The Lean Product Playbook
BY: DAN OLSEN
Why do so many products fail? Most products fail not because they are built or marketed poorly, but because they don’t delight customers. The most important thing is to achieve product-market fit.
The Lean Startup Movement is known to help teams stay true to customer needs and rapidly build game-changing products. Read this book summary for a step-by-step process to identify target customers, measure feedback on your MVP, and ultimately create products that delight.
TOP 20 INSIGHTS
1. Most products fail due to poor product-market fit. Product-market fit can be achieved when a product meets customer needs in better ways than existing alternatives, and as a result creates significant customer value.
2. The Lean Product Process is an actionable framework to achieve this product-market fit. It breaks the process down into six steps: identify target customers, select underserved needs, define Product Value Proposition, shortlist Minimum Viable Product feature set, build a prototype, and test with customers.
3. To achieve product-market fit, keep the problem space separate from the solution space. The problem space identifies essential customer needs while the solution space focuses on product design. Multiple solutions can solve each problem in the product space.
4. The first step in the Lean Product process is to identify the customer segment. Target customers are defined with key attributes such as needs, demographics, psychographics, and behaviors. In the case of B2B models, firmographics is used.
5. In some cases, the person who makes the purchase decision is different from the end-user. Therefore, it is important to distinguish both and identify their distinct needs.
6. The Technology Adoption Lifecycle segments the market into five categories based on how fast customers adapt to new technology. Early adopters enthusiastically adopt new products even if they have bugs.
7. Customer personas are single-page archetypes of user demographics, their needs, and what they seek to achieve. Team members make product decisions with the Customer Persona in mind. Add a photo and a quote that conveys what they care about most makes the team empathize with the target customer.
8. Customer wants are documented with User Stories. A User Story generally follows this template: "As a [customer type], I want to [desired action] so that I can [expected benefit]."The needs in the user story are written from a customer perspective
9. The Importance Satisfaction Framework helps us identify underserved customer needs. Importance is the value customers place on a particular need, while satisfaction is a measure of customer satisfaction with existing solutions.
10. The Kano Model divides needs into Must-Have Needs that create dissatisfaction if not met, Performance Needs that create satisfaction proportional to being met, and Delighters that exceed customer expectations. The Must-Have Needs must be met first, followed by Performance Needs and finally Delighters.
11. To create a Product Value Proposition, select the needs to be addressed in a manner that creates product differentiation. Must-have Features are essential for the product. The core product differentiators are the Performance Features that the team chooses to compete in and the Delighters that are selecte
12. To create a Minimum Viable Product (MVP), the team must select the minimum functionality required to validate the product design. For each benefit in the Product Value Proposition, the team identifies and shortlists features. These features are broken into chunks.
13. MVPs can be tested qualitatively by direct customer interaction, or quantitatively by aggregate results at scale. Quantitative tests are good answers to "what" and "how many." Qualitative tests are crucial to understand the "why".
14. Qualitative tests are ideal to test and improve Product-Market Fit. Product design artifacts like mockups can be tested with customers to validate the design. Tests can be done after developing an MVP to get accurate feedback.
15. Fidelity and Interactivity determine customer feedback in product tests. Fidelity is how closely the artifact resembles the final product. Interactivity is the extent to which a customer can interact with a live, working product.
16. Fake Doors are an excellent way to validate customer needs for a particular feature. Before the feature is built, teams create mock landing pages to measure what percentage of customers click on it. If there is sufficient volume, the feature is commissioned.
17. Quantitative marketing tests can be used to statistically verify the effectiveness of product marketing. An excellent quantitative marketing technique is a landing page that describes the planned product features, pricing plans, and has a sign-up button.
18. Teams can become blind to key product issues as they work so closely with the product. User tests are an excellent way to uncover these blind spots. User Tests are ideally done one-on-one with five to eight customers.
