Lecture 1.5B: Business Models and Customer Development

Despite sharing a name, 1.5B is a very different lecture from 1.5A. I’d say it talks mostly about how we think we know things but we don’t and how we can improve our guesses.

There are many subjects covered quickly, so I’ll dive right in…

Guesses

Physicists
Physicists

According to Steve, when we first enter a new business domain we know much less about it than we think. To deal with this, Steve suggests a system I like to call “The Weak Scientific Method”:

Unscientific
Unscientific

“The Weak Scientific Method” is the idea of iteratively ① making guesses, and ② testing them with experiments until you reach the truth*.

I’ve recently read an excellent fiction story which gives a very good treatment of this. Get a digital copy for free at hpmor.com. If you don’t know a lot about the “weak” and “strong” variants of the scientific method, you’ll learn and it will be worth your while. If you do, you’ll enjoy the story very much.

An interesting point Steve makes is that to fully benefit from this method, you must make your experiments yourself. Send someone else to do them and they’ll learn – but they are not the startup, you are the startup.

* As opposed to the “Strong” Scientific Method which scholars use to research very hard questions, which is essentially the same but adding the ideas of rigor and repeatability, to help protect from mistakes that have a higher chance of happening before you reach the truth the harder a truth is to reach.

The Process of Customer Development

“A pivot is a substantive change to one or more business model components. An iteration is a minor change…”

Which is to say, you will be making substantive changes to your business model. Get used to the idea, don’t get too attached to your ideas of how a new business should be conducted.
Everyone with experience is saying this, so I figure it must be true.

So what will you do between these pivots? Try to figure out if you have customers. How? By trying to sell. And don’t compromise for less than people scrambling to give you their money, because a story that ends exceptionally well probably starts exceptionally well too, and pivoting is easier the sooner it happens.

Then we get some common sense – use Fermi Calculations to figure out your potential profit, beware of common falacies.

And to close it off, an example of a Lean Launchpad team’s work – to nudge us gently towards the real work: Now that we have our first hypotheses (in the canvas we built after 1.5A) we should actually go out of the building and test them. Alright, got it, I’m on this. Talk to you when I’m back.

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