Pay It Forward

Hello Friends,

el RED has been inspired by many great books. I use a kindle to highlight the parts I would love to reread . Sharing those here, hoping it would come of use to someone. Pay it forward.

Regards

Saurabh

Hooked

How to keep users Hooked ?

Feel a tad bored and instantly open Twitter

Pang of loneliness scrolling through their Facebook feeds

A question comes. They query Google.

The first-to-mind solution wins.

A trigger is the actuator of behavior—the spark plug in the engine. Triggers come in two types: external and internal.

Habit-forming products start by alerting users with external triggers like an e-mail, a website link, or the app icon on a phone.

Following the trigger comes the action: the behavior done in anticipation of a reward

Companies leverage two basic pulleys of human behavior to increase the likelihood of an action occurring: the ease of performing an action and the psychological motivation to do it.

Variable Reward. ability to create a craving.intrigue is created.

What distinguishes the Hooked Model from a plain vanilla feedback loop is the Hook’s ability to create a craving.

Variable rewards are one of the most powerful tools companies implement to hook users;

Investment. The last phase of the Hooked Model is where the user does a bit of work. The investment phase isn’t about users opening up their wallets and moving on with their day. Rather, the investment implies an action that improves the service for the next go-around. Inviting friends, stating preferences, building virtual assets, and learning to use new features are all investments users make to improve their experience.

These commitments can be leveraged to make the trigger more engaging, the action easier, and the reward more exciting with every pass through the Hooked Model.

Choice architecture, a concept described by famed scholars Thaler, Sunstein, and Balz in their same-titled scholarly paper, offers techniques to influence people’s decisions and affect behavioral outcomes.

The Hooked Model has four phases: trigger, action, variable reward, and investment.

Like nail biting, many of our daily decisions are made simply because that was the way we have found resolution in the past. The brain automatically deduces that if the decision was a good one yesterday, then it is a safe bet again today and the action becomes a routine.

If our programmed behaviors are so influential in guiding our everyday actions, surely harnessing the same power of habits can be a boon for industry. Indeed, for those able to shape them in an effective way, habits can be very good for the bottom line.

While the viability of some products depends on habit-formation to thrive, that is not always the case. For example, companies selling infrequently bought or used products or services do not require habitual users—at least, not in the sense of everyday engagement.

Life insurance companies, for instance, leverage salespeople, advertising, and word-of-mouth referrals and recommendations to prompt consumers to buy policies. Once the policy is bought, there is nothing more the customer.

Some products have a very high CLTV. For example, credit card customers tend to stay loyal for a very long time and are worth a bundle. Hence, credit card companies are willing to spend a considerable amount of money acquiring new customers.

Buffett and his partner, Charlie Munger, realized that as customers form routines around a product, they come to depend upon it and become less sensitive to price.

In the free-to-play video game business, it is standard practice for game developers to delay asking users to pay money until they have played consistently and habitually. Once the compulsion to play is in place and the desire to progress in the game increases, converting users into paying customers is much easier

Viral Cycle Time is the amount of time it takes a user to invite another user, and it can have a massive impact. “For example, after 20 days with a cycle time of two days, you will have 20,470 users,” Skok writes. “But if you halved that cycle time to one day, you would have over 20 million users! It is logical that it would be better to have more cycles occur, but it is less obvious just how much better.”

Many entrepreneurs fall into the trap of building products that are only marginally better than existing solutions, hoping their innovation will be good enough to woo customers away from existing products.

Old habits die hard and new products or services need to offer dramatic improvements to shake users out of old routines.

Products that require a high degree of behavior change are doomed to fail even if the benefits of using the new product are clear and substantial.

Users also increase their dependency on habit-forming products by storing value in them—further reducing the likelihood of switching to an alternative. For example, every e-mail sent and received using Google’s Gmail is stored indefinitely, providing users with a lasting repository of past conversations.

Memories and experiences captured on Instagram are added to one’s digital scrapbook. Switching to a new e- mail service, social network, or photo-sharing app becomes more difficult the more people use them. The nontransferable value created and stored inside these services discourages users from leaving.

The nontransferable value created and stored inside these services discourages users from leaving. To borrow a term from accounting, behaviors are LIFO—“last in, first out.” In other words, the habits you’ve most recently acquired are also the ones most likely to go soonest.

Altering behavior requires not only an understanding of how to persuade people to act—for example, the first time they land on a web page—but also necessitates getting them to repeat behaviors for long periods, ideally for the rest of their lives

The enemy of forming new habits is past behaviors, and research suggests that old habits die hard. Even when we change our routines, neural pathways remain etched in our brains, ready to be reactivated when we lose focus. For new behaviors to really take hold, they must occur often.

Habits keep users loyal. If a user is familiar with the Google interface, switching to Bing requires cognitive effort.

Although many aspects of Bing are similar to Google, even a slight change in pixel placement forces the would- be user to learn a new way of interacting with the site.

For an infrequent action to become a habit, the user must perceive a high degree of utility, either from gaining pleasure or avoiding pain.

Amazon is so confident in its ability to form user habits that it sells and runs ads for directly competitive products on its site.Customers often see the item they are about to buy listed at a cheaper price and can click away to transact elsewhere. Not only does Amazon make money from the ads it runs from competing businesses, it also utilizes other companies’ marketing dollars to form a habit in the shopper’s mind. Amazon seeks to become the solution to a frequently occurring pain point—the customer’s desire to find the items they want. By allowing users to comparison shop from within the site, Amazon provides tremendous perceived utility to its customers.

A company can begin to determine its product’s habit-forming potential by plotting two factors: frequency (how often the behavior occurs) and perceived utility (how useful and rewarding the behavior is in the user’s mind over alternative solutions).

Some behaviors never become habits because they do not occur frequently enough. No matter how much utility is involved, infrequent behaviors remain conscious actions and never create the automatic response that is characteristic of habits.

Remember, the Hooked Model does not get people to do things they don’t want to do. Your product must ultimately be useful.

Facebook, Twitter, Instagram, and Pinterest. What are they selling—vitamins or painkillers? Most people would guess vitamins, thinking users aren’t doing much of anything important other than perhaps seeking a quick boost of social validation.

Before making up your mind on the vitamin versus painkiller debate for some of the world’s most successful tech companies, consider this idea: A habit is when not doing an action causes a bit of discomfort. The sensation is similar to an itch, a feeling that manifests within the mind until it is satisfied. The habit-forming products we use are simply there to provide some sort of relief.

My answer to the vitamin versus painkiller question: Habit-forming technologies are both. These services seem at first to be offering nice-to-have vitamins, but once the habit is established, they provide an ongoing pain remedy.

It is worth noting that although some people use the terms interchangeably, habits are not the same things as addictions. The latter describes persistent, compulsive dependencies on a behavior or substance that harms the user. Addictions, by definition, are self-destructive.

When successful, forming strong user habits can have several business benefits including: higher customer lifetime value (CLTV), greater pricing flexibility, supercharged growth, and a sharper competitive edge.

Habit-forming products often start as nice-to-haves (vitamins) but once the habit is formed, they become musthaves (painkillers). Habit-forming products alleviate users’ discomfort by relieving a pronounced itch.

If you are building a habit-forming product, write down the answers to these questions: What habits does your business model require? What problem are users turning to your product to solve? How do users currently solve that problem and why does it need a solution? How frequently do you expect users to engage with your product once they are habituated? What user behavior do you want to make into a habit?

The chain reaction that forms a habit always starts with a trigger. Habits are not created, they are built upon.

New habits need a foundation upon which to build. Triggers provide the basis for sustained behavior change.

Triggers take the form of obvious cues like the morning alarm clock but also come as more subtle, sometimes subconscious signals that just as effectively influence our daily behavior

Triggers come in two types: external and internal

External Triggers Habit-forming technologies start changing behavior by first cueing users with a call to action.

External triggers are embedded with information, which tells the user what to do next. Online, an external trigger may take the form of a prominent button, such as the large “Log in to Mint” prompt in the email from Mint.com

More choices require the user to evaluate multiple options. Too many choices or irrelevant options can cause hesitation, confusion, or worse—abandonment.Reducing the thinking required to take the next action increases the likelihood of the desired behavior occurring with little thought.

Types of External Triggers. Companies can utilize four types of external triggers to move users to complete desired actions.

Paid Triggers. Advertising, search engine marketing, and other paid channels are commonly used to get users’ attention.Habit-forming companies tend not to rely on paid triggers

Companies generally use paid triggers to acquire new users and then leverage other triggers to bring them back.

Earned Triggers. Earned triggers are free in that they cannot be bought directly, but they often require investment in the form of time spent on public and media relations. For earned triggers to drive ongoing user acquisition, companies must keep their products in the limelight—a difficult and unpredictable task.

Relationship Triggers. One person telling others about a product or service can be a highly effective external trigger for action. Whether through an electronic invitation, a Facebook “like,” or old fashioned word of mouth, product referrals from friends and family are often a key component of technology diffusion.

Sometimes relationship triggers drive growth because people love to tell one another about a wonderful offer.

When designers intentionally trick users into inviting friends or blasting a message to their social networks, they may see some initial growth, but it comes at the expense of users’ goodwill and trust.

Proper use of relationship triggers requires building an engaged user base that is enthusiastic about sharing the benefits of the product with others.

Owned Triggers. Owned triggers consume a piece of real estate in the user’s environment. They consistently show up in daily life and it is ultimately up to the user to opt in to allowing these triggers to appear.

Owned triggers are only set after users sign up for an account, submit their email address, install an app, opt in to newsletters, or otherwise indicate they want to continue receiving communications. While paid, earned, and relationship triggers drive new user acquisition, owned triggers prompt repeat engagement until a habit is formed.

When users form habits, they are cued by a different kind of trigger: internal ones.Internal triggers manifest automatically in your mind. Connecting internal triggers with a product is the brass ring of habit-forming technology.

Emotions, particularly negative ones, are powerful internal triggers and greatly influence our daily routines. Feelings of boredom, loneliness, frustration, confusion, and indecisiveness often instigate a slight pain or irritation and prompt an almost instantaneous and often mindless action to quell the negative sensation. For instance, Yin often uses Instagram when she fears a special moment will be lost forever. The severity of the Emotions, particularly negative ones, are powerful internal triggers and greatly influence our daily routines.The severity of the discomfort may be relatively minor—perhaps her fear is below the perceptibility of consciousness—but that’s exactly the point.

The desire to be entertained can be thought of as the need to satiate boredom. A need to share good news can also be thought of as an attempt to find and maintain social connections.

Users who find a product that alleviates their pain will form strong, positive associations with the product over time.

Gradually, these bonds cement into a habit as users turn to your product when experiencing certain internal triggers.The study demonstrated that people suffering from symptoms of depression used the Internet more.

The mother of all habit-forming technology, is a go-to solution for many of our daily agitations, from validating our importance (or even our existence) by checking to see if someone needs us

Building for Triggers Products that successfully create habits soothe the user’s pain by laying claim to a particular feeling. To do so, product designers must know their user’s internal triggers—that is, the pain they seek to solve. Finding customers’ internal triggers requires learning more about people than what they can tell you in a survey, though.

The ultimate goal of a habit-forming product is to solve the user’s pain by creating an association so that the user identifies the company’s product or service as the source of relief.

How do you, as a designer, go about uncovering the source of a user’s pain? The best place to start is to learn the drivers behind successful habit-forming products—not to copy them, but to understand how they solve users’ problems. Doing so will give you practice in diving deeper into the mind of the consumer and alert you to common human needs and desires. As We often think the Internet enables you to do new things … But people just want to do the same things they’ve always done.”

We often think the Internet enables you to do new things … But people just want to do the same things they’ve always done.”

Ask yourself what pain these habits solve and what the user might be feeling right before one of these actions.

Spend a lot of time writing what’s called user narratives. “He is in the middle of Chicago and they go to a coffee store … This is the experience they’re going to have. It reads like a play. It’s really, really beautiful. If you do that story well, then all of the prioritization, all of the product, all of the design and all the coordination that you need to do with these products just falls out naturally because you can edit the story and everyone can relate to the story from all levels of the organization, engineers to operations to support to designers to the business side of the house.”

Dorsey believes a clear description of users—their desires, emotions, the context with which they use the product —is paramount to building the right solution. In addition to Dorsey’s user narratives, tools like customer development,11 usability studies, and empathy maps12 are examples of methods for learning about potential users.

One method is to try asking the question “Why?” as many times as it takes to get to an emotion. Usually, this will happen by the fifth why. This is a technique adapted from the Toyota Production System, described by Taiichi Ohno as the “5 Whys Method.”

Why #1: Why would Julie want to use e-mail? Answer: So she can send and receive messages.

Why #2: Why would she want to do that? Answer: Because she wants to share and receive information quickly.

Why #3: Why does she want to do that? Answer: To know what’s going on in the lives of her coworkers, friends, and family.

Why #4: Why does she need to know that? Answer: To know if someone needs her.

Why #5: Why would she care about that? Answer: She fears being out of the loop. Now we’ve got something! Fear is a powerful internal trigger and we can design our solution to help calm Julie’s fear. It is the fear of losing a special moment that instigates a pang of stress. This negative emotion is the internal trigger that brings Instagram users back to the app to alleviate this pain by capturing a photo.

Instagram also alleviates the increasingly recognizable pain point known as fear of missing out, or FOMO. For Instagram, associations with internal triggers provide a foundation to form new habits.

Refer to the answers you came up with in the last “Do This Now” section to complete the following exercises: Who is your product’s user? What is the user doing right before your intended habit? Come up with three internal triggers that could cue your user to action. Refer to the 5 Whys Method described in this chapter. Which internal trigger does your user experience most frequently? Finish this brief narrative using the most frequent internal trigger and the habit you are designing: “Every time the user (internal trigger), he/she (first action of intended habit).”

Refer back to the question about what the user is doing right before the first action of the habit. What might be places and times to send an external trigger? How can you couple an external trigger as closely as possible to when the user’s internal trigger fires? Think of at least three conventional ways to trigger your user with current technology (e-mails, notifications, text messages, etc.). Then stretch yourself to come up with at least three crazy or currently impossible ideas for ways to trigger your user (wearable computers, biometric sensors, carrier pigeons, etc.). You could find that your crazy ideas spur some new approaches that may not be so nutty after all. In a few years new technologies will create all sorts of currently unimaginable triggering opportunities.

To initiate action, doing must be easier than thinking. Remember, a habit is a behavior done with little or no conscious thought. The more effort—either physical or mental—required to perform the desired action, the less likely it is to occur.

