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CASE ONETAB: MATURING BUSINESS MODELS THROUGH PIVOTS

If you want to open a tab in a pub in Australia (as in many other countries), you will have to hand over your credit card. And that is a hassle. Scott and Paul had an epiphany at their favorite bar Cha Cha Char (Australia): an app that would solve everything.

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1 HOUSE OF CARDS

Scott Cross and Paul Wyatt were convinced that settling a bill would be much easier via an app. It would solve the waiting, card loss, forgetting to sign off or even to collect your card.

2 NOT MY PROBLEM

They had an app built based on the assumption that punters would pay for the app to have their problem solved. Scott and Paul were proven wrong. It wasn’t about the app at all.

3 THE POURERS PROBLEM

The real problem was with the bar owner: fraud, administration, lost or forgotten credit cards, unpaid bills. They were surely willing to pay for a convenient solution that solved these pains.

4 A MATCH MADE IN HEAVEN

At OneTab they realized that more convenience for the punter and less administrative hassle for the pourer could be solved with one (multisided) platform. The latter would pay for the use as the former surely would order more!

5 ACCESS TO KNOWLEDGE

Using POS providers as channels made it easier for pubs to get access. An extra incentive was the rich behavior/user data that OneTab was able to record. From “app” to multisided platform: success in four pivots.

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RUNNING EXPERIMENTS

If prototyping is all about bringing life to your ideas to see them, feel them, and quickly identifying your assumptions, then the focus of validation is to add rigor to the design process. Validation calls for experimentation to test your assumptions and measure the results.

WHAT DO YOU REALLY KNOW?

When you believe in your idea so much that you ignore evidence that suggests your customers really don’t like it, or worse, they’re totally disinterested, you’re following a dangerous path, as many failed startups have illustrated. Remember, your idea is nothing more than a stack of unvalidated assumptions, assumptions that need to be picked apart and validated to see if they are true in reality. That’s the only way you’ll know what’s true and what’s not.

Before making any big decisions (and investments), it makes sense to use your other, rational side and learn as much as possible about what’s going on.

EXPERIMENTS

You’ll need to learn, and you’ll need to learn fast. Just as small children learn to walk by falling down a lot, you will perform lots of experiments to find the truth. To validate assumptions, you’ll create, run, and analyze experiments that will deliver the data you need as evidence to back up or destroy your assumptions. Using facts, evidence, and data will bring your rational mind to the equation and make it easier to prove to yourself and your team that you are on the right (or wrong) track.

THE RISKIEST ASSUMPTION GAME

So, let’s start validating and experimenting. But what should we test first? Using our favorite Jenga metaphor, think of your ideas as being a tower, where all of the bricks are assumptions. When one of the assumptions on the bottom of the stack is invalidated and the brick is removed, the entire tower may fall. When you remove one from the top, not much will happen. Included in this book is a visual template to make it easy to find the riskiest assumptions with your team.

HOW DO I SET UP AN EXPERIMENT?

Once you’ve found your riskiest assumption, it is time to start experimenting. Over the next few pages you’ll learn how to set up your experiment step by step, using the Experiment Canvas to quickly construct and run your next experiment.

FALSIFYING VS. VERIFYING

The point of your experiment is not to confirm your hypothesis; it’s to try to falsify it. Only after a sufficient amount of effort, when it proves to be impossible to build an experiment that falsifies the hypothesis, can you accept it.

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Even then you’re not completely off the hook. Practically speaking, if you can think of another experiment that might give a different outcome, run it. Actively look for another outcome. After all, it may cost a little to get that data, but it will save you a lot in the end!

PIVOT OR PERSEVERE

After you have done your experiment, it is time to draw some conclusions. In essence, there are three possible outcomes of your experiment. Either your experiment matches the result you predicted; it contradicts the prediction; or you’re not sure.

In the case that your experiment matches the result, and you’ve tried your best to falsify, it’s time to mark the assumption as “validated.” You can “persevere” and move on to the next riskiest assumption. If you’re not sure, it’s time to check your experiment setup. Did you ask the right questions? Did you talk to the right test subjects? And finally, if your experiment contradicts the result, you probably need to change direction: you need a pivot.

