototype: Requirements include Product Development • Concierge model: -In this test, you are offering services (e.g. peer-to-peer rental service) to check if anyone is interested in the solution that you are offering by manually performing the tasks. -When someone uses your service to rent an item, you manually send them an email confirmation, manually search for the product in your network or get it from another rental service, and hand deliver it to the customer. -For example, Rentherunway validated their assumptions for online clothing rental business by providing manual service that allowed college students to try out dresses before renting them. This face-to-face interaction with customers can also provide valuable feedback to refine the business. Wizard of Oz: Requirements include getting your hands dirty The Wizard of Oz test is similar to the concierge model, except that you are giving an impression that the service is fully automated (instead of letting your customer know it is manual like in the Concierge test). -In this test you are giving an impression that an algorithm is conducting the service, while in reality this is done to you by an employee or an intern. -The user does not know about this and assumes everything is automated. -For example, when Aardvark launched their service they made it appear as though an algorithm was finding the answers from social media for questions posted by users, while in reality an employee was searching manually for the answer and responding to the users' questions. Their users' did not know this was being done manually.

Difference Between BMC and LBMC

Added four new components (Problem, Solution, Key Metrics, Unfair Advantage) and the following four components from BMC were removed: Key Partners, Key Activities, Key Resources, and Customer Relationships "My main objective with Lean Canvas was making it as actionable as possible while staying entrepreneur-focused. The metaphor I had in mind was that of a grounds-up tactical plan or blueprint that guided the entrepreneur as they navigated their way from ideation to building a successful startup." (Ash Maurya, 2012. Source: https://blog.leanstack.com/why-lean-canvas-vs-business-model-canvas-af62c0f250f0)

Testing Step-by-Step: Five Data Traps to Avoid

Avoid failure by thinking critically about your data. Experiments produce valuable evidence that can be used to reduce risk and uncertainty, but they can't predict future success with 100% accuracy. Also, you might simply draw the wrong conclusions from your data. Avoid the following 5 traps to ensure you successfully test your ideas. False-Positive Trap: Occurs: When you're testing data mislead you to conclude, for example, that your customer has a pain when in fact it is not true. False-Negative Trap: Occurs: When your experiment fails to detect, for example, a customer job it was designed to unearth. The "Local Maximum" Trap: Occurs: When you conduct experiments that optimize around a local maximum while ignoring the larger opportunity. For example, positive testing feedback might result in you sticking with a much less profitable model when a more profitable one exists The "Exhausted Maximum" Trap: Occurs: When you think an opportunity is larger than it really is in reality. For example, when you think you are testing with a sample of a large population, but the sample is actually the entire population. The Wrong Data Trap: Occurs: When you abandon an opportunity because you are looking at the wrong data. For example, you might drop an idea because the customers you are testing with are not interested and you don't realize that there are people who are interested.

Global forces

Conditions and changes in global markets, including political events and policies toward international trade, sociocultural practices and the institutional environment in which global markets operate.

Evolve Reinvent Yourself Constantly

Continuously ask yourself ..... 1.What elements in your environment are changing? 2. What do market, technology, regulatory, macroeconomic, or competitive changes mean for your value propositions and business models? 3. Do those changes offer an opportunity to explore new possibilities or could they be a threat that might disrupt you? 4. Is your business model expiring? 5. Do you need to add new resources or activities? Do the existing ones offer an opportunity to expand your business model? 6. Could you bolster your existing business model or should you build completely new ones? Is your business model portfolio fit for the future?

Reinvent Yourself Constantly

Five things to remember when you build transient advantages: •Take the exploration of new value propositions and business models just as seriously as the execution of existing ones. •Invest in continuously experimenting with new value propositions and business models rather than making big bold uncertain bets. •Reinvent yourself while you are successful; don't wait for a crisis to force you to. •See new ideas and opportunities as a means to energize and mobilize employees and customers rather than a risky endeavor. •Use customer experiments as a yardstick to judge new ideas and opportunities rather than your own opinions (or opinion of "experts" or managers) Successful companies create value propositions that sell embedded in business models that work. Outstanding companies do so continuously. They create new value propositions and business models while they are successful. •Today's enterprise must be agile and develop what Columbia Business School Professor Rita McGrath calls transient advantages in her book The End of Competitive Advantage. She argues that companies must develop the ability to rapidly and continuously address new opportunities, rather than search for increasingly unsustainable long-term competitive advantages. See the 5 things to remember when you build transient advantages above

