“A surprising number of innovations fail not because of some fatal technological flaw or because the market isn’t ready, they fail because the responsibility to build these businesses is given to managers or organizations whose capabilities are not up to the task.” – Christensen & Raynor

In The Innovators Solution, Christensen and Raynor propose a method to define what organizations can and cannot accomplish – the RPV Framework. The RPV framework is composed of Resources, Processes, and Values.

Christensen and Raynor have developed a decision-making model, the purpose of which is to help managers determine the proper organizational structure and “home” for the new-growth business. Their model is below.

A Framework for Choosing Organizational Structure and Home

framework_for_finding_organizational_structure

Axes

Fit with Organization’s Processes

The left vertical axis measures the extent to which the existing processes – the patterns of interaction, communication, coordination, and decision making current used in the organization – are the ones that will get the new job done effectively.

Fit with Organization’s Values

The lower horizontal axis asks managers to asses whether the organization’s values will allocate to the new initiative the resources it will need in order to become successful. If there is a poor fit, then the mainstream organization’s values will accord low priority to the project; that is, the project is potentially disruptive relative to its business model.

Position of Responsible Commercial Structure

The upper horizontal axis captures (on a continuum) the level of autonomy needed by an organizational unit attempting to exploit an innovation. For disruptive innovations, setting up an autonomous organization to develop and commercialize the venture will be absolutely essential to its success. At the other extreme, however if there is a strong sustaining fit, then the manager can expect that the energy and resources of the mainstream organization will coalesce behind it because the project is sustaining.

Structure of Development Team

The right vertical axis maps three types of organizational sturcutres that can be used to either exploit or overcome existing processes.

How to Use the Model

Overview

Using the model requires the manager to assess the organizations processes and values. Quite simply, the bottom and left sides of the model are used for “diagnosis”, the top and right sides of the model provide the “solution”.

First, evaluate the processes required to launch and scale the New Growth Business. If the New Growth Business requires new processes (poor fit), then it will require region A or C. If the New Growth Business can utilize existing processes (good fit), then it will require region B or D.

Next, evaluate the organizations values – according to Christensen and Raynor’s definition of values – and select the appropriate quadrant.

Region A

Region A depicts a situation in which a manager is faced with a breakthrough but sustaining technological change. It fits the organization’s values, but it presents the organization with different types of problems to solve and therefore requires new types of interaction and coordination among groups and individuals.

Region B

In region B, where the project fits the company’s processes as well as its values, the new venture can easily be developed by coordinating across functional boundaries within the existing organization.

Region C

Region C denotes a disruptive technological change that fits neither the organization’s existing processes nor its values. To ensure success in such instances, the managers should create an autonomous organization.

Region D

Region D typifies projects in which products or services similar to those in the mainstream need to be sold within a fundamentally lower-overhead business model. These ventures can leverage the main organization’s logistics management processes, but they need very different budgeting, management, and profit and loss profiles.

Caution

In using this model, it is important to remember that disruption is a relative term. What is disruptive to one company might have a sustaining impact on another.

Sources
* The Innovators Solution

Executives must answer three sets of questions to determine whether an idea has disruptive potential. The first set explores whether the idea can become a new-market disruption. For this to happen, answers to at least one and generally both of two questions must be positive:

  • Is there a large population of people who historically have not had the money, equipment, or skill to do this thing for themselves, and as a result have gone without it altogether or have needed to pay someone with more expertise to do it for them?
  • To use the product or service, do customers need to go to an inconvenient, centralized location?

If the technology can be developed so that a large population of less skilled or less affluent people can begin owning and using, in a more convenient context, something that historically was available only to more skilled or more affluent people in a centralized, inconvenient location, then there is potential for converting the idea into a new market disruption.

The second set of questions explores the potential for a low-end disruption. This is possible if the answer is yes to two questions:

  • Are there customers at the low end of the market who would be happy to purchase a product with less performance if they could get it at a lower price?
  • Can we create a business model that enables us to earn attractive profits at the discount prices required to win the business of these overserved customers at the low end?

Often, the innovations that enable low-end disruption are improvements that reduce overhead costs, enabling a company to earn attractive returns on lower gross margins, coupled with improvements in manufacturing or business processes that turn assets faster.

