Ideation is the process of developing the foundation of a business as part of a continuous innovation framework. Using lean startup principles, this means determining the feasibility, desirability, and viability of new products. This post highlights five areas of ideation that are based on the underlying foundation of lean startup principles.
The way products are built today has fundamentally changed. Before beginning the ideation process, entrepreneurs need to embrace several fundamental mindset shifts by understanding the objective is not to simply build more products and services but determine precisely what to build.
Investors today don’t value intellectual property, but customer and market traction. This is an indication that customers care about your idea, and more importantly, traction is early evidence of a business model. They are not looking for solutions that work, but business models that work. The business model, not the ‘entrepreneur’s solution, is the real product.
Successful entrepreneurs build compelling offers piece-by-piece by first understanding their customers, their problems, and the existing alternatives. Once ‘that’s completed, defining a solution becomes much more manageable.
They are looking for a problem/solution fit, and to do this, they build a minimum viable product (MVP). MVP is the smallest solution that creates, delivers, and captures value. This avoids spending needless time, money, and effort building a product they hope customers will buy with one that they know customers will buy.
These are five important steps in the ideation process.
1. Pitching your idea
Pitching is an essential skill all entrepreneurs need to learn, and you should begin by crafting a compelling elevator speech.
You need to pitch your idea to get others to see what we see, to buy into your world view, join your mission, and invest with time, money, and/or effort. You also pitch to acquire customers, co-founders, and advisors.
You need the elevator pitch in case you ever find yourself in an elevator with an investor or customer and only have 30 seconds to speak to them about your idea or product.
There will likely be many opportunities for the elevator pitch in many different forums, such as networking events, conferences, social gatherings, etc. After you make your pitch, it’s essential to ask for feedback. Ask everyone to relay back your idea.
To be effective, elevator pitches need to tell a story. They should be framed in the worldview of the people your pitching to, whether they are entrepreneurs, customers, or investors.
“Worldview” can be understood as the set of rules, values, beliefs, and biases people bring to a situation.
So, you need to understand who you are pitching in order to know what to pitch. Then you need to answer all of their worldview questions in your pitch.
2. Lean Canvas
Lean Canvas is a 1-page business plan template that helps you deconstruct your idea into its key assumptions. Adapted from Alex Osterwalder’s Business Model Canvas and optimized for Lean Startups, it replaces elaborate business plans with a single page business model.
Traditional business plans are a significant time investment, ‘they’re seldom updated, and typically not read by others. But it is important to document your key hypotheses.
Lean Canvas takes under 20 minutes to create, and it’s possible to outline multiple business models on a canvas in one afternoon.
Creating a Lean Canvas forces you to distill the essence of your product idea. The focused output is invaluable in getting the attention of investors and customers alike.
The single page format makes it easier to share with others, which increases the likelihood that it will be read by more people and more frequently updated.
Most of the boxes in the Lean Canvas are found in traditional business plans. These boxes can be used to tell the story of your idea:
When a 1-page Lean Canvas is shared with someone, they typically read it and have an opinion. The follow-on conversation and feedback can be vital in identifying your riskiest assumptions, which is one of the critical mindsets of the Continuous Innovation Framework.
3. What’s Your Business Model Story?
A business model describes how you create, deliver, and capture value back from your customers.
Customer Value Creation
You create value for your customers by helping them achieve a desired outcome. These desired outcomes are described in the Unique Value Proposition (UVP) box of the Lean Canvas. These are clear statements you make to your customers to get their attention.
Your Unique Value Proposition is derived from the intersection of your problem and your solution. Craft your UVP around your top problem and finished story benefit, or the value a customer derives after using your product.
Customer Value Delivery
You deliver value to your customers through your solution, which customers find through your channels. The cost of value delivery is captured on your cost structure box in Lean Canvas.
Your cost structure box is where you estimate your burn rate or runway for implementing your idea. Use a smaller time window like taking your idea to launch or getting your first ten customers and list your fixed and variable costs for getting there. Then update costs as you progress.
Customer Value Capture
You capture value back from your customers through your revenue streams. For business modeling purposes, it is important to list both your sources of revenue and specific pricing.
You need to be able to articulate a revenue story from day one. Start by identifying the customer in your business model. In direct business models, users and customers are the same people. In more complex models, you can have multiple actors, and the person using the product is often not the same as the person buying.
Next, look for evidence of monetizable pain or money being spent on an existing alternative. Also, time being spent on a problem that could be eliminated with your solution and monetized. Try to place a value on you solving your ‘customer’s problems and use their existing alternatives to anchor their pricing.
Traction is a way to measure a working business model. We do this by looking at business model outcomes for outputs as the measure of a ‘startup’s progress. This is because the one thing that both investors and entrepreneurs care about is growth or traction.
Investors are immediately attracted to startups with a hockey-stick curve that is starting to trend upwards rapidly. They will spend time with you trying to understand your business plan. ‘It’s the best way to get the attention of investors.
The same thing happens when founders are trying to attract co-founders or partners. ‘It’s much easier to convince others to leave their existing jobs when you have evidence of early traction than without it.
Traction is the key metric that supersedes everything else. This is why a traction-first approach is the best way to move an idea forward.
However, ‘it’s not credible to present a metric that happens to be going up and to the right and pass it off as traction. A sophisticated investor will see through such deception immediately. Instead, use a metric that serves as a reliable indicator of business model growth.
A credible definition of traction focuses on leading indicators that can predict future business model growth. Future business model growth comes from past customer actions. This statement aligns logically with the earlier definition of a business model as to how a business creates, delivers, and captures value from customers.
To capture value, you have to first create value. In other words, the right value creation activity causes value capture.
Traction is the rate at which a business captures monetizable value from its customers.
5. The Customer Factory Model
Traction can be understood by visualizing the output of a working business as a factory. No matter the business model, everyone is in the business of creating customers.
Step 1 Acquisition, or getting people inside your factory by acquiring customers. The factory represents your product, service, marketing, or everything ‘that’s inside your company. The acquisition step needs to be measured.
The first experience customers have with your company is Step 2 Activation. This is the moment where you need to re-enforce your value proposition as quickly as possible. When designing your activation step for your customers, you need to figure out how to deliver value as soon as possible and re-enforce their decision to do business with you.
This action tells people ‘they’re in the right place, motivates them to come back for your product and your service, and use it more, which is repeat usage or Step 3 Retention.
Once customers get value repeatedly from you, they eventually start buying your products, and this begins Step 4 Revenue. Ideally, this happens frequently in customer lifetimes with the company or brand.
If customers have a good experience, they have memories and perceptions about the brand they will share with others. This creates incentives for others to do the same thing, or Step 5 Referral.
These five steps are what every business can use to turn unaware visitors into passionate, happy customers. Mapping your analytics to these five metrics is what is needed to get started. Understanding these five metrics will allow you to estimate your business model going forward.
The Santa Fe Innovates Ideation Program is open. Apply by August 24, 2020, to join in the work and community!
Source: Ideation 2020 – Leanstack.com