"Lean Startups Pt 2: A Scientific Method For Creating Innovation" ~ MAKE MONEY BLOG$

What is a lean startup? In essence, it’s innovating with a scientific mindset. Instead of blundering along, flying blind, proceeding by trial and error and not learning from the errors, investing huge amounts of time and money building things that no customer will ever buy, let alone be delighted by, it’s a scientific method for quickly finding and testing ideas that will build a sustainable business.

Finding the right idea to test

Even pure physical science requires a great deal of intuition, because a scientific experiment is only as good as the hypothesis you formulate. The first step is finding the right idea to test.
If you’re a chemist and the scientific hypothesis you are testing is, say, that combustion is the result of a colorless, odorless substance called “phlogiston“, no amount of experimentation will help you. You’ve got the wrong hypothesis. In the real world of things, there is no such substance.
In the world of innovation, the right idea is one that the customer in the real world will buy and be delighted with.

Learning from pissed-off customers

In innovation, the question of whether the idea is right is subjective. The product may be objectively better in some sense—more functions, more sophisticated, more powerful, bigger, smaller, more elaborate or more streamlined, or whatever—but if customers don’t see that it is better for their needs, so that they will buy and be delighted by it, then the bottom line is that it’s not better.
Ries says:

Every entrepreneur in their heart has some kind of vision of where they want to go…It’s connecting to what’s the benefit for customers. Often it’s quite indistinct. With PayPal, it might be a feeling that there’s something wrong with online payments, and that it should be easier and more convenient for people to exchange cash online. The vision here has to do with making the world better around payments. It starts out quite vague, but it only gets specific as we learn more.

Tom Peters puts the idea more colorfully in Re-Imagine!: Business Excellence in a Disruptive Age (2005):

“All innovation is NOT driven by market research and endless focus groups. It is driven by pissed-off customers!”

The object in innovation is to learn as quickly as possible what the clients or customers will consider as better, as something that they are willing to buy and be delighted with when they use it. If you can find out or figure why they are currently frustrated or irritated, that can be the clue to the winning idea.

Late fees on DVDs: Reed Hastings was annoyed with paying late fees at his local DVD rental store for the DVD Apollo 13 and so he launched Netflix [NFLX] that would allow people to rent DVDs without late fees.
Dry cleaning: stores are inconvenient and unattractive. Maybe P&G [PG] can solve that problem for people with brightly lit, attractive drive-in stores?
Laptops: Laptops are heavy and clunky. Maybe Steve Jobs at Apple [AAPL] can solve that problem with an iPad?

Is the idea viable?

Once you have your idea, you need to develop and test it as soon as possible. Will customers buy it and be delighted by it?
Ries points out that there are often low-cost and speedy ways to find out immediately if the idea is viable.

For instance, with a product that’s going to have an online service component where people are going to sign up for the product, you can have a landing page inviting people to try the product for a free trial. If people won’t even do the free trial, the business in its current form is doomed.

In another example, when Zappos was getting started, instead of creating warehouses and distribution channels and creating another dotcom disaster, the founder [Tony Hsieh] went to a shoe store, took digital photographs of the shoes, put them online, and offered them for sale. If somebody bought the shoes from him, he would literally walk back to that shoe store, buy the shoes, and mail them to the person. So it was a classic minimum viable product, where he’s using manual labor on the backend to fulfill the orders.

Everything in innovation and startups consists of experiments to create engines of growth.

Three engines of growth

Ries suggests that there are three fundamental types of engines of growth, each of which is a standalone feedback loop that helps startups grow.

Viral businesses: i.e. businesses grow fundamentally though each person being a catalyst for other people to join. The quintessential example is Facebook.
Paid businesses: Then you have the paid businesses that grow through paid advertising, where they make money for every user and they reinvest in recruiting more customers.
Retention businesses: sticky or retention based businesses that have high customer lock-in or very long retention periods, like World of Warcraft or a cable service, something that is fundamental and people want to stay signed on and they rarely sign off.

Each of those three engines of growth has a different feedback loop that powers it. With a viral business, it’s: what’s the viral spread per customer? With a paid business, it’s: how much money do we make per customer? With a retention business, it’s: what’s the retention rate per customer?
The sustainable growth occurs because new customers are a result of the actions of past customers:

In viral businesses, like Facebook, that’s because the past customers invited them.

In paid businesses, you’re using revenue that you made from past customers to get them.

In retention businesses, the new customers are the past customers coming back because they can never stop coming back (cable company, routers like Cisco [CSCO] and Juniper [JNPR], or enterprise software like SAP [NYSE:SAP]

Ries notes that each of those sources of sustainable growth is different from a one-time PR campaign, different from a one-shot SEO optimization, different from doing a big publicity stunt, or even just blowing a lot of money on a Super Bowl ad. Those are all unsustainable sources of growth.

Lean startups: user testing is not market research

Lean startups are not market research. The goal here is not just to do an abstract assessment of what people might want. You can do market research indefinitely: once you have determined that there might be a market, the next step is commission yet another study and get a new focus group together.
Focus groups are in a completely artificial situation to judge a new product. It can quickly become an inter-group power-struggle. As a result, you might be finding out a lot about the dynamics of the group, but not necessarily much about the questions you are interested in.
Lean startups are about using actual product development as an experimental tool for discovering what people want. You have actual users signed up, that you can go and talk to right now to figure out what’s wrong or maybe even figure out what’s right.
Thus at Zappo’s, Tony Hsieh’s experiment of offering shoes online that he bought from the local store not only enabled him to gauge the level of interest in buying shoes online, but also learn from unexpected stuff that happens with anything new.
Ries says:

If you’re just talking to people, people might say, “Oh, I’d love to buy shoes online,” but actually be afraid of it. They might say, “Oh, I’d be happy to pay full retail,” but actually they need a discount. Or they’re exactly the opposite. They might say, “No, I definitely want discounts,” but then maybe the discounts make the shoes look cheap. Now you can spend your days as an entrepreneur worrying about what might go wrong, but there’s always an infinite number of things that might go wrong. So forget that. Let’s go find out what’s actually going to go wrong, as soon as possible. So we put ourselves in a position for stuff to fail, and that then puts us in a position to learn.

Faster and better innovation is not about frenetic action. It’s about learning faster in real time with real users.
Tomorrow Part 3: “Most changes make products worse.”

SOURCE: FORBES.COM
please give me comments thanks