Fogg posits that there are three ingredients required to initiate any and all behaviors: (1) the user must have sufficient motivation; (2) the user must have the ability to complete the desired action; and (3) a trigger must be present to activate the behavior.

While a trigger cues an action, motivation defines the level of desire to take that action.

All humans are motivated to seek pleasure and avoid pain; to seek hope and avoid fear; and finally, to seek social acceptance and avoid rejection.

What motivates some people will not motivate others, a fact that provides all the more reason to understand the needs of your particular target audience.

However, even with the right trigger enabled and motivation running high, product designers often find users still don’t behave the way they want them to. What’s missing in this equation? Usability—or rather, the ability of the user to take action easily.

First, Hauptly states, understand the reason people use a product or service. Next, lay out the steps the customer must take to get the job done. Finally, once the series of tasks from intention to outcome is understood, simply start removing steps until you reach the simplest possible process. “Take a human desire, preferably one that has been around for a really long time … Identify that desire and use modern technology to take out steps.”

Posting content online is dramatically easier. The result? The percentage of users creating content online, as opposed to simply consuming it, increased.A few keyboard taps and users were sharing.

Six “elements of simplicity”—the factors that influence a task’s difficulty.These are:

Time—how long it takes to complete an action.

Money—the fiscal cost of taking an action.

Physical effort—the amount of labor involved in taking the action.

Brain cycles—the level of mental effort and focus required to take an action.

Social deviance—how accepted the behavior is by others.

Non-routine—according to Fogg, “How much the action matches or disrupts existing routines.”

Twitter helps people share articles, videos, photos, or any other content they find on the web. The company noticed that 25 percent of tweets contained a link.

To ease the way for link sharing, Twitter created an embeddable Tweet button for third-party sites, allowing them to offer visitors a one-click way to tweet directly from their pages

Google’s PageRank algorithm proved to be a much more effective way to index the web. By ranking pages based on how frequently other sites linked to them, Google improved search relevance.

Infinite scroll. whenever the user nears the bottom of a page, more results automatically load. Users never have to pause as they continue scrolling through pins or posts without end

Even though users are often unaware of these influences on their behavior, heuristics can predict their actions.

The Scarcity Effect. The appearance of scarcity affected their perception of value.

The Framing Effect. Context also shapes perception. The mind takes shortcuts informed by our surroundings to make quick and sometimes erroneous judgments. perception can form a personal reality based on how a product is framed, even when there is little relationship with objAbility is influenced by the six factors of time, money, physical effort, brain cycles, social deviance, and nonroutineness. Ability is dependent on users and their context at that moment.ective quality.

The Anchoring Effect. After doing some quick math I discovered that the undershirts not on sale were actually cheaper per shirt than the discounted brand’s package. People often anchor to one piece of information when making a decision.

The Endowed Progress Effect. The study demonstrates the endowed progress effect, a phenomenon that increases motivation as people believe they are nearing a goal. On LinkedIn every user starts with some semblance of progress . The next step is to “Improve Your Profile Strength” by supplying additional information.

Ability is influenced by the six factors of time, money, physical effort, brain cycles, social deviance, and nonroutineness. Ability is dependent on users and their context at that moment.

Walk through the path your users would take to use your product or service, beginning from the time they feel their internal trigger to the point where they receive their expected outcome. How many steps does it take before users obtain the reward they came for? How does this process compare with the simplicity of some of the examples described in this chapter? How does it compare with competing products and services?

Ability is influenced by the six factors of time, money, physical effort, brain cycles, social deviance, and nonroutineness. Ability is dependent on users and their context at that moment.

Users must come to depend on the product as a reliable solution to their problem—the salve for the itch they came to scratch.

Variable reward phase, in which you reward your users by solving a problem, reinforcing their motivation for the action taken in the previous phase

Nucleus accumbens was not activating when the reward (in this case a monetary payout) was received, but rather in anticipation of it.The study revealed that what draws us to act is not the sensation we receive from the reward itself, but the need to alleviate the craving for that reward.

Without variability we are like children in that once we figure out what will happen next, we become less excited by the experience.To hold our attention, products must have an ongoing degree of novelty.

Habits help us conserve our attention for other things while we go about the tasks we perform with little or no conscious thought. However, when something breaks the cause-and-effect pattern we’ve come to expect—when we encounter something outside the norm—we suddenly become aware of it again.4 Novelty sparks our interest, makes us pay attention, and—like a baby encountering a friendly dog for the first time—we seem to love it. Rewards.

Recent experiments reveal that variability increases activity in the nucleus accumbens and spikes levels of the neurotransmitter dopamine, driving our hungry search for rewards.

Variable rewards come in three types: the tribe, the hunt, and the self.

Rewards of the Tribe We are a species that depends on one another. Rewards of the tribe, or social rewards, are driven by our connectedness with other people. Our brains are adapted to seek rewards that make us feel accepted, attractive, important, and included. Facebook, Twitter, Pinterest, and several other sites collectively provide over a billion people with powerful social rewards on a variable schedule. With every post, tweet, or pin, users anticipate social validation. People who observe someone being rewarded for a particular behavior are more likely to alter their own beliefs and subsequent actions. This technique works particularly well when people observe the behavior of people most like themselves or who are slightly more experienced (and therefore, role models).

The uncertainty of what users will find each time they visit the site creates the intrigue needed to pull them back again. “Likes” and comments offer tribal validation for those who shared the content, and provide variable rewards that motivate them to continue posting.

Stack Overflow is the world’s largest question-and-answer site for software developers.

Stack Overflow devotees write responses in anticipation of rewards of the tribe. Each time a user submits an answer, other members have the opportunity to vote the response up or down. The best responses percolate upward, accumulating points for their authors . When they reach certain point levels, members earn badges, which confer special status and privileges. On Stack Overflow, points are not just an empty game mechanic; they confer special value by representing how much someone has contributed to his or her tribe. Users enjoy the feeling of helping their fellow programmers and earning the respect of people whose opinions they value.

The online video game was filled with “trolls”—people who enjoyed bullying other players while being protected by the anonymity the game provides. League of Legends soon earned a nasty reputation for having an “unforgiving—even abusive—community.”To combat the trolls, the game creators designed a reward system leveraging Bandura’s social learning theory, which they called Honor Points (figure 20). The system gave players the ability to award points for particularly sportsmanlike conduct worthy of recognition. These virtual kudos encouraged positive behavior and helped the best and most cooperative players to stand out in the community. The number of points earned was highly variable and could only be conferred by other players. Honor Points soon became a coveted marker of tribe- conferred status and helped weed out trolls by signaling to others which players should be avoided.

Rewards of the Hunt. Early humans killed animals using a technique known as “persistence hunting,” During the chase, the runner is driven by the pursuit itself; this same mental hardwiring also provides clues into the source of our insatiable desires today. The search for resources defines the next type of variable reward—the rewards of the hunt. Slot machines provide a classic example of variable rewards of the hunt.By awarding money in random intervals, games of chance entice players with the prospect of a jackpot.

Twitter. The “feed” has become a social staple of many online products. The stream of limitless information displayed in a scrolling interface makes for a compelling reward of the hunt. The Twitter timeline, for example, is filled with a mix of both mundane and relevant content. This variety creates an enticingly unpredictable user experience.

Pinterest, a company that has grown to reach over 250 million monthly users worldwide, also employs a feed, but with a visual twist.The online pinboarding site is a virtual smorgasbord of objects of desire. The site is curated by its community of users who ensure that a high degree of intriguing content appears on each page. As the user scrolls to the bottom of the page, some images appear to be cut off. Images often appear out of view below the browser fold. However, these images offer a glimpse of what’s ahead, even if just barely visible. To relieve their curiosity, all users have to do is scroll to reveal the full picture

Rewards of the Self Finally, there are the variable rewards we seek for a more personal form of gratification. We are driven to conquer obstacles, even if just for the satisfaction of doing so. The rewards of the self are fueled by “intrinsic motivation” as highlighted by the work of Edward Deci and Richard Ryan. Their self-determination theory espouses that people desire, among other things, to gain.

Video games. Rewards of the self are a defining component in video games, as players seek to master the skills needed to pursue their quest.

The humble e-mail system provides an example of how the search for mastery, completion, and competence moves users to habitual and sometimes mindless actions. Have you ever caught yourself checking your email for no particular reason? Perhaps you unconsciously decided to open it to see what messages might be waiting for you. For many, the number of unread messages represents a sort of goal to be completed. Yet to feel rewarded, the user must have a sense of accomplishment. What happens when in-boxes become flooded with too many messages? Users can give up when they sense the struggle to get their in-boxes under control is hopeless. To combat the problem and give users a sense of progress, Google created “Priority Inbox.”20 Using this feature, Gmail cleverly segments emails into sorted folders to increase the frequency of users achieving “in-box zero”—a near-mystical state of having no unread emails.

Codecademy seeks to make learning to write code more fun and rewarding. The site offers step-by-step instructions for building a web app, animation, and even a browser-based game. The interactive lessons deliver immediate feedback, At Codecademy users can enter a single correct function and the code works or doesn’t, providing instant feedback.

Important Considerations for Designing Reward Systems Variable Rewards Are Not a Free Pass. Why, then, have users remained highly engaged with Quora but not with Mahalo, despite its variable monetary rewards?

Quora demonstrated that social rewards and the variable reinforcement of recognition from peers proved to be much more frequent and salient motivators.Quora instituted an upvoting system that reports user satisfaction with answers and provides a steady stream of social feedback.

Only by understanding what truly matters to users can a company correctly match the right variable reward to their intended behavior. When there is a mismatch between the customer’s problem and the company’s assumed solution, no amount of gamification will help spur engagement. if the user has no ongoing itch at all—say, no need to return repeatedly to a site that lacks any value beyond the initial visit—gamification will fail because of a lack of inherent interest in the product or service offered. Rewards must fit into the narrative of why the product is used and align with the user’s internal triggers and motivations.

Maintain a Sense of Autonomy. the company committed a very public blunder—one that illustrates another important consideration. “Views,” which revealed the real identity of people visiting a particular question or answer. For users, the idea of knowing who was seeing content they added to the site proved very intriguing. Users could now know, for example, when a celebrity or prominent venture capital investor viewed something they created. However, the feature backfired.. In an instant, users lost their treasured anonymity when asking, answering, or simply viewing Quora questions that were personal, awkward, or intimate. For users, the idea of knowing who was seeing content they added to the site proved very intriguing. Users could now know, for example, when a celebrity or prominent venture capital investor viewed something they created. However, the feature backfired. In an instant, users lost their treasured anonymity when asking, answering, or simply viewing

Few words, placed at the end of a request, are a highly effective way to gain compliance, doubling the likelihood. “But you are free to accept or refuse.”The “but you are free” technique demonstrates how we are more likely to be persuaded to give when our ability to choose is reaffirmed.reactance, the hair-trigger response to threats to your autonomy. However, when a request is coupled with an affirmation of the right to choose, reactance is kept at bay. Yet

Keeping a food diary was not part of my daily routine and was not something I came to the app wanting to do.I soon began to feel obligated to confess my mealtime transgressions to my phone. MyFitnessPal became MyFitnessPain.I soon began to feel obligated to confess my mealtime transgressions to my phone.it leverages familiar behaviors users want to do, instead of have to do.

Before my reactance alarm went off, I started receiving kudos from other members of the site after entering my very first run. Curious to know who was sending the virtual encouragement, I logged in, whereupon I immediately saw a question from “mrosplock5,” a woman looking for advice

Fitocracy is first and foremost an online community. The app roped me in by closely mimicking real-world gym jabber among friends. The ritual of connecting with like-minded people existed long before Fitocracy, and the company leverages this behavior by making it easier and more rewarding to share encouragement, exchange advice, and receive praise.

The ritual of connecting with like-minded people existed long before Fitocracy, and the company leverages this behavior by making it easier and more rewarding to share encouragement, exchange advice, and receive praise.

Social acceptance is something we all crave,

To be fair, MyFitnessPal also has social features intended to keep members engaged. However, as opposed to Fitocracy, the benefits of interacting with the community come much later in the user experience, if ever.

The fact remains that the most successful consumer technologies are the ones that nobody makes us use.

Unfortunately, too many companies build their products betting users will do what they make them do instead of letting them do what they want to do

Companies fail to change user behaviors because they do not make their services enjoyable for its own sake, often asking users to learn new, unfamiliar actions instead of making old routines easier.

Companies that successfully change behaviors present users with an implicit choice between their old way of doing things and a new, more convenient way to fulfill existing needs.

Beware of Finite Variability. Companies that successfully change behaviors present users with an implicit choice between their old way of doing things and a new, more convenient way to fulfill existing needs. Experiences with finite variability become less engaging because they eventually become predictable.

Businesses with finite variability are not inferior per se; they just operate under different constraints. They must constantly churn out new content and experiences to cater to their consumers’ insatiable desire for novelty.

Zero to One

The next Larry Page or Sergey Brin won’t make a search engine. And the next Mark Zuckerberg won’t create a social network. If you are copying these guys, you aren’t learning from them.

every time we create something new, we go from 0 to 1. The act of creation is singular, as is the moment of creation, and the result is something fresh and strange.

humans are distinguished from other species by our ability to work miracles. We call these miracles technology.

Humans don’t decide what to build by making choices from some cosmic catalog of options given in advance; instead, by creating new technologies, we rewrite the plan of the world.

the single most powerful pattern I have noticed is that successful people find value in unexpected places, and they do this by thinking about business from first principles instead of formulas.

I like to ask this question: “What important truth do very few people agree with you on?”

This question sounds easy because it’s straightforward. Actually, it’s very hard to answer. It’s intellectually difficult because the knowledge that everyone is taught in school is by definition agreed upon.

it’s psychologically difficult because anyone trying to answer must say something she knows to be unpopular. Brilliant thinking is rare, but courage is in even shorter supply than genius.

the future is simply the set of all moments yet to come. But what makes the future distinctive and important isn’t that it hasn’t happened yet, but rather that it will be a time when the world looks different from today. In this sense, if nothing about our society changes for the next 100 years, then the future is over 100 years away. If things change radically in the next decade, then the future is nearly at hand. No one can predict the future exactly, but we know two things: it’s going to be different, and it must be rooted in today’s world. Most answers to the contrarian question are different ways of seeing the present; good answers are as close as we can come to looking into the future.

there is no reason why technology should be limited to computers. Properly understood, any new and better way of doing things is technology.

most people think the future of the world will be defined by globalization, but the truth is that technology matters more. Without technological change, if China doubles its energy production over the next two decades, it will also double its air pollution. If every one of India’s hundreds of millions of households were to live the way Americans already do—using only today’s tools—the result would be environmentally catastrophic. Spreading old ways to create wealth around the world will result in devastation, not riches. In a world of scarce resources, globalization without new technology is unsustainable.

