Launching Tech Ventures: Part I, Course Overview

This is the first of four posts about Launching Technology Ventures (LTV), a new MBA elective course I'm developing at Harvard Business School to explore lean startup management practices. Part II will describe LTV's class sessions. Part III will list a set of tools and techniques that I think any MBA working in a tech venture should master. Part IV lists recommended readings for the course.

[Addendum, Apr. 10, 2011: if you are interested in lean startup concepts, you should also check out the LTV course blog. Students write blog posts instead of taking an exam. They've done terrific work.]

Most startups fail — usually due to lack of customer demand, not product development problems. These new ventures burn through their capital, wasting money on engineering and marketing before discovering they have built a product no one wants. Startups are more likely to succeed when they rapidly and iteratively test assumptions about a new venture’s business model based on customer feedback, then quickly refine promising concepts and ruthlessly cull the flops. New ventures that follow this approach are lean startups. “Lean” invokes the image of bootstrapping entrepreneurs, sustained by ramen noodles and a dream. Some lean startups fit that image. However, the term “lean” is derived from Toyota’s management philosophy. Toyota uses short production cycles to reduce inventory and eliminate waste. Lean startups similarly rely on short product development cycles to eliminate waste and gain rapid market feedback.

Lean startup practices are being pursued by firms in Silicon Valley and beyond. These practices have gained special traction in the information technology sector, where rapid “build/measure/learn” cycles are facilitated by the availability of open source engineering tools and Internet marketing channels. However, lean practices can also be applied by startups in other sectors and by large corporations launching new products.       

Launching Technology Ventures uses case studies to examine lean startup practices. LTV focuses on the integration of marketing and engineering functions and emphasizes implementation rather than strategy formulation issues. The course does not examine financing options or the composition of founding teams. LTV draws heavily on the ideas of Eric Ries, Steve Blank, Marty Cagan and other practitioners. Ries coined the term “lean startup” when he connected ideas from lean manufacturing and agile software development to Blank’s customer development process.  

Course Structure and Key Concepts

LTV is organized into two modules that explore execution challenges before and after a startup achieves product-market fit,  i.e., a match between its product solution and market needs.

The first module about challenges prior to achieving product-market fit covers the following core concepts:

• The importance of well-structured experiments to confirm or disprove hypotheses about uncertain business model elements, thereby securing what Ries calls validated learning.
• The benefits of what Ries calls a minimum viable product (MVP), i.e., the smallest set of product features and business initiatives needed to secure the next round of validated learning. MVPs can be counter-intuitive for managers and entrepreneurs, who often see fully-featured products as being better. However, building more features than necessary risks wasting time on functionality no one wants. It also compromises experimental designs, because it can be difficult to determine why a customer rejected a new version that incorporates many simultaneous changes.
• The value of rapidly iterating the MVP based on customer feedback obtained through interviews, focus groups, usability tests, customer support interactions, etc.
• Pivoting, i.e., changing a startup’s business model based on validated learning. When they pivot, startups retain some elements of their prior model to avoid waste. Lean startups may make many small pivots or a few big ones.
• The need for metrics to gauge whether business model hypotheses have been validated, e.g., viral coefficients, customer retention rates.
• The benefits of bootstrapping and avoiding big investments in marketing and infrastructure until business model hypotheses are validated.

In the first module, in addition to covering these core concepts, we’ll consider several issues of practical concern to marketing and product managers in early stage companies, for example:

• When should a startup outsource engineering work?
• How do firms design products for virality?
• In a B2B context, how can an unknown startup with an unproven product identify potential early adopters and craft an effective sales pitch for them?
• When does a “do-it-yourself” approach to public relations make sense, and how long should startups wait before they aggressively invest in PR?

The second module addresses challenges when scaling a business after achieving product-market fit. Topics include:

• Approaches to customer conversion funnel analysis and optimization, e.g., usability labs, A/B testing.
• Metrics for scaling startups, e.g., Net Promoter Score, Lifetime Value of a Customer.
• Challenges in scaling a direct sales force; processes for prioritizing sales leads.
• Tradeoffs for startups relying on business development partnerships with large companies.
• Why, when and how startups should introduce formal product management processes, e.g., project prioritization and tracking systems, product roadmaps.

