Lean Business Design

Lean Business DesignCreating value in highly uncertain markets

through continuous innovation

Jeff Anderson @thomasjeffrey

#leananalytics

#leanstartup#Kanban

#agile #bmgen

#leanuxleanchangemethod.com

- 2 -

Engineer Product

Build a Change Backlog

Pilot (maybe)

Build a Change Backlog

Launch 1st

Shipment

a solution is

built that

addresses

something that

is not a real

problem to the

organization

Realize your

business solution

according to

spec, and fulfill

requirements

stated in the

plan

A large amount

of effort is spent

building the

“perfect” solution

without

understanding

which features

contribute to

business success

Bugs in the process

are ironed out,

organizational

change is managed,

and the solution is

given a shakedown

to ensure high-

quality

organizational

infrastructure has

now been built

around a solution

that may never

materialize

anticipated ROI

Release the solution

The company is at

risk of material loss,

as it tries to

optimize outcomes

and activities

around a solution

that has is flawed on

multiple dimensions

A solution without a problem, a stakeholder, or impact

Design an action

plan based on

gut, or maybe

research

Plan contains a

wealth of

unverified

assumptions

about your

customer,

product, and

supporting

market

a valid problem

is addressed, but

with a solution

that will not

deliver

anticipated ROI

The solution

does not address

the problem for

a large the next

set of

stakeholders to

provide

anticipated ROI

Define Business Plan

The traditional approach to making business decisions does not adequately address

the challenges of today’s market, technology, and business uncertainty

In today’s constantly changing environment, successfully following a plan guarantees a failed

business outcome

- 3 -

Lean Business Design provides a structured method for organizations to

successfully make & execute decisions in a highly uncertain business environment

through rapid, continuous learning

Idea

“I think our willingness to drastically

cut prices in order to reduce churn is

hurting our profitability…”

“we can significantly reduce churn and maintain

profitability if we provide better post

installation support…”

Generate fresh thinking through

cocreative, brainstorming

techniques

ExplorePerform enough research to back

up your assumptions with

measurable hypotheses

Experiment

“

Validate different solution options by

testing them on a small, but relevant

user base

“Let’s confirm that our new Proactive

High-Value Customer Support Squad

can improve profitability by rolling it

out to all of our users”

Roll out the solution to the entire user

base and continue to measure for

effectiveness

Scale

“let’s try out different ways to offer better post

installation support service to valued customers and

validate the impact on churn…”

Lean Validation Cycle

• Use change as a competitive

advantage

• Provide market-leading offerings

• Accelerate your ability to convert

assumptions into fact

• Building out the ideas that are

revenue-generating faster

• Abandoning ideas that won’t gain

market traction earlier

- 4 -

• Run surveys and Analyze

current key metrics to

understand where critical

challenges exist

• Run dedicated, collaborative

brainstorming sessions to

generate innovative solutions

• Investigate and interview your

customers to understand

essential areas of pain

Generate fresh ideas to

tackle critical business

challenges

Idea Explore Experiment Scale

Combine left and right brain

thinking to identify the Levers

that will have the most impact

on your market

Perform enough

research to back up

your assumptions with

measurable hypotheses

Validate different

solution options by

testing them on a small,

but relevant user base

Roll out the solution to

the entire user base and

continue to measure for

effectiveness• Formulate potential solution

hypotheses including

customer interviews,

customer discussions, & quick

and dirty usability testing

• Refine hypotheses through

through Analytics, focus

groups, & surveys

• Define the key measure to

tell you if the business is

improving, and a “line in the

sand” that describes business

success

Create your hypotheses using

qualitative means and

formalize them using

quantitative ones

• Validate solution hypotheses

through solution interviews,

prototypes, and incomplete

and/or manual

implementations

• Validate alternate solutions by

testing them against a

separate user base, measuring

customer impact

• Analyze all results for evidence

of being able to move your

organization towards its “line

in the sand”

Iterate your way to the right

solution, first by testing

customer through discussion

and then by testing through

behavior

• verify that your hypotheses

still hold weight once rolled

out to all users

• Continue to optimize the

solution using an experimental

approach, incrementally

moving your organization to

its “line in the sand”