“Madness is rare in individuals—but in groups, parties, nations, and ages it is the rule,” Nietzsche wrote

Consider an elementary proposition: companies exist to make money, not to lose it. This should be obvious to any thinking person. But it wasn’t so obvious to many in the late 1990s, when no loss was too big to be described as an investment in an even bigger, brighter future. The conventional wisdom of the “New Economy” accepted page views as a more authoritative, forward-looking financial metric than something as pedestrian as profit.

The first step to thinking clearly is to question what we think we know about the past.

four big lessons from the dot-com crash

1. Make incremental advances

Small, incremental steps are the only safe path forward.

2. Stay lean and flexible

try things out, “iterate,” and treat entrepreneurship as agnostic experimentation.

3. Improve on the competition

The only way to know you have a real business is to start with an already existing customer, so you should build your company by improving on recognizable products already offered by successful competitors.

4. Focus on product, not sales

If your product requires advertising or salespeople to sell it, it’s not good enough: technology is primarily about product development, not distribution.

yet the opposite principles are probably more correct:

1. It is better to risk boldness than triviality. 2. A bad plan is better than no plan. 3. Competitive markets destroy profits. 4. Sales matters just as much as product.

To build the next generation of companies, we must abandon the dogmas created

ask yourself: how much of what you know about business is shaped by mistaken reactions to past mistakes?

The most contrarian thing of all is not to oppose the crowd but to think for yourself.

your company could create a lot of value without becoming very valuable itself. Creating value is not enough—you also need to capture some of the value you create.

For example, U.S. airline companies serve millions of passengers and create hundreds of billions of dollars of value each year. But in 2012, when the average airfare each way was $178, the airlines made only 37 cents per passenger trip.

Compare them to Google, which creates less value but captures far more. Google brought in $50 billion in 2012 (versus $160 billion for the airlines), but it kept 21% of those revenues as profits—more than 100 times the airline industry’s profit margin that year.

Economists use two simplified models to explain the difference: perfect competition and monopoly.

Every firm in a competitive market is undifferentiated and sells the same homogeneous products. Since no firm has any market power, they must all sell at whatever price the market determines.

Under perfect competition, in the long run no company makes an economic profit.

In this book, we’re not interested in illegal bullies or government favorites: by “monopoly,” we mean the kind of company that’s so good at what it does that no other firm can offer a close substitute.

Americans mythologize competition and credit it with saving us from socialist bread lines. Actually, capitalism and competition are opposites. Capitalism is premised on the accumulation of capital, but under perfect competition all profits get competed away. The lesson for entrepreneurs is clear: if you want to create and capture lasting value, don’t build an undifferentiated commodity business.

both monopolists and competitors are incentivized to bend the truth.

Monopoly Lies Monopolists lie to protect themselves.

they tend to do whatever they can to conceal their monopoly—usually by exaggerating the power of their (nonexistent) competition.

Competitive Lies Non-monopolists tell the opposite lie: “we’re in a league of our own.”

The fatal temptation is to describe your market extremely narrowly so that you dominate it by definition.

Non-monopolists exaggerate their distinction by defining their market as the intersection of various smaller markets:

Monopolists, by contrast, disguise their monopoly by framing their market as the union of several large markets:

The problem with a competitive business goes beyond lack of profits.

The competitive ecosystem pushes people toward ruthlessness or death.

A monopoly like Google is different.

Google’s motto—“Don’t be evil”—is in part a branding ploy, but it’s also characteristic of a kind of business that’s successful enough to take ethics seriously without jeopardizing its own existence. In business, money is either an important thing or it is everything.

monopolies deserve their bad reputation—but only in a world where nothing changes.

In a static world, a monopolist is just a rent collector. If you corner the market for something, you can jack up the price; others will have no choice but to buy from you.

But the world we live in is dynamic: it’s possible to invent new and better things. Creative monopolists give customers more choices by adding entirely new categories of abundance to the world. Creative monopolies aren’t just good for the rest of society; they’re powerful engines for making it better.

Even the government knows this: that’s why one of its departments works hard to create monopolies (by granting patents to new inventions) even though another part hunts them down (by prosecuting antitrust cases).

The dynamism of new monopolies itself explains why old monopolies don’t strangle innovation. With Apple’s iOS at the forefront, the rise of mobile computing has dramatically reduced Microsoft’s decades-long operating system dominance. Before that, IBM’s hardware monopoly of the ’60s and ’70s was overtaken by Microsoft’s software monopoly. AT&T had a monopoly on telephone service for most of the 20th century, but now anyone can get a cheap cell phone plan from any number of providers. If the tendency of monopoly businesses were to hold back progress, they would be dangerous and we’d be right to oppose them. But the history of progress is a history of better monopoly businesses replacing incumbents.

why are economists obsessed with competition as an ideal state? It’s a relic of history. Economists copied their mathematics from the work of 19th-century physicists: they see individuals and businesses as interchangeable atoms, not as unique creators.

in business, equilibrium means stasis, and stasis means death. If your industry is in a competitive equilibrium, the death of your business won’t matter to the world; some other undifferentiated competitor will always be ready to take your place.

every new creation takes place far from equilibrium. In the real world outside economic theory, every business is successful exactly to the extent that it does something others cannot. Monopoly is therefore not a pathology or an exception. Monopoly is the condition of every successful business.

Tolstoy opens Anna Karenina by observing: “All happy families are alike; each unhappy family is unhappy in its own way.” Business is the opposite. All happy companies are different: each one earns a monopoly by solving a unique problem. All failed companies are the same: they failed to escape competition.

More than anything else, competition is an ideology—the ideology—that pervades our society and distorts our thinking. We preach competition, internalize its necessity, and enact its commandments; and as a result, we trap ourselves within it—even though the more we compete, the less we gain.

ignore it. Our educational system both drives and reflects our obsession with competition. Grades themselves allow precise measurement of each student’s competitiveness; pupils with the highest marks receive status and credentials. We teach every young person the same subjects in mostly the same ways, irrespective of individual talents and preferences. Students who don’t learn best by sitting still at a desk are made to feel somehow inferior, while children who excel on conventional measures like tests and assignments end up defining their identities in terms of this weirdly contrived academic parallel reality. And it gets worse as students ascend to higher levels of the tournament. Elite students climb confidently until they reach a level of competition sufficiently intense to beat their dreams out of them. Higher education is the place where people who had big plans in high school get stuck in fierce rivalries with equally smart peers over conventional careers like management consulting and investment banking. For the privilege of being turned into conformists, students (or their families) pay hundreds of thousands of dollars in skyrocketing tuition that continues to outpace inflation. Why are we doing this to ourselves?

All Rhodes Scholars had a great future in their past.

WAR AND PEACE Professors downplay the cutthroat culture of academia, but managers never tire of comparing business to war. MBA students carry around copies of Clausewitz and Sun Tzu. War metaphors invade our everyday business language: we use headhunters to build up a sales force that will enable us to take a captive market and make a killing. But really it’s competition, not business, that is like war: allegedly necessary, supposedly valiant, but ultimately destructive.

According to Marx, people fight because they are different. The proletariat fights the bourgeoisie because they have completely different ideas and goals (generated, for Marx, by their very different material circumstances). The greater the differences, the greater the conflict.

To Shakespeare, by contrast, all combatants look more or less alike. It’s not at all clear why they should be fighting, since they have nothing to fight about.

In the world of business, at least, Shakespeare proves the superior guide. Inside a firm, people become obsessed with their competitors for career advancement. Then the firms themselves become obsessed with their competitors in the marketplace. Amid all the human drama, people lose sight of what matters and focus on their rivals instead.

Rivalry causes us to overemphasize old opportunities and slavishly copy what has worked in the past.

Competition can make people hallucinate opportunities where none exist. The crazy ’90s version of this was the fierce battle for the online pet store market. It was Pets.com vs. PetStore.com vs. Petopia.com vs. what seemed like dozens of others.

Winning is better than losing, but everybody loses when the war isn’t one worth fighting.

Other times, rivalry is just weird and distracting.

For Hamlet, greatness means willingness to fight for reasons as thin as an eggshell: anyone would fight for things that matter; true heroes take their personal honor so seriously they will fight for things that don’t matter. This twisted logic is part of human nature, but it’s disastrous in business. If you can recognize competition as a destructive force instead of a sign of value, you’re already more sane than most.

a great business is defined by its ability to generate cash flows in the future.

the value of a business today is the sum of all the money it will make in the future. (To properly value a business, you also have to discount those future cash flows to their present worth, since a given amount of money today is worth more than the same amount in the future.)

Comparing discounted cash flows shows the difference between low-growth businesses and high-growth startups at its starkest. Most of the value of low-growth businesses is in the near term.

An Old Economy business (like a newspaper) might hold its value if it can maintain its current cash flows for five or six years. However, any firm with close substitutes will see its profits competed away. Nightclubs or restaurants are extreme examples: successful ones might collect healthy amounts today, but their cash flows will probably dwindle over the next few years when customers move on to newer and trendier alternatives. Technology companies follow the opposite trajectory. They often lose money for the first few years: it takes time to build valuable things, and that means delayed revenue. Most of a tech company’s value will come at least 10 to 15 years in the future.

The overwhelming importance of future profits is counterintuitive even in Silicon Valley. For a company to be valuable it must grow and endure, but many entrepreneurs focus only on short-term growth. They have an excuse: growth is easy to measure, but durability isn’t. Those who succumb to measurement mania obsess about weekly active user statistics, monthly revenue targets, and quarterly earnings reports. However, you can hit those numbers and still overlook deeper, harder-to-measure problems that threaten the durability of your business.

For example, rapid short-term growth at both Zynga and Groupon distracted managers and investors from long-term challenges. Zynga scored early wins with games like Farmville and claimed to have a “psychometric engine” to rigorously gauge the appeal of new releases. But they ended up with the same problem as every Hollywood studio: how can you reliably produce a constant stream of popular entertainment for a fickle audience? (Nobody knows.) Groupon posted fast growth as hundreds of thousands of local businesses tried their product. But persuading those businesses to become repeat customers was harder than they thought.

What does a company with large cash flows far into the future look like? Every monopoly is unique, but they usually share some combination of the following characteristics: proprietary technology, network effects, economies of scale, and branding.

Start Small and Monopolize Every startup is small at the start. Every monopoly dominates a large share of its market. Therefore, every startup should start with a very small market. Always err on the side of starting too small.

Small doesn’t mean nonexistent. We made this mistake early on at PayPal. Our first product let people beam money to each other via PalmPilots.

The perfect target market for a startup is a small group of particular people concentrated together and served by few or no competitors.

Any big market is a bad choice, and a big market already served by competing companies is even worse. This is why it’s always a red flag when entrepreneurs talk about getting 1% of a $100 billion market. In practice, a large market will either lack a good starting point or it will be open to competition, so it’s hard to ever reach that 1%. And even if you do succeed in gaining a small foothold, you’ll have to be satisfied with keeping the lights on: cutthroat competition means your profits will be zero.

Don’t Disrupt

Originally, “disruption” was a term of art to describe how a firm can use new technology to introduce a low-end product at low prices, improve the product over time, and eventually overtake even the premium products offered by incumbent companies using older technology.

However, disruption has recently transmogrified into a self-congratulatory buzzword for anything posing as trendy and new. This seemingly trivial fad matters because it distorts an entrepreneur’s self-understanding in an inherently competitive way. The concept was coined to describe threats to incumbent companies, so startups’ obsession with disruption means they see themselves through older firms’ eyes.

if you truly want to make something new, the act of creation is far more important than the old industries that might not like what you create.

Disruption also attracts attention: disruptors are people who look for trouble and find it. Disruptive kids get sent to the principal’s office. Disruptive companies often pick fights they can’t win.

As you craft a plan to expand to adjacent markets, don’t disrupt: avoid competition as much as possible.

moving first is a tactic, not a goal. What really matters is generating cash flows in the future, so being the first mover doesn’t do you any good if someone else comes along and unseats you.

It’s much better to be the last mover—that is, to make the last great development in a specific market and enjoy years or even decades of monopoly profits.

The way to do that is to dominate a small niche and scale up from there, toward your ambitious long-term vision.

Malcolm Gladwell,

declares in Outliers that success results from a “patchwork of lucky breaks and arbitrary advantages.”

Ralph Waldo Emerson captured this ethos when he wrote: “Shallow men believe in luck, believe in circumstances…. Strong men believe in cause and effect.”

Instead of pursuing many-sided mediocrity and calling it “well-roundedness,” a definite person determines the one best thing to do and then does it. Instead of working tirelessly to make herself indistinguishable, she strives to be great at something substantive—to be a monopoly of one.

Malcolm Gladwell says you can’t understand Bill Gates’s success without understanding his fortunate personal context: he grew up in a good family, went to a private school equipped with a computer lab, and counted Paul Allen as a childhood friend. But perhaps you can’t understand Malcolm Gladwell without understanding his historical context as a Boomer (born in 1963). When Baby Boomers grow up and write books to explain why one or another individual is successful, they point to the power of a particular individual’s context as determined by chance. But they miss the even bigger social context for their own preferred explanations: a whole generation learned from childhood to overrate the power of chance and underrate the importance of planning.

progress without planning is what we call “evolution.”

Darwin himself wrote that life tends to “progress” without anybody intending it. Every living thing is just a random iteration on some other organism, and the best iterations win.

it’s not clear that Darwinian biology should explain how to build a better society or how to create a new business out of nothing.

Would-be entrepreneurs are told that nothing can be known in advance: we’re supposed to listen to what customers say they want, make nothing more than a “minimum viable product,” and iterate our way to success. But leanness is a methodology, not a goal. Making small changes to things that already exist might lead you to a local maximum, but it won’t help you find the global maximum.

iteration without a bold plan won’t take you from 0 to 1. A company is the strangest place of all for an indefinite optimist: why should you expect your own business to succeed without a plan to make it happen?

Darwinism may be a fine theory in other contexts, but in startups, intelligent design works best.