Boundaries

In addition to the issues described above, LTV will consider whether lean startup principles apply in three special contexts:

• Platform-Based Businesses. "Do not scale until you validate your business model" is a core principle for lean startups. But does this make sense for platform-based businesses that harness strong network effects, such as Facebook, YouTube, and Twitter? All these firms scaled aggressively before they had proven business models; they subsequently relied on ecosystem partners to experiment with ways to monetize their big platforms.
• Science-Based Businesses. For a class of capital- and/or science-intensive ventures—e.g., biotech, clean tech—the rapid iteration that is central for lean startups may not be a practical option. For such products, development and/or deployment inherently takes a long time due to fundamental uncertainty about engineering approaches or delays in deploying production capacity.
• Large Corporations. Big companies have deep pockets and ample resources; that is their principal advantage over nimble startups. So, why should big companies constrain themselves unnaturally by running lean?

I'm eager to get feedback on the concepts covered in my course. What seems off target or missing?

DON’T BREAK YOUR NEW YEAR RESOLUTION THIS YEAR

It’s time again to make New Year resolutions, make new promises, set new targets and make new plans. For most of us, it’s also a time to “wish-I-haddone-more”, wish I had planned better, worked harder, quit smoking, kept my new year resolution of 2010! This new year would also be the same as last year, if we do not start thinking differently. The last decade proved that in business, as in personal life, those brands and people who reinvented, stayed in business. You need to be alert and look out for new trends; but more than that, you need to be more aggressive in observing what’s not working and then changing it fast. Being in love with your old ways (however successful they were in the past) can be disastrous.

OLD NEED NOT BE GOLD

If you want to raise a happy child, the rule is, “Till he is five years old, treat him like a king. Till he is 13, treat him like a prince. From 13 to 18, treat him like a pauper. After 18, become his best friend.” The crux is that good parents change their ways as their children grow. Good marketers too change their strategies as markets and times change.

What worked this decade will be outdated in the new one. In the 1970s, the hottest marketing invention was the ‘Direct Mailer’. It is known as ‘Junk Mail’ today. The 1980s was dominated by “collect tokens; and exchange for gifts.” You were encouraged to collect bottle caps, tokens, labels and encouraged to exchange them for gifts, discounts etc. Today, you log on to Groupon.com or snapdeal.com and find out exciting discount offers of the day. After all, who has the patience today to wait and collect a desired number of tokens and then get the discounts. The 1990s saw the explosion of ‘Loyalty Cards’. Every retailer had a loyalty programme, which promised discounts and freebies. Today, the consumer is not motivated by just discounts. He wants more. He wants to take charge – and Smirnoff showed him how. It launched a campaign named “Be There”. You were invited to a nightclub, but there was more it. Loyal consumers even got a chance to plan which music they wanted to hear and everything else they wanted to do that night via Smirnoff’s Facebook page. Today, those are the Fan Pages on Facebook that do more business for a brand, than loyalty cards do.

The new decade is all about ‘interactivity’. On December 14, 2010, Apple launched its first iAd for the iPad with the advertisement of Disney’s new film Tron Legacy. The advertisement featured 10 minutes of video and movie stills. Ipad had a movie theater locator with showtimings and a preview of the sound track, which you, as a privileged user, had the option of purchasing from iTunes. With the iPad becoming the “it” thing for gifting this holiday season, and with already more than 7.5 million iPad users worldwide, advertising professionals would soon have to reinvent and start thinking beyond the 30 or 60 second spots on TV, for those are the interactive advertisements that will be the next new exciting trend of the coming years.

All that you learnt about marketing in school is going to change totally. So be ready to give up your favourite ideas and start adopting new ones.

INNOVATION IS NOT GOOD SOMETIMES

A great leader, like a great parent, changes and moulds his ways first. More importantly, a good leader never fails to accept his mistakes. It helps him to remove the shackles, free himself from the burden of his faults and move faster.

On April 10 this year, Microsoft launched its social networking phones Kin1 and Kin2. Exactly 79 days later, on June 30, 2010, it killed the products. A record! No other products till date had had such a short lifespan. To survive, you need to innovate; but to sustain success, you need to quickly kill innovations that went wrong. Sometimes, there is no second chance for flops. Intelligent marketers know that. ESPN launched its mobile phones in 2006 with the idea of offering exclusive ESPN content. No one bought either the product or the idea. ESPN withdrew the concept within eight months. HD DVD was supposed to be the next big thing after the traditional DVD. However, Blu–ray of Sony took away the cake and the Toshiba led HD DVD disappeared from the forefront within two years.

