INNOVATE 2X03
LEAN STARTUP
Course Introduction
Glen Crossley
Associate Director, Business Development
and Intellectual Property
McMaster Industry Liaison Office (MILO)
1
Agenda
• Course Introduction
– Glen’s background
– Class Introductions
– Overview of Course Outline
– Problem Selection
– Introduction to Lean Startup Methodology
– Introduction/Review of Business Model Canvases
2
Introduction - Instructor
• Instructor: Glen Crossley
• Academic Background
– BSc. and MSc. Eng. (Engineering Chemistry),
Queen’s University
• Work Experience
– Group Leader, E Ink Corporation (1998-2002)
• E Ink is an MIT start-up that developed the display
technology in the Amazon Kindle, Kobo and other
e-books
– Director of Product Engineering, Photowatt
Technologies (2003-2006)
• Responsible for all aspects of New Product
Development for a flexible solar technology
3
Introduction - Instructor
• Current Role
– Associate Director, Business Development
and Intellectual Property, McMaster
Industry Liaison Office (2006 –present)
• Support faculty and students who want to
commercialize their ideas
• Sessional Instructor for Engineering
Management 4A03 (2014 – present), Innovate
2X03 and 2Z03
• Set up and co-managed the Forge in 2014
before we hired full time staff
4
Course Details
• Class Time:
– Wednesdays 7-930 Virtual until Jan 25th, BSB 147 thereafter
• Course Communication:
– Innovate 2X03 website on Avenue to Learn
– Innovate 2X03 Microsoft Teams Class
– Email crosslg@mcmaster.ca
• Administration
– Program Coordinator – Anna Sciascetti – sciasce@mcmaster.ca
• Course TAs
•
Claire Kim kimc49@mcmaster.ca
•
Marisa Manichan manicham@mcmaster.ca Hamza Mansour mansouh@mcmaster.ca
•
Keya Patel patek52@mcmaster.ca
Julienna Kwong kwongj8@mcmaster.ca
Brendalynn Rajkumar rajkumab@mcmaster.ca
• Office Hours (TBD as needed)
Please organize appointments by email or message me on Teams
5
Class Introductions
• For the purpose of Innovate 2X03 you’ll chose a
project to work on for the duration of the course
• Historically have had people introduce
themselves in class and the second class we talk
about ideas people are interested in
• For this class we’re going to do introductions by
creating a short video on Flipgrid
6
Class Introductions
• Will do class introductions on Flipgrid - an add
Click here to access Flipgrid
in for MS Teams
Click here
to record
your video
7
Course Details
• Define a problem worth* solving
• Build a preliminary Business Model Canvas for
your idea
• Get out of the building (virtually) and test your
hypothesis with real potential customers
• Iterate on your business model canvas
• Develop a preliminary financial plan, competitive
analysis, market and IP assessment and work plan
• Present what you have learned in a presentation
and final report
8
Course Assessment
• Introductory Video (5%)
• Problem Definition and Initial Business Model
Canvas (10%)
• Preliminary Idea Pitch (5%)
• Customer Interviews and Canvas Iteration (10%)
• Market, Competition and IP Assessment (15%)
• Financial Model and Work Plan (10%)
• Pitch Presentation (15%)
• Final Report (20%)
• Peer Assessment (10%)*
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What makes a problem
worth solving?
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Questions to ask yourself
• How many people have this problem?
• Why hasn’t the problem been solved before?
• What do other solutions do/not do for the
customer?
• Who is the payer?
• What might they be willing to pay?
• How big is the customer pain/gain?
• Is it scalable?
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What type of Business do you
want?
• Growth business (create hundreds of jobs and
change the world, make $$$)
• Lifestyle business (be your own boss, make $$
and enable you to live the life you want to
live)
• Social Enterprise (make the world a better
place, can still make $)
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For Next Class
• Think about what problem you want to solve
• Try thinking outside the scope of problems
facing just you and your housemates on a
daily basis
• We’ll spend the second part of class talking
about problems people are interested in
working on
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Keys to a Successful Business
1) Have a compelling value proposition
2) Determine who your customer/user is
3) Figure out how you are going to get paid
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2X03 Team Formation
• Class Size 300 students
• Team logistics
– 6 students per team (about 50 teams total)
– Try to be multidisciplinary
– Enter your complete team or partial team on
Avenue
– You will be given a Team number, please use this
number in all team related correspondence and
copy all team members on all emails.
