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4
WADING IN THE VALUE STREAM

ARTICULATING THE VALUE STREAM

In lean manufacturing, an organization’s value stream comprises all activities undertaken to provide value to the customer. Activities include everything from developing the concept of a product to its design, engineering, manufacturing, and delivery.

In a lean enterprise, the value stream includes both value-adding activities (for example, assembling part of a car) and non-value-adding activities (for example, forklifting parts across a warehouse floor). The objective of lean is to eliminate as many of the non-value-adding processes as possible (some are necessary) and to optimize the efficiency of the value-adding activities while maintaining or improving the value provided the customer.

Inefficient value-adding activities and non-value-adding activities create waste in the forms of lost time, money, resources, creativity, and opportunity. With lean thinking, unsold product represents nonmonetized materials and labor, along with space. What else could have been created with those resources? In addition, the value being produced should never be hurt by process optimization; we’re not optimizing merely for the sake of optimizing. Destroying value is arguably more wasteful than not eliminating the inefficient use of time, money, or raw resources.

In the context of a lean startup or innovation, in which the creation and delivery of value haven’t been proven in the marketplace, one doesn’t truly know the value being created or for whom it’s being created. You may think you know. You may believe what’s between your ears; you may have conviction in your idea and your abilities, but until you’ve successfully conducted transactions whereby customers have paid for the value you’ve produced, you don’t actually know. You’re creating a faith-based startup.

This is why we say that, no matter what your innovation, your job is to discover the value and the market segment, and whether your envisioned segment is large enough to support a business.

This is true in large organizations as well as startups. If you are working on known problems with known solutions, you are likely making incremental improvements to your products, some perhaps based on real innovation. This is fine and will help you stay competitive; however, it won’t protect you from a competitor, such as a well-funded startup, leaping ahead of you such that your entire business is at risk. To protect yourself from that, you must foray into the unknown, into breakthrough innovation.

If history teaches us anything, it’s that you must be willing to experiment and fail in search of the right combination of problem, product, and market that results in success. This is true for any new startup, along with existing businesses.

Fundamental changes will occur in your thinking between concept and delivery. Your early assumptions will likely be proven wrong. There’s nothing wrong with that—embrace it. Go ahead and take a moment; we’ll wait.

We recognize that admitting your execution will not go as planned is not a traditional way to conduct business. Although many successful entrepreneurs implicitly understand that many of their ideas about their businesses are guesses and go about their own way of testing these, the predominant startup meme is something we like to call the myth of the visionary: The lone wolf entrepreneur, tinkering in his garage, has a “Eureka!” moment where he “sees the future” and therefore must steadfastly build the product in his “vision.”

When startups cost a lot of investment capital, funders from bank officers to venture capitalists want to know, as precisely as possible, what the return on their investment will be and when they will see it. The opportunity cost of the investment is high.

In the past, the business plan was an insurance document, despite its fictional quality, given that startups face uncertainty. Whereas small businesses—dry cleaners, agencies, service providers, many retail outlets, and franchises—might have a degree of uncertainty, for the most part, these businesses have been done before. There are strong analogies in the marketplace, if not outright duplication. For these businesses, there’s way more risk in proper execution than there is risk of uncertainty. Startups, on the other hand, need to concern themselves with questions like: Do people care about what I’m providing? Will they buy? Do I understand how to market and sell?

Big businesses look for the same reassurance. Despite their best intentions of encouraging disruptive innovation, the very nature of asking, “What’s the return on investment and when will I see it?” lures disruptive ideas toward sustained, modest innovation. To predict the market, you have to be in a known market. To disrupt, you must create new markets.

Reducing the cost of startups means a lower opportunity cost and increased ability to fund experiments. It’s actually rather ironic that we are willing to fund scientists to research new technology, but the moment we wish to commercialize said technology, we abandon the scientific method.

In other words, it’s perfectly okay to test, fail, and iterate when developing a technology, but to test, fail, and iterate to find a marketable application of the technology seems ridiculous to many.

Of course the technology is marketable; it’s groundbreaking!

The result of scientific research is tangible: You put money in; you eventually get a result. It works or it doesn’t.

The entrepreneur who says, “Eh, this may work, or maybe not,” is not giving a very compelling pitch. It’s not very comforting, especially to investors, but there’s truth therein. As a matter of fact, based on the numbers, entrepreneurs would be the most truthful if they said, “We’ll give it a go, but more than likely, this won’t work.”

If you were to look at the value stream of a lean manufacturer, you would, from a high level, understand the steps involved in producing and delivering value. If someone were to outline the plan from delivery of raw materials to its flow through the manufacturing process and on to the delivery of goods to a customer, you would likely be able to identify value-adding activities and non-value-adding activities without much knowledge about the product in question.

But what about analyzing the value stream when value is not known? If our goal in a lean startup is to eliminate waste in the discovery of value, how do we know what’s wasteful? The fact is you can’t eliminate all waste if you don’t understand the value you’re creating. The process of discovery itself will include waste. If you build a prototype that flops, you arguably wasted your time building it, but that’s far less wasteful than building the entire product and seeing it flop!

This is why Eric Ries incorporates a different measure for lean startups. Ries believes that in a lean startup, if you’re not learning, you’re wasting. “The effort that is not absolutely necessary for learning what customers want can be eliminated.” Validated learning is demonstrated by positive improvements in the startup’s core metrics.¹

Note that core metrics do not automatically translate into revenue, and early on most don’t. Core metrics initially relate back to the phrase what customers want, which, by the way, doesn’t mean customers know what they want. We can hear you say that you can raise $10 million and build a product no one wants and learn a ton, too!

That’s true. Which is why lean takes no stance on how much money you should raise. Arguably, one could learn a lot more quickly with more money. In practice, however, we often see that (1) more money leads to more waste, simply from a lack of discipline; and (2) more money often motivates investors to want more sooner (i.e., What’s my ROI and when do I see it?), just as it does in a large organization. You’ve perhaps heard that nine moms can’t make a baby in a month.

Your objective is to learn. What is the riskiest assumption that if not true will result in failure? An early prototype that tests market risk and fails helps to point you in a better direction. For example, a $10 million investment in product development and launch is one big failed experiment that leaves no room to pivot.

It’s easy to understand big waste:

Spending a year building a product no one wants.
Spending six months looking for investors to fund a year’s worth of development on a product no one wants.
Writing a business plan for four months to convince an investor to fund a year’s worth of development on a product no one wants.

Small waste is much more insidious, flailing through business-model ideas without direction:

Opportunistic and shotgun sales.
Product feature mongering.
Great marketing for a crappy product.

So the question remains: How can you develop your lean startup value stream, which is measurable by validated learning?

