New Venture
The text admits not all industries can benefit from batch systems because some are operated on an assembly line basis where economies of scale rule - schools in the American education system cannot really experiment/innovate in small batches.
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The text advises entrepreneurs to avoid thinking they can learn from "early adopters" because they rarely provide useful data.
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The text advises entrepreneurs to schedule a "pivot or persevere" meeting with all the key players every week.
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The text advises that MVPs that are based on scientific or engineering breakthroughs may, in some jurisdictions, require patent protection.
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The text advises that the Five Whys system tends to break down when you have one person in the meetings that thinks of himself/herself as some kind of "Five Whys Master."
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The text advises that the Five Whys system tends to break down when you have one person in the meetings that thinks of himself/herself as some kind of "Five Whys Master."
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The text advises that the entrepreneur should never test the market with a low quality MVP. You should always know who your customer is and what they will approve as high quality.
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Companies with successful legacy products, systems, and thinking that have produced exceptional financial results are generally the only ones that can afford not to spend time and money chasing new ideas.
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Drucker makes it clear that the "unexpected success" is a far better source of entrepreneurial innovation than failure.
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Facebook was able to raise $500,000 in initial investment because they could demonstrate they already had millions of users and nearly a million in revenue.
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Fear that the full implementation of innovations will endanger the current business can lead to delays, obfuscation, even sabotage. The text argues that this fear is irrational and unfounded.
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For growth to be sustainable, the cost of acquiring a customer will need to be no more than 110% of the revenue that customer generates.
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Gillette revolutionized the shaving market by being the first to replace the dangerous "straight razor" with a safety razor, and pricing its invention high to guarantee enormous profit margins.
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IMVU, one of the author's own start ups that is used as an example in this chapter, is International Management Vision University, a school that specializes in teaching entrepreneurs.
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In its 2018 update of port mortems, CBINSIGHTS quoted the founders of Airware, a commercial drone pioneer who said, "the market matured too fast and we could not keep up." The company burned through over $100 million in investment.
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In the "Entrepreneur Abandons..." reading, the entrepreneur's initial (abandoned) company was called Student Loan Hero.
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In the "paid" engine of growth, if the CPA is 110% of the LTV, the product will have a sustainable growth of 10%.
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Intuit was used as an example of a dominant company that stifled entrepreneurship and innovation because management was focused on trying to maintain market share and margins by incremental improvements in its existing products for existing customers.
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Lennox, the manufacturer of high quality sets of Chinaware, overcame market resistance to the purchase of full sets by offering a much cheaper product via catalogue.
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MVP calls for a long, thoughtful incubation period that seeks product perfection.
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Scholly failed because it was trying to address a problem that just did not exist.
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Since proforma figures are always annual, you should expect to take a year to develop your baseline metrics. No changes should be made until you have a year's worth of data.
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Start Up Failures looked at nearly 50 "post mortems" to come up with a list of the top ten reasons start ups fail.
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Startups must focus on one of the three engines for growth.
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Steve Kubicek had a long career in entertainment, going back to his days at OSU.
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Sweepeasy was a sweeping success story of prototype to millions in sales.
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The Five Whys works best when it helps the organization to answer the question "who is to blame here?"
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The Five Whys works best when it helps the organization to answer the question "who is to blame here?"
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The Reading disagrees with the text chapter. The reading says that innovators in existing businesses face the same problems, limitations and constraints as solo entrepreneurs.
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The author advocates early experimenting with MVP = Maximum Viable Product.
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The author explains how his IMVU team of engineers was able to avoid the common mistake of "missing the market target" by working hard to get it right the first time.
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The goal of early contact with customers is to gain definitive answers about product features.
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The idea that an entrepreneur will eventually win if he/she just keeps on trying out bright ideas is the fundamental belief that underlies this reading.
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The key to sticky growth is to focus on bringing in new customers.
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The main point of the text is that start up success is mostly a matter of having a brilliant visionary idea, perseverance, hard work and being in the right place at the right time.
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The measuring technique that asks test customers what they think of a fully functional product prototype is called a "smoke test."
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The pitch deck in the reading was designed to raise funds to build a new theater in NYC.
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The pitch deck in the reading was seeking a total investment of $100,000.
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The pitch deck in the readings failed to answer the key question, "How is this company scalable?"