19. The Hypothesis-Design-Test-Learn loop enables rapid iterative product development. The Hypothesis step tries to identify the issue in the problem space. The Design step finds the best way to test the hypothesis. The Test step allows the team to verify their assumptions through customer testing.
20. If product-market fit is not achieved after multiple iterations, teams must step back and brainstorm on the core issue. If this leads to a significant change in direction, it is considered to be a pivot. While care must be taken not to pivot too early or too often, it is essential to recognize when product-market fit is not achieved and change direction.
Most products fail because they don't meet customer needs better than the alternatives available. Therefore, achieving product-market fit is the key to creating a successful product. product-market fit means building a product that creates significant customer value and meets needs better than every alternative. The Product Market Pyramid is an actionable framework to achieve such product-market fit.
PRODUCT MARKET PYRAMID
The pyramid has five layers grouped into a market section at the bottom and a product section on the top. Each layer of the pyramid depends on the layer below it. The Product Market Pyramid applies to both products and services.
The market for a product is the set of all existing and potential customers that share a set of related needs. Market size is measured in terms of the number of customers or total revenue generated. The Product Market Pyramid maps the market into an underlying Target Customer segment and followed by an Underserved Needs segment. This is because needs that aren't met can be identified only after selecting the Target Customers.
The third segment in the Product Market pyramid is Value Proposition. This is the set of specific customer needs that the product aims to address in ways better than the existing alternatives. This naturally leads to the fourth layer, the Feature Set. The Feature Set is the product features that are chosen to meet these customer needs. The topmost layer is the UX layer, which is the real-world product interface that customers will see and use.
THE LEAN STARTUP PROCESS
The Lean Product Process helps to create a product-market fit by systematically working through each layer of the pyramid from top to bottom. This step-by-step process minimizes rework and creates rigor in product thinking. The Lean Startup Process consists of six steps:
Identify target customers
Shortlist underserved customer needs
Define the product's Value Proposition
Select the Minimum Viable Product (MVP) Feature Set
Build an MVP Prototype
Test the MVP with customers
PROBLEM SPACE AND SOLUTION SPACE
While designing products, it is crucial to separate Problem Space and Solution Space. The Problem Space answers the question of what are the customer needs to be met. The Solution Space answers the question of how customer needs are met, including the design of the product and technology used. Poor Problem Space understanding gives rise to inside-out product development, where product ideas are based on what employees think is valuable. In contrast, an outside-in approach to product development begins with talking to customers to get a clear understanding of the Problem Space.In the Product Market Pyramid, the bottom three layers of Target Customer, Underserved Needs, and Value Proposition deal with the Problem Space, while Feature Set and User Experience deal with the Solution Space.
STEP 1: IDENTIFY THE TARGET CUSTOMER
The first step of the Lean Product Process is identifying the right customer segment. Companies define their target customers by capturing key attributes, including needs, demographics, psychographics, and behaviors. Demographics include group statistics like age, gender, income and education. In the case of B2B, firmographics is used instead. Psychographics classify people according to attitudes, values, opinions, and interests. Behavioral data segments based on the occurrence and frequency of behaviors. In some cases, the person who makes the purchase decision is different from the end-user. Therefore, it is useful to distinguish the two and identify their distinct needs.
CREATE CUSTOMER PERSONAS
Customer Personas are archetypes of users, their needs, and what they seek to achieve. They help the team align on a standard customer definition. A good Persona is a single-pager that is easy to understand and has relevant demographic, behavioral, and need-based attributes. Adding a photo and a quote that conveys what the customer cares about most makes the team empathize with the target customer in making decisions. Personas must be continually updated through one-on-one conversations with customers on an ongoing basis.
STEP 2: SHORTLIST UNDERSERVED NEEDS
User Stories are an excellent way to capture customer needs. A good template for creating user stories is: "As a [customer type], I want to [desired action] so that I can [expected benefit]." The needs that the product will address are always written from the end-user perspective.