ABOUT VALUE STREAMS

In any successful business, customers go through a series of steps to become aware of your product, acquire it, experience it, become satisfied with it, and then finally feel a high level of loyalty to it. The activities a business conducts, including building and delivering the product, that create the value the customer gains is known as a value stream.

The activities can always be improved. The sales process might be made more efficient so that it maps closer to customer expectations. Marketing can be expanded to automate part of sales and be more inclusive of adjacent segments. Engineering might reduce non-value-adding steps in the creation of features and reduce so-called feature inventory. Manufacturers might adopt lean manufacturing! As long as value is maintained, these are lean practices, and continuous improvement of them is a core lean ethos.

Because we don’t know the value stream of a lean startup, our focus is on learning and validating the internal business processes in the creation and delivery of value, so that the business is successful and growing.

Traditionally, the 50,000-foot view of a startup value stream might look like this:

Business Planning → Investment → Product Development → Marketing Sales → Feedback

As we’ve seen, however, this has resulted in many failed startups and product launches. These failed endeavors represent a massive amount of wasted time, money, resources, creativity, and inspiration, not to mention the opportunity costs.

As the costs of building products has plummeted such that most entrepreneurs require little to no capital to get started, the value stream can be shortened:

Product Development → Marketing → Sales → Feedback → Investment to Grow

Whether the product should be built is not seen as a question even worth asking. If it is asked, it is answered through persuasion born of charm and personality rather than through any factual element.

Can lean help?

Through its evolution, lean has remained primarily an engineering endeavor, involving the design team, along with product managers (meant to represent the customer). In practice, direct customer interaction is poorly represented in the lean process. Data collected by the business is often tied back to efficiencies of business units, quality of code delivered by information technology (IT), and customer satisfaction as measured by marketing. Unfortunately, there’s little to connect product and product developers to customer satisfaction and product loyalty.

The Toyota Production System includes stories about engineers and design leads interacting with customers firsthand, in order to learn what to build. We know that Toyota salespeople sold cars door-to-door and considered this part of being lean. One hears of efforts to develop lean sales and marketing processes, but few lean organizations are truly completing the life cycle of a customer’s relationship with a business in one lean flow.

Remember, lean cannot beget success in organizations as long as everyone is working inside vertical silos. The key is to become an integrated horizontal team focused on creating value.

Unlike many engineering- or design-led lean processes, we include sales and marketing in the lean value stream. Many feel that sales and marketing are inherently evil, non-value-adding activities. Such people tend to believe that if you build the best product, the market will find you. This is often referred to as the build-it-and-they-will-come philosophy.

Indeed, in a perfect world, businesses would not need sales and marketing. With innovation, your product is your best marketing, as information about your product will spread via word of mouth.

There’s an old advertising adage: Nothing kills a bad product quicker than good marketing. The bottom line is that if customers have no path to your product or service, you will not be able to provide value to them. The process of converting customers must be built around the best process for your market segment. This is critical to delivering value and creating passion for the product.

There’s a fundamental difference between marketing and selling products that deliver value, and marketing and selling products to generate revenue. The former is part of creating a lasting business based on repeat customers, long-term retention, and referrals. The latter is generally about maximizing revenue through as many one-off transactions as possible. Think late-night direct-marketing TV commercials. The ambition isn’t to maximize customer satisfaction that generates word-of-mouth marketing, but rather to maximize money coming in while minimizing money going out. When the product has run its course, those businesses launch another product under a different brand.

Now the only way to grow is to stand out, to create something worth talking about, to treat people with respect and to have them spread the word.²

—Seth Godin

What we are talking about is building businesses based on providing such extraordinary value that customers are willing to pay something valuable to them: money, time, and a significant amount of attention. As Seth Godin points out, this isn’t accomplished by a race to the bottom, but rather a race to the top. In other words, doing what others are doing at a lower cost isn’t where the value play is. You must provide something meaningful, something more.

There are, of course, exceptions to this rule. A value surplus is where increased competition lowers cost without destroying value. Customers that couldn’t afford the value before suddenly can—this is clearly good for the consumer. It mustn’t mean lower quality or lower value, but it does mean getting more for less. This is the natural result of true free-market capitalism (i.e., the Adam Smith version, not the libertarian version):

New product → Company strives for monopoly → Competition enters market → Customer gets more for less

Businesses naturally strive to achieve or maintain a monopoly. In Adam Smith’s “free markets,” this is accomplished by continually adding value with higher quality, more features, support for social causes, environmental initiatives, better packaging, and so on. What Steven Spear calls the “high velocity” company is one that maintains its market lead by relentlessly leveraging some core competency. We call this the “shadow force,” because this capability isn’t necessarily visible to outsiders.

Eventually, you must discover your value stream from start to finish, including the moment when customers first become aware of your product, right through to them becoming passionate or loyal.

VALUE STREAM DISCOVERY

In a customer-driven economy, it’s powerful to think through your business model from the customer’s perspective. So we’ve broken down the way your customer experiences your company into seven states. Each state represents how the customer feels at that point.

Diagram for value stream shows aware leading to intrigued to trusting under funnel to convinced under conversion to hopeful to satisfied under MVP to passionate under growth engine.

The seven customer states are:

Aware: Your customer first realizes your product exists.
Intrigued: Your customer experiences the utility promise you are making, plus the aspiration you have for a particular outcome or impact.
Trusting: Your customer believes not only in the likelihood that the product will do the job, but that the company is worthy of a relationship.
Convinced: Your customer believes your product is a good fit for the problem that needs to be resolved and that the price is worth the risk of changing behavior.
Hopeful: Your customer seeks to experience the product for the first time in order to realize the promise you’ve made. The customer is hopeful that his or her needs will be met and that he or she has hired the right product to do the job.
Satisfied: Your customer’s expectations have been minimally met. Minimally is positive rather than negative, because your product does what you’ve promised it will do.
Passionate: The customer feels a sense of loyalty, wants to show off his or her affiliation with the brand, or otherwise feels an emotional connection to the product or company. Passion comes from the customer experiencing something in the business model greater than merely the product utility.

You can rightfully quibble over the terminology or the exact order of the steps, but this framework helps you empathize with the customer and narrow down what a business must do to create passionate customers.

For each state, we can hypothesize the behavior that indicates the customer is at that state, what the business must do to get the customer there, and how to measure success. Once you’ve accomplished this—Bam!—you’ve just created a hypothesis for your entire business model!

As the business grows, you document the activities that work and the measurement of customer behavior, and you’ve essentially created your innovation dashboard that tracks the success and progress of your business. You can continue to hypothesize new activities, in order to attract new market segments.