In their haste to outperform their competitors, sometimes apparently great sounding innovations fail to perform. An intelligent marketer should not hesitate to accept defeat, drop the idea and move on. It’s more cost effective that way, than trying to pump in more money in marketing a flop idea. Sometimes, it is argued that marketing kills the spirit of innovation. A dead idea, with excellent marketing can extend the life of that idea. We need to watch out for such ideas and kill them at the right time. Microsoft launched Zune in 2006, to compete with the iPod. It came nowhere close. Even today, Zune is struggling. Time you gave up the fight Bill Gates and dropped it. After all, when it comes to innovation, the one man, the one company that defeats all by miles is Steve Jobs and Apple. The 1990s saw Apple losing out to competitors and almost fading away; but the last decade belonged to Steve Jobs. Jobs has set new benchmarks, created and started new trends and changed marketers and consumers forever.

REINVENT & REJOICE

The key to successful reinvention is consistent investment and focus on innovation. The one company that dared to challenge and even defeat the biggies is Samsung. Whoever thought that this Korean company could defeat Japanese electronic giants – but Samsung did just that. Consistent investment in innovation has helped it beat giants like Sony; and now, Apple too is feeling threatened by it.

It is innovation that has transformed HP from an under performing printer-reliant giant to the world’s largest tech company. Huawei Technologies managed to become the #2 telecom-equipment provider and to beat big competitors like Nokia Siemens through constant product updates. The biggest innovator of the decade award definitely goes to Facebook. It is gobbling up competitors and making the whole world its consumer. By constantly innovating, it’s ensured that no one will come even remotely close to it.

Success makes us comfortable. No matter how impressive, we cannot rest on past laurels. The key is to identify when a successful idea has reached its full potential and is ready to be discarded or reinvented or rejuvenated. Leaders who reinvent themselves are the ones who reinvent their companies too. IBM was famous for its big mainframe computing systems. Today, the company has a large services component, responsible for its growth and profitability.

The decade started with the burst of the dot-com bubble in the year 2000. Thousands and thousands lost all their money, hundreds of companies closed down. Then in 2004, Tim O’Reilly and John Batelle held the first Web 2.0 conference and shocased to the world the immense benefits of “the web as a platform.” This resulted in a plethora of social media sites being created, which changed our world forever. The internet was reinvented and rejuvenated. Like never before. Today, it’s the internet & the social networking sites that are turning our world around.

Failures are a part of life and the strong reinvent and take failures in their stride. However, the players who leave the maximum impact are the ones who don’t take success for granted. They genuinely believe that it is only constant change that will give them sustained success.

It’s time to reinvent as the New Year approaches. It’s time to think deep, to really feel the urge to live your life. So, all that you have wanted to do but never did – go ahead, do it! Start with yourself; give up one bad habit. Stop smoking, give up on junk food, eat less and reinvent yourself. You deserve it. As you start reinventing yourself, you will not hesitate to reinvent your team, your leadership style, your marketing campaign and your brand.

Let’s end the New Year in truly believing in the power of reinvention, for that will help us to keep our New Year resolutions.

YOU DON’T KNOCK. YOU JUST WALK ON IN!

Yes, it’s too time consuming to wait to be let in. If you want to create an impact, you have to be quick. You have to be aggressive. You don’t knock. You just walk on in! In marketing too, a lot of brands have done it by catching our attention and our imaginations and walking right into our lives.

In fact, when you do so, it doesn’t matter whether you are big or small, old or new. What matters is how aggressive you are. If you put your energies in the right direction, even the mighty will crumble in front of you.

DARE TO DO THE NEW

The person topping the list of “Dares” seems to be Julian Assange, the founder of WikiLeaks, who is spilling the beans on the Pentagon, the Government, and even on corporations. He has shown what “being bold” can do. A single man who has dared to take on the Goliaths, much like some brands, the Davids, who took on themighty Goliaths and defeated them.

A new player in the telecommunications sector, this brand has shaken the old players. Its advertising campaign said it all. “Do the new and the world will follow, like other mobile networks did, or at least tried to. 1 paisa per second. Across India. Any network. No special packs. For life. Do the new.” Tata Docomo changed the rules of the game with its innovative pricing strategy. Another new entrant created waves in the Indian markets. Yes, it’s always been bold, been different and even irreverent, and that’s what makes consumers love it so much. Virgin entered the Indian shores with its Virgin mobile with STD rates @ 20 paise/min, and started the “Indian Panga League”. A series of telephonic conversations between fans of IPL teams. Eight passionate IPL fans from eight different states fighting all day long over STD calls. The tongue-in-cheek humour was a first of its kind to be seen on Indian shores. It was daring, delighted the fans and even dared to challenge the biggies in the business. Much like its founder Richard Branson who has always challenged the norms and the big players and managed to snatch his piece of the market share pie from them.