Growth Vs. Fixed Mindset

Fixed mindset is limiting Talents, abilities and intelligence is fixed, it's who we are Run from error, do not engage with it with a desire to look smart Avoid challenges Give up easily Feel threatened by the success of others Ignore negative feedback even though it may be highly relevant and useful Avoid new experiences with fear of failure Look for people who can reinforce their self esteem Focus on the outcome since they consider results as their identity Can lead to cheating and deception Growth mindset is freedom Talents, abilities and intelligence can be developed through effort and practice Engage deeply and process the error with a desire to correct the error Embrace challenges Persevere in the face of failures and setbacks Find inspiration in others success Accept criticism as a way to learn Embrace novelty with a desire to master new skills Look for people who challenge them to grow Focus on the process and learning without worrying about the outcome Leads to collaboration and innovation

The Five Steps of an Effective Research Plan

Identify your information needs. Obtain secondary resources. Collect primary data. Organize the data. Analyze the data.

A Strategic Group

Is a cluster of industry rivals that have similar competitive approaches and market positions: - Have comparable product-line breadth - Sell in the same price/quality range - Emphasize the same distribution channels - Use the same product attributes to buyers - Depend on identical technological approaches - Offer similar services and technical assistance Strategic group mapping help us in understanding how firms in an industry are postioned relative to each other on (two) factors that are important to the customers

Political, legal, and regulatory factors

Political policies and processes, as well as the regulations and laws with which companies must comply—labor laws, antitrust laws, tax policy, regulatory policies, the political climate, and the strength of institutions such as the court system.

Stages of Lean Startup

Problem-Solution fit - In this stage entrepreneurs must assess if the problems is important? How big is this problem? After validating this, they need to develop solution that best solves this problem. This might require them to validate a number of solutions before finding the one which best solves the problem. After attaining the problem-solution fit, entrepreneurs should assess the product-market fit. This will involve building a MVP and refining it until you can build a scalable business model. Entrepreneurs cannot assess product-market fit until they sell their product/service. A lot of activities that you engage in to assess problem-solution fit and product-market fit are consistent with value hypothesis. Scaling involves growing your customers from low numbers (e.g., 200) to high numbers (e.g., 10000). This is consistent with growth hypothesis. An ideal time to raise external capital is after attaining product-market fit. Scaling activities generally require lot of cash (that is, the monthly burn rate could be high) and raising significant funding after achieving product-market fit can help entrepreneurs scale their business. Read the following article for additional information's: https://blog.leanstack.com/bootstrapping-lean-startup-low-burn-startup-1662b32a3b50

General economic conditions

Rates of economic growth, unemployment, inflation, interest, trade deficits or surpluses, savings, per capita domestic product, and conditions in the markets for stocks and bonds affecting consumer confidence and discretionary income.

Demographics

The size, growth rate, and age distribution of different sectors of the population. It includes the geographic distribution of the population, the distribution of income across the population, and trends in these factors.

The Customer Development Process

The Customer Development Process Step 1: Customer Discovery: Get out of the building to learn about your customers' jobs, pains, and gains. Investigate what you could offer them to kill pains and create gains. Step 2: Customer Validation: Run experiments to test if customers value how your products and services intend to alleviate pains and create gains. Step 3: Customer Creation: Start building end user demand. Drive customers to your sales channels and begin scaling the business Step 4: Company Building: Transition from a temporary organization designed to search and experiment to a structure focused on executing a validated model. -Customer development is a four-step process invented by Steve Blank, serial entrepreneur turned author and educator. -The basic premise is that there are no facts in the building, so you need to test your ideas with customers and stakeholders (e.g., channel partners or other key partners) before you implement them. -In this book we use the customer development process to test the assumptions underlying Value Proposition and Business Model Canvases. Search vs. Execute -The goal of the search phase is to experiment and learn which value propositions might sell and which business models could work. -Your canvases will radically change and constantly evolve during this phase while you test every critical hypothesis. -Only when you have validated your ideas do you get into the execution mode and scale. At the early stages of the process, your canvases change rapidly; they will stabilize with increasing knowledge from your experiments.

The Five-Forces Model of Competition

The five forces are supplier power, buyer power, threat of new entrant, substitute power, and rivalry. Each of this force can constrain the ability of the industry to make profits.