In other words, no matter where you happen to be in the development of your business, whether just starting out or trying to reach the next level of growth, you can use the Value Stream Discovery tool to hypothesize, test, and validate how you will move the needle of your endeavor.

A Note on “Freemium”

In business models where there is a free component (often known as a freemium) and revenue is achieved by up-selling, we treat the free component as a part of acquisition. Revenue happens when customers are convinced that the paid component is worth paying for.

It’s worth reiterating here that free does not equal freemium. Free means there is no paid component for the product’s use. Revenue is not made directly from users, but via other means, such as selling user data to third parties, selling advertising, or, in Facebook’s example, taking a cut of revenue from for-pay applications that run on top of Facebook, advertising, selling data, and so on.

It’s also worth noting that freemium is not really a business model. The business model is based on selling premium features beyond the free level. Free is a hook to get users to try the product, perhaps become dependent on it, and then pay for additional usage. Free may also be a basic marketing activity. Entrepreneurs should be careful about overcomplicating their value proposition. As we have told more than one entrepreneur, if you sell hats and have identified a market that wishes to pay for hats, there’s no sense in giving customers a visor and then upgrading them to a hat.

Sell them a $&*^@&! hat!

On the other hand, you may be able to disrupt an existing market by offering a free product in an otherwise for-pay business. Your revenue comes from consistently identifying and delivering value on top of the free version. Keep in mind that you can’t disrupt a for-pay model with free if free already exists!

Customer State

To develop your hypotheses, we recommend thinking of one entire value stream for one market segment. The problem is that if you move forward through the states, you will soon be overwhelmed with the number of possibilities. In other words, how many ways can you think of a customer becoming aware? The answers range from Google search to Super Bowl ad. For that reason, we find it helpful to think of your ideal customer as defined by the persona you created in the “All the Fish in the Sea” chapter, and begin at “passionate” and work backward.

Let’s look at a fictional B2B software as a service (SaaS) example. Bob is the director of supply chain management for a global manufacturing company. His success is predicated on keeping in stock the supply of parts and materials his company needs to manufacture its products. NewSupplyCo is a startup that offers an SaaS product that provides visibility into subscribers’ supply chains. Working backward from Passionate to Aware, we track why Bob has achieved each state:

Why is Bob passionate about NewSupplyCo? NewSupplyCo’s weather-tracking algorithms predicted a major disruption to supply chains in the Far East due to a developing hurricane. Using the SaaS software, Bob was notified days in advance and was able to find alternative suppliers, allowing his company to meet milestones for a new major account. Bob was considered a hero for having brought in NewSupplyCo’s system.
Why is Bob satisfied? As promised, the integration of NewSupplyCo’s software with internal systems was straightforward and accomplished quickly. The user interface was so simple that Bob was easily able to configure alerts and set up existing supplier relationships. Bob felt connected to supply chain status 24 hours a day.
Why is Bob hopeful? Bob led the effort to choose NewSupplyCo. Now that his boss has signed the purchased order, Bob is hopeful he made the right decision and that his company will see a reduction in supply chain delays.
Why is Bob convinced? After lengthy negotations, NewSupplyCo has agreed to work with Bob’s company to integrate the platform on a small-scale pilot project for free and within 30 days of purchase.
Why is Bob trusting? NewSupplyCo flew the CEO out to Bob’s location to meet with him and his boss. Bob was impressed that divisions within General Electric (GE) were already using the product.
Why is Bob intrigued? NewSupplyCo’s video on its website shows what the product looks like and how it works. The demo is speaking to supply chain professionals just like Bob and promises to reduce supply chain disruptions.
Why is Bob aware? Bob finds NewSupplyCo through Internet research, specifically a Google search.

For some products, the lines between convinced, hopeful, and satisfied might be blurred. In other instances, there might be many activities inside each state to move customers from one to the next. Particularly in B2B sales, there most assuredly will be a number of steps in each state, and even several different people involved between the Aware and Convinced states.

These activities are often described as a “sales funnel” or a “marketing funnel.” This is a good way to measure the sales process from the business’s point of view. What we’re doing with the Value Stream Discovery is mapping the customer’s behavior with the sales process activities.

Customer Behavior

Next, you want to assess customer behavior. You can do this by asking yourself: How does the customer indicate the state that he or she is in? Consider that you are selling your marketing analytics product to Ann, a small business owner who needs a dashboard that tracks the performance of specific marketing activities.

What behavior indicates Ann is passionate? Ann provides you a testimonial about how much she loves your product, is willing to have it posted on your web page, and is willing to act as a reference for new customers.
What behavior indicates Ann is satisfied? Every day Ann spends 10 minutes viewing the dashboard. Weekly, she reads an activity report and e-mails it to a colleague. Monthly, she creates a new activity to track.
What behavior indicates Ann is hopeful? Ann signs in to the application for the first time, watches a video tutorial, and creates her first basic marketing activity to track.
What behavior indicates Ann is convinced? Ann purchases a monthly subscription at $39.95 per month.
What behavior indicates Ann is trusting? Ann provides a credit card number to secure a 30-day trial.
What behavior indicates Ann is intrigued? Ann watches a demo video and visits the frequently asked questions (FAQ) and clients web pages.
What behavior indicates Ann is aware? To learn more, Ann clicks on a blog post link to visit your website landing page.

Diagram shows seven blocks with symbols for passionate, satisfied, trusting, hopeful, intrigued, convinced, and aware with respective measurement criteria mentioned beside.

Business Action

This Value Stream Discovery technique can be used with any business, with some tweaking for different products and services. As you flesh out the scenario, it becomes apparent that the business needs to do something or provide something for the scenario to work. We have documented the behavior we expect to see. Now we focus on what the business must do to get the customer to that state.

Incentivizing users to act on their emotion is okay and even encouraged, once you have learned they are feeling that emotion. In other words, you can buy behavior ($100 credit to invite a friend!), but if you don’t yet know that the customer feels passionate, you are buying growth that is likely unsustainable. Prove first that customers feel that way, and then motivate them to act on the feeling.

Business activity means anything the business must provide to create behavior, including, for example, building the product.