THE RETURN OF DESIGN

It’s true that every great entrepreneur is first and foremost a designer.

the most important lesson to learn from Jobs has nothing to do with aesthetics. The greatest thing Jobs designed was his business. Apple imagined and executed definite multi-year plans to create new products and distribute them effectively. Forget “minimum viable products”—ever since he started Apple in 1976, Jobs saw that you can change the world through careful planning,

Long-term planning is often undervalued by our indefinite short-term world.

YOU ARE NOT A LOTTERY TICKET

Malcolm Gladwell must be persuaded to change his theories.

A startup is the largest endeavor over which you can have definite mastery. You can have agency not just over your own life, but over a small and important part of the world. It begins by rejecting the unjust tyranny of Chance. You are not a lottery ticket.

MONEY MAKES MONEY. “For whoever has will be given more, and they will have an abundance. Whoever does not have, even what they have will be taken from them” (Matthew 25:29).

monopoly businesses capture more value than millions of undifferentiated competitors. Whatever Einstein did or didn’t say, the power law—so named because exponential equations describe severely unequal distributions—is the law of the universe.

the power law becomes visible when you follow the money: in venture capital, where investors try to profit from exponential growth in early-stage companies, a few companies attain exponentially greater value than all others.

will be normally distributed: that is, bad companies will fail, mediocre ones will stay flat, and good ones will return 2x or even 4x. Assuming this bland pattern, investors assemble a diversified portfolio and hope that winners counterbalance losers. But this “spray and pray” approach usually produces an entire portfolio of flops, with no hits at all. This is because venture returns don’t follow a normal distribution overall. Rather, they follow a power law: a small handful of companies radically outperform all others.

The biggest secret in venture capital is that the best investment in a successful fund equals or outperforms the entire rest of the fund combined.

This implies two very strange rules for VCs. First, only invest in companies that have the potential to return the value of the entire fund. This is a scary rule, because it eliminates the vast majority of possible investments. (Even quite successful companies usually succeed on a more humble scale.) This leads to rule number two: because rule number one is so restrictive, there can’t be any other rules.

Consider what happens when you break the first rule. Andreessen Horowitz invested $250,000 in Instagram in 2010. When Facebook bought Instagram just two years later for $1 billion, Andreessen netted $78 million—a 312x return in less than two years. That’s a phenomenal return, befitting the firm’s reputation as one of the Valley’s best. But in a weird way it’s not nearly enough, because Andreessen Horowitz has a $1.5 billion fund: if they only wrote $250,000 checks, they would need to find 19 Instagrams just to break even.

even the best VC firms have a “portfolio.” However, every single company in a good venture portfolio must have the potential to succeed at vast scale.

Whenever you shift from the substance of a business to the financial question of whether or not it fits into a diversified hedging strategy, venture investing starts to look a lot like buying lottery tickets. And once you think that you’re playing the lottery, you’ve already psychologically prepared yourself to lose.

The most common answer to the question of future value is a diversified portfolio: “Don’t put all your eggs in one basket,” everyone has been told. As we said, even the best venture investors have a portfolio, but investors who understand the power law make as few investments as possible. The kind of portfolio thinking embraced by both folk wisdom and financial convention, by contrast, regards diversified betting as a source of strength. The more you dabble, the more you are supposed to have hedged against the uncertainty of the future.

an individual cannot diversify his own life by keeping dozens of equally possible careers in ready reserve. Our schools teach the opposite: institutionalized education traffics in a kind of homogenized, generic knowledge. Everybody who passes through the American school system learns not to think in power law terms. Every high school course period lasts 45 minutes whatever the subject. Every student proceeds at a similar pace. At college, model students obsessively hedge their futures by assembling a suite of exotic and minor skills. Every university believes in “excellence,” and hundred-page course catalogs arranged alphabetically according to arbitrary departments of knowledge seem designed to reassure you that “it doesn’t matter what you do, as long as you do it well.” That is completely false. It does matter what you do. You should focus relentlessly on something you’re good at doing, but before that you must think hard about whether it will be valuable in the future.

For the startup world, this means you should not necessarily start your own company, even if you are extraordinarily talented. If anything, too many people are starting their own companies today. People who understand the power law will hesitate more than others when it comes to founding a new venture: they know how tremendously successful they could become by joining the very best company while it’s growing fast. The power law means that differences between companies will dwarf the differences in roles inside companies. You could have 100% of the equity if you fully fund your own venture, but if it fails you’ll have 100% of nothing. Owning just 0.01% of Google, by contrast, is incredibly valuable (more than $35 million as of this writing).

Remember our contrarian question: what important truth do very few people agree with you on? If we already understand as much of the natural world as we ever will—if all of today’s conventional ideas are already enlightened, and if everything has already been done—then there are no good answers. Contrarian thinking doesn’t make any sense unless the world still has secrets left to give up.

Recall the business version of our contrarian question: what valuable company is nobody building? Every correct answer is necessarily a secret: something important and unknown, something hard to do but doable. If there are many secrets left in the world, there are probably many world-changing companies yet to be started.

WHY AREN’T PEOPLE LOOKING FOR SECRETS? Most people act as if there were no secrets left to find.

there are easy truths that children are expected to rattle off, and then there are the mysteries of God, which can’t be explained. In between—the zone of hard truths—lies heresy.

Why has so much of our society come to believe that there are no hard secrets left?

Along with the natural fact that physical frontiers have receded, four social trends have conspired to root out belief in secrets. First is incrementalism. From an early age, we are taught that the right way to do things is to proceed one very small step at a time, day by day, grade by grade. If you overachieve and end up learning something that’s not on the test, you won’t receive credit for it. But in exchange for doing exactly what’s asked of you (and for doing it just a bit better than your peers), you’ll get an A. This process extends all the way up through the tenure track, which is why academics usually chase large numbers of trivial publications instead of new frontiers. Second is risk aversion. People are scared of secrets because they are scared of being wrong. By definition, a secret hasn’t been vetted by the mainstream. If your goal is to never make a mistake in your life, you shouldn’t look for secrets. The prospect of being lonely but right—dedicating your life to something that no one else believes in—is already hard. The prospect of being lonely and wrong can be unbearable. Third is complacency. Social elites have the most freedom and ability to explore new thinking, but they seem to believe in secrets the least. Why search for a new secret if you can comfortably collect rents on everything that has already been done? Every fall, the deans at top law schools and business schools welcome the incoming class with the same implicit message: “You got into this elite institution. Your worries are over. You’re set for life.” But that’s probably the kind of thing that’s true only if you don’t believe it. Fourth is “flatness.” As globalization advances, people perceive the world as one homogeneous, highly competitive marketplace: the world is “flat.” Given that assumption, anyone who might have had the ambition to look for a secret will first ask himself: if it were possible to discover something new, wouldn’t someone from the faceless global talent pool of smarter and more creative people have found it already? This voice of doubt can dissuade people from even starting to look for secrets in a world that seems too big a place for any individual to contribute something unique.

The actual truth is that there are many more secrets left to find, but they will yield only to relentless searchers. There is more to do in science, medicine, engineering, and in technology of all kinds. We are within reach not just of marginal goals set at the competitive edge of today’s conventional disciplines, but of ambitions so great that even the boldest minds of the Scientific Revolution hesitated to announce them directly.

Blue Ocean Strategy

The surge in social network sites, blogs, micro-blogs, video-sharing services, user-driven content, and internet ratings that have become close to ubiquitous around the globe have shifted the power and credibility of voice from organizations to individuals.

Cirque du Soleil’s

It appealed to a whole new group of customers: adults and corporate clients prepared to pay a price several times as great as traditional circuses for an unprecedented entertainment experience.

Look back 120 years and ask yourself, How many of today’s industries were then unknown? The answer: many industries as basic as automobiles, music recording, aviation, petrochemicals, health care, and management consulting were unheard of or had just begun to emerge at that time. Now turn the clock back only forty years. Again, a plethora of multi billion- and trillion-dollar industries jumps out—e-commerce; cell phones; laptops, routers, switches, and networking devices; gas-fired electricity plants; biotechnology; discount bars to name a few. Just four decades ago, none of these industries existed in a meaningful way.

Now put the clock forward twenty years —or perhaps fifty years—and ask yourself how many now unknown industries will likely exist then.

The overriding focus of strategic thinking has been on competition based red ocean strategies. Part of the explanation for this is that corporate strategy is heavily influenced by its roots in military strategy. The very language of strategy is deeply imbued with military references – chief executive “officers” in “headquarters”, “troops” on the “front lines”. Described this way, strategy is about confronting an opponent and fighting over a given piece of land that is both limited and constant.

To focus on the red ocean is therefore to accept the key constraining factors of war—limited terrain and the need to beat an enemy to succeed—and to deny the distinctive strength of the business world: the capacity to create new market space that is uncontested.

Our study shows that the strategic move, and not the company or the industry, is the right unit of analysis for explaining the creation of blue oceans and sustained high performance. A strategic move is the set of managerial actions and decisions involved in making a major market-creating business offering.

What consistently separated winners from losers in creating blue oceans was their approach to strategy.

The creators of blue oceans, surprisingly, didn’t use the competition as their benchmark. Instead, they followed a different strategic logic that we call value innovation. Value innovation is the cornerstone of blue ocean strategy. We call it value innovation because instead of focusing on beating the competition, you focus on making the competition irrelevant by creating a leap in value for buyers and your company, thereby opening up new and uncontested market space.

Value innovation places equal emphasis on value and innovation. Value without innovation tends to focus on value creation on an incremental scale, something that improves value but is not sufficient to make you stand out in the marketplace. Innovation without value tends to be technology-driven, market pioneering, or futuristic, often shooting beyond what buyers are ready to accept and pay for.

Value innovation occurs only when companies align innovation with utility, price, and cost positions. If they fail to anchor innovation with value in this way, technology innovators and market pioneers often lay the eggs that companies hatch.

Value innovation is a new way of thinking about and executing strategy that results in the creation of a blue ocean and a break from the competition. Importantly, value innovation defies one of the most commonly accepted dogmas of competition-based strategy: the value-cost trade-off. It is conventionally believed that companies can either create greater value to customers at a higher cost or create reasonable value at a lower cost. Here strategy is seen as making a choice between differentiation and low cost.In contrast, those that seek to create blue oceans pursue differentiation and low cost simultaneously.

Value innovation requires companies to orient the whole system toward achieving a leap in value for both buyers and themselves.

Value innovation is based on the view that market boundaries and industry structure are not given and can be reconstructed by the actions and beliefs of industry players. We call this the reconstructionist view.

Effective blue ocean strategy should be about risk minimization and not risk taking.

Our research found that customers can scarcely imagine how to create uncontested market space. Their insight also tends toward the familiar “offer me more for less.” And what customers typically want “more” of are those product and service features that the industry currently offers.

To fundamentally shift the strategy canvas of an industry, you must begin by reorienting your strategic focus from competitors to alternatives, and from customers to noncustomers of the industry. To pursue both value and low cost, you should resist the old logic of benchmarking competitors in the existing field and choosing between differentiation and cost leadership.

Sometimes there is a fundamental change in what buyers’ value, but companies that are focused on benchmarking one another do not act on, or even perceive, the change.

The Eliminate-Reduce-Raise-Create Grid

Three complementary qualities: focus, divergence, and a compelling tagline.

Focus

Every great strategy has focus, and a company’s strategic profile, or value curve, should clearly show it.

Divergence

When a company’s strategy is formed reactively as it tries to keep up with the competition, it loses its uniqueness.

Compelling Tagline

A good strategy has a clear-cut and compelling tagline.

Reading the Value Curves

The strategy canvas enables companies to see the future in the present. To achieve this, companies must understand how to read value curves.

A Blue Ocean Strategy

The first question the value curves answer is whether a business deserves to be a winner. When a company’s value curve, or its competitors’, meets the three criteria that define a good blue ocean strategy—focus, divergence, and a compelling tagline that speaks to the market—the company is on the right track. These three criteria serve as an initial litmus test of the commercial viability of blue ocean ideas.

On the other hand, when a company’s value curve lacks focus, its cost structure will tend to be high and its business model complex in implementation and execution. When it lacks divergence, a company’s strategy is a me-too, with no reason to stand apart in the marketplace. When it lacks an internally driven or a classic example of innovation for innovation’s sake with no great commercial potential and no natural take-off capability.

A Company Caught in the Red Ocean

When a company’s value curve converges with its competitors, it signals that a company is likely caught within the red ocean of bloody competition. A company’s explicit or implicit strategy tends to be trying to outdo its competition on the basis of cost or quality. This signals slow growth unless,

Overdelivery without Payback

When a company’s value curve on the strategy canvas is shown to deliver high levels across all factors, the question is, does the company’s market share and profitability reflect these investments? If not, the strategy canvas signals that the company may be oversupplying its customers, offering too much of those elements that add incremental value to buyers.

Strategic Contradictions

Are there strategic contradictions? These are areas where a company is offering a high level on one competing factor while ignoring others that support that factor. An example is investing heavily in making a company’s website easy to use but failing to correct the site’s slow speed of operations.

An Internally Driven Company

In drawing the strategy canvas, how does a company label the industry’s competing factors? For example, does it use the word megahertz instead of speed, or thermal water temperature instead of hot water? Are the competing factors stated in terms buyers can understand and value, or are they in operational jargon?

Reconstruct Market Boundaries

This principle addresses the search risk many companies struggle with. The challenge is to successfully identify, out of the haystack of possibilities that exist, commercially compelling blue ocean opportunities. These patterns applied across all types of industry sectors—from consumer goods, to industrial products, to finance and services, to telecoms and IT, to pharmaceuticals and B2B

Looking at familiar data from a new perspective. These paths challenge the six fundamental assumptions underlying many companies’ strategies.

Specifically, companies tend to do the following: Define their industry similarly and focus on being the best within it

Look at their industries through the lens of generally accepted strategic groups (such as luxury automobiles, economy care, and family vehicles), and strive to stand out in the strategic group they play in

Focus on the same buyer group, be it the purchaser (as in the office equipment industry), the user (as in the clothing industry), or the influencer (as in the pharmaceutical industry)

Define the scope of the products and services offered by their industry similarly

Accept their industry’s functional or emotional orientation

Focus on the same point in time —and often on current competitive threats—in formulating strategy

The more that companies share this conventional wisdom about how they compete, the greater the competitive convergence among them.

Instead of looking within these boundaries, managers need to look systematically across them to create blue oceans. They need to look across alternative industries, across strategic groups, across buyers groups, across complementary product and service offering, across the functional-emotional orientation of an industry, and even across time.