Lean Business Model Canvas (LBMC)

The lean business model canvas (LBMC) is a modification of BMC template. This was developed by Ash Maurya (https://blog.leanstack.com/@ashmaurya). Similar to BMC template this has nine components. However there are some important differences, which we will discuss in the next few slides. Problem - Is the problem worth solving? Most startups fail because they expend resources and time pursuing problems that are not worth solving (that is, building products/services that few, if any, people need). Alternatives - what alternatives currently exist to solve the problem? Solution - Building a solution that solves the problem. Remember the first solution might not necessarily solve the problem, this is why you should build MVP and not get emotionally tied to the solution. Focus on solving the problem and testing which solution satisfies the needs of the target customers the best. Key metrics - What should you measure and why? Focus on the most important assumptions. That is, the assumptions on which your business idea is based. If these assumptions are invalid then you don't have a good business idea and it is better to pivot. This is the philosophy of fail fast to succeed sooner. The key metrics could vary by the stage of the startup, early on the key metrics are related to problem-solution fit. The key metrics move to product-market fit as you gain market traction. As the startup grows, they key metrics shift towards scaling activities. Unfair advantage - This is basically (sustained) competitive advantage. That is, what factors would allow the firms to grow and have better performance compared to other firms (competitors)? Why would it be hard for other firms to imitate your product/service? What can you do to protect your business from imitation?

Technological factors

The pace of technological change and technical developments that have the potential for wide-ranging effects on society, such as genetic engineering, the rise of the Internet, changes in communication technologies, and knowledge and controlling the use of technology,

Identify customer needs

You must also describe the buyers' behavior when purchasing the product/service. a. Their motivation for purchasing the product/service. That is, what would necessitate them to search for your product/service or be interested in it? b. Their evaluation process (information gathering and decision making) c. Purchase decision (low involvement vs. high involvement, purchasing preference - online or offline etc.) d. What factors influence customers' satisfaction and loyalty towards the product/service?

The Macro-Environment

o Is the broad environmental context in which a firm's industry is situated. o Includes strategically relevant components over which the firm has no direct control. - General economic conditions - Immediate industry and competitive environment

Competitive Pressures Stemming from Supplier Bargaining Power

• Supplier Bargaining Power Considerations: - Ready availability of supplier products - Criticality of supplier products as industry inputs - Number of suppliers of standard/commodity items - Buyers' costs for switching among suppliers - Availability of substitutes for suppliers' products - Fraction of supplier sales due to industry demand - Ratio of suppliers relative to industry buyers - Forward integration into buyers' industry Supplier Power - Who are the suppliers to the industry. Who are the suppliers to PC industry? It are software and hardware companies. Supplier power increase when buyers experience high switching cost (that is, it is difficult to switch from one product to another). For example, it is difficulty to switch from Windows operating system to Unix operating system. See information in slide for list of factors that can increase supplier power.

Competitive Pressures That Act to Increase the Rivalry among Competing Sellers

•Buyer demand is growing slowly or declining. •It is becoming less costly for buyers to switch brands. •Industry products are becoming more alike. •There is unused production capacity, and\or products have high fixed costs or high storage costs. •The number of competitors is increasing and\or they are becoming more equal in size and competitive strength. •The diversity of competitors is increasing. •High exit barriers stop firms from exiting the industry. Rivalry force - intense rivalry can make industry unattractive. Rivalry intensifies as the industry matures. See information in slide for list of factors that can increase rivalry.

Customer Segments

•A startup/company can have multiple different segment •Customer Vs. User •Multi-sided markets •DoorDash •Amazon •eBay The customer segments component focuses on the customers to whom the startup/company hopes to sell their products/services. It describes the individuals/businesses that the startup/company will be creating value for. Identify 2-3 most important customers based on demographic, psychographic etc. who will likely benefit the most from your product/service. However, it is better for entrepreneurs to focus on one customer segment that they believe experiences the problem the most (also known as beachhead market). This will help the conserve critical resources during the early stages as well as properly validate the assumptions related to value propositions. That is, if this customer segment does not accept the product then it is unlikely others will accept it to as you failed to sufficiently solve the problem fore the segments that experiences the problem the most. It is important to differentiate between the user (one who uses the product/services) and the customer (one who pays for the product/service). For instance, if your company is focusing on children's products, the users are children and the customers are parents. However, it is important for you to analyze what type of parents your customers are (e.g., parents of kids in age group of 6-12 years), as not all parents are likely to be interested in your product/service. Other examples of such products are Blackboard, Canvas, Respondus Lockdown browser etc. The universities purchase these products (that is, universities are customers) and the users are students and faculty. Some business are multi-sided markets. For example, DoorDash creates value both for individuals like you and me as well as to restaurants (e.g. Wendy's, Chipotle). Likewise companies like Amazon and eBay create value for both buyers and sellers. In case of Amazon they also create value for partners/affiliates. Many platform-based companies such as Uber, AirBnB, subscription-based businesses like BirchBox, BarkBox, LootCrate operate in a 2-sided market and it is important to create value for both sides of the market to be successful. Founders typically encounter strategic challenges to do this as it is a classic case of the chicken or the egg problem as both sides of the market need to exist to create value for each other. Only if both sides of the market are attaining value, will they be interested in joining the platform.