15
Peer Evaluation
• My Challenge
– Need a method to create a distribution of grades
across the class that reflects understanding of
course material and contribution
• Option 1 – Peer assessment
• Option 2 – Individual Test or Assignment
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How have companies (large and
small) historically developed new
products and services?
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Prior to ~ 2000
Waterfall Development
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Stage GateTM Process
• Robert Cooper, a Professor from McMaster’s
Degroote Business School, is credited with
developing two key concepts that are used by
thousands of companies around the world
over the last 20 years
• A Stage-Gate ProcessTM
– “Doing the projects right”
• Portfolio Management
– “Doing the right projects”
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Stage GateTM Process
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The Reality is…
• Despite defined development processes, most
new product launches fail!
• Can be catastrophic if you are a startup
• Can be equally devastating to large successful
companies (share price can plummet, can lose
market share, etc.)
• Why? Two main reasons…
• Let’s look at two phones Samsung launched in
2009
21
Customer Reaction to E Ink
Samsung Alias 2
Released May 2009
https://www.youtube.com/watch?v=6f0Rkkp7cxQ
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Customer Reaction to E ink
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Reaction to a Different Phone
Samsung Rogue
Released Sept. 2009
https://www.youtube.com/watch?v=UbMp8aWwtLA
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Reaction to a Different Phone
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Why Do Companies Fail at
Delivering New Products?
1. They don’t know who their customers are
2. They fail to deliver customers something
they actually want
Let’s look at some high-profile failures at
fortune 500 companies…
26
Some Massive Product Failures
Ranking
Product
Company
Year
1
Edsel
Ford
1957
2
Touchpad
Hewlett Packard
2011
3
Crystal Pepsi
Pepsi
1986
4
Clairol Touch of Yogurt
Shampoo
Proctor and Gamble
1979
5
Coors Rocky Mountain
Sparkling Water
Coors
1990
6
WOW Chips
Pepsico
1998
7
New Coke
Coca Cola
1985
8
Zune MP3 Player
Microsoft
2006
9
Newton Message Pad
Apple
1993
10
Arch Deluxe
McDonald’s
1996
http://247wallst.com/special-report/2014/03/03/worst-product-flops-of-all-time
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Edsel (Ford)
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HP Touchpad
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Crystal Pepsi
30
Clairol Touch of Yogurt Shampoo
31
Coors Rocky Mountain
Sparkling Water
32
Wow Chips
33
New Coke
34
Zune
35
Newton MessagePad
36
Arch Deluxe!
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So how do we avoid epic failures?
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The Lean Startup
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Definition of a Startup
“A startup is a human institution
designed to deliver a new product or
service under conditions of extreme
uncertainty” - Eric Ries
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The Startup
• Startups exist in companies of all sizes
• The challenge is that they often don’t know
who their customer is or what their product
should be
• Traditional management methods can lead to
failure
• A “just do it” approach does not lend itself to
greater probability of success
41
The Basic Principles
• The lean startup method argues that the
success of a “startup” can be engineered by
using a rigorous scientific method
• Methodology is broken down into five core
principles
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Core Principles of the Lean Startup
•
•
•
•
•
Entrepreneurs are everywhere
Entrepreneurship is Management
Validated Learning
Innovation Accounting
Build – Measure - Learn
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Entrepreneurs are Everywhere
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Entrepreneurship is Management
• The traditional method for product
development is to execute on a detailed plan
based on a series of assumptions
• The Lean Startup Method advocates that the
project team makes continuous adjustments
through executing “Build, Measure, Learn”
feedback loops
• Consider Intuit and Turbotax with change
from software you purchase to online solution
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Validated Learning
• “Demonstrating empirically that a team has
discovered valuable truths about a startup’s
present and future business prospects” – Eric
Ries
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IMVU Example
• Eric Ries was the CTO of IMVU, a company
trying to enter the instant messaging (IM)
market in 2004
• Created an add on IM product that
incorporated Avatars with people’s existing IM
platforms to communicate with their friends
• Spent millions on development and the end
result was – nobody downloaded the product
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IMVU
• After a colossal failure, they brought in
customers to trial the product
• Got nowhere with mainstream customers –
thought the product was too weird
• But teenagers and early tech adopters loved it
until…
• They were told they were supposed to invite
their friends to join them and download it as
well!