Once an innovation passes the new-market or low-end test, there is still a third critical question:

  • Is the innovation disruptive to all of the significant incumbent firms in the industry? If it appears to be sustaining to one or more significant players in the industry, then the odds will be stacked in that firm’s favour, and the entrant is unlikely to win.

If an idea fails what Christensen and Raynor refer to as these litmus tests, then it cannot be shaped into a disruption.

Source: Innovator’s Solution

The Lean Entrepreneur process was developed by Brant Cooper and Patrick Vlaskovits. The book is full of pratical advice that will help you get started launching your business/product. The process is generally:

JOB 1: Is there a solvable problem

  • Leave the comfort of your home and go find one person who is emotional about the pain or passion you are addressing.
  • If you are a B2C play, find nine more to complete your LE team of 10
  • If you are a B2B play, find 12 more to form your LE Advisory Board.
  • If you are a multi-sided market, serve both sides
  • Look for patterns in the people you compile

JOB 2: Is the solution Tenable?

  • Additionally, qualify your LE team of 10 or LE Advisory board.
  • Find 10 (3) people who are excited about your high-level solution idea.
  • If necessary, fill out your “team of 10” advisory board with new blood (starting from the beginning)
  • What is the pattern?

JOB 3: Solution Discussions

  • Engage your LE Team of 10 or LE Advisory board during product development
  • Are you on the right track?
  • Is the customer on the right platform?
  • Perform usability testing with competitive products
  • Conduct a “high hurdle” experiment
  • If responses are lukewarm or uninterested
    • Change the solution
    • Change the segment (start over)

JOB 4: Viability Testing

  • What is most uncertain about your business model? Run purpose-built tests to resolve uncertainty:
    • Landing page
    • Concierge
    • Wizard of Oz
    • Prototypes
    • Wireframes, Mockups, similar products
    • Test apps
  • If you lose members of the Team of 10 or Advisory board, refill

JOB 5: Minimum viable product

  • Validate customer will do in product what they’ve said they will do
  • Iterate
  • Develop discrete functionality that addresses the pain/passion
  • Iterate.
  • Validate through customer use
  • Iterate
  • Perform usability testing
  • Iterate
  • If you lose members of the Team of 10 or Advisory board, refill

JOB 6: Post-MVP

  • As you learn, split off execution
    • Learn “activated”: toward “satisfied”
    • Learn “satisfied”: build toward “passionate”
    • Build toward “whole product”
  • Developers should have the its not to develop
  • If Team of 10 or advisory board members are not passionate, refill
  • What is the pattern?
  • Turn your team of 10 (3) into a team of 20 (6)
  • Learn “passionate”: increase speed of customer acquisition
  • Create cross-functional teams charged with achieving specific objectives based on data that moves the needle of business

JOB 7: Funnel Vision

  • Use insights from your team of 20 (6)
    • Validate where customer segment “hangs out”
    • Validate that you can reach them
    • Validate what messaging and positioning resonates
    • Validate what makes customer trust you
    • Validate what convinces customer to buy
  • Resegment existing customers based on combination of:
    • Pain
    • Origin
    • Value
    • Funnel
    • Product usage patterns

JOB 8: Minimum Viable Business

  • Lifetime value > cost of acquisition
  • Velocity: average revenue per user versus cost of acquisition
  • Word of mouth: viral coefficient
  • Acquisition channel viability
  • Discover of “shadow force”

JOB 9: Long-Term Growth

  • Execution + continuous improvement + continuous learning
  • Continuous improvement of “shadow force”
  • Resell, cross-sell, up-sell
  • New products for existing customer segments
  • Existing products for new customer segments
  • Disruption: new products, new customer segments

Three Steps to Validate any Market Opportunity

If You Build It Will They Come is, in some ways, a precursor to Lean Startup. In the book, Rob Adams lays-out a simple process for launching a new business/product. Adams simplifies the process with three easy-to-remember phases: ready, aim, fire.