Competitive Analysis Grid

•A tool for organizing and presenting the information you have collected about your competitors •How you stack up against competitors in key areas and helps in identifying your primary sources of competitive advantage Competitive analysis grid helps a company to assess its strengths and weaknesses relative to its competitors.

Experiment Library: Types of Experiments

•Ad Tracking: Ad tracking is an established technique used by advertisers to measure the effectiveness of ad spending. • •Unique Link Tracking: Used to verify potential customers or partners interest beyond what they night tell you in a meeting, interview, or call. •MVP Catalog: Minimum Viable Product, a concept popularized by the lean start-up movement to efficiently test the interest in a product before building it entirely 1.Ad Tracking: Use ad tracking to explore your potential customers jobs, pains, gains, and interest- or lack of it- for a new value proposition. You can use the same technique to explore customer interest even before a value proposition exists. Where to apply: Test interest early in the process to learn about the existence of customers jobs, pains, gains, and interest for a particular value proposition. ● 2.Unique Link Tracking: Step 1: "Fabricate" a unique link (Make a unique and trackable link to more detailed information about your ideas (e.g., a download, landing page) with a service such as Google. Step 2: Pitch the link and your idea, Step 3. Learn about genuine interest by tracking if the customer used the link or not. It's an extremely simple way to measure genuine interest. ● ● 3.MVP: The goal is to build an MVP as quickly, cheaply, and efficiently as possible. MVPs are mainly used to explore potential customer and partner interest. Within Value Proposition Design, MVP is: A representation or prototype of a value proposition designed specifically to test the validity of one or more hypotheses/assumptions. MVP is more refined than a typical prototypes as it is functional and solves the customers problems/pains or helps them perform their jobs to a certain degree.

Target Market and Customer

•After identifying your market, you will then need to select a target market to be the focus of your company's efforts. - Market: a group of people or companies who have a demand for a product or service and are willing and able to buy it - Target market: a specific group of customers whom a business wishes to reach Market Segmentation and Target Market One of the first steps that you must take for conducting market analysis is market segmentation and identifying your target market. In other words, you have to identify the different types of potential customers for your product/service and identify the one that you are going to focus on (that is, beachhead market). These are typically the customers who would find your product/service to be really valuable as it significantly reduces the pain they are experiencing or it is delivering them the most gain. - The following are some of the points that you must address when conducting market segmentation and target market selection: 1.Who is your target market group? 2. Explain why you are focusing on these specific target market groups. 3. What makes these groups more interesting than the other groups that you've ruled out?

Business Plans vs. Experimentation Process

•Business plans are great execution documents in a known environment with sufficient certainty. Unfortunately, new ventures often take place under high uncertainty. -You need to experiment, learn, and adapt to manage this change and progressively reduce risk and uncertainty. - -This process of experimentation is known as Customer Development and Lean Start-up. Business Plans vs Experimentation Process Systematically testing ideas to learn what works and what doesn't is a far better approach than writing a plan. -One might even argue that plans maximize risk. Their refined and polished nature gives the illusion that with great execution little can go wrong. Yet ideas dramatically change from inception to market readiness and often die along the way.

Competitive Pressures Stemming from BuyerBargaining Power and Price Sensitivity

•Buyer Bargaining Power Considerations: - Buyer costs for switching to competing sellers - Degree to which industry products are commoditized - Number and size of buyers relative to sellers - Strength of buyer demand for sellers' products - Buyer knowledge of products, costs and pricing - Backward integration of buyers into sellers' industry - Buyer discretion in delaying purchases - Buyer price sensitivity due to low profits, size of purchase, and consequences of purchase Bargaining Power - Who are the buyers of the industry? Who are the buyers to PC industry? The buyers are individuals and organizations. Buyers power increase when buyers witching cost is low (can easily switch from one company to another without loss is performance, buyer is a large company, buyer can backward integrate (e.g., Costco making their own brand products, Kirkland, instead of buying it from manufacturers). See information in slide for list of factors that can increase buyer power.