Customer needs begin as hypotheses that can be validated through one-one-one customer discovery interviews. In these interviews, each need is shared with the user, and they are asked to estimate how much value they perceive. Asking follow-up questions on why benefit matters can open up a deeper understanding of a core need beyond the superficial needs. A template for doing this is Toyota's model of asking "Five Whys."
THE IMPORTANCE SATISFACTION FRAMEWORK FOR PRIORITIZING NEEDS
Importance is a problem space concept that measures how valuable a need is to a customer. Satisfaction is a solution-space concept that measures how happy a customer is with a particular solution.
Low importance Needs are not worth pursuing as they won't create enough customer value.
High Importance and High Satisfaction Needs are cases where users are satisfied with the existing solutions in the market. A good example is Microsoft Excel, which has a stable feature set and no significant competition.
High Importance Low Satisfaction Needs are an excellent opportunity to create customer value. This is because the need for them is high, and current products don't meet customer expectations. Disruptive innovations usually emerge from this segment. Uber is an excellent example of capitalizing on highly relevant but poorly served needs of customers to have reliable drivers, predictable fares, and easy payment mechanisms.
The Sony Walkman was a disruptive innovation that allowed users to listen to music on the go for the first time. It shifted the satisfaction scale by redefining the customer experience. Apple repeated the same by launching the iPod. In contrast, the customer's Importance for listening to music on the go has remained constant. Therefore, when forced to choose between Satisfaction and Importance, it is better to prioritize Importance.
THE KANO MODEL
The Kano model divides customer needs into three categories: Must-have needs, Performance Needs and Delighters.
Must-have Needs: Not having these needs met creates dissatisfaction while meeting them is seen as expected. Seat belts in cars are an example.
Performance Needs: As these needs are more fully met the customer satisfaction increases. Speed or mileage in cars is a good example.
Delighters: These features exceed customer expectations, create surprise and high satisfaction.
With time and growing competition, needs migrate from being Delighters to Performance needs to become Must-haves finally. The needs in the Kano model are hierarchical: The Must-have needs must be met first. Performance needs come later, and Delighters come last. This model helps us better prioritize needs and create a differentiated product.
STEP 3: DEFINE VALUE PROPOSITION
Focusing on a specific set of related needs is crucial to creating a great product. The Product Value Proposition helps select the needs to address and why it is better than the market alternatives. The Must-have features are necessary for the product. Therefore, the core differentiators are the performance features to compete in and the delighters that are added.
A tool to create a Product Value Proposition is to make a table with the first column listing the must-haves, performance benefits, and delighters. There must be columns for each competitor and one for the product. Must-haves and delighters are filled with a simple yes, while each performance feature is rated high, medium, or low. This table helps us clearly articulate the value proposition along with how it is differentiated from competitors.
STEP 4: SELECT YOUR MVP FEATURE SET
To create a Minimum Viable Product (MVP), we need to select the minimum functionality required to validate the product design. This step marks a transition from the problem space to the solution space. For each benefit in the Product Value Proposition, the team creatively brainstorms to come up with as many feature ideas as possible. This needs divergent thinking that allows for idea generation without judgments. For each benefit, the top five features are identified. Features can be captured as User Stories to retain the connection with the corresponding customer benefit. Good user stories must be independent, valuable, small, and testable.
Each user story is further broken into smaller pieces of functionality called Chunks to reduce the scope and build the most valuable parts of each feature. Smaller Chunks lead to faster turnaround and quicker feedback. After User Stories are made and chunked, developers assign points based on the amount of effort required. A Chunk that requires high points is broken into smaller pieces. Chunks that have high value and low development time are prioritized.
STEP 5: CREATE AN MVP PROTOTYPE
Minimum in MVP is not an excuse to produce a poor user experience. While the MVP might be minimal in terms of feature scope, it must be high quality to create customer value and test for improvement. MVP tests can be qualitative with direct customer interaction or quantitative to measure aggregate results at scale. While quantitative tests are good at answering "what" and "how many," qualitative tests are crucial to understanding the "why" behind customer responses. Therefore, its best to begin with qualitative tests in the initial stages.