Path 1: Look Across Alternative Industries

Products or services that have different forms but offer the same functionality or core utility are often substitutes for each other. On the other hand, alternatives include products or services that have different functions and forms but the same purpose.

For example, to sort out their personal finance, people can buy and install a finance software package, hire a CPA, or simply use pencil and paper. And nowadays there are also apps that help with this. The software, the CPA, the pencil and financial apps are largely substitutes for each other.

Despite the differences in form and function, however, people go to a restaurant for the same objective that they go to the movies: to enjoy a night out. These are not substitutes, but alternatives to choose from.

In making every purchase decision, buyers implicitly weigh alternatives, often unconsciously.

The thought process is intuitive for individual consumers and industrial buyers alike. For some reason, we often abandon this intuitive thinking when we become sellers. A shift in price, a change in model, even a new ad campaign can elicit a tremendous response from rivals within an industry, but the same actions in an alternative industry are usually so unnoticed.

Path 2: Look Across Strategic Groups Within Industries

Strategic groups can generally be ranked in a rough hierarchical order built on two dimensions: price and performance. Each jump in price tends to bring a corresponding jump in some dimensions of performance.

The key to creating a blue ocean across existing strategic groups is to break out of this narrow tunnel vision by understanding which factors determine customers’ decisions to trade up or down from one group to another.

In the luxury car market, Toyota’s Lexus carved out a new blue ocean by offering the quality of the high-end Mercedes, BMW, and Jaguar at a price closer to the lower-end Cadillac and Lincoln.

What are the strategic groups in your industry? Why do customers trade up for the higher group, and why do they trade down for the lower one?

Path 3: Look Across the chain of buyers

There is a chain of “buyers” who are directly or indirectly involved in the buying decision. The purchasers who pay for the product or service may differ from the actual users, and in some cases there are important influencers as well. Although these three groups may overlap, they often differ. When they do, they frequently hold different definitions of value. A corporate purchasing agent, for example, may be more concerned with cost than the corporate user, who is likely to be far more concerned with ease of use. Similarly, a retailer may value a manufacturer’s just-in-time stock replenishment and innovative financing. But consumer purchasers, although strongly influenced by the channel, do not value these things. The pharmaceutical industry, for example, focuses overridingly on influencers: doctors. The office equipment industry focuses heavily on purchasers: corporate purchasing departments. And the clothing industry sells predominantly to users. Sometimes there is a strong economic rationale for this focus. But often it is the result of industry practices that have never been questioned.

What is the chain of buyers in your industry? Which buyer group does your industry typically focus on? If you shifted the buyer group of your industry, how could you unlock new value?

Path 4: Look across Complementary Product and Service Offerings

Path 5 Looks Across Functional or Emotional Appeal to Buyers

When companies are willing to challenge the functional emotional orientation of their industry, they often find new market space. We have observed two common patterns. Emotionally oriented industries offer many extras that add price without enhancing functionality. Stripping away those extras may create a fundamentally simpler, lower-priced, lower-cost business model that customers would welcome. Conversely, functionally oriented industries can often infuse commodity products with new life by adding a dose of emotion and, in so doing, can stimulate new demand.

Swatch, which transformed the functionally driven budget watch industry into an emotionally driven fashion statement, or The Body Shop, which did the reverse, transforming the emotionally driven industry of cosmetics into a functional, no-nonsense cosmetic house.

Patrimonio Hoy program.

At the foundation of patrimonio Hoy was the traditional Mexican system of tandas, a traditional community savings scheme. In a tanda, ten individuals (for example) contribute 100 pesos per week for ten weeks. In the first week, lots are drawn to see who “wins” the 1,000 pesos ($93) in each of the ten weeks. All participants win the 1,000 pesos one time only,

Patrimonio Hoy building materials club.

Whereas Cemex’s competitors sold bags of cement, Cemex was selling a dream, with a business model involving innovative financing and construction know-how. Cemex went a step further, throwing small festivities for the town when a room was finished and thereby reinforcing the happiness it brought to people and the tanda tradition

A burst of blue ocean creation has been under way in a number of service industries but in the opposite direction—moving from an emotional to a functional orientation, Relationship businesses, such as insurance, banking, and investing, have relied heavily on the emotional bond between broker and client. They are ripe for change.

Does your industry compete on functionality or emotional appeal? If you compete on emotional appeal, what elements can you strip out to make it functional? If you compete on functionality what elements can be added to make it emotional?

Path 6: Look Across Time

Whether it’s the emergence of new technologies or major regulatory changes, managers tend to focus on projecting the trend itself. That is, they ask in which direction a technology will evolve, how it will be adopted, whether it will become scalable. They pace their own actions to keep up with the development of the trends they’re tracking.

But key insights into blue ocean strategy rarely come from projecting the trend itself. Instead they arise from business insights into how the trend will change value to customers and impact the company’s business model. By looking across time—from the value a market delivers today to the value it might deliver tomorrow.

Three principles are critical to assessing trends across time. These trends must be decisive to your business, they must be irreversible, and they must have a clear trajectory.

Many trends can be observed at any one time—for example, a discontinuity in technology, the rise of a new lifestyle, or a change in regulatory or social environments. But usually only one or two will have a decisive impact on any particular business. Having identified a trend of this nature, you can then look across time and ask yourself what the market would look like if the trend were taken to its logical conclusion. Working back from that vision of a blue ocean strategy, you can identify what must be changed today to unlock a new blue ocean.

Today iTunes offers more than 37 million songs as well as movies, TV shows, books, and podcasts.

Cisco Systems created a new market space by thinking across time trends. It started with a decisive and irreversible trend that had a clear trajectory: the growing demand for high-speed data exchange.

CNN created the first real-time twenty-four-hour global news network based on the rising tide of globalization.

Focus on the big picture, not the numbers. This approach consistently produces strategies that unlock the creativity of a wide range of people within an organization, open companies’ eyes to blue oceans, and are easy to understand and communicate for effective execution.

Drawing a strategy canvas does three things.

First, it shows the strategic profile of an industry by depicting very clearly the factors (and the possible future factors) that affect competition among industry players.

Second, it shows the strategic profile of current and potential competitors, identifying which factors they invest in strategically.

Finally, it shows the company’s strategic profile—or value curve—depicting how it invests in the factors of competition and how it might invest in them in the future.

The strategic profile with high blue ocean potential has three complementary qualities: focus, divergence, and a compelling tagline. If a company’s strategic profile does not clearly reveal those qualities, its strategy will likely be muddled, undifferentiated, and hard to communicate. It is also likely to be costly to execute.

Drawing Your Strategy Canvas

Most managers have a strong impression of how they and their competitors fare along one or two dimensions within their own scope of responsibility, but very few can see the overall dynamics of their industry. The catering manager of an airline, for example, will be highly sensitive to how the airline compares in terms of refreshments. But that focus makes consistent measurement difficult; what seems to be a very big difference to the catering manager may not be important to customers, who look at the complete offering.

Step 1: Visual Awakening

Many people had pet ideas of which they were the sole champions.

Step 2: Visual Exploration

The next step is to send a team into the field, putting managers face-to-face with what they must make sense of: how people use or don’t use their products or services. This step may seem obvious, but we have found that managers often outsource this part of the strategy-making process. They rely on reports that other people (often at one or two removes form the world they report on) have put together. A company should never outsource its eyes.

For example, account relationship managers, whom nearly everyone had agreed were a key to success and on whom EFS prided itself, turned out to be the company’s Achilles’ heel. Customers hated wasting time dealing with relationship managers. To buyers, relationship managers were seen as relationship savers because EFS failed to deliver on its promises.

Each team had to draw six new value curves using the six path framework explained in chapter 3. Each new value curve had to depict a strategy that would make the company stand out in its market. By demanding six pictures from each team, we hoped to push managers to create innovative proposals and break the boundaries of their conventional thinking.

For each visual strategy, the teams also had to write a compelling tagline that captured the essence of the strategy and spoke directly to buyers. Suggestions included “Leave It to Us,” “Make ME Smarter,” and “Transactions in Trust.” A strong sense of competition developed between the two teams, making the process fun, imbuing it with energy, and driving the teams to develop blue ocean strategies.

Step 3: Visual Strategy Fair

After the twelve strategies were presented, each judge—an invited attendee—was given five sticky notes and told to put them next to his or her favorites. The judges could put all five on a single strategy if they found it that compelling. The transparency and immediacy of this approach freed it from the politics that sometimes seem endemic to the strategic planning process.

Step 4: Visual Communication

After the future strategy is set, the last step is to communicate it in a way that can be easily understood by any employee.

Employees were so motivated by the clear game plan that many pinned up a version of the strategy canvas in their cubicles as a reminder of EFS’s new priorities and the gaps that needed to be closed.

Using the pioneer-Migrator-Settler (PMS) Map

All the companies that created blue oceans in our study have been pioneers in their industries, not necessarily in developing new technologies but in pushing the value they offer customers to new frontiers.

A company’s pioneers are the businesses that offer unprecedented value. These are your blue ocean offerings, and they are the most powerful sources of profitable growth. At the other extreme are settlers—businesses whose value curves conform to the basic shape of the industry’s. These are me-too businesses.

The potential of migrators lies somewhere in between. Such businesses extend the industry’s curve by giving customers more for less, but they don’t alter its basic shape. These businesses offer improved value, but not innovative value. These are businesses whose strategies fall on the margin between red oceans and blue oceans.

The more an industry is populated by settlers, the greater is the opportunity to value-innovate and create a blue ocean of new market space. Chief executives should instead use value and innovation as the important parameters for managing their portfolio of businesses. They should use innovation because, without it, companies are stuck in the trap of competitive improvements. They should use value because innovative ideas will be profitable only if they are linked to what buyers are willing to pay for.

Aristotle pointed out, “The soul never thinks without an image.”

Reach Beyond Existing Demand

Companies should challenge two conventional strategy practices. One is the focus on existing customers. The other is the drive for finer segmentation to accommodate buyer differences.

Typically, to grow their share of a market, companies strive to retain and expand existing customers. This often leads to finer segmentation and greater tailoring of offerings to better meet customer preferences. The more intense the competition is, the greater, on average, is the resulting customization of offerings. As companies compete to embrace customer preferences through finer segmentation, they often risk creating too-small target markets. To maximize the size of their blue oceans, companies need to take a reverse course. Instead of concentrating on customers, they need to look to noncustomers. And instead of focusing on customer differences, they need to build on powerful commonalities in what buyers value. That allows companies to reach beyond existing demand to unlock a new mass of customers that did not exist before.

To reach beyond existing demand, think noncustomers before customers; commonalities before differences; and desegmentation before pursuing finer segmentation.

The Three Tiers of Noncustomers

The first tier of noncustomers is closest to your market. They sit on the edge of the market. They are buyers who minimally purchase an industry’s offering out of necessity but are mentally noncustomers of the industry.

The second tier of noncustomers is people who refuse to use your industry’s offerings.

The third tier of noncustomers is farthest from your market. They are noncustomers who have never thought of your market’s offerings as an option.

Lesson: noncustomers tend to offer far more insight into how to unlock and grow a blue ocean than do relatively content existing customers. What are the key reasons first –tier noncustomers want to jump ship and leave your industry? Look for the commonalities across their responses. Focus on these, and not on the differences between them. You will glean insight into how to desegment buyers and unleash an ocean of latent untapped demand.

Go for the Biggest Catchment

Because the scale of blue ocean opportunities that a specific tier of noncustomers can unlock varies across time and industries, you should focus on the tier that represents the biggest catchment that your organization has the capability to act on. But you should also explore whether there are overlapping commonalities across all three tiers of noncustomers. In that way, you can expand the scope of latent demand you can unleash

The point here is not to argue that it’s wrong to focus on existing customers or segmentation but rather to challenge these existing, taken-for-granted strategic orientations.

The Right Strategic Sequence

As shown in figure 6-1, companies need to build their blue ocean strategy in the sequence of buyer utility, price, cost, and adoption.

Unless the technology makes buyers’ lives dramatically simpler, more convenient, more productive, less risky, or more fun and fashionable, it will not attract the masses no matter how many awards it wins. Value innovation is not the same as technology innovation.

Many companies take a reverse course, first testing the waters of a new product or service by targeting novelty seeking, price-insensitive customers at the launch of a new business idea; only over time do they drop prices to attract mainstream buyers. It is increasingly important, however, to know from the start what price will quickly capture the mass of target buyers.

Like the creative concepts of Pret A Manger or JCDecaux, many of the most powerful blue ocean ideas have tremendous value but in themselves consist of no new technological discoveries. As a result they are neither patentable nor excludable and hence are vulnerable to imitation.

All this means that the strategic price you set for your offering must not only attract buyers in large numbers but also help you to retain them. Given the high potential for free riding, an offering’s reputation must be earned on day one, because brand building increasingly relies heavily on word-of-mouth recommendations spreading rapidly through our networked society. Companies must therefore start with an offer that buyers can’t refuse and must keep it that way to discourage any free-riding imitations. This is what makes strategic pricing key.

Step 1: Identify the Price Corridor of the Target Mass

The main challenge in determining a strategic price is to understand the price sensitivities of those people who will be comparing the new product or service with a host of very different-looking products and services offered outside the group of traditional competitors.

A good way to look outside industry boundaries is to list products and services that fall into two categories: those that take different forms but perform the same function, and those that take different forms and functions but share the same overarching objective.

Different form, same function.

Many companies that create blue oceans attract customers from other industries who use a product or service that performs the same function or bears the same core utility as the new one but takes a very different physical form. In the case of Ford’s Model T, Ford looked to the horse-drawn carriage. The horse-drawn carriage had the same core utility as the car:

Different form and function, same objective.

Some companies lure customers from even further away. Cirque du Soleil, for example, has diverted customers from a wide range of evening activities. To enjoy a night out

The key here is not to pursue pricing against competition within an industry but rather to pursue pricing against substitutes and alternatives across industries and non-industries.

Step 2: Specify a Level within the Price Corridor

Companies with uncertain patent and asset protection should consider pricing somewhere in the middle of the corridor. As for companies that have no such protection, lower-boundary strategic pricing is advised. Companies would be wise to pursue mid- to lower-boundary strategic pricing from the start if any of the following apply:

Their blue ocean offering has high fixed costs and marginal variable costs.

The attractiveness of the blue ocean offering depends heavily on network externalities.