The Ready Checklist

  1. Domain Knowledge: where did you get your idea?
    • Based on experience, stick with what you know.
  2. The Market: How big is it and how fast is it growing?
    • Figure out the overall market size and its growth rate for the geography you are targeting. Compare the market growth rate to the economic growth rate. If your category is growing faster than the overall economy, you’re on the right track. If your category is growing slower than the overall economy, you are at your first decision point.
  3. Lifecycles and Trends: how are these affecting your market?
    • Evaluate the lifecycle of the market. If you’re at the first half of the lifecycle distribution, you’re in good shape. If you’re on the declining back-half, that’s a tough decision point.
    • Know the macro trends affecting your market
  4. Your competitors: What are they doing?
    • Thoroughly evaluate your competition. This means direct competitors and substitutes for your product.
  5. The experts: what do they say?
    • Develop name-brand or other highly credible sources to make your business case for you.
    • Don’t forget, establish a relationship with a market analyst early on

The Aim Checklist

  1. Research: learning what you really need to know
    • The key part of market validation is objectively evaluating your market to understand market pain in detail
    • Your metric here is at least 100 of these direct interviews during your market validation efforts
  2. Interviews: Getting to the market pain
    • Your interview techniques should be focused on fact-finding
    • Starting interviews: assess the overall market requirements by understanding usage patterns in your potential target audience
    • Midpoint interviews: focus in on the proposed pain you are addressing and seek to understand how you can deliver an offering with differentiated characteristics to address this pain.
    • Finishing interviews: you are focusing on more successively on your final offering and potential markets
  3. Who are you after: Finding your target audience
    • To effectively know your market, you need to know all the available sources, the quality of the lists, and the numbers of names available in the markets you are targeting.
    • Track the productivity of these list sources while conducting Aim interviews so that you understand what type of lists and productivity you can expect when you eventually launch your product.
  4. Turning data into results: how to practically apply all that you’ve learned
    • Use statisticians and other professionals here, as extensive data analysis can frequently be performed on rudimentary results.
  5. Outside Help: Using research
    • Market research and strategy consulting firms have experience performing this kind of work and can be invaluable around questionnaire development, sourcing names, data analysis, and interpretation
  6. Countdown: preparing the market for your product
    • The knowledge you have developed thus far has provided you with real-time feedback to your sales and marketing efforts.

The Fire Checklist

  1. Sales and Marketing: Budget for it
    • In today’s brutally competitive and crowded markets, customers do not find your product; your job is to find them.
    • If you are working on a fixed budget, reallocate on this 50/50 basis (50% marketing / 50% product development) to assure all your market validation efforts receive proper follow-through
  2. The details: write product specs and schedules
    • Once you have accumulated all the information from your market validation efforts, you need to document how these translate into product features and in turn create a aschedule to develop those features into a finished offering
    • Within these skill sets, the sales and marketing team needs to develop a PRD, or product requirements document, clearly outlining how the Market Validation results are translated into features and functionality
    • Once the PRD is complete, the research and development team needs to break down each of the product features and functions into a development schedule with corresponding time frames.
  3. Fast to market: get a market-oriented product out quickly
    • It is critical to get the product out quickly
  4. Early customers: recruit design partners and advisory boards
    • Create a Design Partners Program – end-users of your product who you keep up to speed on the progress of your development
    • Create a Board of Advisors – put together for commercial offerings when there are many decision makers involved in the buying process
  5. Showtime: launch, market, and sell the product
    • Execute a well-funded launch, sales, and marketing campaign.

Henry Ward Beecher said*, “the ability to convert ideas to things is the secret of outward success.” The problem for technologists – people working the technology industry – is not the ability to convert ideas into things; rather, it is having the discipline to select (and focus on) the best ideas.

The Ansoff matrix is designed to help business leaders decide where to focus their growth efforts. Specifically, the Ansoff matrix helps you think about what strategy to pursue based on your situation as well as the risks.

Matrix

AnsoffMatrix

Application

Market Development

Summary

Selling existing products into new markets.

Goals

  • Expand into new/adjacent markets

Key questions

  • Do we have the right products? If you have a good mix of products, focus on expanding into related markets. Key indicators would be “ease” of sales process, demand (sold out?).

Tactics

  • New geographies
  • New segments – ie: target “adjacent” customer-types, demographics, etc
  • New distribution channels

Risk

  • Riskier than Market Penetration”, but less risky than Diversification
  • Greater returns than Market Penetration, but less returns than Diversification

Market Penetration

Summary

Selling existing products into existing markets. These are customers are products that are well-known – the “core business”.

Goals

  • Increase or maintain market-share

Key questions

  • Does the existing line of business have good (current) growth and strong future growth prospects?