Let’s say you’re selling a hardware and software platform that monitors manufacturers’ assembly lines, where the customer is Stan, a stressed-out assembly line supervisor:

What did the company do to make Stan passionate? Stan agrees to act as a reference for NewCo and to roll out production systems across the United States, because:
- In addition to finding standard assembly line faults that saved the company tens of thousands of dollars, the system’s proprietary, advanced artificial intelligence (AI) algorithms proactively alerted technicians of a pending catastrophic fault that was subsequently averted.
- Stan is lauded for a fast implementation and going above and beyond expectations, due to fast, efficient implementation by NewCo’s professional services team.
What did the company do to make Stan satisfied? Stan was satisfied because, as promised, the system successfully localized the cause of intermittent failures, which resulted in a fix. In response, Stan’s company purchased additional sensors and deployed them across the factory. Additionally, status notifications and alerting system were integrated into the network operations center’s monitoring dashboard.
- More user seats were purchased to enable remote technicians to monitor from anywhere at any time.
- Some 25 technicians were monitoring 4,000+ sensors.
- Four factory managers were e-mailed reports monthly. Open rates averaged 50 percent.
What did the company do to make Stan hopeful? Stan indicated he was hopeful by deploying a test implementation (proof of concept) in a mission-critical factory experiencing intermittent failures. The NewCo CEO, chief technology officer (CTO), and best three engineers acted as the professional services team to implement the proof of concept system within 14 days.
What did the company do to make Stan convinced? Stan and his company indicated they were convinced when the business unit general manager (GM) signed off on a six-figure purchase order. NewCo convinced the company by promising free professional services implementation within 30 days of purchase.
What did the company do to make Stan trusting? Stan (and his boss) became trusting when he visited a vendor showroom to watch a live demonstration of the system on an actual assembly line. NewCo had built the live demo showroom, and the CEO extended an offer to visit. The CEO also provided a customer reference.
What did the company do to make Stan intrigued? Stan downloaded a manufacturing case study from the NewCo website and shared it with company executives. The case study included an Adobe Acrobat version for easy sharing. The site messaging and positioning stated, “We will improve your uptime by 15 percent and help establish your plant as a state-of-the-art facility.”
What did the company do to make Stan aware? Stan, who had been instructed by his boss to improve assembly line uptime, read an article in the Assembly Line Today trade magazine hailing NewCo’s assembly line sensor technology. The article resulted from NewCo pitching the industry magazine editors.

Measure

Your customer will do something that indicates he or she has moved to the next state in the funnel; in this way, you can measure the state your customer is in. Sometimes you can measure their direct behavior—for example, when they click on ads, request a follow-up phone call, or interact with your software-as-a-service product in a specific way. Other times, you have to use proxies.

Especially for offline products, you will have to be creative to measure customer behavior in a way that tracks their progress. Let’s look at some ways to measure each state.

Passionate Measurements

Net Promoter Score (NPS) and Must Have Score are two survey methods that require customers to self-assess their experience with the product or generally with the company.

Net Promoter Score asks the question: “How likely are you to recommend our product?” Scores of 9 or 10 fall within the “passion” range, though the NPS technique uses a specific calculation of a large sample of scores.
Must Have Score similarly asks, “How disappointed would you be if this product were no longer available?” The response “very disappointed” falls into the “passion” range, but, like the NPS, expert marketer Sean Ellis looks across a large sample of scores.

Sometimes you can build into the product (or simply compile offline) indications that the customer has achieved extraordinary benefit from using the product. Perhaps the customer’s revenues increase significantly, the company earned greater market share year over year, or it realized a large reduction in costs.

People don’t normally refer products they are merely satisfied with. So any method of sharing a product with others is a great indication of passion. Customers do this by:

Acting as a reference.
Providing a public testimonial.
Agreeing to announce via a press release they’re working with you.
Inviting friends or colleagues to use the product.

Another way to measure passion is to capture extraordinary behavior. If you receive a random call from the CEO of your business customer to thank you, that’s extraordinary. If people take pictures of themselves using your product and post them to Facebook, that’s extraordinary, too.

Satisfied Measurements

Customers are satisfied when they get what they expected. What did you promise them? For mobile apps and online products, this is relatively simple to measure. In order to get the benefits from your product, they must use your product in a specific way. Your challenge is to measure that specific usage.

It’s not good enough to measure the number of product downloads or the number of times a customer logs in to your product. How do they use the product over some time period?

They view three videos a week and post one per month.
They view a dashboard daily, and create a new marketing activity every month.
They renew their maintenance and support contract every year.

Another way to think about this is to ask: What might be a leading indicator of churn? Churn is when customers cancel their monthly subscription. If customers are not using your product in a way they can secure the benefit, are they about to leave?

For offline or transactional purchases where customers buy or use only once, you must be a bit more creative!

If customers return to your storefront, whether online or brick-and-mortar, that indicates satisfaction.
Net Promoter Score and Must Have Score can also be used for this state.
Purchase of consumables related to the primary product.
Subscriptions to online or offline publications related to the product.
Social media interactions.
Participation in contests or events.
Desire for free or low-cost tchotchkes, like T-shirts or coffee mugs.
Online product reviews.

It’s a good idea to use online tools and tactics, including social media, to measure customer satisfaction and passion, since online tools automatically produce tracking data. So if you’re offline, you can still take advantage of online!

Hopeful Measurements

The longer the time gap between buying a product and attempting to get its value, the less likely the customer will ever achieve the Passionate state. This is why electronic toys come with “batteries included.” Good marketers track customer behavior inside an SaaS product after purchase and send follow-up e-mails even if they don’t see activity. Smart enterprise companies schedule product implementations as quickly as possible and are in favor of small initial engagements to get customers up and running and realizing the benefits.

Similar to the Satisfied state, you must measure the specific functionality the customer uses to first try to realize the value—for instance, not just logging in, but creating a profile and sharing it with 10 other users. The trick is, if you know what the user must do to be satisfied, you move that forward in the experience as much as you can to get the user there as soon as possible. You want to reduce any friction, such as extraneous activities like completing a profile or uploading a picture, to getting to the value.

Network effects businesses like Facebook and Twitter realized that the specific characteristics of customer behavior would often indicate whether they would become satisfied users. So, for example, at one point in its growth, Facebook found that users who acquired at least 10 friends within a week would likely become satisfied users and continue to use the product on a regular basis. Consequently, Facebook engineered the product experience to help new users get 10 friends as quickly as possible.

So, ways to measure the hopeful customer are:

Registers for warranty or support online.
Logs in for the first time and tries to do anything meaningful within the product context.
Watches tutorials or reads installation guides after purchase.
New customer support call.
Can you measure the opening of a package?
Attends postpurchase webinar.
Checks in … at hotel, at class, at seminar.

Ultimately, you should view anyone who just purchased or signed up as in the hopeful state, and your job is to engineer the entire experience—product, support, professional services—to get the customer going as quickly as possible.

Convinced Measurements

Ways to measure the convinced state are straightforward, since this is when people go from potential customers to actual customers. So, you’re measuring:

Account sign-up
Online purchases
Signed purchase order
Booking a room

Trusting and Intrigued Measurements

The Trusting and Intrigued states encompass all the sales or marketing steps to get to the point of conversion. The behaviors vary widely based on the product and the business model. More complicated B2B sales may take many months and will likely include numerous steps and a variety of customer behaviors that should be measured. Online consumer purchases, in contrast, might take very few steps and can happen in minutes.