• Start looking at other key

challenges within the

organization, repeating the

learning cycle

Validate your solution of

scale, refining as necessary

Business owners accelerate validation of unproven assumptions behind a

hypothetical solution through experimentation and evaluation

- 5 -

Generate

fresh ideas to

tackle critical

business

challenges

Explore

Scale

Perform

enough

research to

back up your

assumptions

with

measurable

hypothesesValidate different

solution options

by testing them

on a small, but

relevant user

base

Roll out the

solution to the

entire user

base and

continue to

measure for

effectiveness

• Competitor, guerrilla, and

anonymous user testing

• Surveys

• Customer lifecycle,

segmentation, and market

analytics

• Ethnographic research

• Business model generation

/ canvas

• Design Thinking

• Existing KPI Reporting and

analytics

• Landing page to nonexistent

features

• Pre-ordering nonexistent

products

• Clickable prototypes

• Manual solution

• Manual Backend

• Complete MVP

• A/B testing

• Customer lifecycle,

segmentation, and market

analytics

• Cohort analytics

• Surveys

Idea

Experiment

Lean Startup provides a variety of ideation, research and experimentation techniques to

define and validate the assumptions behind your solution

Problem exploration:

Validate that you have a

problem worth solving

through problem

exploration interviews

The Mafia offer:

Validate your solution by

making an offer so

compelling that it is an

offer “you can’t refuse”

The smoke test:

Validate your solution has

the right messaging to

attract a sizable market by

tracking clicks on a

“dummy” landing pageThe Wizard of Oz:

Validate your solution

with an automated client

interface that “front”, a

solution “operated by

monkeys”

Concierge MVP:

Validate you have the

right solution through a

hands-on, manual

implementation

A/B testing:

Evaluate solution options

by releasing them to a

subset of your users and

validating the impact on

customer related metrics

Preorder nonexistent

product:

Receive purchases for a

product that doesn’t yet

exist

Different types of research/experiments are used to discover and validate

business assumptions depending on where you are in the business development

lifecycle

Other methods of research and validation include:

• Ethnographic research & contextual inquiry

• Competitor usability tests

• Anonymous user testing

• Guerrilla prototype testing

• Surveys

• Feature stubs

• Cohort, funnel, and segmentation analytics

Generate Idea Explore Idea

QualitativelyExplore Idea

Quantitatively

Design

Experiment

Partial

Rollout

Validate

QualitativelyFull Rollout

Verify

Quantitatively

Get close to

affected

stakeholders

through

structured

interviews and

brainstorming

sessions

Refine your

idea into a

number of

candidate

hypotheses

with ballpark

metrics of

success

Multiple

iterations of a

solution may

be required

Deliver a

partial rollout

of the

solution to

validate the

impact

Solution does

not address

stakeholder

needs

Do we need to

revisit our

understanding

of the idea?

Validate

assumptions

against a

small, but

relevant

stakeholder

base

Determine

whether things

look right from

a qualitative

perspective

Once the

solution passes

qualitative

validation, we

then roll it out

to all

stakeholders

and start

gathering

quantitative

metrics

Measure your

hypothesis

against the

complete

stakeholder base

The 2 phase

validation allows

us to achieve

balance between

speed & learning

Make and implement business decisions using an experiment driven process

informed by stakeholder collaboration and comprehensive analytics

AbandonSolution does

not have a large

enough

business impact

Abandon

Problem is not

a significant

impact to the

business

Abandon

Solution does

not adequately

address a large

enough

problem

Abandon

Generate

fresh thinking

through

cocreative,

brainstorming

techniques

Explore Experiment Scale

Review

existing

reports,

analytics,

surveys,

stakeholder

feedback,

and other

sources of

insight

Build your

Minimum

Viable

Solution, the

smallest

solution that

you feel will

move the “line

in the sand”

Refine

hypotheses

through

Analytics, focus

groups, &

surveys

Define the key

metric of

success to

measure impact

of your idea & a

“line in the

sand” that

describes

business

success

Coordinate

work across HR,

Finance,

Operations and

technology to

prepare for the

experiment

Update your

data assets to

support the

analytics

required to

effectively

measure impact

Use analytics

capability to

continually

measure impact

over time

Use analytics

capability to

measure

impact at small

scale

Idea

- 8 -

A Lean Innovation Colony acts as an organizational construct that can allow the

enterprise to capitalize on truly disruptive innovation enabled through Lean

Business Design

Lean Innovation Colonies

should be:

• Distinct but connected

• Focused on learning

• Accelerates value creation

• Ecosystem of innovation

Invests in early stage

Startups based on the

investment hypothesis

Aquires later stage



Incubate early stage



The Innovation Colony manages

innovation from a distance, a

combination accelerator, angel

investor, and venture capitalist

The Enterprise

capitalizes innovation

colonies, based on a

common investment

hypothesis, one loosely

based on how the

original business

provides valuein

Appendix A – Lean Business Design Methods

Business Model Generation

Customer Development

Imagine innovative new business models and supporting products and services using

highly visual, collaborative techniques to encourage coordination and iteration.

Accelerate your ability to evaluate and prioritize different solutions against each other,

across the enterprise.

Brand -new products and services require that customers are developed and new

markets are created. Validate that you have a problem worth solving and a solution

worth buying through interactive and iterative customer interviewing techniques that

support a scientific approach to product development.

Lean Business Design ports the following methods and techniques to the

enterprise with the purpose of fostering innovation at scale

Accelerate your ability to understand whether you can create a viable business model

based on one or more products and services. Realize business value through

experimentation and validation.

Lean Analytics For StartupsMeasure innovation using an empirical

data driven approach. Provide real-time

insight into the progress of various

innovation initiatives through the use of

customer lifecycle metrics, innovation

accounting, and tracking of short-term and

strategic business outcome related metrics.

Lean UX For StartupsEnhance user experience and user centric design

by testing the impact of improved user experience

on key business outcomes that are measurable.

Combine open-ended, qualitative user research

techniques with more quantitative customer

analytics to deliver the customer experience that

has the highest long-term impact on business

outcomes

Lean Startup Method

Agile Development

Support highly volatile markets by building technical assets

that are "change tolerant". Leverage evolutionary design

and development techniques that enable high feedback

through superior quality. Allow teams to support the

"fearless change" mindset.

Kanban

Managing knowledge work through visual, adaptive

processes. Enable Lean thinking in the sphere of innovation

allowing knowledge workers to focus on the highest value

first, continuously improve, and remove bottlenecks that

interfere with value creation.

Lean Value Delivery leverages the following methods and techniques to enable

enterprises to innovate at scale

Appendix A1 – Lean Business Desing Stack

We have helped our clients manage uncertainty with the “Lean Business Design

Stack”

#leanvalue

The stack provides a mechanism to:

• Document your plan

• identify the riskiest parts of your plan

• track experiments to validate assumptions

Use the Stack by following these four iterative steps

1. Co-Create Your Plan with multiple

stakeholders

2. Identify the Riskiest Parts of Your

Plan

3. Validate Business Assumptions Through

Product Experiments

4. Track Progress through Business

Oriented Metrics of Success

Customer

ProblemsKey metrics

of successProductKey

ActivitiesKey Partners

Cost / Effort Revenue Stream

Channels

Who are our Key Partners?

Who are our key suppliers?

What Key Activities does our

Product Require (e.g. to Build, to

Support, etc.)

What competitive alternatives

exists in the marketplace?

What are the key metrics that will

tell us how our product is doing?

What are our key customer

problems?

What channels will be leveraged to

have our Product reach our

Customer Segments?

What are the most important costs drivers inherent in our Product?

What Key Resources and

Technology Capabilities does our

Product leverage?

What is our Unique Value

Proposition to our Customer

Segments?

What are the major

features of our solution?

Which customer segments

are being targeted?

What are the most important costs drivers inherent in our Product?

What will be the impact on people and other resources?

How long do we think it will take (back of a napkin)?

Which Key Activities do Partners

perform?

Which Key Resources are we

acquiring from our Partners? Key

Resources

Start with the product canvas, a collaborative, lightweight way to document and

continually update assumptions behind your business model

The top riskiest business assumptions are extracted from the canvas, so that they

can be validated through experimentation1. Outline objectives

that realize your

business model...