48
IMVU
• Out of total desperation they added a feature
called “Chat Now” that randomly connected you
with someone somewhere else in the world who
simply pressed the button at the same time…
• And people loved it. It turns out they wanted to
use the avatar technology to make new friends
on a new IM platform, not to communicate with
existing friends on other platforms.
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Build-Measure-Learn
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MVP
• "The minimum viable product is that version
of a new product which allows a team to
collect the maximum amount of validated
learning about customers with the least
effort” – Eric Ries
• It allows you to put your product in the hands
of early adopters and test your value
hypothesis
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Early Adopters
• A subset of your
potential customers
who are generally
forgiving, will provide
critical feedback,
understand your
vision, and who like
to be first
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Early Adopters
• Ideal for testing your vision (they can be as
visionary as you are)
• Not asking them what they think they want,
showing them a concrete example or
prototype (MVP) and get their feedback
• Are they willing to pay? Is there a real
problem that needs to be solved?
• Will give you critical feedback
53
Innovation Accounting
• Three Learning Milestones:
– Use an MVP to baseline where you are at
right now
– “Tune the engine” by executing the build,
measure, learn loop
– Pivot or persevere
• Important to measure the right thing, not
“vanity metrics”
54
Pivot
• Traditional definition of a Pivot – “Place one foot
firmly on the ground and change direction”
• Lean Startup – “A structured course correction
designed to test a fundamental hypothesis about
the new product, strategy and engine of growth”
• Measure runway in terms of number of pivots
remaining , not number of months or dollars in
the bank, so the key is to learn how to get
through design test learn loop faster.
55
Steeped Tea – A Great Pivot
• A Hamilton Success Story
• Started in 2006 when Tonia
Jahshan and her husband
travelled to the east coast,
sampled an amazing loose
leaf tea at a B&B, then
went on to build a multimillion dollar business
• But it didn’t start easily….
56
Steeped Tea
• Partnered with David Chilton and Jim Treliving
from Dragon’s Den
• Ranked #17 on Profit 500’s list of fastest
growing companies in 2015
• Employ more than 9000 entrepreneurs in
Canada and expanding into US
• Tonia Jahshan named Canada’s top female
entrepreneur in 2016
57
Summary
• Stage-GateTM product development processes
can work well in established companies
launching products to existing customers (but
can still fail)
• The Lean Startup Method is rapidly increasing
in popularity in companies large and small
that uses a rigorous method to test the
hypothesis that you are building a product
customers actually want.
58
Business Model Generation
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Business Models
• In today’s economy the business model itself
can be as important as the new product or
service
• Many new businesses find their success in a
new business model such as Amazon.com,
and even locally, Steeped Tea (now Sipology).
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How do you create new
business models?
Alex Osterwalder
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Nespresso
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Definition of a Business Model
“A business model describes the rationale of
how an organization creates, delivers and
captures value” - from Business Model Generation, Alex
Osterwalder and Yves Pigneur
63
Business Model Canvas
• A Business Model Canvas is a visual tool that
helps you create or think through the business
model for your company, your competitor or
virtually any enterprise
• Divided into 9 key “blocks” that cover the four
key areas of:
–
–
–
–
Your customers
What you offer
Infrastructure
Financial viability
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9 Building Blocks
•
•
•
•
•
•
•
•
•
Customer Segments
Value Propositions
Channels
Customer Relationships
Revenue Streams
Key Resources
Key Activities
Key Partnerships
Cost structure
65
Customer Segments
• Defines the groups of people or organizations the
company aims to serve – for whom are we creating
value?