Online, the Trusting and Intrigued states are largely thought of as a marketing funnel. Internet marketers use tools such as Google Analytics or KISSmetrics to track the way customer segments use a website to get to the point of conversion.

Offline—in B2B, for example—the Trusting and Intrigued states are largely thought of as a sales funnel. Sales executives use sales force automation tools (like Salesforce.com) to track progress from being a lead, to qualified, to prospect, to closed.

What is true with almost all purchases, no matter the method of getting through the funnel, is that customers expect to receive benefits from the product and need to trust the company to deliver on them.

To measure trust, you track the behavior you expect to see after you’ve provided customers with whatever they need to trust you. So, for example, B2B customers ask for a reference. You expect them to contact you when they’re ready to talk price after speaking with the reference. Salespeople typically use sales force automation or customer relationship management tools to track the behavior through the sales pipeline.

Online, you might expect users to go to the pricing page after they view your testimonials—you track their progress online using marketing analytics tools, like KISSmetrics and Google Analytics.

One might be tempted to treat sales and marketing as purely matters of execution—that one doesn’t need to go through the steps of learning prior to execution. We hope you’ll reconsider. You might be surprised by the amount of volatility in the marketplace. As quickly as technology is changing, the way customers expect to buy is also changing. So you should hypothesize, test, and validate your Trusting and Intrigued states, just like all the others!

Aware Measurement

What do you expect your ideal customer to do after first hearing about you? The most common answer these days is to visit your website. It’s a good place to start. Measure unique visitors based on where they came from. Ideally, “where they came from” corresponds to a specific marketing activity, which enables you to track the effectiveness of your awareness marketing.

When attracting potential customers to your site, best practices suggest setting up a specific landing page for the marketing activity. In other words, if you are testing a B2B marketing activity, offer a case study as a download. You should set up a specific page where the messaging and call to action (download case study) is clear and uncluttered by other site distractions and alternate actions. You would measure the number of new or unique visitors based on where you posted the notice of the case study (e.g., LinkedIn, Google Ads). It is best not to point potential customers to your main page, since it’s then difficult to measure the effectiveness of where you’re creating awareness.

If your product is offline or you otherwise do not intend to direct new awareness online, measurement is tricky.

Survey retail outlets as to whether they’re receiving inquiries about your product.
Induce phone calls for customers to get more information.
Look for increased social media activity correlated to timing of activity.

Bottom line: You’re better off to use a strong call to action that is measurable.

Voice of the Customer

What do your customers say about you and your product? Here are some examples of what customers might say at each state.

They’re Passionate

“The product is so easy, so beautiful; it makes me want to use it.”
“The product not only does what I want it to, but so much more.”
“This game is addictive!”
“I have to get to the top of the jackpot!”
“When I called customer support, the CEO answered!”
“They took the shoes back, no questions asked. They even paid for return shipping.”
“My replacement arrived before I shipped the defective one back.”
“For every pair of glasses I buy, they provide a free pair to someone in need.”
“The packaging is so cool I hung it on my wall.”
“Their new packaging makes pouring so much easier.”
“Now I can afford to take my family to Europe on summer vacation!”
“I don’t know—the product just makes me feel good.”
“It found problems I didn’t know I had. Now I’m a hero at work.”
“Not only do the jeans fit me, but the looks I get. . . .”
“The food was beyond amazing, and the wine suggested was perfect.”

They’re Satisfied

“The food was spot-on.”
“I was actually able to find jeans that fit me.”
“I am able to create and share new surveys in under 10 minutes.”
“The intrusion-detection system immediately and consistently reports accurate anomalies on my network.”
“After I configured the system, I am finally able to track my marketing campaigns.”
“This game is fun!”
“Using this product has helped me generate more leads.”

They’re Hopeful

“I hope I chose the right product to solve my issue. Let’s give it a try.”
“I hope this thing works as advertised.”
“It’s rated as being at the top of its class—let’s see.”
“I’ve heard the prime rib is top-notch. I can’t wait to taste it.”
“I hope implementation goes smoothly; this tutorial looks helpful.”
“I’m nervous that I won’t know how to work it.”
“I wonder what I should do first.”
“It says no assembly required.”
“I wonder if it comes with batteries.”

They’re Convinced

“Wow, Oprah recommends it.”
“Demo seemed to do what I needed done and I can do it within 30 days.”
“Worth a shot.”
“After 30 days, the trial seems to be paying off.”
“Sample tasted good!”
“Well, not too expensive.”

They’re Trusting

“I respect the testimonials they have on their website.”
“Data analyst gave them a thumbs-up.”
“Online customer reviews are positive.”
“Huh! Four out of five doctors recommend it.”
“Trade mag review was enthusiastic.”
“Not much to lose—satisfaction is guaranteed.”
“At least I can return it, plus free return shipping.”
“Looks like it’s approved by the Better Business Bureau.”
“Case study example matches us perfectly!”
“A friend said it was cool.”
“Four out of five stars!”

They’re Intrigued

“Cash back sounds good.”
“Feels like they’re talking to me.”
“Sounds cool.”
“Whoa, this demo rocks.”
“Nice data sheet.”
“That’s a clever video.”
“Sounds exactly like what I need.”
“Yep, that’s my problem.”
“Who would’ve thought—better, faster, and cheaper.”

They’re Aware

“Sales guy was kind of pushy, but the product sounded pretty good.”
“Did you hear about that product thingy?”
“Wonder if it’s for real.”
“Yeah, we should check that out.”
“Huh, what’s this?”
“Cool packaging.”
“David recommended I check it out.”
“I read about it in a magazine.”
“That Super Bowl ad was hilarious!”

Pulling It Together

Let’s see if we can pull together one complete example, using Airbnb.

Airbnb is a web-based marketplace for travelers to rent accommodations in homes or apartments around the world. One of the early personas was a traveler who wanted to have a “local experience” when visiting a city. These travelers were looking to meet people, go to nontouristy restaurants, and so on. Sarah is one such traveler. We’re going to “flip the funnel” and look at her story from Passionate to Aware:

Passionate

Why is Sarah passionate about Airbnb?

Sarah and her husband had a great experience with the friendly hosts, who recommended that they visit the locals’ favorite restaurant and even offered to phone the owner beforehand to secure a reservation. They had an amazing trip that brought Sarah and her spouse closer and made Sarah feel especially good about not booking the typical three-star hotel they could afford.
How does she behave?

Sarah leaves a glowing review of her experience on the Airbnb site. She tells all her friends. She participates in the online community.
What must Airbnb do?