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The reading argues that significant innovations inevitably involve either a new product or service or a significant change in an existing product or service.
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The reading illustrates that, while Roland Hill did not really invent the postal service, his new patented technology - the envelop - introduced what today we call "mail."
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The reading referred to something called an EIN, which is the Enterprise Investment Notification.
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The reading says that only the very largest of today's businesses will survive in this period of rapid change and innovation without acquiring entrepreneurial competence.
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The reading, "How to start a business" provides guidance for starting a business in any State.
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In innovation accounting, the MVP should be used to quickly get initial readings on the assumptions and proforma objectives. These figures are called the "baseline."
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In the Lean Startup model, everything a startup does is understood to be an intentional experiment designed to efficiently (time, money) achieve validated learning.
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Innovation accounting enables startups to prove objectively that they are learning how to turn their idea into a sustainable business.
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Innovative strategies embrace what some call the "irrational customer" because it is what customers are eager to buy has to fit their realities to have value to them.
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Internal start ups within existing companies must have investment capital that is secure.
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Investors generally are more appreciative of an entrepreneur who presents very conservative, realistic sales projections based on proven traction.
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It thus takes special effort for an existing business (especially a small business) to innovate. The temptation is always to feed yesterday and to starve tomorrow.
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MVP says that any additional work beyond what is required to start learning is waste.
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Metcalfe's law says the more people in a network, the more valuable the network.
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Most tools from general management are not designed to flourish in the extreme uncertainty in which start ups operate.
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Once their innovations are proven, accepted, integrated into the product portfolio and become "stars", the entrepreneurs who helped develop the products in the company sand box often find themselves as part of (and protectors of) the new status quo.
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One of the benefits to batch processes for start ups is that it reduces the WIP inventory that often goes unnoticed by startups.
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One thing almost all investors hate to hear from an entrepreneur is "what is great about this business is there is no one like us, there is no real competition."
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Over time, any source of customer acquisition will tend to have its CPA bid up by the competition.
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Part I of the text is about Vision and chapter 1 is titled simply "START."
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Rapid change makes obsolete many of the old problems and the ways in which they have been addressed. At the same time, such a period creates opportunities for innovation.
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Small batch testing fits the "build-measure-learn" (quickly) mantra of lean startups.
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Sometimes the MVP used to truly test assumptions is not even a product at all, as was illustrated when Dropbox tested its core assumptions with nothing but a video showing how the product would work....eventually, hopefully, after development and release.
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Sooner or later, a successful startup will face competition from fast followers. Hiding your work from potential competitors is not the solution. The only way to win is to learn faster than anyone else.
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Start up Failures suggested that if the founding team didn't already have the people who could put out the product, they probably shouldn't be founding a startup.
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Startups need to be cautious about cheering results that are based on "vanity metrics" that measure things that really don't point to sustainable business growth.
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Successful entrepreneurs discover which of their working assumptions are misguided, and adapt their strategies accordingly.
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Surprisingly, Start Up Failures shows that a very large percentage of start ups failed simply because there was not a real market need for the product or service.
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The amount of time a company can hold on to market leadership is shrinking, creating an imperative for companies to invest in innovation.
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The author believes that the first six months of expensive, painful lessons could have been learned much faster if he had not been so focused on debugging a product they were sure the customer wanted (or should want).
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The core idea of "Five Whys" is to tie investments directly to the prevention of ROOT problems, meaning the things that cause what are otherwise just symptoms.
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The core idea of "Five Whys" is to tie investments directly to the prevention of ROOT problems, meaning the things that cause what are otherwise just symptoms.
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The entrepreneur and his partners started the first company with $40,000 they won in a start up competition.
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When implementing the Five Whys, the text advises that you can be tolerant of any mistake the first time but should not allow that same mistake to be made twice.
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When implementing the Five Whys, the text advises that you can be tolerant of any mistake the first time but should not allow that same mistake to be made twice.
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When metrics fall short of objectives, traditional management generally concludes that the work yielded a product that was not in line with the plan and they apply pressure to work harder to get closer to the plan... when they should be asking whether it is the plan itself that may be the issue.
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When the text talks about "pivoting" it means recognizing that parts (or all) of the original hypotheses are not correct and making course corrections to test new assumptions.