… Using a 2-3 month

look ahead view

2. Extract riskiest

assumptions to

build a…

5. Draw a line in the sand and

determine value for your success

metric4. Align MVP to 1 metric

that matters

Decompose your6.

f

o

r

success criteria

into a customer

lifecycle funnel

7. Validate MVP assumptions through

introduction of feature experiments

8. Update the business model based on

the outcome of experiments

… Minimum Viable

Product

3. Map / Align MVP with your

business objectives

to understand

customer impact

LearnBuild

Measure

Feature

Experiment

The experimental design factory is used to

track the progress of each MVP as they

are used to validate the product canvas

1. a candidate plan is developed based

on validating the riskiest portions of

2. specific planning objectives are

refined by extracting the top 3

riskiest canvas elements (hypotheses)

into an MVP

3. research and other forms of

“experiments” are used to create, and

then validate measurable success

criteria for the MVP

4. as experiments are introduced to the

market, they are evaluated against

these success criteria

5. learnings are captured, and used to

update the business model and

determine new experiments to run, or

a new MVP to validate

Appendix A2 – Lean Startup Method

- 19 -

The Lean Startup Method enables business innovation through a rigorous learning

cycle where business models are designed and validated through short

feedback loopsSuccessfully creates value in highly uncertain circumstances by first validating your problem, then

your customer, and finally your market

Problem exploration:

Validate that you have a

problem worth solving

through problem

exploration interviews

The Mafia offer:

Validate your solution by

making an offer so

compelling that it is an

offer “you can’t refuse”

The smoke test:

Validate your solution has

the right messaging to

attract a sizable market by

tracking clicks on a

“dummy” landing pageThe Wizard of Oz:

Validate your solution

with an automated client

interface that “front”, a

solution “operated by

monkeys”

Concierge MVP:

Validate you have the

right solution through a

hands-on, manual

implementation

A/B testing:

Evaluate solution options

by releasing them to a

subset of your users and

validating the impact on

customer related metrics

Preorder nonexistent

product:

Receive purchases for a

product that doesn’t yet

exist

Different types of research/experiments are used to discover and validate

business assumptions depending on where you are in the product development

lifecycle

Other methods of research and validation include:

• Ethnographic research & contextual inquiry

• Competitor usability tests

• Anonymous user testing

• Guerrilla prototype testing

• Surveys

• Feature stubs

• Cohort, funnel, and segmentation analytics

Validate

Customer

Problem

Validate

Problem

Solution Fit

Gain Market Empathy whom Tune Engines of Growth

Build

StickinessEnable

Virility

Optimize

Revenue

Model /

Price Engine

Scale the

Business

The Lean Startup Lifecycle

Ethnographic

Research &

Contextual

Inquiry

Problem

Exploration

Find a real, poorly

meant need for a

reachable market

Competitor

Usability

Tests

The Mafia

Offer

Surveys

The

SmokeT

est

Concierge

MVPThe Wizard of

Oz

A/B

Testing Surveys

Accelerate learning using the Lean Startup lifecycle; Validate the problem first, then

the solution, and finally the market

Preorder

Nonexistent

Product

Figure out how solve the

problem in a way that

people will accept

Build the right

features &

functionality that keep

users around

Features fuel both

organic and

artificial growth of

users

Build a sustainable,

sustainable business

with the right margins

in a healthy ecosystem

Achieve a

successful exit

on the right

terms

Do you have a problem

worth solving?

Do I have a solution

people will pay for?Is my market wealthy enough to support the business of healthy margins??

Anonymous

User Testing

Guerrilla

Prototype

Testing

Customer

Acquisition

Funnel Analytics

Feature

Stubs

Segmentation

Analysis

Cohort

Analytics

Backlog Customer

Problem Fit

Problem

Solution Fit

CodePartial

Rollout

Validate

QualitativelyFull Rollout

Verify

Quantitatively

Determine

macro

metric that

quantifies

business

success

Select highest

priority

feature

Drive mockups

to validate the

improvement

opportunity

Setup

customer

interviews

to

understand

the

underlying

problem

Determine if

the

opportunity

should be

built

Once the

problem is

understood,

identify

whether the

solution is

feasible

Multiple

iterations of a

demo may be

required

Develop code

based on user

driven

feedback

during the

mockup and

demo phases

Use agile

technical

practices like

continuous

integration

and test

driven

development

Deliver a

partial rollout

of the

feature(s) to

validate the

opportunity

Customers

are not

getting

value from

the solution

Do we need to

revisit our

understanding

of the

problem?