Airbnb must build the ability to share reviews on social media and invite friends to platform. It should build a community site and engage members there. Finally, it might offer a discount code for future booking if one of a member’s friends signs up and rents a space.

Satisfied

Why is Sarah satisfied?

As promised, the rental went off without a hitch; the apartment was just as the pictures showed. There were no surprises, like extra cleaning fees or other hidden charges that might have busted their budget.
How does she behave?

She rents an apartment once every six months. She browses listings once every three months.
What must Airbnb do?

When Airbnb first started out, it had to build the ability to post pictures and a description of the space, and had to create a booking system for travelers, including the ability to accept payment. Over time, it developed other functionality and increased usability to ensure customer satisfaction.

Hopeful

Why is Sarah hopeful?

Sarah just committed to the reservation and is hopeful the process of securing keys to the apartment will be smooth. She hopes the hosts are friendly and that their interaction with them will be pleasant.
How does she behave?

She exchanges messages with hosts.
What must Airbnb do?

Build a messaging system that uses e-mail or text messaging to allow hosts and travelers to communicate, set up a meeting to exchange keys, and so on.

Convinced

Why is Sarah convinced?

Sarah is finally convinced when she reads the detailed reviews from real travelers and specifically about how great the hosts are. Also, the price seems like a good deal for the size of the space.
How does she behave?

She finishes booking a room (including payment).
What must Airbnb do?

Build a booking system and a review system.

Trusting

Why is Sarah trusting?

Sarah sees that Airbnb has been featured in major news programs and newspapers. Sarah finds it interesting that the hosts’ Facebook page is connected to the website, so she can learn more about them.
How does she behave?

Sarah clicks on articles and browses listings, including looking at social profiles.
What must Airbnb do?

Get good press. Integrate Facebook profiles into website.

Intrigued

Why is Sarah intrigued?

Sarah is viewing the listings on the Airbnb website. This is the first time she has been to the Airbnb site and she is curious about the concept. It seems like an interesting idea—rent rooms, apartments, or houses from private owners, not hotels or typical vacation rental properties. She likes that the site mentions having a more personal and exciting travel experience. It’s like it is talking right to her.
How does she behave?

Spends a length of time on the site, browses listings, reads FAQ.
What must Airbnb do?

Supply FAQ, write messaging to “travelers looking for a local experience.”

Aware

Why is Sarah aware?

Sarah is searching on Craigslist for vacation rentals in the heart of San Francisco. Everything is so expensive. She sees an ad with pictures of a cute apartment for rent.
How does she behave?

She is a unique visitor to Airbnb website from Craigslist ad.
What must Airbnb do?

Use connection to Craigslist to post ads of places to rent.

As stated earlier, the Value Stream Discovery tool helps you think through your business model by hypothesizing the customer journey first, and determining what activities you must do to get that behavior. The activities themselves can be grouped into categories likely more familiar to you:

Aware corresponds to your marketing acquisition channels.
Intrigued and Trusting make up your sales and marketing funnel.
Convinced equals conversion tactics.
Satisfied and Hopeful comprise your minimum viable product.
Passionate is what drives your growth engine.

In The Lean Startup, Eric Ries describes three engines of growth:

Sticky: Companies rely on long-term relationships with customers, who continue to pay over time. For growth, the rate of customer acquisition must be greater than the rate of customers leaving (churn).
Viral: Companies rely on massive numbers of (typically nonpaying) users. Growth comes from users referring other users. Often they are driven to do so because the product experience actually improves with more users.
Paid: Companies rely on the margin between the cost of acquiring new users and the revenue they bring in. To grow, companies spend a portion of the margin to acquire new customers.

CASE STUDY: Ten Lean Startup Buzzword Questions with Rob Fan

Lean Entrepreneur: Let’s get the formalities out of the way. What’s Sharethrough?

Rob Fan: Sharethrough is a native video advertising platform. By native, we mean we integrate advertising content naturally and openly into websites. We work with brands and agencies to distribute high-quality video content they’ve created through their network of publishers. We report back what was successful and what wasn’t. The primary pain point that we solve is getting an audience to the content they’ve spent hundreds of thousands producing, that they have no way to drive an audience to.

LE: Okay, on to our real questions. Question 1: What was your MVP?

Fan: When we started out, my partner, Dan Greenberg, and I had a couple of different products going. In 2008, we had a Facebook application company. We built a huge network of Facebook apps and at one point were the third biggest Facebook app company by daily active users. At the same time, Dan was doing viral video consulting, helping brands make viral videos. We saw that we had tons of content inventory, tons of publishers, so we thought, “Let’s try to take some of these videos and let’s put them into these social applications and see what happens and see if it’s valuable to the customer.”

LE: Like chocolate and peanut butter. You guys were the Reese’s Peanut Butter Cup of Facebook!

Fan: Ha-ha, yeah, sort of.

LE: Sorry. So Question 2: What was your first pivot?

Fan: Yeah. So what’s funny is we actually never did a pivot. . . .

LE: How refreshing.

Fan: Yeah, but we did go through a kind of refocus of the company. Along the way, we hit a point where we had to make a choice. We started building out this ad business within the company, and building out brand relationships and building out technology that we needed, while also maintaining our Facebook applications network. Along the way, we realized that trying to focus on both was just not something we could do as a nimble startup. So we ended up spinning off the Facebook apps and focusing on the ad business.

LE: Question 3: What’s a warning for entrepreneurs about lean startup thinking?

Fan: Because we were so early, I think we fell into a bit of a trap when the second MVP we built, which wasn’t much more sophisticated than the first, took off and was enough to scale the business for quite a while with only minor iterations.

I think because we were so far ahead in terms of where we believed the market was going, our MVP was solving enough pain that we didn’t need to worry about product, and so when you fast-forward, three years later, we paid the price for that. It’s your classic startup story. We know that there is competition around us. The marketplace is changing. People are becoming more aware of the market. We can’t just keep on doing what we’re doing and expect it to be enough. So we realized we needed to refocus on product. What’s interesting is that for two or three years, there was only myself and three other engineers. We never expanded the engineering team because things were going fine and we had revenue, but it also meant that when you’re operating a full-on business with very demanding customers, you’re also not innovating product, because the entire engineering team is focused on keeping the engine running.

LE: Question 4: What’s the most dangerous vanity metric?

Fan: Cash. We’re fortunate to be in a cash-rich business; there’s lots of money going in and out. But, one thing I’ve learned through the years is that cash can be misleading: If it’s a big number it sounds great, but it doesn’t mean you’re setting yourself up to succeed. The best learning is not cash.

LE: We should be in your line of work.