The cost structure behind the blue ocean offering benefits from steep economies of scale and scope. In these cases, volume brings with it significant cost advantages, something that makes pricing for volume even more key.

From Strategic Pricing to Target Costing

Price-minus costing, and not cost plus pricing, is essential if you are to arrive at a cost structure that is both profitable and hard for potential followers to match.

Before plowing forward and investing in the new idea, the company must first overcome such fears by educating the fearful.

Employees

Business Partners

The General Public

The Blue Ocean Idea Index

Overcome Key Organizational Hurdles

They face four hurdles. One is cognitive: waking employees up to the need for a strategic shift. The second hurdle is limited resources. The greater the shift in strategy, the greater it is assumed are the resources needed to execute it. But resources were being cut, and not raised, in many of the organizations we studied.

Third is motivation. How do you motivate key players to move fast and tenaciously to carry out a break from the status quo? That will take years, and managers don’t have that kind of time. The final hurdle is politics. As one manager put it, “In our organization you get shot down before you stand up.”

Four hurdles that managers consistently claim limit their ability to execute blue ocean strategy: the cognitive hurdle that blinds employees from seeing that radical change is necessary; the resource hurdle that is endemic in firms; the motivational hurdle that discourages and demoralizes staff; and the political hurdle of internal and external resistance to change.

Break through the Cognitive Hurdle

Tipping point leadership does not rely on numbers to break through the organization’s cognitive hurdle. To tip the cognitive hurdle fast, tipping point leaders such as Bratton zoom in on the act of disproportionate influence: making people see and experience harsh reality firsthand. “Seeing is believing.” After a child puts a finger on a burning stove, he or she will never do it again. After a negative experience, children will change their behavior of their own accord; again, no parental pestering is required.

Tipping point leadership builds on this insight to inspire a fast change in mind-set that is internally driven of people’s own accord. Instead of relying on numbers to tip the cognitive hurdle, they make people experience the need for change in two ways.

Ride the “Electric Sewer”

To break the status quo, employees must come face-to-face with the worst operational problems. Numbers are disputable and uninspiring, but coming face-to-face with poor performance is shocking and inescapable, but actionable.

Making top brass and middle brass—starting with himself—ride the electric sewer day and night

Meet with Disgruntled Customers

To tip the cognitive hurdle, not only must you get your managers out of the office to see operational horror, but you also must get them to listen to their most disgruntled customers firsthand.

What they felt victimized by and harassed by were the constant minor irritants:

Jump the Resource Hurdle

Do they have the money to spend on the necessary changes? At this point, most reformist CEOs do one of two things. Either they trim their ambitions and demoralize their workforce all over again, or they fight for more resources from their bankers and shareholders, a process that can take time and divert attention from the underlying problems.

Hot spots, cold spots, and horse trading. Hot spots are activities that have low resource input but high potential performance gains. In contrast, cold spots are activities that have high resource input but low performance impact. In every organization, hot spots and cold spots typically abound. Horse trading involves trading your unit’s excess resources in one area for another unit’s excess resources to fill remaining resource gaps.

Redistribute Resources to Your Hot Spots

Logic was that increments in performance could be achieved only with proportional increment in resource.

Are you allocating resources based on old assumptions, or do you seek out and concentrate resources on hot spots? Where are your hot spots? What activities have the greatest performance impact but are resource starved? Where are your cold spots? What activities are resource oversupplied but have scant performance impact? Do you have a horse trader, and what can you trade ?

Jump the Motivational Hurdle

How can you motivate the mass of employees fast and at low cost? When most business leaders want to break from the status quo and transform their organization, they issue grand strategic visions and turn to massive top-down mobilization initiatives. They act on the assumption that to create massive reactions, proportionately massive action is required. But this is often a cumbersome, expensive, and time-consuming process, given the wide variety of motivational needs in most large companies. Kingpins, fishbowl management, and atomization.

Zoom In on Kingpins

To trigger an epidemic movement of positive energy, however, you should not spread your efforts thin. Rather, you should concentrate your efforts on kingpins, the key influencers in the organization. These are people inside the organization who are natural leaders, who are well respected and persuasive, or who have an ability to unlock or block access to key resources.

Place Kingpins in a Fishbowl

Fishbowl management, where kingpins’ actions and inaction are made as transparent to others as are fish in a bowl of water. By placing kingpins in a fishbowl in this way, you greatly raise the stakes of inaction. Light is shined on who is lagging behind, and a fair stage is set for rapid change agents to shine. For fishbowl management to work, it must be based on transparency, inclusion, and fair process. Biweekly crime strategy review meeting, top brass to review the performance of all. Attendance was mandatory.

As a result, an intense performance culture was created in weeks—forget about months. For this work, however, organizations must simultaneously make fair process the modus operandi. By fair process we mean engaging all the affected people in the process, explaining to them the basis of decisions and the reasons people will be promoted or sidestepped in the future, and setting clear expectations of what that means to employees’ performance.

Atomize to Get the Organization to Change Itself

The last disproportionate influence factor is atomization. To make the challenge attainable, Bratton broke it into bite-size atoms that officers at different levels could relate to. “block by block, precinct by precinct, and borough by borough.”

Knock Over the Political Hurdle

Organizational politics is an inescapable reality of corporate and public life. The more likely change becomes, the more fiercely and vocally these negative influencers—both internal and external—will fight to protect their positions, and their resistance can seriously damage and even derail the strategy execution process.

Focus on three disproportionate influence factors: leveraging angels, silencing devils, and getting a consigliere on their top management team. Angels are those who have the most to gain from the strategy. Devils are those who have the most to lose from it. And a consigliere is a politically adept but highly respected insider who knows in advance all the land mines, including who will fight you and who will support you.

Don’t fight alone. Get a higher and wider voice to fight with you. Identify your detractors and supporters—forget the middle—and strive to create a win-win outcome for both. But move quickly. Isolate your detractors by building a broader coalition with your angels before a battle begins. In this way, you will discourage the war before it has a chance to start or gain steam. Key to winning over your detractors or devils is knowing all their likely angels of attack and building up counterarguments backed by irrefutable facts and reason.

Challenging Conventional Wisdom

Don’t follow conventional wisdom. Not every challenge requires a proportionate action. Focus on acts of disproportionate influence. This is a critical leadership component for making blue ocean strategy happen.

Build Execution into Strategy

People’s minds and hearts must align with the new strategy so that at the level of the individual, people embrace it of their own accord and willingly go beyond compulsory execution to voluntary cooperation in carrying it out. Where blue ocean strategy is concerned, this challenge is heightened. Trepidation builds as people are required to step out of their comfort zones and change how they have worked in the past. They wonder, what are the real reasons for this change? Is management honest when it speaks of building future growth through a change in strategic course? Or are they trying to make us redundant and work us out of our jobs?

Management risk is relevant to strategy execution in both red and blue oceans, but it is greater for blue ocean strategy because its execution often requires significant change. Companies must reach beyond the usual suspects of carrots and sticks. They must reach a fair process in the making and executing of strategy. Our research shows that fair process is a key variable that distinguishes successful blue ocean strategic moves from those that failed. The presence or absence of fair process can make or break a company’s best execution efforts.

The Three E Principles of Fair Process

There are three mutually reinforcing elements that define fair process: engagement, explanation, and clarity of expectation.

Expectation clarity requires that after a strategy is set, managers state clearly the new rules of the game. Although the expectations may be demanding, employees should know up front what standards they will be judged by and the penalties for failure. When people understand what is expected of them, political jockeying and favoritism are minimized, and people can force on executing the strategy rapidly.

No one explained why the strategic shift was needed, how the company needed to break away from the competition to stimulate new demand, and why the shift in the manufacturing process was a key element of that strategy. Employees sat in stunned silence, with no understanding of the rationale behind the change. The managers mistook this for acceptance.

Why Does Fair Process Matter?

Emotionally, individuals seek recognition of their value, not as “labor,” “personnel,” or “human resources” but as human beings who are treated with full respect and dignity and appreciated for their individual worth regardless of hierarchical level. Intellectually, individuals seek recognition that their ideas are sought after and given thoughtful reflection, and that others think enough of their intelligence to explain their thinking to them.

When individuals feel recognized for their intellectual worth, they are willing to share their knowledge; in fact, they feel inspired to impress and confirm the expectations of their intellectual value, suggesting active ideas and knowledge sharing.Similarly, when individuals are treated with emotional recognition, they feel emotionally tied to the strategy and inspired to give their all. Lacking trust is the strategy-making process, people lack trust in the resulting strategies. Such is the emotional power that a fair process can provoke.

Fair Process and External Stakeholders

Align Value, Profit, and People Propositions

Define what blue ocean strategy is, how to reconstruct market boundaries and offer a leap in value to buyers. Unlocking business model innovation through strategic pricing, target costing, and the like so a company can seize new customers profitably. Releasing the creativity, knowledge sharing, and voluntary cooperation of people through the proper approach to employees and partners. While all three are correct, they are also only partial answers.

At the highest level, there are three propositions essential to the success of strategy: the value proposition, the profit proposition, and the people proposition. While good strategy content is based on a compelling value proposition for buyers with a robust profit proposition for the organization, sustainable strategy execution is based largely on a motivating people proposition. Lacking a holistic understanding of strategy, it is easy for an organization to focus overridingly on one or two strategy propositions to the exclusion of the other(s).

Strategic alignment is the responsibility of an organization’s top executives versus those in charge of marketing, manufacturing, human resource, or other functions. Executives with a strong functional bias typically cannot successfully fulfill this important role because they tend to focus on a part, not the whole, of the three strategy propositions, hence missing the alignment.

Putting It All Together

When the record labels approached Napster to work out a revenue-sharing model for the digital download of music that would create a win-win for both sides, Napster balked. The excitement over Napster’s spectacular growth prevented it from appreciating that it needed an external people proposition that offered differentiation and low cost for its key partners,

Renew Blue Oceans

Understanding the process of renewal is key to ensure that the creation of blue oceans is not a one-off occurrence but is institutionalized as a repeatable process in an organization.

Barriers to Imitation

The alignment barrier. The alignment of the three strategy propositions—value, profit, and people.

The cognitive and organizational barrier. CNN was referred to as Chicken Noodle News by the industry. Ridicule does not inspire rapid imitation as it creates a cognitive barrier. Imitation often requires companies to make substantial changes to their existing business practices, organizational politics often kick in, delaying for years a company’s commitment to imitate a blue ocean strategy.

The brand barrier.

The economic and legal barrier.

Renewal at the Individual Business level

Monitoring value curves signals when to value-innovate and when not to. When a company’s value curve still has focus, divergence, and a compelling tagline, it should resist the temptation to value innovate the business again and instead should focus on lengthening, widening, and deepening its rent stream through operational improvements of scale and market coverage. It should swim as far as possible in the blue ocean, making itself a moving target, distancing itself from early imitators, and discouraging them in the process. The aim here is to dominate the blue ocean over imitators for as long as possible.

Renewal at the Corporate Level for a Multibusiness Firm

A dynamic extension of the pioneer-migrator-settler (PMS) map introduced in chapter 4 serves this purpose well. It can be used to visually depict the movement of a corporate portfolio in one picture by capturing a corporation’s portfolio of business offerings over time. By plotting the corporate portfolio as pioneers, migrators, and settlers on the dynamic PMS map, executives can see at a glance where the gravity of its current portfolio of businesses is, how this has shifted over time, and when there is a need to create a new blue ocean to renew the portfolio. As explained in chapter 4, settlers are me-too businesses, migrators represent value improvements, and pioneers are a company’s value innovations. While settlers are today’s cash generators that typically have marginal growth potential, pioneers have high growth potential but often consume cash at the outset as they expand; migrators’ profitable growth potential lies somewhere in between. To maximize growth prospects then, a company’s portfolio should have a healthy balance between pioneers for future growth and migrators and settlers for cash flow at a given point in time.

Once Apple’s iPod began to be imitated, for example, to counter competition it rapidly launched a range of iPod variants at various price points with the iPod mini, shuffle, nano, touch, and so on. This not only served to keep encroaching competitors at arm’s length, but also expanded the size of the ocean it created, allowing Apple, not imitators, to capture the lion’s share of the profit and growth of this new market space.

Avoid Red Ocean Traps

You have to get your framing right to create blue oceans. Perspective is critical to success. Your mind-set is more ingrained than you realize.

Red Ocean Trap One: The belief that blue ocean strategy is a customer-oriented strategy that’s about being customer led.

A blue ocean strategist gains insights about reconstructing market boundaries not by looking at existing customers, but by exploring noncustomers.

Red Ocean Trap Two: The belief that to create blue oceans, you must venture beyond your core business,

Think of Casella Wines with [yellow tail] in the wine industry, Nintendo with the Wii, Chrysler with the minivan, Apple with its iMac,

Red Ocean Trap Three: The misconception that blue ocean strategy is about new technologies.

The reason buyers love these blue ocean offerings isn’t because they involve bleeding-edge technology per se, but because these offerings make the technology essentially disappear from buyer’s minds. Ask: How does your product or service offer a leap in productivity, simplicity, ease of use, convenience, fun and/or environmental friendliness? Value innovation, not technology innovation, is what opens up commercially compelling new markets.

Red Ocean Trap Four: The belief that to create a blue ocean, you must be first to market.

Blue ocean strategy is not about being first to market. Rather it’s about being first to get it right by linking innovation to value.

Red Ocean Trap Five: misconception that blue ocean strategy and differentiation strategy are synonymous.

Under traditional competitive strategy, differentiation is achieved by providing premium value at a higher cost to the company and at a higher price for customers.

Blue ocean strategy is an “and-and,” not an either-or, strategy.

Red Ocean Trap Six: The misconception that blue ocean strategy is a low-cost strategy that focuses on low pricing.

A blue ocean strategic move captures the mass of target buyers not through low-cost pricing, but through strategic pricing. The key here is not to pursue pricing against the competition within an industry but to pursue pricing against substitutes and alternatives that are currently capturing the noncustomers of your industry.

Red Ocean Trap Seven: The belief that blue ocean strategy is the same as innovation.

Many technology innovators fail to create and capture blue oceans by confusing innovation with value innovation.

Red Ocean Trap Eight: The belief that blue ocean strategy is a theory of marketing and a niche strategy.

Blue ocean strategy should also not be confused with a niche strategy. It is more about de-segmenting the market by focusing on key commonalities across the buyer group to open up and capture the largest catchment of demand. When practitioners confuse the two, they all too often are driven to look for customer differences for niche markets in the existing industry space rather than the commonalities that cut across buyer groups in search of blue oceans or new demand.