Validate

assumptions

against a

small, but

relevant

customer

base,

determine

whether

things look

right from a

qualitative

perspective

Once the

feature

passes

qualitative

validation,

we then roll

it out to

everyone

and start

gathering

quantitative

metricsas

Measure your

hypothesis

against the

complete

customer base

The 2 phase

validation

allows us to

achieve balance

between speed

& learning

Lean Startups often use a Feature Kanban to validate a new increment of business

value with customers to ensure that it represents a viable, revenue generating

opportunity

AbandonMarket

demand for

this feature is

too small to be

profitable

Abandon

Customers

don’t care

about the

problem

Abandon

Solution

does not fit

the problem

Abandon

Appendix A3 – Kanban

Kanban is about introducing a set of small J-Curve effects to a less

disruptive path to agility

Kanban allows the organization self discover their own agile solution, at

a pace that the organization can tolerate

We don’t recommend a wholesale change

to the project delivery approach – start by

implementing the principles on top of

existing foundation

Foster an environment where new ideas

for improvement are rewarded and

recognized

Continue to evolve as new ideas and

enhancements are introduced to the

process

Actively seek feedback and inputs from all

key stakeholders

Continuous Improvement Culture

Make a promise and keep it

Deliver when we say we will

When there are surprises we will

make sure we don't make the

same mistake twice

Our performance will improve

over time

Visualize Work

Limit Work in Progress

Measure and Manage Flow

Make Process Policies Explicit

Enable Continuous

Improvement

Kanban is a method built on “lean thinking” to help IT organizations

improve incrementally and deliver on their promises to the business

Kanban core properties

The Kanban Promise

Input Queue

(8)

Test

(3)

Analysis

(3)

UAT

(2)

IP Done IP Done IP Done IP Done

Development

(3)

Making invisible work visible enables collaboration and coordination across the entire team

One the simplest ways to introduce agile thinking is to visualize your

existing process “as is”

Individual units of business value are represented as tickets, colored to

symbolize risk and other metadata

Columns represent individual states in the process, swim lanes

represent different teams & types of work

Visible work promotes better team conversations, improves

collaboration between specialists, and makes it obvious where

bottlenecks, defects, and other impediments are occurring

we help our clients use Kanban to improve productivity across a

diverse range of fields

…from software project

delivery work

…to maintenance, support

and operational activities

…to a number of other software and non-software

related fields

Input Queue

Test

Done

Development QualityRequirements

& Analysis

Rows represent the

capability of the system

for processing different

types of work

Columns represent

the phases that

work goes through

for processing

Install/Patch Configure Data Load Verify Deploy

Different processes

are represented by

separate swim lanes

New Build

Maintenance

and LOS

Small work

28

A Kanban board enables organizations to model their process

workflow, limit work in-progress and visualize work items

Input Queue

Test

Done


& Analysis


New Build

Maintenance

and LOS

Small work


In-Progress and

Done sub-columns

add another layer

of visibility on the

board


29



New Build

Maintenance

and LOS

Small Work

Input Queue

Test

Done


& Analysis

IP Done IP Done IP Done IP Done(8)

(3) (4) (3) (2)

(12)

(5)

(6)



WIP limits are used to

limit the work in

progress for a particular

phase

WIP limits are also used on swimlanes

to limit the work in progress for a

particular work type

4

5(2) (1) (3) (3)

30



Input Queue

Test

Done


& Analysis


(3) (4) (3) (2)

Define ticket types and their

colours to visualize work tickets

and obstructions

New Build

Maintenance

and LOS

Small Work



(12)

(5)

(6)

(2) (1) (3) (3)

31



Work Ticket

B Blocker

D Defect

Input Queue

Test

Done


& Analysis


(3) (4) (3) (2)

Work Ticket

B Blocker

D Defect

New Build

Maintenance

and LOS

Small Work



(12)

(5)

(6)

(2) (1) (3) (3)

32



Populate the board

with current work in

the system

Input Queue

Test

Done


& Analysis


(3) (4) (3) (2)

- Developers must

put current work

on-hold if a high

severity defect is

found in test.

