Lean

Jul 11 2012

Nonprofits Are Harder

Nonprofit startups face all the challenges nonprofits face, plus all the challenges of for-profit startups. The compounded nature makes it more difficult, not less, to start a successful, lean, and sustainable nonprofit compared to a similar for-profit. One of the key pieces that nonprofit founders frequently forget is that not making a profit doesn’t mean you can ignore the revenue side of the equation. You still need to raise enough money to pay for the services you provide (and to fuel growth), whether that is through donation-based fundraising, corporate partnerships, grants, or a fee-for-service model (or some combination of several of these options).

With a for-profit model, when you convince someone to pay money for your product or service, you have also convinced them that you are providing them value equal to or greater than the cost. You have succeeded in creating value, and identifying a revenue stream.

In the nonprofit world, value is often provided to one party, while another party pays for it. With few exceptions, beneficiaries are not customers. Of course, donors also receive some value in this transaction, but it’s an indirect value proposition. If you’re starting a nonprofit startup, you need to find a way to create value, convince one party to be the recipient (not always as easy as it sounds), and another to pay for it. Further, sophisticated funders demand proof that the actions your organization takes are, indeed, providing the promised value, so you must measure the results of your value creation and compare them to other methods of value creation to ensure that you’re being as effective as possible.

Have you started a nonprofit organization? We’d love to hear your story.

Apr 10 2012

Lean is not Skeletal

Lean does not mean bare bones. It does not mean minimize expenses at any cost. It does not prohibit raising money.

In biology, lean refers to the proportion of muscle to excess fat. In business, lean means getting more value for fewer resources.

Reduce waste. Be lean, not skeletal. Don’t cut the muscle.

It’s about efficiency. And sometimes being efficient actually means scaling up and using more resources. Elite athletes eat more than the rest of us. Michael Phelps needed to consume 12,000 calories a day during the Beijing Olympics.

Too often, I hear people talking about how they are being lean by limiting their resource consumption, instead of putting those resources behind the right purpose.
It can be tempting to focus on the resources part of the equation, and eliminate all sorts of things just because we can. The problem lies in forgoing activities that actually create value. Just because something is expensive, doesn’t mean it’s wrong. Don’t stop doing things, just stop doing the wrong things.

What are the wrong things? Anything that doesn’t contribute to creating incremental value. Value should not be confused with cash, unless the sole purpose of your organization is to produce cash. Most organizations define value differently depending on their industry.

Industry	Increments of Value
Manufacturing	high-quality physical goods
Software development	working code in the final product
Startup	validated learning
Nonprofit	social or environmental change

Lean startups don’t have to be bootstrapped. They can raise funding. They just need to be deliberate and focused about how they spend the money they raise.

Mar 30 2012

A Few Words of Advice for Lean Mentors

This past weekend, I once again had the pleasure of mentoring at Lean Startup Machine DC (#lsmdc). It’s always a great experience to be around so many people who are passionately involved in understanding and solving problems and changing the world. Over the course of the weekend, I spent more than 24 hours mentoring teams, and afterwards, I talked with many of the participants about the mentoring process, what was helpful, and what they wished had gone differently. Here are the primary things I learned.

Velocity

Early on in the weekend it almost doesn’t matter what you do as much as it does the act of doing it. It is important for teams to get through their first Build-Measure-Learn loop quickly to get them over their fear of making the wrong decision and help them realize that they can pivot quickly. Encourage teams to get in front of customers early, even if their first experiment isn’t fully thought-out.

Start with the Problem, Not the Solution

Watch out for teams that dive right into designing their product. They often seem to be making lots of process and will tell you so if you drop by, but they are usually spinning their wheels, and need a kick to get out of the building.

Don’t Plan. Act.

When you’re building anything from scratch, it’s easy to get ahead of yourself. Remind teams not to worry about where the business is going to be in two years. Tell them to figure out the first step and then do it.

Be a Scalpel, Not a Firehose

To borrow from Dan Pink, “Your goal isn’t to demonstrate how much you know or to catalog your many insights, but to leave the audience with one idea to ponder — or better, one step to take.” These teams are surrounded by a myriad of information and it’s a challenge to take it all in. As a mentor, part of your job is to help them pinpoint the right information for the challenge that is immediately in front of them. One participant at #lsmdc explained, “The one thing I felt that all the mentors could do better is provide coaching on action steps. As in, ‘This is what you should do, and here’s how to do it'”.