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"Food on the Table" was an example of a start up that began by identifying 1000 potential customers and 10 grocery stores to test an online shopping product they invested nearly $50,000 to develop and perfect.
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"Pivoting" is giving up.
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A previous example told the story of a computer science graduate who started his career in day trading in NYC, then left to pursue a music career in New Orleans ...but finally used training as a software coder to launch Kick Starter.
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A previous example, BARRE 3, told the story of a woman with no experience in the fitness industry who started an exercise/ballet business to help her sell the energy bars she had been making and promoting through her cooking show.
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A startups' early contact with potential customers should confirm or refute its most critical assumptions and thus eliminate additional testing.
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A viral coefficient of 0.5 leads to sustainable growth as 50 of every 100 customers will bring in one more customer and half of those will bring in one more customer, etc.
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According to "General Start Up Statistics" beer, wine and liquor stores are the most likely to succeed, with an average NPM of around 12%
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According to "General Start Up Statistics" over 70% of start ups rely on outside investors in the early stages.
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According to Start Up Failures, the most common reason for failure is poor marketing.
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According to the reading, most investors prefer a thorough business plan of 20+ pages to a simple executive summary or PowerPoint deck.
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According to the reading, the same abilities that helped you start your business are those you will need to help it grow.
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According to the text the word pivot is simply a synonym for change.
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According to the text, larger companies inevitably lose the capacity for innovation and creativity.
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According to the text, larger companies inevitably lose the capacity for innovation and creativity.
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All start ups should begin by simply asking the customers what they want.
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Amazon is a good example of what the text calls "success theater" because it racked up huge profits very early which it could then tell investors was what they could expect later.
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Any new product discovered, tested, prototyped in the company sand box should be perfected there as well.
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Because the new project was very similar to the abandoned one (pretty much the same customers), the second project was much easier to get off the ground.
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Because too little interaction with customers AND analysis paralysis can both lead to failure, the text advises the use of MVP = "most valid perspectives."
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Because you need to be careful that a potential investor does not steal your idea, it is recommended that you have everyone at your presentations sign an NDA.
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The text advises that those involved in the innovation and creation of a new product should be moved out of the sand box into whatever new structure, production, marketing is required to integrate into the larger enterprise and take their "baby" to scale.
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The text argues for a "large batch" approach to startups and uses and example that shows 100 envelops can be folded, stuffed and stamped faster if each activity is performed by one person versus one person doing all three.
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The text argues that a personal stake needs to be part of the in-company start up and that this stake needs to be financial.
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The text argues that a personal stake needs to be part of the in-company start up and that this stake needs to be financial.
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The text argues that the best way to protect the innovation group is to "hide" it in some sort of secrete off-site skunk works.
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The text argues that traditional management planning and forecasting are only accurate when based on a stable operating environment and should be abandoned in favor of the "Just Do It!" school of start ups.
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The text author advised those who were responsible for launching the $500m Consumer Financial Protection Bureau (CFPB) " You have a mandate and it is clear - create an organization that will deal with consumer complaints. Take the time to create a detailed plan, hire the best technical engineers, pay them to build a system that works right the first time."
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The text author believes that all start ups should take the same steps that IMVU took, no matter the type of business, product or market.
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The text author describes his first early venture, creating online profiles college students share with employers - a success story which he and his partner sold for $125 million.
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The text holds that, as companies grow larger, they inevitably lose the capacity for innovation, creativity and growth.
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The text refers to three "growth engines" with the first being "sticky." An example of significant sticky growth would be when a product is retains 65% of its customers combined with a 35% growth rate of new customers.
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The text restricts its start up methods to real entrepreneurs and does not include so-called innovators who operate within existing companies.
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The text says "if a venture does not achieve at least 70% of its first year proforma projections, it should be terminated."
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The text says that getting it right at the start is what matters. Startups using the techniques in the book through the initial launch can expect several years of market-leading success, avoiding the constant pressure for new innovation.
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The text says that innovation is a bottoms-up, decentralized, and unpredictable thing, that cannot be managed.
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The text says that true entrepreneurs don't make assumptions on which to base strategy.
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The text suggests that metrics need to be chosen based on "three A's" which are affordable, applicable, and absolute.
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The text used Zappos (online shoes) as an example of a start up that did things right by first conducting a market research survey to ask customers what they thought they would want in an online purchasing web site for shoes.