- Service Now

tickets must be

reviewed every

week

- Person making

the change cannot

be the testerBoard Policies

New Build

Maintenance

and LOS

Small Work



(12)

(5)

(6)

(2) (1) (3) (3)

33

Explicit policies help in resolving issues and obstructions

Policies are set in place

to govern the behaviour

of the process

- Developers must

put current work

on-hold if a high

severity defect is

found in test.

- Service Now

tickets must be

reviewed every

week.

- Person making

the change cannot

be the tester

New Build

Maintenance

and LOS

Small Work



(12)

(5)

(6)

(2) (1) (3) (3)

Input Queue

Test

Done


& Analysis


(3) (4) (3) (2)

B

D

Work is blocked Bottleneck Team is idleWork is blockedWork is blocked

Board Policies

B

34

Explicit policies help in resolving issues and obstructions

Appendix A3 – Agile Methods

We have significant experience helping organizations of all shapes and

sizes adopt a pragmatic combination of lean - agile methodsHere is what Lean Agile Delivery could look like in your

organization…

• Epics

• Personas

• Releases

• Iterations

Project

Initiation

Product backlog

grooming

Idea Canvas Story mapping Playing poker

• User stories

• Acceptance criteria

Sprint

planning

• Sprint

• backlog

(next iteration) • Designed and built user

stories

• Unit test cases/test suites

• Integration, UAT

• Automated builds

2-4 weeks

24 hours

Sprint

review &

retrospective• Iteration

ready for

production

Agile modeling practices

Self organizing, cross functional

team

Pair programmin

g

Agile team practices

Agile technical practices

Continuous Deployment

• email reports

• deploy EAR

• deploy PEGARules DB

• package EAR

• run test suites

• migrate/create

ruleset(s)

• check-in rule

Test Driven

Development

Lean visual management

A continuous delivery model that continuously improves over time

A useful, maintainable test suite

comes from micro, unit tests

that catch 90% of your defects

through validating atomic

components isolated through

proxies & stubs

Reduce integration churn by taking

advantage of robust unit test coverage

to write code against the trunk,

minimize branching and merging

Don’t let software tools get in the way of the “forming, storming” stage, early

on favor low fidelity, informal techniques like whiteboards, index cards &

stickies to support a collaborative, cocreative mindset

Maximize the team

concept to truly

accelerate delivery,

and increase

consistency

through pair

development

Start small, manage work visually while

introducing small improvements based on

productivity measures

Appendix A4 – Innovation Thinking

Following a

Plan

Leads

to Success

100% successful plan = = 0%

innovation

• Innovation is a process of learning

• Learning is optimal at 50% failure

• Accelerate innovation through a series of short,

safe-to-fail experiments

• Always be ready to pursue OR pivot

Successful innovation in the enterprise requires counterintuitive thinking

Myth ConsiderationsReality

Innovation

comes from the

top

Innovation requires ideas that

flow bottom up through the

organization

• Innovation requires wisdom of the crowds

• Constraints and objectives can be top-down, (the

why), but value realization happens bottom-up

(the what & how)

Innovation

can be

managed as

a separate

capability

Innovation has to be

ingrained in the culture and

methods of the entire

organization

• Managed innovation doesn’t work (Europe

versus Silicon Valley)

• Set up incentives that encourage and reward

innovative thinking

• Define constraints (innovation rules) to funnel

innovation towards objectives

Innovation Is

Just about

Ideas

Innovation is about ideas,

execution, and above all

management

• Focus 90% effort on validation and market

realization

• Get out of the building and engage potential

customers

• Measure using “innovation accounting”

Disruptive Incremental

Market

Opportunity

New Product / ServiceNew Market

Branding

Re-segment to Market Niche

Market Optimization / Scale

New Channels

Service Bundling

Customer ExperienceNew Revenue / Profit Model

New Financial / Cost Model

Value Creation / Paradigm Shift

(E.g. Agile) Platform Replacement

Continuous Process Improvement

Innovation means different things to different people – Methods vary depending on

desired objectives

Lean Business Design

Documents

business solution

solution interviews

right solution

hypothetical solution

solution of scale

stshipmenta solution

perfect solution

anticipated roithe solution