QUALITATIVE MARKETING TESTS
Qualitative marketing tests involve showing customer marketing materials, including landing pages, brochures, and advertisements, and inviting feedback. An excellent way to see if the marketing material works as intended is the five-second test. Customers are shown the content for 5 seconds and then asked to share what they remembered and what they liked.
QUANTITATIVE MARKETING TESTS
These are usually large-scale tests that can be used to improve the rate of reaching prospects and converting prospects into customers.
Landing Page Test: This technique involves creating a landing page or explainer video that describes the planned product features, pricing plans, and has a sign-up button. Traffic is directed to the page and the critical metric measured is the conversion rate
Ad Campaign: This method uses online advertising tools like Google AdWords to place ads targeting your customer demographic and measuring which words and taglines they find compelling.
A/B Testing: Two alternative designs are tested simultaneously to see how they perform on a critical metric. This is done by having different versions of the test running in parallel with web traffic equally distributed to both.
Crowdfunding: Crowdfunding platforms are an excellent way to understand if the customer will pay for the product being developed. This is a particularly useful tool for entrepreneurs to reduce risk as customers pay before the product is developed.
QUALITATIVE PRODUCT TESTS
Qualitative tests are ideal for testing and improving Product-market fit. The quality of feedback in a product test depends on fidelity and Interactivity. Fidelity is how closely the artifact resembles the final product, and Interactivity is the extent to which a customer can interact with a live, working product.
Wireframes: These are low to medium fidelity designs that give an overall picture of how different components are arranged. They are devoid of details like images, colours and fonts.
Manual Hack MVPs: These give the feel and experience of the original product but are driven by manual workarounds.
Live Product: It's a good idea to test the finished product with the customer as it has the highest fidelity and Interactivity. Testing can be done with developers present with the customer or by the customer alone.
QUANTITATIVE PRODUCT TESTS
Quantitative tests can help the team measure how customers use their products.
Fake Door: Fake doors involve creating a button or page for an unbuilt feature to measure what percentage of customers click on it. If there is sufficient interest, the feature can be built.
Product Analytics: Product analytics are useful to understand where customers spend their time and what features most used.
STEP 6: TEST THE MVP WITH CUSTOMERS
Working closely with a product can make the team impervious to critical issues in the product. User Tests can uncover these blind spots within minutes. User Tests are best-done one-on-one with five to eight customers focusing on deep interaction. After making changes, another round of User Tests can be done.
Before conducting a test, scripts must be prepared that detail which parts of the product are shown, the tasks the user must accomplish, and the questions to be asked. User tests typically run for an hour with fifteen minutes of warm-up and user discovery, forty minutes of feedback on the product, and five minutes to wrap-up. It is essential to differentiate between feedback on how easy it was to use(usability) and how valuable the product is (product-market fit). User Testing must be done by carefully choosing customers from your target market. Otherwise, the data will be misleading.
ITERATE AND PIVOT
The essence of lean development lies in quick iteration.
HYPOTHESIZE DESIGN TEST LEARN LOOP
In the Hypothesis step, the Problem Space hypothesis is formulated. Design Step is about finding the best way to test the hypothesis. After creating a design artifact, the Test step allows the team to verify their assumptions through customer testing. The Learn Step studies the results to understand the changes required leading to a better hypothesis. At every point, the team should identify which part of the Product-Market Fit Pyramid the new insight falls in. Changes in the lower layers will require reworking in all subsequent layers.
TO PIVOT OR NOT TO PIVOT
If the product does not work as expected after multiple iterations, it is essential to take a step back and brainstorm on what the core issue is. It could be the case that a deeper problem is being solved on a more superficial level. If the brainstorming leads to a change in product direction, it is considered to be a pivot. If, after several rounds of iterations, Product-market fit is not achieved, then teams must consider pivoting.