Tactics

  • Marketing promotions
  • Pricing changes/innovations
  • Changes to sales process / additions to sales team
  • Acquisitions/consolidation of market
  • Increase usage of existing customers
  • Loyalty programs

Risk

  • Least risky, lower growth returns (generally)

Product Development

Summary

Selling new products to existing markets. This could include new products as well as incremental changes (modified) to existing products. Well-suited for a business where competition is strong and there is a strong-need for competitive differentiation.

Goals

  • Develop new products to serve existing customers
  • Incremental changes targeted at existing customers

Key questions

  • Are current customers requesting (demanding?) features/products that we don’t currently offer?

Tactics

  • Develop new/related products
  • Extend product to include new features
  • Market research, R&D, customer needs analysis

Risk

  • Riskier than Market Penetration”, but less risky than Diversification
  • Greater returns than Market Penetration, but less returns than Diversification

Diversification

Summary

Selling new products to new markets. This can be the most-rewarding approach; however, it is the riskiest approach because you do not have experience with this market/product-type.

Goals

  • Break-through/transformational growth
  • Main advantage is to “spread risk” away from core business – if “core” business fails, the new business can replace losses to the core

Key questions

  • Are your current markets growing?
  • Are your products well-positioned for future growth?
  • Is there a high-level of risk associated with your core business?

Tactics

  • Market research / R&D
  • New product development methodologies

Risk

  • Highest risk, highest reward potential

Sources:

The “Running Lean” process, created by Ash Maurya, is a systematic process for quickly vetting product ideas and raising the odds of success. Ash outlines the process as follows:

Process Flow

running_lean_process

Step 1: Problem / Solution Fit

Summary

The first step is determining if this product is something worth doing. You do this by decoupling the problem from the solution and testing each through customer interviews.

Next, you will derive the minimum feature set to addresses the right set of problems – the Minimum Viable Product (MVP).

Goal

  • Do I have a problem worth solving?

How

  • Document your plan A – sketch lean canvas and prioritize where to start
  • Get ready to interview prospects – find prospects
  • Conduct problem interviews – formulate testable hypotheses, conduct problem interviews, do you understand the problem?
  • Conduct solution interviews – formulate testable hypotheses, conduct solution interviews, do you have a problem worth solving?

Problem / Solution Meta Pattern

  • Understand the Problem
    • Conduct problem interviews
    • Determine if you have a problem worth solving
    • Understand how customers solve this problem today
  • Validate Demo
    • Solution Interview: Test your possible solution qualitatively with customers using a demo that helps them visualize the solution
  • Validate Solution Qualitatively
    • MVP Interview: distill down your product to it’s essence (MVP) which you then build and test qualitatively with customers
  • Validate Solution Quantitatively
    • Verify results of qualitative interviews with actionable macro metrics

Exit Criteria

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

Step 2: Product / Launch Fit

Summary

You definitely understand your customers’ needs better than just a few weeks ago, don’t rush into building and launching your MVP just yet. It is fairly easy to get distracted during this stage and either build too much or build the wrong product. You not only need to distill down your MVP to it’s essence but also lay the groundwork to maximize your future iterations for speed, learning, and focus.

Goal

  • Are you ready to learn from customers?

How

  • Get to release 1.0 – scale down MVP, define activation flow, and implement continuous deployment
  • Get ready to sell – build a product website and make feedback easy
  • Get ready to measure – instrument a conversion dashboard
  • The MVP Interview – conduct interviews, are you ready to launch?

Exit Criteria

  • Be able to clearly articulate your UVP
  • Be primed to sign-up for your service
  • Accept your pricing model
  • Make it through your activation flow
  • Know what to do next

Step 3: Product / Market Fit

Summary

At this stage you have a plan that is starting to work – you are signing up customers, retaining them, and getting paid.

This is the stage when you truly start validating your complete product. While learning from customers is key, you have to know how to prioritize and then act on that learning.

The first step is defining a metric to measure Product/Market Fit. Once you have that, you can then systematically iterate towards achieving it

Goal

  • Have I built something people want?

How

  • Measure product / market fit – focus on the “right” macro and complete conversion dashboard
  • Constrain features – constrain feature pipeline and implement 80/20 rule
  • Prioritize feature backlog – vet feature requests and prioritize features
  • Experiment with pivots – run pivot experiments, do you have product / market fit?