• Different segments if:
– Their needs require (and justify) a distinct offering they
are willing to pay for
– Reached through different Distribution Channels
– Require different kinds of Customer Relationships
• Examples of customer segments include mass
market, niche market, segmented, multi-sided etc.
66
Value Proposition
• Describes the combination of products and/or
services that create value for a specific
customer segment- what problem are you
solving and what is your solution?
• Value proposition may include newness of
features, improved performance,
customization, lower price, design, brand,
accessibility, risk reduction, etc.
• Can be multi-sided
67
Channels
• How the company reaches its customers to
deliver its value proposition
• Includes phases (awareness, evaluation,
purchase, delivery, after sales support)
• Types include direct (eg. sales force, web
sales) or indirect (own stores, partner stores,
wholesaler etc.)
• B2B, B2C
68
Customer Relationships
• The relationship a business creates with a
specific customer segment
• Customer acquisition
• Customer retention
• Examples of customer relationships include
personal assistance, self or automated service,
communities of uses, co-value creation
(amazon, youtube, airbnb)
69
Revenue Streams
• How a company generates cash from a specific
customer segment
• Generally two main types
– One-time transaction for the good or service
– Recurring revenue for continued service or
customer support
• Revenue streams may include product sale,
usage fees, subscription fee, renting/leasing,
licensing, advertising etc.
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Key Resources
• The most important assets needed to make
the business model work
• Physical
• Intellectual Property
• Human
• Financial Resources
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Key Activities
• Describes the most important things a
company must do to execute on and make its
business model work. Examples include:
– Design
– Production
– Problem Solving
– Building/Maintaining a platform or network
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Key Partnerships
• The key partners and suppliers that make your
business model work
• Types of partnerships may include
–
–
–
–
Strategic Alliances between non-competitors
Co-operation between competitors
Joint ventures (often to create new businesses)
Buyer/Supplier relationships
• Motivation for building partnerships can include
things like economies of scale, risk reduction,
acquisition of particular skills etc.
73
Cost Structure
• The cost structure block describes costs
associated with executing the business model
• Two main types of business models
– Cost driven
– Value driven
– Many business models fall somewhere in between
• All businesses should drive to reduce costs, but it
is much more critical for cost-driven business
models than value-driven models
• Costs structure can depend on fixed costs,
variable costs, economies of scale, etc.
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The Business Model Canvas
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Example - Tesla
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Key Partners
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Key Activities
• Design and build key electronics components
of electric vehicle
• Sell directly to customers around the world
• Manage service centres
• Build and operate Gigafactory in collaboration
with Panasonic to bring battery manufacturing
under one roof
• Manufacture and cell solar modules and
systems
78
Key Resources
• Top tier Senior Management Team led by Elon
Musk (?!)
• Located in Silicon Valley to access top
engineering talent (should be in SW Ontario…)
• R&D and manufacturing capability
• Intellectual Property?
79
Value Proposition
• Initially high-end sports and luxury vehicles
with the highest level of safety and
environmental friendliness
• Vision is now electric vehicles for mainstream
market with Model 3
• Longest driving range of an electric vehicle
(>200 miles)
• Home battery storage for renewable energy
80
Customer Relationships
• Setting up charging stations across the world
• Seamless software update for recalls
• Improved dealer experience
81
Channels
• Direct sales through Tesla owned stores
around the world
• Online purchases
• Challenges?
82
Customer Segments
• Current customers are high-end
environmentally conscious customers (niche)
• Targeting mainstream customers as costs
come down (mass market)
• Also planning to sell battery solutions to
homeowners for domestic use
• Others?
83
Cost Structure
• Manufacturing costs for electric vehicles
• Government subsidies for plant and vehicle
purchasers
• Batteries are significant cost
• Cost of setting up dealerships
84
Revenue Streams
• Sale of electric vehicles
• Licensing of powertrain design to other
electric vehicle manufacturers
• Sale of Powerwall product
• Others?
85
Pick a Company and Create
their Business Model Canvas
86
The Business Model Canvas
87
Other types of Business Models
• Freemium
– Skype, Linked In
• “Bait and Hook”
– Mobile Phones, Ipod/Itunes, Razors
• Open source
– Red Hat
• Others?
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Questions?
89