Future Thinking

We often ask senior managers three related questions: First, what percentage of your time is spent on external, rather than internal, issues–understanding, for example, the implications of a particular new technology versus debating corporate overhead allocations? Second, of this times pent looking outward, how much of it is spent considering how the world could be different in five or ten years, as opposed to worrying about winning the next big contract or how to respond to a competitor’s pricing move? Third, of the time devoted to looking outward and forward, how much of it is spent in consultation with colleagues, where the objective of it is to build a deeply shared, well-tested view of the future, as opposed to a person a idiosyncratic view?

The answer we get typically conform to what we call the “40/30/20” rule … Thus, on average, senior management is devoting less than 3% (40% x 30% x 20% = 2.4%) of its energy to building a corporate perspective on the future.

–Gary Hamel & C.K. Prahalad, Competing for the Future

Gatorade

Gatorade was being challenged by Powerade. And Powerade was coming into the market. They were backed by Coca-Cola. They had a cheaper energy drink. They were taking share away from Gatorade. And Gatorade started spinning out more flavors to combat power. And all that happened was that sales didn’t go anywhere, costs went up, and Powerade continued to gain share. Well, what Gatorade did is it went out and looked at those serious athletes to try and understand what they really wanted from the drink. And what they found is that serious athletes really cared about doing well at athletic events and that doing well often involved much more than hydration during the event. It involved preparing for the event, and then hydrating during, and then recovering after. And so Gatorade worked with other parts of PepsiCo, their corporate parent, like Quaker Oats, to develop sports bars and energy chews and protein shakes and things like that to help support the entire athletic event. It diversified the sources of income for Gatorade. And if one of those fails, it doesn’t really matter. The risk is much lower. When you look at just the drink, what you’d see back in 2009 when this strategy really kicked in is that there were fewer varieties of drink, but the drink sales went up, because they had this whole solution around the drink. And it brought people back to the drink.

–David Robertson, HBR Idea Cast #575

Don’t fight the competition, date the customer

… management is fighting the competition, not dating the customer. They’re just thinking about, what’s my share against this competitor, and how can I get that back. And so they commission a team whose job it is to do a better product than the competition. And that may work in the short term, but it’s very hard to make it work in the long term. And so it may just be that internal view in the company, that we tend to see the world through this lens of, what’s our relative share. And maybe if we’re a senior manager in charge of a business unit, we’re bonused on that, it’s how well we’re doing against the competition. And so it ends up creating this whole incentive system and process and structure and roles around fighting the competition, not dating the customer.

–David Robertson, HBR Idea Cast #575

Quality of MVP

One of the most vexing aspects of the minimum viable product is the challenge it poses to traditional notions of quality … These discussions of quality presuppose that the company already knows what attributes of the product the customer will perceive as worthwhile … If we do not know who the customer is, we do not know what quality is … MVPs require the courage to put one’s assumptions to the test. If customers react the way we expect, we can take that as confirmation that our assumptions are correct. If we release a poorly designed product and customers (even early adopters) cannot figure out how to use it, that will confirm our need to invest in superior design … Thus, the Lean Startup method is not opposed to building high-quality products, but only in service of the goal of winning over customers.

Eric Ries, Lean Startup, (p. 106-109)

Dropbox

The founding team [of Dropbox] was made up of engineers, as the product demanded significant technical expertise to build … the founders wanted feedback from customers about what really mattered to them … The challenge was that it was impossible to demonstrate the working software in a prototype form. The product required that they overcome significant technical hurdles … he made a video. The video is banal, a simple three minute demonstration of the technology as it is meant to work … Drew recounted, ‘It drove hundreds of thousands of people to the website. Our beta waiting list went from 5,000 people to 75,000 people literally overnight. It totally blew us away.” … In this case, the video was the minimum viable product.

Eric Ries, Lean Startup, (p. 97-99)

https://dl.dropboxusercontent.com/u/27532820/original_screencast.html

Proposed KPI = Assumptions

For example, consider a service sold with one-month free trial. Before a customer cn use the service, he or she has to sign up for the trial. One obvious assumption, then, of the business model is that customers will sign up for a free trial once they have a certain amount of information about the service … Somewhere in the business model, probably buried in a single cell in a spreadsheet, it specifies the ‘percentage of customers who see the free trial offer who then sign up.’ … It really should be represented in giant letters in bold red font: WE ASSUME 10 PERCENT OF CUSTOMERS WILL SIGN UP. Most entrepreneurs approach a question like this by building the product and then checking to see how customers react to it. I consider this to be exactly backward because it can lead to a lot of waste.

Eric Ries, Lean Startup, (p. 96)

Groupon

Groupon wasn’t originally meant to be about commerce at all. The founder, Andrew Mason, intended his company to become a ‘collective activism platform’ called The Point. Its goal was to bring people together to solve problems they couldn’t solve on their own … The Point’s early results were disappointing … they were determined to keep the new product simple … ‘We took a WordPress Blog and skinned it to say Groupon … The actual coupon generation that we were doing was all FileMaker. We would run a script that would e-mail the coupon PDF to people. It got to the point where we’d sell 500 sushi coupons in a day, and we’d send 500 PDFs to people with Apple Mail.’ … A Minimum Viable Product (MVP) helps entrepreneurs start the process of learning as quickly as possible.

Eric Ries, Lean Startup, (p. 92-93)

Toyota Sienna

At Toyota, the manager responsible for the design and development of a new model is called the chief engineer … The 2004 Sienna was assigned to Yuji Yokoya, who had very little experience in North  America, which was the Sienna’s primary market … he proposed an audacious entrepreneurial undertaking: a road trip spanning all fifty U.S. states, all thirteen provinces and territories of Canada, and all parts of Mexico … In small town and large cities, Yokoya would rent a current-model Sienna, driving it in addition to talking to and observing real customers. From those first hand observations, Yokoya was able to test his critical assumptions … ‘If I learned anything in my travels, it was the new Sienna would need kid appeal.’ … Yokoya spent an unusual amount of the Sienna’s development budget on internal comfort features, which are critical to a long-distance family road trip (such trips are more common in America than in Japan).

Eric Ries, Lean Startup, (p. 86-87)

Business Strategy & Assumptions

Every business plan begins with a set of assumptions … The first challenge for an entrepreneur is to build an organization that can test these assumptions systematically. The second challenge, as in all entrepreneurial situations, is to perform that rigorous testing without losing sight of the oomph’s overall vision … Many assumptions in a typical business plan are unexceptional. These are well-established facts drawn from past industry experience or straightforward deductions … Hidden among these mundane details are a handful of assumptions that require more courage to state… we assume that customers have a significant desire to use a product like ours, or we assume that supermarkets will carry our product. Acting as if these assumptions are true is a classic entrepreneur superpower. they are called leaps of faith.

Eric Ries, Lean Startup, (p. 81)

Zappos

Zappos began with a tiny, simple product. It was designed to answer one question above all: is there already sufficient demand for a superior online shopping experience for shoes? However, a well designed startup experiment like the one Zappos began with does more than test a single aspect of a business plan. In the course of testing his first assumption, many other assumptions were tested as well. To sell the shoes, Zappos had to interact with customers: taking payment, handling returns, and dealing with customer support. This is decidedly different from market research. If Zappos had relied on existing market research or conducted a survey, it could have asked what customers thought they wanted. By building a product instead, albeit a simple one, the company learned much more. 

Eric Ries, Lean Startup, (p. 57-58)