Red Ocean Trap Nine: The belief that blue ocean strategy sees competition as bad when in fact it can be good for companies.

Red Ocean Trap Ten: The belief that blue ocean strategy is synonymous with creative destruction or disruption.

By reconstructing existing market boundaries, blue ocean strategy creates new market space and is created beyond existing industries. When new market space is created beyond existing industry boundaries, as with Viagra, reconstruction tends to bring about non destructive creation. In many cases, even when the reconstruction occurs within industries, blue ocean strategy also produces nondestructive creation. Nintendo’s Wii, for example, created a blue ocean in the video game industry. It had an element of creative destruction.

Blue ocean strategy is about redefining the problem itself, which tends to create new demand or an offering that often complements rather than displaces existing products and services.

The focus of the blue ocean strategy is not on restricting output at a high price but rather on creating new aggregate demand through a leap in buyer value at an accessible price. This creates a strong incentive not only to keep it that way over time to discourage potential free-riding imitators. In this way, buyers win and the society benefits from improved efficiency. This creates a win-win scenario. A breakthrough in value is achieved for buyers, for the company, and for society at large.

Billion Dollar App

The potential upside of asking the question you’re afraid to ask always outweighs the chance that you’ll hear the word ‘no’ in response.

We wanted to create a service that drivers would love.

The core of my role was to understand what drivers really wanted – and how to design that into an app they’d love using every day.

Smartphone users were asked, ‘How do social and communications activities on smartphones make you feel?’ The two strongest sentiments they reported were ‘connected’ and ‘excited’.

Leading apps capitalise on this by focusing exceptional effort on design, usability, performance and things like the tone of voice used in their copy.

People want to be ‘excited’ and ‘connected’, it makes sense that anything that is done to maximise those sentiments is only going to make an app more popular.

Start with Big Problems

One approach to coming up with a big idea is to understand what people love to do, and what people need to do.

There are 67 universals in the list that are unique to humans: age grading, athletic sports, bodily adornment, calendar, cleanliness training, community organisation, cooking, cooperative labour, cosmology (study of the universe), courtship, dancing, decorative art, divination (predicting the future), division of labour, dream interpretation, education, eschatology (what happens at the end of the world), ethics, ethno-botany (the relationship between humans and plants), etiquette, faith healing, family feasting, fire making, folklore, food taboos, funeral rites, games, gestures, gift giving, government, greetings, hailing taxis,* hairstyles, hospitality, housing, hygiene, incest taboos, inheritance rules, joking, kin groups, kinship nomenclature (the system of categorising relatives), language, law, luck superstitions, magic, marriage, mealtimes, medicine, obstetrics, pregnancy usages (childbirth rituals), penal sanctions (punishment of crimes), personal names, population policy, postnatal care, property rights, propitiation of supernatural beings, puberty customs, religious ritual, residence rules, sexual restrictions, soul concepts, status differentiation, surgery, tool making, trade, visiting, weather control, weaving.

If your idea resonates with a human universal, you will maximise the universal appeal of your app.

Tomi Ahonen for what he’s done. He publishes an annual Mobile Almanac,

If the app offers an experience that hits a nerve – a latent psychological or behavioural need (I want to be anonymous with my messages) – then it explodes.

As humans, we love to share.

Sharing also just feels good because of the way our brains are wired. According to Harvard University professors Diana Tamir and Jason Mitchell, sharing information about ourselves is intrinsically rewarding and gives us a few squirts of dopamine every time we do it.

When coming up with your big idea or big problem to solve, think about whether it is inherently social, or whether it could be made social,

Instagram. One of the main ways it drove growth from the very first day was by allowing users to simultaneously share their photos on Facebook and Twitter from the moment the photo was taken using the Instagram app.

What is disruptive, however, is taking something that was not social and shareable – and reinventing it completely.

Groupon. When it launched, its premise was simple: if you want to buy a great product at this 50–75 percent discounted price, you need to get 100 other people to buy it too within a certain timeframe. Suddenly, Groupon created a very selfish – and social – incentive for people to tell others about their sales.

Focused more on talking about optimising server code to ensure messages are being moved more quickly, more efficiently and more reliably than other hot topics (such as valuations and buyouts). That is how Snapchat disrupted communications. It has made an entire generation – a much younger one – feel liberated again.They wanted to seduce users with interaction and animation – not with words or text. They wanted to create a game that would resonate with basic human psychology.

Square tackled a big problem, enabling anyone to simply, easily and cost-effectively, become a credit-card- accepting merchant.

Founders of groundbreaking apps don’t just stumble into something great: they have fantastically ambitious visions from Day One. It is a combination of this vision to solve existing problems in novel ways, the refusal to take no for an answer and persevering in the face of scepticism that has launched apps that have changed our lives.

It takes seven years. It’s not easy to build a billion-dollar company and it doesn’t happen overnight. On average it takes seven years to reach a billion-dollar valuation (and either an IPO, or merger, or acquisition), so you had better be in for the long haul.

Five business models that work.

The first is gaming, where users pay for a virtual service or goods.

The second is e-commerce / marketplace, where users pay for a real world good or service.

The third is advertising (or consumer audience building in the case where the company has not yet switched on the advertising).

The fourth is Software as a Service (SaaS), whereby users pay for cloud-based software (typically via a subscription model).

And the last is enterprise, whereby companies pay for larger-scale software (again, via a subscription-type model).

You can now get an MIT, Stanford or Harvard education essentially for free via great online course programmes such as OpenCourseWare (from MIT), edX (from MIT, Harvard and Stanford, among others) and from iTunes U.

Pivoting your business is admitting the failure of your current (and currently funded) idea, clinging on to whatever remaining investor money you have, and trying your next new idea.

‘Instead of doing a check-in that had an optional photo, we thought, Why don’t we do a photo that has an optional check-in?’

It was a bit of a Eureka moment as it dawned on him that filters could make a huge difference.

That night Systrom went back to their hotel room and began searching the Internet to find out how to build a photo filter.

They were laser-focused on a single platform, the iPhone, and doing a single thing, sharing photos – really well. This tunnel vision translated into very impressive ‘stickiness’ for the app. Not only were they able to attract new downloads and new users at a phenomenal rate, but those people were sticking around.

Figure out how your idea – your solution – translates into an app. Sketch on napkins, sketch ideas in Photoshop, do whatever you need to do to make your idea real and communicable to others.

Three key roles need owners: someone must lead the product vision; someone needs to build the technology; and someone needs to be focused on getting users and generating money.

Your mum promised to use your app – so make sure she does. Persuade every friend and family member to download it, use it – and give brutal, honest feedback.

Figure out your target user group early, and find out how to target them and get the app in their hands. • Aim to get feedback from hundreds of real users, if not a thousand (if you’re a marketplace model a couple of hundred will be good going).

Think about analytics and how you’re going to measure the performance of your app, and therefore the performance of your business.

Not everyone, however, is willing to work 80-hour weeks, or be told by everyone they meet that their idea won’t work and still persevere every day, or constantly sell their idea to every person they meet to build up their team, or work through mountains of legal documents late into the night, or spend months chasing investment to keep their idea alive. Understand from the onset that it’s a hard – and long – fight.

– the companies that generated revenues from Day One are the ones who wield the real power, create the most value and, most importantly, control their own destinies.

Out of the billion-dollar success stories between 2004 and 2014, 90 percent of the co founders had at least a few years working together, or knew each other from school.

If you’re great on the business side, you’ll need to stretch yourself to develop a product that users really want to use, and then seduce a great software developer to work alongside you.

The very title ‘cofounder’ is a powerful asset – and can help you negotiate with potential candidates.

Jay Bregman.

Wherefore Art Thou, Cofounder?

The good news, however, is that today there are many more events, meetups and even websites that help facilitate this process.

Here are some great events that will get you talking to the right people.

Developer Meetups.

Technology Conferences.

From TechCrunch Disrupt in New York, San Francisco and Berlin, to

LeWeb in Paris, to DLD in Berlin and Web Summit in Dublin,

And make sure that you have ‘Founder’ in big letters on your name badge (people are more likely to talk to you if they think you’re important or have your own company).

Startup Weekend.

This is a great event, and is designed for those of us who are time-poor. Think of it as an end-to-end business plan and software prototyping competition, crammed into a weekend. It is now operating internationally, with thousands of successful weekends completed. The concept is simple: turn up on Friday night with or without a great startup idea; people who have ideas pitch them; everyone else listens. By the end of the night everyone assembles into more or less evenly sized teams, with more or less balanced skills (the organisers do a great job of making sure the right composition of people is selected for each weekend). Over the course of the weekend, the teams refine their ideas and pitches, put together a presentation and then hack together a basic Test proof-of-concept piece of software by Sunday afternoon. The final team presentations happen on Sunday evening – and a winner is crowned. It’s a great way to spend a weekend and meet some amazing people.

Techcrunch disrupt hackathon.

A hackathon is where developers (and designers and people with ideas) all get together and build something functional – a website, an app – in a fixed period of time. In this case it starts on Friday night and culminates with public demos on Sunday afternoon. With more than 800 people taking part – twice a year – in both New York City and San Francisco, this is also a great event.

ANGELLIST.

One of the most promising places to find cofounders – as well as anything startup-related – is AngelList.

If you’d like even more suggestions about great cofounder events, meetups and websites – just visit the Billion- Dollar App website at mybilliondollarapp.com

Unless you already have an existing relationship with your cofounder, I strongly suggest that you both work on an extended project together to ensure that this person is someone you should be committing to for the lifespan of your app.

Create a proof of concept together.

Start flushing out all the features of your app: the business model, the target users, how you will home in your first thousand. Work

Red flags It’s also worth mentioning a few cofounder red flags.

One of the most amusing types is the ‘expert who wants to charge you fees upfront’.

The real movers and shakers in the Internet world are more than happy to help you for free. People in the know will always help you – but typically they will do that only if they think you’re a person with the skill and motivation to make your company work, or if they genuinely think that you have a solid, unique idea that is worthy of further development.

Don’t settle for an OK name. A great name is 10 times better than a good name. So invest the time now, because down the line there will be a million reasons why it’s close to impossible to change it.

Can your name become a verb? Hailo me a taxi, Google that word. This is one of the most powerful characteristics – and one you can’t force. But you can ensure that your name is conducive to this usage.

namestation.com.

sedo.com.

domainnamesoup.com.

instantdomainsearch.com.

Once you’ve settled on a name, it’s time to start thinking about details such as your strapline, logo, colour scheme, tone of voice and style, which, when wrapped together, deliver what is called your brand.

The website 99designs.com

Launchrock.com offers a very handy service here: it hosts a basic website for you; you can customise it with your logo and colour scheme with zero coding skills; you can add details about what your app does, when it’s launching and how to get in touch with you.

Most importantly, and its main feature, it prompts everyone who visits your site to register their email address and get early access to your app. It then encourages those visitors to share the site with friends. Why is this great? Well, over the course of the next few weeks and months as you build your app – reaching out to designers, contractors, developers and investors – people will invariably visit your website. With

launchrock.com in place you’re now capturing hundreds of the email addresses of people interested in your app. That means you’re building a list of potential users. For a small amount of effort you’ve started to build your user base.

It’s also a good idea to register all of your social-media accounts – claim your Twitter and Instagram handle, your Facebook page (along with a custom URL), your Google+ and Pinterest pages. Start building a consistent online identity.

When you launch your app, you need to test it out on the smartphones that will run it.

You focus on Android first, you’ll need to support a lot more than two screen sizes from the start. It also means that everyone needs to think about screen size all the time – from your product managers, to your designers, to your engineers.

It also means you need to have at least 10 of the top Android handsets in your office so that you can test that your app works on them as expected. And, yes, there are big differences between how your app can or might behave on

an HTC smartphone versus a Samsung one. If you don’t test thoroughly, you risk annoying

iOS and Android – it’s worth noting that they both have a substantial update about once a year.

Everything starts with Version 0.1 – it’s the very first iteration, the prototype, of your app

For Hailo it was focusing on how a user could see nearby taxis on a map, then hit the ‘Pick Me Up Here’ button and have a driver accept the hail. We also added in the ability to see the driver come towards you. That was enough to make people feel a wow moment.

If we couldn’t generate enough interest from drivers to use the app, there wouldn’t be a large enough supply of taxis, which would mean no passengers using the service, which would then mean we didn’t have a business.

Every week I hosted a group of about 15 taxi drivers for breakfast at a café and

You need to get to wow as quickly, cheaply and efficiently as possible.

The point of doing it this way – using paper designs, testing the bare minimum – is to get real data, to get real validation. Imagine the opposite: spending three months designing something in detail and another couple of months developing the software without any feedback from users. Unless you’re testing absolutely everything with your target users, you have no idea whether it will work.

Hailo required a rather involved prototype because we required two apps, and they needed to talk to each other.

To visualise the prototype you want to build, you actually need to start to put together an increasingly detailed blueprint of your app. This blueprint has two goals: (i) to illustrate what each screen of your app looks like; and (ii) to explain how your app behaves.

Other people involved in the app-development process, such as testers, will also need to understand these documents. Their job will be to compare and test what the app is supposed (designed) to do compared with what your developers have actually implemented.

Moqups.com

one called Balsamiq.com, and then a more advanced one called OmniGraffle.

Dieter Rams is one of the great pioneers of industrial design.

According to Rams good design: • Is innovative • Makes a product useful • Is aesthetic • Makes a product understandable • Is unobtrusive • Is honest • Is long-lasting • Is thorough down to the last detail • Is environmentally friendly • Has as little design as possible.

download all the current billion-dollar apps – Snapchat, Flipboard, Angry Birds, Puzzle and Dragons, Uber, Candy Crush Saga, Instagram, Square, Waze, WhatsApp, Viber, Tango, Pandora and, of course, Hailo. Make sure you’re an expert with other leading apps such as Facebook, Dropbox, Evernote, Amazon, eBay.

It’s helpful to build a collection of screenshots of your favourite apps and favourite features.

A great source of inspiration is www.pttrns.com – it’s home to thousands of screenshots.

But be careful with what you use as a benchmark: just because they appear on this or that site, it doesn’t mean they’re effective.

Functional Versus Beautiful. There is a fine line between beautiful and functional

functionality should be your number-one priority.

Hunting Designers

A great approach is to trawl two websites in particular – dribbble.com and behance.net. I’ve experienced great success with Dribbble (yes, three

I would also suggest checking out AngelList: it attracts the most entrepreneurial cross-section of people, across all areas, whether in design or engineering.