YOUR NEXT EXPERIMENT

One thing you can be sure of: you won’t get to the finish line without running quite a few experiments and experiencing a number of pivots. To make it easier to look back and see the patterns while tracking findings, we’ve included the Lean Startup’s validation board in this book.

For more background, read: Running Lean by Ash Maurya

RUNNING LEAN EXPERIMENTS

In 2010, I developed an approach to help startups become more successful, called the Lean Canvas. That method was based on validation: running experiments and testing assumptions. Since then, the Lean Canvas has transformed into a global movement that uses and further develops the lean approach.

While experiments are highly effective at testing guesses and assumptions, simply running experiments is not enough. The output of your experiments can only be as good as the quality of your input guesses.

It becomes more important to find the riskiest assumptions to test and to build the right experiments to get the data you need.

That is why I created the Experiment Report that you will also find in this book.

Ash Maurya
Founder, Lean Startup
Running Lean

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THE RISKIEST ASSUMPTION

We’ve all been there: your idea is so great that you’re literally bursting at the seams wanting to launch it as soon as you can (maybe even today). Most of us feed on this excitement. But how do you know you’re making the right bet with your idea? Which bets does the success of your idea hinge on? These are your riskiest assumptions; they need to be tested.

WHAT DO YOU REALLY KNOW?

Dutch people love their cheese, as evident by the long lines you’ll encounter at just about any cheese shop in the Netherlands, especially the ones in central Amsterdam. With this “problem” in mind, a cool, new startup based in Amsterdam set out to address this problem with a mobile app, wherein customers could preorder sandwiches and avoid waiting in line. It seemed simple enough. After mapping out the customer journey, the team identified the riskiest assumption: customers hate standing in long lines.

With this assumption in the front of their mind, the startup team went out into the street to validate this assumption. After speaking with over 50 customers, they found that customers did not see this as a problem at all. Customers were willing to wait for freshly made sandwiches prepared by good-looking people behind the counter.

With the only cost being time spent speaking with people during a single lunch break, the team found that their riskiest assumption was false and invalidated. Whether you work for a small startup or an existing large organization, validate your riskiest assumptions as quickly and cheaply as possible so you don’t waste valuable time and resources toiling away at something that likely will never work. But this is often harder than it sounds.

YOUR RISKIEST ASSUMPTION ISN’T ALWAYS EASY TO FIND

Imagine you’re idea is to open a tailor-made denim jeans store on a main shopping street. Surely people love their jeans and are willing to spend money on ones that look great and are made to fit. But is this your riskiest assumption?

If you think through the customers’ jobs-to-be-done, pains, and gains as well their journey, you’ll find more assumptions and questions to ask: Are they willing to spend money at all? Do they have time to wait for a tailored pair of jeans to be made? Are they willing to return a couple of weeks later to pick up their jeans?

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By interrogating your Business Model and Context Canvases, you’ll find even more assumptions and questions to ask: What key resources can we rely on to produce something people want to buy? Can our key partners ship materials on time and for the right price? At what price would we need to sell jeans in order to make a profit?

The first key to identifying your list of riskiest assumptions is to bring a team together to unpack the idea and brainstorm together. And if you don’t have people on your team who have deep experience in unpacking the business model and context, invite some industry experts from your network.

IDENTIFYING ASSUMPTIONS

As a designer, your primary focus is on the customer. It makes sense then that the first assumptions you identify will come from some customer problems you’ve found. But these aren’t the only assumptions, nor are assumptions about customers always the riskiest assumptions. To find more assumptions, you can also use the Business Model Canvas on page 116. When you plot the customer segments and some assumed value propositions on the Business Model Canvas, you’ll also need to link these to some revenue streams and channels. In all four of these boxes you’ll find assumptions: (1) customers exist that want to buy (2) your product for (3) some price through (4) a specific channel. All of this exists on the right side of the Business Model Canvas. These are assumptions that you’ll need to validate in order to ensure you can deliver some value in the first place.

On the left side of the canvas you’ll find all of the operational assumptions as well, such as key partners and resources needed to create some value in the first place. And, of course, you cannot leave out the cost required to produce your solution.

With the team in place, use your designer tools (sticky notes, markers, and a big wall) to rank these, based on which you could not do without or which are most likely to be false. The sooner you find these, the more likely you are to be able to validate them and either move forward or pivot.