A clear favourite of the customers and with a market share of around 80%, Hero Honda stands way ahead of its competitors. Yet, this small player used a creative strategy to challenge the Goliath. Bajaj knew the best way was to target ‘mileage’, something that Indians value the most. Hero Honda had become famous because of its “Fill it. Shut it. Forget it.” campaign, which showed consumers how fuel efficient its bikes were. Bajaj did the same. Its “Discover India with the power of 1 litre” campaign highlighted the Discover bike’s super mileage power in an extremely interesting manner. The travellers on a Bajaj bike discovered amazing places like Mattur, near Manglore, where people still speak Sanskrit, places like the Magnetic Hill near Ladhak, which has magnetic properties strong enough to pull bikes uphill. The ads truly helped us discover India and helped the company discover new markets. The challenger ads helped Discover surpass its monthly target of 30,000 bikes, as sales touched 75,000! It sure made a big dent in the leader’s market share.

Just a good product will not solve your problems. You need to aggressively market it and many times you need to take on competitors headlong, challenge them and shake them up, so that the consumers notice you.

FIGHT FOR THE NO.1 SPOT

It’s not easy to reach the No.1 spot; you need to fight hard, and sometimes even snatch that spot, like Rin did. It came out with advertisements which clearly mentioned it was superior. The ads stated, “Tide se kahin behatar safedi de Rin”. Of course, Tide filed a case and Rin got into a controversy; but it helped generate a buzz – which is most important. Audi joined the top league when it came out with the advertisement which mentioned, “Audi is growing faster than BMW, Lexus & Mercedes.” Now, whether it was actually growing faster or not, did not bother the consumer much. However, it changed people’s perceptions about the car. Now, they clubbed it along with BMW and Mercedes. Audi jumped the rungs and established itself as the premium brand. Yes, sales increased too.

Sometimes, the fight for the top spot is taken public, consumers love it, and it never fails to grab eyeballs. Coke and Pepsi have been doing it for years. Apple and its humorous takes on Microsoft defined its brand personality and brand image as uber cool in comparison to the fuddy duddy one that competitor Microsoft had.

FIGHT NOT JUST FOR NO.1 BUT THE NO.2 SPOT TOO

With the marketplace getting so cluttered for the No.2 was neglected. Of course, not always. Some very intelligent marketers knew that when there is no space at the top, it pays to be clearly labelled as No.2, for that makes people notice you. Avis did that years ago. Hertz was the leader and had the maximum awareness when it came to car rentals. So, Avis brought out its iconic ad, “We are number 2, that’s why we try harder.” Everyone knew who was No.1, but now for the first time a new slot was defined. So, if for some reason, a consumer could not get Hertz, he knew whom to call next. Avis carved a niche for itself, and did brisk business for now the consumer knew, maybe not No.1, but Avis was as good, and definitely better than hoards of others.

Hindustan Times (HT) seems to be doing the same in Mumbai. Its ads claim that “Hindustan Times beats DNA to become No.2 in Mumbai.” The beginning of this month saw HT advertising how it was now very close to the market leader, The Times of India, with a readership of 5.92 lakhs, a lead of 17,000 over DNA.

Sometimes, it pays to play the second fiddle. Miller High Life has always positioned itself as the “good” beer, providing “good” value for money. Miller Coors is America’s second largest company and it decided to take the second position seriously. In 2009, when the market leaders were paying $3 million for 30 seconds of airtime during the Super Bowl, Miller said it was No.2 and did not believe in spending so much and thought a “one-second ad” during the Super Bowl Sunday was enough to make its point. So, days before the Super Bowl, it started its 30 second teasers, promoting its 1-second-ad that it would air on Super Bowl Sunday, for its commonsense philosophy could be conveyed in just one second. The No.2, with a tiny ad budget drew more attention than the big spenders.

CALLING YOURSELF NO.2 ALWAYS WORKS – WE ALL LOVE THE UNDERDOGS!

If you are sure about your product and your philosophy, you can tackle not one, not two, but many competitors at one go – much like our Bollywood heroes who cansingle-handedly fight all the bad guys and emerge victorious. That’s exactly what Brita water filter system did. It came out with ads which claimed that tap water in developed countries was excellent and there was no need to spend money on bottled water and increase pollution, for 16 million gallons of oil were consumed to make plastic water bottles – which could be totally avoided by using the reusable Brita water filter bottles. It asked you to drink responsibly and avoid buying bottled water in plastic bottles. Tap water was as good after all!

It takes vision and guts to speak out against the leader. But if you have a better product, it’s best to just bulldoze your way into the minds of the consumer with an aggressive marketing campaign. It works! Don’t knock ! Just barge in!