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The text uses Intuit's product QuickBooks to show how one product manager introduced Five Whys and was able to immediately cut the time to develop, test and release a new version from one year to once every quarter.
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The text uses a company called SnapTax as an example of the traditional, "out of the garage" entrepreneurs who left the Intuit TurboTax group to start their own company.
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To avoid chaos, the text says that internal start ups should not have autonomy to develop and market new products but should be expected to undergo constant review and a number of hierarchical approvals for each action.
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To avoid chaos, the text says that internal start ups should not have autonomy to develop and market new products but should be expected to undergo constant review and a number of hierarchical approvals for each action.
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To be a source of sustainable growth, advertising must be paid for out of one-time sources such as investment capital, not sales revenue.
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Traditional accounting judges new ventures by the same standards it uses for established companies because they are reliable predictors of a startup's future prospects.
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When using the Five Whys it is important to put all the effort and investment at that last/bottom WHY, where the problem started.
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When using the Five Whys it is important to put all the effort and investment at that last/bottom WHY, where the problem started.
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When your team is presenting to potential investors, it is best to have the CEO do all speaking and responding to questions.
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What was the main lesson from Steve Kubicek's account of his career in developing new ventures?
Keep Learning
In a start up, who the customer is and what the customer finds valuable often needs to be learned through rapid, intentional experimentation - trial and error.
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In innovation accounting, poor quantitative results force the entrepreneur to recognize short comings (failure) and also create the motivation and the focus for additional research, new baselines and changes.
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"Cohort analysis" is a process by which the key metrics are evaluated with each group of customers associated with each intentional change made in the product, rather than looking at those metrics across all customers to date.
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"Genchi gembutsu", is the lean manufacturing phrase borrowed from Toyota that means "go and see for yourself" so that business decisions are based on real first hand knowledge.
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"Getting stuck in the land of the living dead" is what happens when MVP testing does not support the plan assumptions, yet the founders persevere rather than pivot.
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"START" is built on the premise that traditional general management principles are ill suited to handle the chaos and uncertainty that startups must face.
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A new business that is a clone of an existing business may be an attractive economic investment, but it is not a startup.
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A pivot is not so much a new strategy as a new strategic hypothesis that will require a new minimum viable product to test.
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A startup's chief enemy is uncertainty.
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According to "General Start Up Statistics" 82 percent of businesses that fail do so because of cash flow problems.
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According to "General Start Up Statistics" most U.S. entrepreneurs start their businesses at home.
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According to "General Start Up Statistics" the biggest cause of start up failures is incompetence.
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According to the reading there is actually no empirical evidence for the belief that persistence pays off in pursuing the "brilliant idea."
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According to the reading, "bright idea" innovations are both the most abundant and the least successful of entrepreneurial ideas.
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According to the text, MVP should be designed to get through the build-measure-learn feedback loop quickly with relatively little effort and expense.
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According to the text, the most vital function of entrepreneurship is "validated learning."
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Among the "don'ts" of the reading was "don't try to be clever. Anything too clever, whether in design or execution, is almost bound to fail."
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Among the "dos" of the reading was the statement that all the sources of innovative opportunity should be systematically analyzed and systematically studied.
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Building an organization as adaptable and fast as the challenges it faces means making changes in the way people think and work.
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Cash constraints can be the biggest factor limiting growth, so be careful to manage cash flow and keep adequate cash from operations available.
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Companies often have problems adopting the Build-Measure-Learn feedback loop essential to lean start ups because this requires continuous cross-functional teamwork that reduces the focused individual time and effort that specialists use to measure their productivity.
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Customers do not buy a "product," but what the product does for them.
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Drucker illustrates how companies miss opportunities arising from unexpected failure with the story of a simple padlock being exported to India. In that case, his employer made expensive changes to satisfy what was assumed to be the cause of the failure, while a competitor uncovered the real opportunity.
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Entrepreneurs often cling to their false assumptions and vanity metrics because they fear their vision might be deemed wrong without having an adequate chance to prove itself.
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Entrepreneurs who operate inside an established organization are called "intrapreneurs"
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Even within large, established organizations, start up teams need independent authority to develop their business and a personal stake in the outcomes.
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Even within large, established organizations, start up teams need independent authority to develop their business and a personal stake in the outcomes.