Fan: Cash is essentially like the user metric for us because every time we close a deal it’s just like users signing up. But more important is if the brand comes back to us and uses us again. What’s more important is that we continue to grow out the number of publishers we work with and expand the network so it’s more attractive for the advertisers. Those metrics, which aren’t nearly as sexy, are actually the ones that determine whether we are viable as a long-term business.

I’ll be the first to say cash is what kept us afloat. It’s what allows you to make mistakes, right? If we weren’t the type of business which brings in a lot of cash, we couldn’t have made the mistakes we made along the way. But still, it definitely doesn’t guarantee you a fast track to success.

LE: Question 5: What is product–market fit?

Fan: I think of product–market fit in terms of the technology-adoption life cycle. Early on you have your evangelists, and those are the guys who, no matter what, you show them any shiny new object, they’ll jump on it and start using it and they’ll be passionate about it and they’ll speak to it and report bugs. They’ll tell you what to do, what not to do, but that’s not product–market fit.

Product–market fit is when you reach the mainstream customer, and of course it varies by business and you have to define who your mainstream customer is. But when you have the mainstream acting the same way as an early evangelist, that’s product–market fit. Are they getting excited when you come in to talk about your product? Do they have opinions about it? Do they have feature requests for it?

It really comes down to identifying who is that person with those requests. If it’s someone you have seen to be mainstream in that industry, then I think you’ve definitely got product–market fit at that point. Then it’s like, “Oh, we need to keep on building on top of that.”

LE: Question 6: Best customer development learning?

Fan: What’s funny is that both myself and my cofounder have no experience in the ad industry and the media world, and it is probably one of the most convoluted, confusing industries to understand. So, I think, taking a very deliberate path that customer development talks about and mapping out customer archetypes and putting them up on the board: Who are the archetypes? Who makes the final decision? Who is the actual executor of the contract? What are they motivated by? Doing a lot of that stuff helps solidify: Who are the people that we’re talking to and what do they want? What do they care about? How can they help us build the right product for them? I feel like we knew that there was a big budget in the media world, but we had no idea how to tap into it.

The biggest thing, however—this is probably the biggest learning: Madison Avenue does not think in a very rational way or in a very logical way. I feel like a lot of startup companies go, “Wow, look, I built an amazing product and now I just need a brand to buy into it and obviously they’re going to buy into it.”

What they don’t understand is that there is an entire method to buying into it, and that concept is absolutely foreign to them. So the biggest learning that we had, I think, was recognizing that the primary customer in the media space is actually 21-, 22-year-old new college grads who control millions of dollars in advertising budget. They’re the ones who, in the end, say yea or nay to working with your company. Oddly, or not surprisingly, they aren’t exactly motivated by what’s best for their brands, what’s best for their agency. They’re sometimes motivated by who gives the best drinks, who throws the best parties, who is the most fun to talk to and hang out with. It’s one of those things that, for me, especially being an engineer and from Silicon Valley, I was completely thrown by, and I soon realized how relationship driven this world is.

LE: Question 7: How do you lean startup B2B sales?

Fan: Steve Blank wrote his book primarily from a B2B perspective because it was out of his E.piphany success, but I think the lean startup movement moved toward consumer-based startups and web-based startups. So you get a lot of different information out there focused on consumer startups versus enterprise startups. But the business-to-business model is actually the angle where customer development works the best.

I think the confusing part, when you’re doing B2B with a field sales team, is filtering the noise from the signal, because you have people whose main job is to be out of the building, but their incentives might not be aligned with what’s right for the company. You then have to really understand what you need to build that will help you learn versus what you need to build just to close a deal.

Our first salesperson was my cofounder; he’s an amazing salesperson. So he was doing everything on his own. He was able to build a lot of really great initial relationships, but it was not a scalable way to grow and we were very cautious—everyone has horrible stories about hiring the wrong vice president of sales and then having to start sales over and over and over.

So we were very aware of that, and we thought maybe we’re just out winning in the market because my cofounder is just an amazing salesperson, right? If you have amazing salespeople and your founders are just so charismatic and able to sell that they could sell anything, sales is maybe not a good indicator that your product is ready for the market.

So what we did was bring in an outside rep firm to sell our product. The idea was that if these professional guys cannot sell, our product is not ready to go.

So we said, “Let’s give it a shot,” and almost immediately, like two or three months later, we were hitting channel conflict.

We put together the collateral. We had to present the decks. We had to give them one sheet. We had to print all this stuff for them. So there was a lot of stuff that we had to put together for this but, again, part of, in the lean way, you essentially are iterating through. . . . Having a rep firm there helps you iterate through it, and just having a professional salesperson already say, “That does not look like one sheet. Do it again,” is valuable input before you would go to the client.

It was catching on very quickly, and we said, “Okay, this is obvious: We need to hire a vice president of sales right now.”

We’re constantly iterating our decks and iterating our pitches, and what we’ve had to do now—now that we’re a much bigger sales team—is figure out how to do it in a, I guess, tempered way that doesn’t make the sales team go crazy; but we’ve constantly been iterating the way or honing down the way we communicate, the way we position stuff, the way we present stuff. That’s something that we’re constantly doing. So I like going out on sales calls every now and then, even though I’m the CTO, and my cofounder is out all the time, and that’s one of the things that we’re doing when we’re out there. We’re just testing different concepts, different ways that people are thinking of stuff and bringing it back and incorporating it into kind of how we’re talking about it.

The way we’ve been able to do it right is by staying on top of all the things that are coming in, and so I think part of the great advantage we have is that my cofounder is still going out and regularly being on these sales calls, and we have some pretty savvy salespeople who are able to cut through the crap and really understand what they’re talking about, what they are saying, so they can bring back actual good feedback and we can figure out a way to position ourselves around it or put ourselves in front of the potential competitor or the issue that’s happening so that we’re never in a reactive way. It’s hard for me to recall the moment when we’ve had to be super-reactive to something out in the field.

LE: Question 8: Do you practice continuous deployment?

Fan: No. We could be and I think we’ve thought about trying to get there, but we just never got to that point, and I think the reason is that, in our business, we automatically have tons of scale. So, from the start, there never was this opportunity to start slowly building the tooling around it to allow us to get to the point where we could use continuous deployment.

I actually think of everything as inventory and unused inventory. There are moments when it’s like, “Ah,” because if we were only doing lean continuous deployment it would help, but I think of one of the learnings I had, actually really early on, about just the entire agile thing. I had no idea what agile development was and I had to learn my way into it, and I remember being extremely daunted by hearing Ries describe how his engineering team operates and how they would build software, and I kept on thinking how “my engineering team is so inferior. I don’t know how the hell I’m ever going to get to that point,” and I was thinking, “You can’t take a team from zero to a hundred.”