Market Segmentation

•Consumer market segmentation is based on geographics, demographics, psychographics, and buying characteristics. •A business can select and serve multiple market segments. - Market segmentation: the process of grouping a market into smaller subgroups defined by specific characteristics - Market segments: subgroups of buyers with similar characteristics, segmented by geographics, demographics, psychographics, and buying characteristics You can segment the market based on: Geographic: For example, Southern California, Southwest U.S., North America etc. Demographics: Age, Gender, Race etc. Psychographics - Values, Attitudes, Aspirations, Motivation, lifestyle and other psychological criteria Buying Characteristics: One time vs. Repeated, Business Vs. Individual •These categorizations helps in establishing more specific consumer needs

Competitor Analysis

•Critical to understand positions of major competitors and opportunities available - Direct Competitors - Very similar products/services - Indirect Competitors - Close substitutes - Future Competitors - Could move into direct or indirect competition •Competitive Intelligence Competitor Analysis Conducting competitor analysis can help you in understanding the gaps in the market and how to position your product/service relative to your competitors. -Do note that all products/services have competitors, some might be close competitors and others might be distant. -Through competitor's analysis you are attempting to compare the value that your product/service delivers to the customers compared to competitors products/services. - If the customers' needs are highly satisfied with existing products/services, then they are less likely to purchase your product/service. To conduct comprehensive competitor analysis, you must identify who are your: 1.direct competitors 2.indirect competitors 3.future competitors and describe the threat and risks you might encounter from your competitors. After you gather information about your competitors you can create a competitive analysis grid (see powerpoint slides) to assess how you stack against your competition. Note: Use secondary research to gather information on your competitors

Customer Relationship, Channels, and Revenues

•Customer Relationships - Assumptions related to attracting and retaining customers (e.g., viral marketing, campus ambassadors etc.) •Channels - Assumptions related to how you are going to deliver value to your customers (e.g., retail store, web portal) • •Revenue - Assumptions related to how you are going to generate revenue (e.g., subscriptions, commissions, sales) Customer Relationship - In this component you should identify the approach you intend to adopt to attract and retain your customers, and explain how it fits with customers' expectations. You might have to adopt different strategies to do this given the nature of your market and the type of customers you are serving. For instance, your approach to attracting and retaining suppliers for your subscription-based business will likely differ from your approach to attracting and retaining customers. Channels - The assumptions you outline in the Channels component explain how you plan to deliver value (product/service) to different customer segments. To a certain extent, this also explains why you believe the channels you have selected are the best ways to deliver value to your customers and why your customers prefer these channels over other substitute channels. The customer relationships you intend to develop with your customer segments influences the choice of channels, and vice versa. Also, the number of customer segments you are serving (and the differences between them) could influence your choice of channels. Revenue - This component describe show customers are likely to pay for all the value that you are creating. Would this be a one-time sale or would it be on-going transaction? Would the customers prefer to purchase, subscribe, or rent? Observing how the customers currently pay for that value can help you to identify innovative revenue models. For example, customers purchased razor/blades from stores prior to Dollar Shave disrupting the model through their subscription-model.

Guidelines for Constructing Group Maps

•Draw map circles proportional to the combined sales of firms in each strategic group to reflect the relative sizes of each group to the total size of the industry. •Use different variable sets to show different views of relationships among competitive positions in the industry's structure—there is no one best map for portraying how competing firms are positioned. Mapping the strategic groups, circle size is proportional to firm size (sales)

Market Entry Barriers Facing New Entrants

•Economies of scale in production, distribution, advertising, or other areas of operation •Experience and learning curve effects •Unique cost advantages of industry incumbents •Strong brand preferences and customer loyalty •Strong "network effects" in customer demand •High capital requirements •Building a network of distributors or dealers and securing adequate space on retailers' shelves •Restrictive government policies ♦Expected reaction of incumbent firms Threat of New Entrants - How easy or hard it is to enter an industry. If threat of entry is low (that is, it is easy to enter the industry) the industry could change quickly and competitive advantage might be unsustainable. See information in slide for list of factors that can increase barriers to entry (that is, make it difficult to enter an industry). For example, it is difficult to enter the airline industry than entering the coffee industry.