Deliberation

Lean Startup Machine is a fast-paced weekend. Thinking over some decisions can be valuable, but many decisions don’t need hours of discussion and analysis. Make reversible decisions quickly. Timebox. Don’t wait. In one case, a team had set their minimum success criteria and the early data already showed they weren’t going to hit it. Their feedback: “Your suggestion to pivot immediately rather than continue waiting for survey results saved a great deal of time and frustration.”

Focus on Currency

As anyone who runs a business knows, cash is king. Other forms of currency are equivalent to some discounted value of cash. Letters of intent, email addresses, and people willing to give you the time of day are valuable to varying degrees, in many cases proportional to the amount of friction in the collection process (if all they had to do was click a button, that’s cheap; if they had to jump through some hoops and still bought in, you’re doing better). Remind teams that currency is crucial for validation. One participant said “the most impactful thing you did was to keep asking “Is anyone paying you yet?” — That helped keep me on track.”

Have your participated or mentored at an LSM event? What have you found worked well, or needed improvement? Add your thoughts in the comments below.

Feb 01 2012

Startup Risk and the Ego

Usually when we talk about risk at a lean startup event, it goes something like this:

There are two types of risk: market risk and technological risk.
Agile methodologies are used to reduce technological risk, and lean startup (and customer development) helps reduce market risk.

The discussion continues when someone adds:

Web startups don’t really have technological risk. We know we can build it. We don’t know if anyone wants it.
Biotech companies typically have tech risk, but no market risk. Everyone wants a cure for cancer, but we don’t know how to build it (yet).

But I found myself in the middle of a very interesting conversation at last week’s DC Lean Startup Circle. We were talking about a third type of risk that is critical for startups, what Ben Willman calls “ego risk.”

From what I’ve seen, the vast majority of people working in startups have a tendency to want our work to be as good as possible before we show it to people. This instinct runs counter to the concept of a Minimum Viable Product.

We all get attached to our clever solutions, sometimes even after we’ve discovered that they solve the wrong problem (or no problem at all). Ego is why we get attached to our solutions and stop questioning, and why we want to avoid customers until it’s perfect. It’s why we conflate our sense of self-worth with the success of our product or startup.

Ben Horowitz (of Andreessen Horowitz) has written that the most difficult skill for CEOs is to manage their own psychology. He also points out that it’s almost taboo to talk about personal psychology. It’s too easy for founders or CEOs to get in their own way and prevent themselves from executing with objectivity and mindfulness.

We talk about the technical and market risks facing a startup. Why don’t we talk about this more important risk? We need to acknowledge and address ego risk.

Startups have tech risk (can we build it?), market risk (will they buy it?), and ego risk (can I get out of my own way?).

If you want to join the conversation, come check out Ben Willman’s presentation on the subject at the next DC Lean Startup Circle.

Nov 22 2011

Four Lessons Learned at Lean Startup Machine DC

I had the pleasure of being a mentor and judge at Lean Startup Machine DC (#lsmdc) this weekend at GeekEasy. The participants spent the weekend learning to validate hypotheses; the winning team discovered that people would be willing to share their personal genetic data to help fight disease. They got out of the building and asked passers-by to spit into cups. They collected one sample every 3 minutes, taking the first step toward proving the viability of creating a massive genetic database to support research into personalized medicine. As they were learning, so was I. Here are a few things I learned along the way:

LSM DC at GeekEasy — LSMDC at GeekEasy. Photo by Stephen Strasser, Strasser:Studio.

Lessons

Lean is hard, and not everyone will succeed.

Especially not in one weekend. But it’s also not a binary state. An organization can be varying degrees of lean, and the more I learn about lean startups, the more I can apply it in my own work.

Small teams of experts are more prone to confirmation bias.

If you know the space well, you need to be even more careful that you test your hypotheses with real data. Make sure people on your team can call you out. If you’re working solo or with one partner, set time aside to take a reality check with someone outside your team.

The market you know is not the only market.

It’s tempting to sell to startups because you are one, lots of people you know work for one, and you like thinking about startups. Most startups don’t have money, so think twice. There are other markets that might have the qualities you are looking for but actually have money. For example, if you are targeting startups because you are looking for companies without entrenched policies, consider embattled companies who have hired turnaround consultants instead.

You are not your target market.

Make sure other people share your problem. It’s great to build something you want to use, but if no one else wants it, it’s a hobby, not a business.