Exit Criteria

  • Retain 40% of your users
  • Pass Sean Ellis Test – over 40% of your users say that they would be “very disappointed” without your product
  • Get paid

Sean Ellis Test

How would you feel if you could no longer use [product]?

  1. Very disappointed
  2. Somewhat disappointed
  3. Not disappointed (it isn’t really that useful)
  4. N/A – I no longer use [product]

Stage 4: How do I accelerate growth?

Goal

Your focus then shifts towards accelerating your plan for scale.

The customer development process was developed by Steve Blank. The basic premise is that a startup company is not a “mini version of a big company”, it is an organization in search of a repeatable and scalable business model.

In simple terms, the aim of the process is to help startup founders, or in the case of intraprenuership, product managers, find/validate a problem, validate a solution, validate a market (opportunity), and develop a business around it.

custdev

Step 1: CUSTOMER DISCOVERY

Goal

  • There are no facts in the building, get out of the building, stop selling, start listening.  Start doing customer interviews
  • Test your hypothesis. Two are fundamental: problem and product concept

Exit Criteria

  • What are your customers top problems
    • What will they pay to solve them
    • Does your product concept solve them?
    • Do customers agree?
  • Draw a day in the life of your customer
    • Before and after your product
    • Draw the org chart of users and buyers

Step 2: CUSTOMER VALIDATION

Goal:

  • Develop a repeatable sales process

Exit Criteria

  • Draw your business model, financial model make sense?
  • Do you understand the sales cycle & sales roadmap?
    • ASP, LTV, ROI, ETC
    • Org chart, influence map?
  • Proven customer acquisition model?
  • Orders validating the business model

Step 3: CUSTOMER CREATION

Goal

  • Grow customers from few to many
  • Four customer creation activities
    • Year 1 objectives
    • Positioning
    • Launch
    • Demand creation
    • Note: Creation is where you “cross the chasm”

Exit Criteria

  • Different for each
  • Which startup strategy are you executing?
  • Positioning tested & complete?
  • Launch strategy match startup type?
  • Demand creation activities match startup type?
  • Year 1 objectives match startup type?

Step 4: COMPANY BUILDING

Goal

  • Management changes as company changes, become development, process, and mission centric
  • Sales growth will match market type

Exit Criteria

  • Does sales growth plan match market type
  • Does spending plan match market type
  • Does the board agree
  • Is your team right for this stage of the company?
  • Have you built a mission oriented culture?

When to use it?

The BCG matrix will help you assess where to invest time, money, and effort at the company level or business unit level – assuming you have a portfolio of products.

How does it work?

BCG Matrix

The BCG matrix relies on the tradeoff between market share and market growth. The model assumes that you can make more money in a fast-growing market in which you control a larger portion of the market share. Conversely, it assumes you will make less money, ie: less opportunity, in a slow-growing (mature) market in which you have a small amount of market share.

Market share is the percentage of the sales dollars earned by a particular company in that industry. Market share is calculated by [company’s sales] / [industry sales]

Market growth is the increase in sales over a previous period.

Terms:

  • Stars
    • a. High growth, high market-share
    • b. Characteristics: use a lot of cash, but should generate a lot of cash too
    • c. Strategy: invest, goal is to make it a cash cow
  • Cash cows
    • a. Low growth, high market-share
    • b. Characteristics: profits and cash high, investment is typically low because of low growth.
    • c. Strategy: keep investment low, use cash flow to invest in other products (stars or question marks with potential to become stars)
  • Dogs
    • a. Low growth, low market share
    • b. Characteristics: deliver small amount of cash, possibly cash-negative, with no promise of future growth
    • c. Strategy: don’t invest resources. If they don’t deliver cash, liquidate.
    • d. Common pitfalls: investing time/money in “turn around plans”
  • Question marks
    • a. High-growth, low market share
    • b. Strategy: invest to make them “stars” (if it is likely they can become stars) or divest to capture time/cash for other “stars” or question marks with ability to become stars
    • c. Characteristics: have high cash demands, but low returns because of low market share

Limitations

  • Market share is not the only success factor
  • Market growth is not the only indicator of attractiveness, such as in Niche businesses
  • Sometimes there are complementary effects in a portfolio. For example, Dogs could be helping a Cash Cow earn more cash

Sources: Values based management