Experiment Library: Types of Experiments

•Illustrations, storyboards and Scenarios: Share illustrations, storyboards, and scenarios related to your value proposition ideas with your potential customers to learn what really matters to them. •Life-Size Experiments: Get your customers to interact with life-size prototypes and real-world replicas of service experiences. •Landing Page: The typical landing page MVP is a single web page or simple website that describes a value proposition or some aspects of it. Illustrations, storyboards and scenarios: These types of illustrations are quick and cheap to produce and make even the most complex value propositions tangible. Step 1. Prototype alternative value propositions. Step 2: Define scenarios. Step 3: Create compelling visuals. Step 4. Test with customers. Step 5. Debrief and adapt. Life-Size Experiments: Stick to the principles of rapid, quick, and low-cost prototyping to gather customer insights despite the more sophisticated set-up. Add a CTA to validate interest. -Example: Concept cars and life-size prototypes: These are cars made to showcase new designs and technologies. Their purpose is to get reactions from customers rather than to go into mass production directly. Landing Page: The main learning instrument of a landing page MVP is the conversion rate from the number of people visiting the site to visitors performing the CTA (e.g., e-mail sign-up, simulated purchases). The goal of a landing page MVP is to validate one or more hypothesis, not to collect e-mails or sell, which is a nice by-product of the experiment. The website visitor is invited to perform a CTA that allows the tester to validate one or more hypotheses.

Buyer Behavior

•Important to understand the buyer behavior - Who are the decision makers? -Length of customers buying process •High involvement purchase vs. Low Involvement purchase Buyer's experience and purchasing behavior: As you are going through the process of identifying your target market and building your customers persona, you must concurrently detail out the lives your customers are currently living and how their lives would change after using your product. -You should investigate and learn how often do they experience the pain or issues, how are they dealing with it currently, and how will their lives be better after using your product/service.

Value Proposition

•In this component you should list the assumptions/ arguments regarding the value you will generate for the customers •What benefits will the customers attain from your solution (product/service) •This can help entrepreneurs and others understand why your business should come into existence and how it is different from existing businesses In this component, you should explain the value that you are creating for the different customer segments by producing your product/service. Note: A business could have multiple customers segments, which we will discuss deeper in the next slide (Customer Segments). You should list the assumption explaining why the customers would need and want this product/service. You should also explain how it benefits them (that is, better their lives). Why should the customers buy your product/service? How does your product/service enhance their lives? What customer pain are you solving? What would customers gain by using your product/service? It is recommended you break this out by each customer segment.

Is the Collective Strength of the Five Competitive Forces Conducive to Good Profitability?

•Is the state of competition in the industry stronger than "normal"? •Can industry firms expect to earn decent profits given prevailing competitive forces? •Are some of the competitive forces sufficiently powerful to undermine industry profitability? Assess the five forces to understand if the industry is attractive or not?

Key Activities and Key Resources

•Key Activities - Assumptions related key activities that you must perform to start and grow the business (e.g., onboarding partners, sales and marketing, manufacturing) •Key Resources - Assumptions related key resources that you must posses/attain to start and grow the business (e.g., patents, machinery) Key Activities - These are the important activities that you MUST perform to create and deliver value to your customers. This could include different functional areas such as R&D, manufacturing, distribution, marketing etc. By performing some key activities in-house you can potentially attain and sustain a competitive advantage. Key Resources - This describes the valuable resources that you need in order to perform your key activities and venture's operations. This could include the technology that you are developing, patents, human capital etc. Resources that are difficult to imitate and/or substitute can help you sustain a competitive advantage.

Key Partners and Cost Structure

•Key Partners - Assumptions related key partnership/ relationship that you must develop to start and grow the business (e.g., partnerships with universities, NBA) •Cost Structure - Assumptions related to cost you will incur to start and grow the business (e.g., machinery purchase, licensing fee etc.) Key Partners - This component describes the partners you need to perform the activities needed to create value. This could be research partners, distributors, suppliers etc. You should have a strong justification for partnering to perform these activities and also must decide on which activities are better to be done in-house. Cost Structure - This component highlights the significant costs that you would incur to create value. Understanding which costs are the largest and which costs are going to be one-time vs. on-going (fixed costs and variable costs),can help you to better structure your key activities, resources, and partners.