You can read about the hundred and you can try to get to a hundred; you could dream about it, but it’s not going to happen overnight, and, for the most part, if you get up to even 20, from 0 to 20 is a win.

The entire thing behind agile is that there are many different flavors of agile and you can pick and choose what pieces of agile you want to do, as long as there are some core things that you continue to do. I think that what people miss about agile, which kind of gets left out of the entire lean startup conversation, is a real conversation about what to pick and choose out of agile and what are the right parts of agile that really help. I think [you should be] getting to the point where you start thinking of things essentially as backed-up inventory or unused inventory. They’re good mental models to help you kind of understand how to operate in that world.

LE: Question 9: Any thoughts on technical debt?

Fan: The path we took is a story of not keeping an eye on technical debt and letting the business totally run and control the product itself. This is kind of going back to our MVP being too successful, when we just kept on building on top of the MVP without really thinking about the long-term needs of the business, but essentially operationalizing the product without building out the foundation of the product so we could continue to build on and innovate on top of it. So we definitely hit a point when we were forced to . . . and this was actually, for me, it was like on Thanksgiving and I had to stay up all night and figure out how to scale up machines and how to keep the cache machines up for the next few days as best as possible, knowing full well that it was going to start crashing again very quickly. I was like, “All right, you’ve taken on so much that there’s no way to even scale it in the right way [so] that we’d probably have to . . . have to start from scratch,” and that was, I think, one of the things that was a big setback for the company at the time.

The other realization that I had along the way was the business is around core product. There are many pieces of our product. The one at the core of the business is an ad server, and that’s essentially what is the lifeblood of the company. The decision we made at first was because it’s core, we’ve got to own it, we have to build it. So we spent a good two years building this custom ad server for our business needs. The problem was that it couldn’t scale and it created just a huge operational burden on the engineering team at the time. At the same time, I would just log into all these other ad servers out there, which were already built and done. And it’s like, “Great, it does exactly what we need and it’s done.”

So when I realized we needed to scale, I thought, “Right, why do I even have to worry about this stuff? Because, one, it’s not helping me learn. It’s not accelerating the business at all and, aside from just being a cool engineering challenge, it’s not benefiting at all.” So that was when I made the decision: “All right, let’s use a third-party ad server.” It may be core, but it’s, you know, not the most efficient use of our time.

Having an ad server that doesn’t work doesn’t help the business learn or move forward at all, even if it is core.

I think the fear that I had was that this is such a core piece of our technology, we should be building it. We should be owning it. And I think there is the right time to do that, but when you’re into the learning phase, use as many third-party technologies as you can even if that third-party technology is going to be a core part of what you’re doing, because what you’re trying to prove is whether the overall product offering you’ve built is attractive to the customer base and whether customers are willing to pay.

LE: So how do you know? Bonus question, I guess.

Fan: I think the main thing is really being disciplined about the metrics that you’re watching and then having specific scaling metrics in place to be like, “All right, so we achieved x, y, and z with our MVP, so now we need to spend the time building these specific chunks of a product out because we’ve hit some type of product–market fit here, and this feels like this is probably going to stay, versus some other stuff.”

When you’re so early, who knows if anything’s going to stay? Once you can start seeing the permanent blocks start to form, that’s when you should probably go back in and put reinforcement in there.

You need to, from the start, be very deliberate about how you’re communicating debt and also what is the end of an MVP cycle, right? I think putting those metrics in early (and that’s one of the things I got from a lot of the lean UX stuff that’s happening now), putting a lot of this information up and center, in front of everyone, really helps everyone understand where the company is, and, therefore, if you put your scaling metric up on top of the board or it’s announced on a regular basis and you kind of talk about how “we’re about to hit the capacity of it,” and when you need to now spend time working on it, no one is shocked about that.

LE: Question 10: So what about the company culture?

Fan: From early on you have to start instilling this concept of failing fast, and I think we try to be very deliberate with our culture and to find ways to essentially scale it. So we have a weekly meeting with the entire company as a way to kind of bring everyone back together and talk about things. We’ve had some conversation with people where we kind of have to say we don’t really know where we’re going or where we need to go with this product or we don’t have that strong of a foothold in this marketplace. To some employees, this shocks them, I think, to an extent, but I think they get used to it.

We also do a quarterly meeting where we bring everyone in, which is also really important because we have remote offices now. That brings them all in and gets everyone synced up onto the same page and reinvigorates the company. I think all those activities, although they may just feel like they just create little bonding things, those are the types of things that form culture, and if you do the right activities and you talk about the right things in those meetings and in those instances, that’s how culture is formed and that’s how people start thinking in the way that the founders think.

We’ve done all the paperwork on values and such, but nothing comes out of it until you actually start essentially living the values and people start learning from what you are doing, and I think that’s the biggest thing. You’re struggling to create an environment in which people are not afraid of failing. As leaders, you should probably let them all know how you failed and then how you’re learning from it, and that’s a great way to get everyone to then understand, “Oh, it’s okay to fail,” and so kind of talk about things: “Oh, I tried this out—it didn’t work,” and to constantly talk about that type of philosophy and thinking. That is what will get everyone in a culture where everyone wants to fail fast.

LE: To wrap up, where are you now as a company?

Fan: So we are about 60 people now. We’ve got three offices. We’ve got a sales office in New York, a sales office in Chicago; we’re headquartered up in San Francisco. We’re at a point now where we’ve got an existing product that we’ve operationalized and that we’re kind of growing and scaling out. At the same time, now, we’re also at a point where we need to be innovating and building new products, whether it’s on top of the existing one or things that are kind of parallel to what our existing product is, and so we’re at that point now where we need to do that if we want to keep on moving and moving up essentially.

Yeah. So we took a seed round from Mike Maples at Floodgate, and then we raised an A round from North Bridge.

LE: Great!

WORK TO DO

Use the Value Stream Discovery template to hypothesize your value stream.
Using your ideal customer profile created from the preceding chapter, construct the ideal path customers take from first becoming aware to becoming passionate about your product.
We recommend you work backward from “passionate.”
Document:
- Specific functionality the business provides or activity the business conducts for each step.
- Expected customer behavior based on how customers feel.
- Metric to measure customer behavior.
Try to document only one or two business activities, or one customer action. Less is more, to start.

Value stream loop has cyclic process from 1. Passionate to 2. Satisfied to 3. Hopeful to 4. Convinced to 5. Trusting to 6. Intrigued to 7. Aware. Customer, problem, solution blocks on left.

Value stream dashboard has aware to intrigued to trusting to convinced to hopeful to satisfied to passionate. Customer behavior, organization, metric blocks in three rows for each.

NOTES

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