Ch 1: Problem/Solution Fit

A problem worth solving boils down to three questions:

• Is it something customers want? (must-have)
• Can it be solved? (feasible)
• Will they pay for it? If not, who will? (viable)

The primary technique is to do the smallest thing possible to learn from customers. This process is captured in the ‘Customer Discovery’ process:

• Document plan A (multiple lean canvases)
• Get ready to interview customers
• Do the problem interview to understand the problem
• Conduct a solution interview to determine if you have a problem worth solving

Ch 2: Create Lean Canvas (Document Plan A)

First step is to brainstorm possible customers for your potential product/problem.

• Distinguish between customers and users (a customer is someone who pays)
• Split broad customer segments into smaller ones (you can’t build a product for everyone)
• Sketch a Lean Canvas for each customer segment (start with the top 2-3 you understand best or find most promising)

Next step is to sketch a Lean Canvas. There are a few rules to this process:

• Sketch a canvas in one sitting
• It’s ok to leave sections blank (focus is on rapid brainstorming)
• Think in the present, with a ‘getting things done’ attitude
• Use a customer-centric approach by completing the problem/customer pair of the Lean Canvas first

For the problem/customer segments, use this process:

• List top 3 problems for the customer segment
• List existing alternatives - how do your early adopters address these problems today?
• Identify other user roles that will interact with this customer segment
• Hone in on possible early adopters - define the distinguishing characteristics

The next step of the Lean Canvas is defining your Unique Value Proposition. A UVP is a single, clear compelling message that states why you are different and worth buying. Your UVP needs to be different and that difference needs to matter.

• Be different, but make sure your difference matters. Your UVP should derive directly from the #1 problem you are solving.
• Target early adopters - use bold, clear, and specific messaging.
• Focus on finished story benefits - your UVP should get inside the head of your customers and focus on the benefits your customers derive after using your product
• Pick your words carefully and own them - use a few KEY words
• Answer what, who, and why - the first two are your product and customer, the why is like a tag line for why your customers should use your product.
• Study other good UVPs - use the brands you admire, visit their landing pages and deconstruct why their messaging works
• Create a high-concept pitch - use familiar concepts to quickly get an idea across and make it easily spreadable. Ex - YouTube is Flickr for video

Next, you tackle solution possibilities. Don’t get carried away with fully defining a solution yet - just sketch out the top features or capabilities next to each problem. Bind a solution to your problem as late as possible.

Then, you define your channels. In addition to defining the right product to build, it’s just as critical to start finding, building, and testing a significant path to your customers from day one. There are many different potential channels, not all of which are appropriate at your early stage:

• Free-“er” vs Paid - even ‘free’ channels (SEO, social media, etc…) aren’t really free. Paid channels like SEM are often too expensive for early validation. Both channels are better after product/market fit
• Inbound vs Outbound - when you haven’t tested a value proposition, it’s difficult to justify spending $$ on outbound. Don’t seek PR (getting crunched) before then
• Direct vs Automated - early on, direct is good b/c you interact face to face w/ customer, but doesn’t make sense long term unless the aggregate lifetime value of customers exceeds total compensation of salespeople
• Direct vs. Indirect (partnerships, hiring salespeople) - again, doing anything indirect before you have a proven product is a waste
• Retention vs. Referral (i.e. virality or referral/affiliate programs) - it is a waste to spread the word about a product before you have a product worth spreading first

The ideal early channel is content marketing. With this, you incrementally test various aspects of your Problem/Solution using inbound channels like blogs, white papers, and webinars.

Next, determine revenue streams and cost structure. Unless you are already funded, you shouldn’t delay testing this extremely critical part of your business model. Your price is a part of your product, and it determines your customers, and signals your branding and positioning. Early on, the best pricing is a single Free Trial pricing plan.

• Single price plan - start with one price because you don’t have enough information to correctly segment into multiple plans
• Free trial - allows you to time box your pricing experiments so you can force a conversion decision, which allows you to learn and iterate faster
• Picking a price - easiest way is to price based on existing alternatives and position your price against them
• Considering your costs - ultimate goal is finding a scalable business model, and while it is hard to accurate determine customer acquisition costs and customer LTV, a good rule of thumb is to make sure the LTV of a customer exceeds cost of acquisition by at least a factor of 3

What about Freemium? It is more of a marketing tactic than a business model, and Freemium delays pricing testing (and learning). While it can be a successful model, you shouldn’t start with it.

Next is key metrics. There are lots of metrics you COULD track, but there are only a handful that really matter. For the Lean Canvas just document the one or two key activities you think will drive usage of your product.

• Acquisition - how do users find you? this is the point when you turn an unaware visitor into an interested prospect (i.e. signup or viewing a signup page)
• Activation - do users have a great first experience? once you acquire someone, get them to the point where you can connect the prospect you made on your landing page (UVP) with your product
• Retention - do users come back? repeat sales, continual use of software, etc…
• Revenue - how do you make money? the events that get you paid
• Referral - do users tell others? advanced form of user acquisition where your happy customers refer or drive potential prospects into your conversion funnel

Last is the Unfair Advantage. A real unfair advantage is something that cannot be easily copied or bought. You may have to leave this section blank, but you should think about how you can make yourself different and make your difference matter. Examples include insider information, the right “expert” endorsements, and personal authority.

How do you prioritize where to start? Your objective is to find a big enough market you can reach with customers who need your product that will pay a price you can build a business around. Lay your Lean Canvases sketched for each customer segment side by side and weight them according to certain characteristics (ranked from highest to lowest):

• Customer pain level - which segments need your product the most?
• Ease of reach - what is the easier path to a segment of customers?
• Price - what can you change for your product? Pick a segment that allows you to maximize on price
• Market size - pick a segment that represents a big enough market or a stepping stone to a big enough market

Create your Lean Canvas as soon as possible. The important thing is that you get it down and you share it with at least one other person when you are done.