Integrating Lean Start-up Principles

•Lean Startup: Principles that allow the elimination of slack and uncertainty from product development process by building, testing, and learning in an iterative process. Lean Startup Principles -Eric Ries launched the Lean Startup movement based on Steve Blank's customer development process. -Here we apply the three steps in combination with the canvases and customer development to test ideas, assumptions, and so-called minimum viable product (MVPs). •Lean Startup Steps 0. Generate a hypothesis: Start with the value proposition and business model canvases to define the critical hypotheses underlying your ideas in order to design the right experiments. 1. Design/build: Design or build an artifact specifically conceived to test your hypotheses, gain insights, and learn. This could be a conceptual prototype, and experiment, or simply a basic prototype, and experiment, or simply a basic prototype (MVP) of the products and services you intend to offer. 2. Measure: Measure the performance of the artifact you designed or built. 3. Learn: Analyze the performance of the artifact, compare to your initial hypotheses, and derive insights. Ask what you thought would happen. Describe what actually happened. Then outline what you will change and how you will do so.

Background: Market Analysis

•Market analysis breaks the industry into segments and helps in focusing on a specific segment •Market analysis: -finding and measuring business opportunities -targeting and dividing market into niches -suggesting product placement and position in mind of consumer...most important features -Forecasting sales => manf. size, # of Emp., $ needed •Marketing plans can't but put together without some form of analysis -When making decisions regarding new products/services it is essential to understand the size of the market. -The market should be large enough so that it is worth your time and effort to develop the new product/service. -As we discussed previously, the first glimpse of your market size is by validating the pain that we are reducing or the gain that we are delivering to our potential customers. o If this is substantial, then it is worth pursuing your idea and your business model is viable. o Your business model will fail if you are focusing on a very limited market or unable to attract the attention of your potential customers (that is, attain customers).

Market Analysis

•Market analysis requires a great deal of information about consumer needs •Market analysis is the primary way firms can stay in touch with customers and their needs •TAM •SAM SOM Conducting in-depth market analysis can help you in de-risking your business idea and attracting potential investors. -As you interact with advisors and investors about your market size, you will typically hear acronyms such as TAM, SAM etc. Below is a brief description of these concepts: Total Available Market (TAM) This signifies the total market demand for your product or service. For instance, if you are selling handbags this would be the total worldwide handbag market. That is, the market you will likely attain if your product is sold in every country and has no competitors. Service Available Market (SAM) It is highly unlikely that you will completely capture the worldwide market with your new product/service. The market which is serviceable (that is, attainable) is likely to be smaller due to the challenges of selling product/service are significant as customers taste, political and regulatory environment, and infrastructure varies from one country to another. Your potential market (SAM) is the geographic market that you choose to focus on (Southern California, Southwest US, US and Mexico etc). Service Obtainable Market (SOM) This is the realistic market that you think you can attain of the SAM (that is, the geographic market you are focusing on). Given the competition you will likely encounter, you realistically hope to attain a certain portion of the market. Your venture's survivability and growth will depend on your ability to actually achieve this market.

What to Test: Testing the Circle

•Possessing evidence about customer jobs, pains, and gains before you focus on your value proposition is very powerful. If you start by testing your value proposition, you never know if customers are rejecting your value proposition or if you are addressing irrelevant jobs, pains, or gains. - Prove which jobs, pains, and gains matter to customer most by conducting experiments that produce evidence beyond your initial customer research. Only after this has been done should you get started with your value proposition. This will prevent you from wasting time with products and services customers don't care about. - - The objective of "testing the circle" is to confirm with evidence that our profile sketches, our initial research, our observations, and our insights from interviews were correct. We aim to know with more certainty which jobs, pains, and gains customers really care about.

Testing Step-by-Step: Overview of the Testing Process

•Six rapid iteration cycles based on quick experiments produce more learning than three long iteration cycles based on slower experiments. The faster approach will produce knowledge more quickly and thus reduce risk and uncertainty more substantially than the latter. The faster you iterate, the more you learn and the faster you succeed - Don't waste your time! Imagine spending a week, a month, or more on refining and perfecting your idea. Imagine spending all that time thinking hard about what you'd need to do to produce great growth numbers only to find out that your customers and partners don't really care. That's wasted time!

