Fat funding for lean startups part 1 - capital efficiency v2

FAT
FUNDING
for
Lean Startups
Part 1: Capital efficiency
By AUVALIE.com

In the 17th century,
Denis Papin, a true
genius, invented the
steam cooker, piston,
and engine.
He died poor, alone,
and nobody cared.

Copyright Auvalie Innovation 2014
Let’s avoid this fate.

Part 1: Capital efficiency
part 2 : Leveraging with public
funding
I. Raising capital

About the notions of startups, R&D
and Innovation

You may see potential in bare rocks

Enough to explore their hidden properties

Until maybe you can refine them into Gold
And bring their inner value to the world

If you see potential in knowledge
and emergent technologies

You can explore
audacious concepts

Hopeful to
turn them into
great products
and great companies

R&D turns money into
knowledge and technologies
R&D

Innovation
Innovation turns knowledge and
technologies into more money

Startup : (noun, often attributive)
ˈstärt-ˌəp
Any kind of human organization
designed to deliver a new product
or service under conditions of
extreme uncertainty.

Shouldn’t we stop
guessing ?

Not so long ago, people believed they
accurately described the world with this
vision:

Timing and workload
HeavenandEarth

Would you board a rocket
engineered for this vision of
the world ?

No, you wouldn’t.

Then why would you start
a business based on
unverified assumptions ?

Timing and workload
Auvalie 2014
The experts usually take two
to five months to review, but
there is no official time limit
There’s no appeal
Business plans are full of unproven
assumptions

Guesses and estimates for
acquisition, retention,
transformations, etc.
(You know the ones I’m talking about…)

In an innovation project,
business plan are often off
by orders of magnitudes.

Because reactions to
novelty are unknown and
uncertain
by definition.

The first goal of the Lean
startup approach is to
reduce and manage
uncertainty.

It can’t guarantee a 100
million dollars success.
But it will prevent a 100
million dollars failure.

Capital efficiency:
Focus on focusing

“The essence of strategy is
about choosing what
not to do.”
Harvard business Review

We spend most of our time explaining the
“WHAT” and “HOW”
of our ideas.
While most ideas spread because of the
“WHY”.

“Why” gives your project a reason to exist.
It must address a problem perceived as
such by a precise category of people.

“ Focus on
rich customers
that you will delight
with a compelling
solution to a
burning pain ”
Sequoia Capital

You don’t just
want an
easy to sell
product
You want a product that customers crave.

“WHAT” is the solution you want to bring
to the market to solve the problem
The only objective of the “WHAT” is to be
perceived as solving the problem.
It’s the only thing that count.

The ”HOW” is of no importance as long
you haven’t verified the first two.

For a startup, the only way to succeed is
to manage to go from “plan A” to “a plan
that works” before running out of
resources.
Ash Maurya

Fundamentals of
Lean startup
By AUVALIE.com

Rule n°1 :
We know nothing

Good innovation is like good science :
Never assume : observe, hypothesize,
experiment, measure and learn.
We can only build on tested and
verified knowledge

You need to validate leaps of faith, and
measure value hypothesis and growth
hypothesis.

The value hypothesis tests whether a
product or service really delivers value to
customers once they are using it.

The growth hypothesis tests how new
customers will discover the product or
service.

What’s a leap-of-faith assumptions ?
It’s a fundamental condition needed for
your vision to exist, usually a daring bet.

Example : Ostrich Pillow

Bet : Some people will accept to look (a bit)
silly to gain a few minutes of sleep.
1) Are there ? (Vision)
2) Who are they ? How do I find them ?
(Strategy)
3) Let’s ship pillows and improve
(Product)

Rule n°2 :
Value is providing benefit
to the customer.
Anything else is a waste.

First things first :
There’s no point in developing,
planning or strategizing something
until you’ve proven that identified
people dream of being able to buy it.

You don’t need a product to test a vision.
Start building only when you’re sure of
what people want.

Rule n°3 :
Progress is about increasing
validated learning :
use innovation accounting.

A startup exists to learn how to build a
sustainable business:
This learning has to be continuously
monitored through actionable, accessible
and auditable metrics, not through vanity
metrics.
It may seems boring, but it’s crucial.

Actionable means that you have a crystal
clear view between cause and effect.
Anything less and your test doesn’t teach
you anything.

Accessible means that tests results are
internally available to all, and that they
are justices of the peace in your
organization.

Auditable means that anyone can have
access to how the results were obtained.
(Think Peer review in science.)

Rule n°4 :
The startup is the product:
Think business model

Providing value to the customers requires
much more than a product or service :
Value depends on every component of a
business model. If you only explore only the
product, you make implicit assumptions
about the majority of these components.
Your whole organization creates the value.

AUVALIE’s Labs-to-Market program :
Methodology
By AUVALIE.com

The big picture
Optimization
Pivot
Leaps of faith

Three stages approach :
1) Vision
2) Strategy*
3) Execution
*: Remember, the startup itself is the product

Stage 1 : Vision
(Finding the problem-market-solution fit)
Ideate from concepts, assets, technologies, know-how, etc.
Repeat
Pick most promising unexplored idea
Explore Value hypothesis
Test assumptions for customers, problems and
solutions
Until Customers confirm Problems AND Solutions
Tools :
Creativity + Value proposition canvas + Validation board

A meaningful experiment
replicates real conditions
(unlike market studies), and
focuses on specific
parameters

Experiments differ from one
field to another.
Here’s a few ideas from the
webCopyright Auvalie Innovation 2014

Landing pages and
conceptual videos will help
you determining acquisition
and referrals rates.

If you intend to ask for
money, test payment
rates from the start.

Stage 2 : Strategy
(Building plan A)
Explore several different business models and growth
models
Repeat
Pick most promising unexplored business model
Discover assumptions
Test and validate assumptions
Until business model is not proven faulty
Tools :
Business model canvas + Fake tests arsenal

Stage 3 : Execution
(Start with plan A, persevere or pivot on to the next plan)
Setup minimal team
Define Target values for Growth hypothesis and other metrics
Build MVP
Establish innovation accounting framework and Pivot committee
Repeat
Build, learn, measure
Until Pivot is needed OR metrics reach target
Tools :
Innovation accounting framework + Lean management tools +
pivot panels

Concierge tests1 and MVP2 will help you
accurately measure retention in time,
and understand what customers like (or
not) about your product.
1: Manually simulating a usually automated service
2: Minimum Viable productCopyright Auvalie Innovation 2014

The Lean Startup approach helps you
focus your resources to create a
capital efficient organization.

What to say about your R&D Project
Auvalie 2014
For a startup, there
is no strategy
without a great
Product-Market Fit
Then, the sky is
the limit

Contacts :
Pierre Cléau et Frédéric Grévaud
AUVALIE Innovation partners
Tél : +33 (0)4 81 07 38 92
contact@auvalie.com
AUVALIE.com
If you want more:

Fat funding for lean startups part 1 - capital efficiency v2

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