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Executives at the world's best-run companies struggle to develop and launch innovative new products because the prevailing management thinking puts too much faith in well-researched, comprehensive, time-consuming, expensive planning processes that are likely to miss the mark.
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Facebook was a social network for college students started by three college sophomores.
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Growth is sustainable when new customers come from the actions of past customers.
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If playing in the sand box results in small batch learning and adaptation to the end that a viable new product emerges, the text says it the next stages may require a different kind of manager who excels in optimization, execution and control.
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The goal of a startup is to figure out the right thing to build—the thing customers want and will pay for—as quickly as possible. This calls for measuring productivity differently than in traditional business operations.
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The initial (flawed) strategy for IMVU was to avoid competition with existing instant messaging providers by creating "add on" products (avatars) that would go viral because it would sync with any IM system.
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The more you succeed, the more competitors notice - and react to - what you are doing. A market-leading offer one day may be no better than average a year later.
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The pitch deck in the reading included a brief on the key members of the team that would bring the product to the market.
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The pitch deck in the reading included pro forma revenue projections at three levels - aggressive, average and break even.
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The purposes of an "island of freedom" include holding intrapreneurs accountable and how to integrate successful innovations into the parent organization.
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The reading says entrepreneurship is not "natural"; it is not "creative." It is work.
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The reading suggested four steps, the first of which was register the company name.
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The reading, Challenges of Growing, was taken from a Canadian publication that originated in the U.K.
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The reading, Unexpected, is taken from a book by the management guru, Peter Drucker.
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The text advises entrepreneurs to "think big, but start small" and to experiment immediately to get solid quantitative and qualitative data to guide the business plan.
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The text argues that managerial accounting can be dangerous for a new venture and instead advocates a kind of accounting that measures innovation results... called "innovation accounting."
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The text chapter advises that when testing the many assumptions underlying the business plan, you should try to test the riskiest assumptions first.
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The text defines a start up as "an organization dedicated to creating something new under conditions of extreme uncertainty."
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The text describes several different kinds of pivots.
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The text illustrated how the batch process can help identify and correct defects faster for entrepreneurs just as it did for Toyota.
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The text illustrated the use of what was called an "immune system" at IMVU that identified any flaws in every iteration of product redesign, upgrades or improvements by releasing new features to customers in small batches so that defects could be attacked immediately.
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The text offers a method that was inspired by lessons from "lean manufacturing" that came out of Japan.
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The text points to Toyota as having built not only an advanced management system but also a very advanced learning organization.
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The text refers to the "viral growth engine" in which the "viral coefficient" measures how many new customers will use a product as a consequence of each new customer.
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The text says new and well-established companies must all learn to pursue operational excellence AND disruptive innovation at the same time.
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The text says standard accounting is not helpful in evaluating entrepreneurs because startups are too unpredictable for forecasts and milestones to be accurate.
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The text says that a start up should be seen as an experiment that follows the scientific method- beginning with hypotheses that predict what is supposed to happen.
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The text says that introducing the principles and practices of lean startups to new or old organizations requires attention to a four-part pyramid - people, culture, process and accountability.
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The text says that startups have the advantage of being obscure, having a small number of customers, and little exposure. The entrepreneur can use these advantages to experiment with an MVP under the radar and then launch when the product has proved itself with real customers.
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The text says the "start up runway" should be defined as the remaining cash in the bank divided by the monthly burn rate.
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The text says there is no bigger destroyer of creative potential than the misguided decision to persevere.
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The text sees a start up as being similar to driving to a destination like your workplace. You don't give up because there's a detour in the road or you made a wrong turn. You remain thoroughly focused on getting to your destination.
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The text suggests a parent organization can safely and effectively encourage and protect innovation by using some basic rules that allows all departments the opportunity to play in an open "sandbox."
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The text uses a new social involvement program at HP to illustrate how, by using small experiments early, the company could prevent a tremendous amount of waste down the road without compromising the overall vision.
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The text uses the Toyota "just in time" inventory and supply method to illustrate how batching can save time and costs.
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The text we have been using in this course was first published in 2011, 100 years after Frederick Taylor's Principles of Scientific Management.
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Validated learning helps avoid the expenditure of time, money and personnel successfully executing a detailed plan that leads nowhere.
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Validated learning needs to be more concrete, accurate, and faster than traditional market research, forecasting and planning.
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