Experiment Library: Types of Experiments

•Split Testing (A/B Testing): A technique to compare the performance of two or more options. •Mock Sales: A great way to test sincere customer interest is to set up a mock sale before your value proposition even exists. •Presales: Customers make a purchase commitment and are aware of the fact that your value proposition does not fully exist. Split Testing (A/B Testing): For example, comparing the performance of alternative value propositions with customers or to learn more about jobs, pains, or gains. The most common form of split test is to test two or more variations of a web page or a purpose-built landing page (e.g., the variations may have design tweaks or outline slightly or entirely different value propositions). The main learning instrument is to compare if conversion rates regarding a specific call to action differ between competing alternatives. Mock Sales: The goal is to make your customers believe they are completing a real purchase. Pre-sales: The main objective of presales is to explore customer interest; it is not to sell.

Chapter Overview - Factors of Testing

•Start Experimenting to Reduce Risk -When you start exploring new ideas, you are usually in a space of maximum uncertainty. -Test your ideas with cheap experiments to learn and systematically reduce uncertainty -Then increase spending on experiments, prototypes, and pilots with growing certainty. -Reduce the risk and uncertainty of your ideas for new and improved value propositions by deciding What to Test. -Then, get started with Testing Step-by-Step and drawing from the Experiment Library before Bringing It All Together and measuring your progress. - When you start exploring new ideas, you are usually in a space of maximum uncertainty. You don't know if your ideas will work. Refining them in a business plan won't make them more likely to succeed. You are better off testing your ideas with cheap experiments to learn and systematically reduce uncertainty. Then increase spending on experiments, prototypes, and pilots with growing certainty. Test all aspects of your Value Proposition and Business Model Canvases, all the way from customers to partners (e.g., channel partners)

Estimation of Market Potential

•Step 1: Determine market potential •Methods: Factor approach vs. demographics •Factor approach: uses a series of factors to discover the size of possible market sales for a specific product to achieve the sales forecast •Requires gathering information about product usage and consumers There are two methods that you can use to overcome these issues and conduct a realistic estimate of annual sales and market potential: 1. Factor Approach - In this method we rely on macro-level data (e.g., GDP) to estimate the annual sales and market potential (see powerpoint slides) 2. Demographic Approach - In this method we rely on micro-level data (e.g., age, gender) to estimate the annual sales and market potential (see powerpoint slides)

Competitive Pressures from the Sellers of Substitute Products

•Substitute Products Considerations: - Ready availability of substitutes - Pricing, quality, performance, and other relevant attributes of substitutes - Switching costs that buyers incur •Indicators of Substitutes' Competitive Strength: - Increasing rate of growth in sales of substitutes - Substitute producers adding output capacity - Increasing profitability of substitute producers Substitutes Power - Substitutes limit the profits an industry can make. Substitute belong to a different industry soft drinks (Pepsi) vs. water vs. energy drinks). If many substitutes are available then the industry's ability to make profit is low. See information in slide for list of factors that can make substitute products attractive to buyers.

Estimate of Annual Sales and Market Potential

•There are several methods of guessing or estimating possibilities in a market •Market possibilities: total number of sales possible in a target market for all producers •Sales forecast: level of sales expected for a single firm within the target market •Market share: percentage of total sales gained by a single firm Estimating Annual Sales and Market Potential It is critical that you estimate the annual sales and market potential for your product/service. Although this estimate is not likely to be 100% accurate, the manner in which you estimate your annual sales and market potential gives investors and other stakeholders' information on your understanding of the industry. That is, they are able to evaluate your knowledge of the industry and assess how realistic your estimate is. Poor understanding of industry leads to unrealistic estimates and consequently this impacts investors and other stakeholders' interest in your product/service.

Evolve Chapter Overview

•Use the Value Proposition and Business Model Canvas as a shared language to Create Alignment throughout every part of your organization while it continuously evolves. •Make sure you constantly Measure and Monitor your value propositions and business models in order to Improve Relentlessly and Reinvent Yourself Constantly.

Segment Topics

•What is a Business Model Canvas (BMC)? What is its purpose? •What is Lean Business Model Canvas (LBMC)? How is it different from BMC? •How can founders and entrepreneurial firms' CEOs use these templates to validated new business opportunities? In this session we will: 1.We will discuss both the Business Model Canvas (BMC) and Lean Business Model Cnavas (LBMC)? 2.Understand the purpose of these two templates 3.Become familiar with the components of these templates

Defining Growth:

•What is the current market size in units or sales? •What is the past, current and expected rate of growth for the market/industry? Considerations: •Different sectors/regions of a market grow at different rates. •Growth varies with the industry's life cycle stage—emergence, rapid growth, maturity, and decline. Growth does not guarantee profitability.