Tools have come onto the market that allow you to make visual designs more interactive than ever before. A great example is proto.io. Hailo’s designers used it quite a bit.

There’s one more thing you need to think about before you start coding: making it super-easy for users to send you feedback.

In these early stages, don’t make a user dig around your app to find a feedback form: make sure it’s front and centre and makes it easy to get in touch with you with feedback. Reactions to the early versions of your app are key to success, and you want to use real user feedback to tune the direction in which you’re heading.

To make your app a success, you need a systematic way to understand the experiences of all your users, what they are actually doing on your app, and what they like and dislike

Analytics is the answer. You can include snippets of analytics software in your app so that you can automatically track what every single user is doing on your app – what they are looking at, what they are clicking, how long they spend performing an action and at what point they open and close the app.

Leaders, is mixpanel.com. This tool gives you a powerful way to view your users on an individual and group level, allowing you to see precisely what they are doing every time they fire up your app. There are

Starting off, I would recommend putting in two solutions: a robust free solution such as Google Analytics (which has been improving in leaps and bounds on the mobile side) and something like Mixpanel, because of its powerful communication capabilities and its very powerful ability to segment and analyse your users.

are Flurry

Localytics

Kontagent (we found it to be quite a bit behind the

Successful Internet and app entrepreneurs are obsessed with metrics. If you can’t measure something, you can’t improve it. From the start, you need to both focus on the correct metrics and make sure that you have the analytics in place to measure them reliably.

There are five types of metrics to remember

(they are quite pirate-like – AARRR): • Acquisition: users downloading your app from a variety of channels; • Activation: users enjoying their first ‘happy’ experience on your app; • Retention: users coming back and using your app multiple times; • Referral: users loving your app so much they refer others to download it; • Revenue: users completing actions on your app that you’re able to monetise.

From Day One we built in the ability to input into the passenger app on Hailo ‘promotion codes’ that would give passengers £5, £10 or more off their next taxi ride.

Stage Conversion Goal Notes Acquisition User downloads app Measured, but not used as a measure of success Acquisition User launches app, either taps any button or session time greater than 10 seconds This was Hailo’s ‘higher bar’ version of acquisition Activation User creates an account A user who has shown interest in becoming a passenger Activation User adds credit-card details (required for fare payment) A user who has shown real interest in becoming a passenger Activation User requests a taxi Hailo still has to provide user with a driver Activation User receives confirmed driver Hailo’s job is done – now it’s up to the driver Activation User gets into a taxi As good as revenue (but not just yet) Revenue User completes ride and pays The Holy Grail moment

How to be Found in the App Store

‘app-store optimisation’ (ASO for short).

You want to include both what your app does (as well as keywords) and branding, i.e. your name.

Examples are ‘WhatsApp Messenger’, ‘Square Register’, ‘Square Wallet’.

Description.

Keywords. This field appears only in Apple’s App Store (it is the equivalent of the ‘description’ field in Google Play).

Don’t repeat words already in your title;

separate keywords with commas; don’t use spaces

ICON.

Be mindful that you have space for only about eleven characters within the icon (I say about because it varies, i.e. the letter ‘m’ is a lot wider than ‘i’ for example) for your app name, otherwise it will appear truncated on a user’s phone, so check it first!

Ideally, you want your site to focus on helping people download your app – i.e. a crisp, snappy description – and then a clear download button that links directly to the app stores you’re on.

If a user browses your website from an iPhone, then instead of showing two links – one for Google Play and one for the Apple App Store – you should drop the Google Play one.

All these little things make a difference

If you’re looking for something that will expedite building your website, you should try Bootstrap.

Domain Names. Protect your domain name by buying it as soon as possible along with any obvious misspellings

Also, if your app is clearly going to have international appeal – which I hope it does – grab the country-specific suffixes such as .co.uk, .fr and all the countries you think are pertinent. Don’t forget .cn (China) – these guys are pretty fast at picking up what will be a very useful domain for you

ALEXA. Check your alexa.com traffic rank. This free tool tracks the popularity of sites on the Internet

The most important places to put the keywords are probably the ‘title tag’ part of the HTML in your web pages (i.e. the words between ‘<title>’ and ‘</title>’) and the page header (another part in the HTML of your pages – i.e.

Backlinking To Yourself.

Creating A Sitemap. This is something you do to help out the ‘crawlers’

The better your navigation – i.e. the simpler and fewer clicks it takes to get to any page – the better.

Image Descriptions.

Fresh Content.

Making It Social. Once you have this content, you want to get it out into the world. Distributing it via your social media – Twitter, Facebook, Pinterest and Google+ accounts – is key, especially if it prompts people to link back to your website.

Link, Link, Link. SEO is all about linkages – so feel free to reach out to other businesses (via their webmasters or connections you know) and ask them to include a link to your website on their blog or list of partners, or any other way from their website. It all helps.

But definitely don’t use link farms,5 or anything that sounds too good to be true. Keep it clean and build it up over time.

Great Press Kit. Make sure you have at least a mini section on your website for press – and a press kit. Include all the info about your app

CAC, or the Customer Acquisition Cost,

CPA, the Cost Per Acquisition, or the CPD, the Cost Per Download.

One of the biggest and easiest-to-use platforms is Google’s AdMob.

Google’s AdSense

There are ten top mobile-advertising platforms that you’ll want to pay attention to – Google’s AdMob, Millennial Media, iAd (from Apple), Flurry (in addition to a free analytics solution, it also has a big ad network), inMobi, Chartboost, MoPub, Amobee, HasOffers and Euclid Analytics.

Press Releases.

PRWeb,

Targeted wire services such as Business Wire.

Do The Legwork. Reach out to journalists yourself.

Pull together a list of blogs in your relevant sector (technology and app news) as well as popular blogs that love reviewing apps (there’s a myriad of those), and then spend a few days writing a lot of emails – and be prepared to reply to a

Social media

With the aid of a tool such as HootSuite you can also manage – and publish to – all those accounts from the one place

The best thing about tools such as HootSuite is that you can compose the content in advance – e.g. five posts over the weekend – and then schedule them to be published ‘automagically’ during the week. One good piece of advice about social media: you want to get into the habit of paying attention regularly and often in the early days. Pick a day of the week, and then systematically follow 100 people that are pertinent to your business.

With Facebook, follow all your real friends and invite everyone to follow your page.

Social media isn’t for the shy! If you make this systematic you’ll get into the thousands of followers in no time.

Their user-acquisition metric was self-sustaining (because of the inherent network effect of users inviting their friends).

Their user activation (effectively creating an account) converted at close to 100 per cent because it was a super- simple registration (just a username and password).

Referral metric was off the charts because it was baked into the app (the app works better when you invite more

(In the very early days of Hailo this was around 25 per cent until we introduced a first-time-user ‘tour’ that explained how the app worked. The tour shot our activation rate above 50 per cent.)

The aptly named AngelList is

If, say, your app is a game, a VC who has previously invested in a gaming company will know the ins and outs of the sector.

You need to ensure that you clearly own all your intellectual property, in other words, you need to make it clear that all the work you contract other parties to do belongs to your company.

If people are developing an app, website or other piece of software, then you need to make sure the source code belongs to you.

Founder Vesting

A founder-vesting schedule is basically a timeline of your earning full ownership of your shares in the company.

• Series Seed Documents. You can find them at seriesseed.com

The Founder Institute.

It has a version called the New Plain Preferred Term Sheet.

As part of the actual agreement, you’ll have four main things to agree: •

incorporation, which are typically needed to properly document the existence and treatment surrounding the new class of preferred stock that investors insist on; • Preferred stock investment agreement, which documents the actual details of the investment; • Bylaws that describe in detail how the company will be governed – read this very carefully; and • The board-member election consent, which elects the board member representing the investors.

Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist by Brad Feld and Jason Mendelson.

I ask existing users of a product how they would feel if they could no longer use the product. In my experience, achieving product–market fit requires at least 40 percent of users saying they would be ‘very disappointed’ without your product.

When we took Hailo to market at the end of 2011, I spent an inordinate amount of time surveying users (and giving out lots of in-app promo codes for £5 off your first ride to friends, family, random people on the street and anyone who would listen).

‘Don’t build something clever, build what people want.’

The person behind the ‘what’ is the head of product. The person behind the ‘how’ is the CTO, or chief technology officer – the person in charge of building the actual software.

Over time, as the CEO role becomes broader and more demanding, a dedicated head-of-product role needs to be created and filled with someone entirely focused on that mission. It’s tough to lead product development.

One of the key qualities of this person (besides being laser-focused on testing new product improvements and measuring their effectiveness) is the ability to say no. ‘No’ is a critical word to the success of any startup because it enables focus. Given limited time, money and resources, maintaining focus is the only way to get to product–market fit. Chamath Palihapitiya

The role of the product team very simply: testing, measuring and trying.

• What is the product you’re building? • Is that product solving the right problem? • Who are we solving the problem for (target users)?

The bottleneck is not usually having enough ideas about what product features to build, but rather how quickly you can deliver all the product features to your users.

• What is the app going to look like? • What is the app going to behave like? The responsibility for answering these questions lies with the design team (which is usually part of the product team). At

The question: does the app work as designed? Quality assurance (QA) – also called quality engineering (QE) – is tasked with making sure that the app your engineers are building is working as designed and specified.

I was brought in to head up the product development, the cofounders were taking little or no salary, we had a full-time designer (who was stretched to the limit working on the website, the passenger app and the driver app), we had a couple of iOS engineers and a couple of back-end engineers, and a couple of contractors supporting the developers, and we ended up bringing in a quality-assurance engineer because the platform was complex – and we had a lot of product development

Becoming a ten-million-dollar app and cementing your product–market fit is about developing product features quickly, testing them, measuring them, adopting the best ones and then repeating the process.

Agile is not about writing exhaustive outlines of what you would like your developers to build. It is not about planning every detail of your software development to death, trying to nail down what will be worked on weeks and months into the future. It is not about giving your development team an inflexible shopping list of features to develop and then leaving them alone to code it up. Being agile is about delivering valuable features or improvements within a short, regular period. This period is called a ‘development sprint’, and it typically lasts one or two weeks. The goal of a sprint is to deliver something of value – a specific feature

Why is this pretty cool? Well, it ends up delivering usable features or improvement to your users every two weeks.

These usable features or improvements are actually called ‘user stories’ – essentially a piece of functionality outlined in a very user-centric way (as

When you start approaching the hundred-million-dollar-app stage – when you start to grow at a crazy rate – communication remains absolutely critical. So the culture of communication you build now will reap even more powerful rewards in the future.

Full Service Agencies.If you use these guys to develop your app you will have no control over your app architecture, the quality of code and much else.

You should be actively talking with your users on at least a weekly – if not more frequent – basis to figure out what features you absolutely must add.

To try to figure out what users really love, try killing features. Take out a feature. If users scream about it, they find it useful, so bring it back.

TEST YOUR IDEAS. You should already have anywhere up to a thousand people with your app in their hands. You need to figure out an effective way of communicating with them frequently – at least once a week – and getting their qualitative feedback. Try also to form a group of 20 to 30 power users whom you can email or call 24/7.

whenever you want high fidelity feedback on a big new feature – is usertesting.com.

You can set up user tests with any kind of demographic of people (you list your criteria and usertesting.com finds the corresponding profiles in its database of users).

We dedicated a member of the product team to do UX work every other Friday on a select set of new features by using usertesting.com, and then to compile all the results, synthesise, and call a meeting with the product team to action the results.

Apple Enterprise Distribution. Apple has a special version of its distribution platform

HockeyApp is one great option.

One of the clever things that we did at Hailo was to very carefully select and communicate with our beta-testing community in London. Picking your target users is critical: you wouldn’t test a Square register solution with a gamer, and you wouldn’t test the Uber private-limousine app with someone on a low salary who doesn’t frequent the city much.

Make sure you monitor your ratings on a daily basis.

Make sure that you create a DNA of customer support from the very first day in your company. The cofounders should be checking the reviews daily and personally responding to customers.

First, prompt users to rate your app after they have had a great experience (e.g.

You can track how many times you prompt people via your analytics solution – and you can also track how many ratings you’re getting on a daily basis with app-store analytics tools such as AppAnnie or Distimo.

make sure that you prompt them to update their rating of your app every six months or so. Again, this should be an automatic prompt that is built into your app.

Further down the line, we started using the Net Promoter Score (NPS).

We invested in a SaaS solution from desk.com early

We built a nice system of Hailo credits to reimburse users for any issues they had, and also as a thank-you to our best users. Don’t forget about your best users – no one likes to be taken for granted!

Let’s use the example of an e-commerce app. Stage Conversion goal Conversion rate* Acquisition User downloads app 100% Acquisition User launches app – either taps any button – or session time > 10s 90% Activation User creates an account 70% Activation User adds credit-card details (required for fare payment) 50% Activation User adds item to shopping basket 40% Retention Opens app from email/push notification alert 50% Retention Opens app 2+ times in the first week 10% Retention Opens app 5+ times in the first month 10% Referral Refer 1+ users who download app 3% Referral Refer 1+ users who activate 2% Referral Refer 1+ users who generate revenue 1% Revenue User makes purchase < $5 3% Revenue User makes purchase >$5 and <$25 2% Revenue User

The typical conversion for users who make a purchase on any given day on an e-commerce app is around 4 or 5 percent

Everyone in the team should know which metrics their work can affect – and should feel empowered to improve those metrics.

Sharing metrics is critical to building visibility – and trust – within an organisation.

If people don’t fully understand the source of their metrics, they can lose faith in the accuracy of the metric itself. This is a bad situation.

Rookie Mistakes

Putting In Analytics Too Late.

Relying On A Single Analytics Solution.

Not Attributing Marketing Or Referral Source.

Not Plugging In Revenue Metrics.

Google Analytics.

Flurry.

Mixpanel.

all kinds of behavioural data (how many times someone has done or failed to do something on your app), to any other piece of data

Localytics.

QlikView

Your user-acquisition strategy is going to be focused on experimentation and validation. You need to go out there and find the most efficient channels to get users downloading your app, and at the same time you need to test what campaigns – messaging, wording, imagery, propositions – are going to get those channels to perform the actions you want.

For each channel you should test a variety of campaigns (which I will go through below) and then start putting together a picture of which channel–campaign combination yields the most users who deliver on your desired conversion goals for the lowest price. At that point you keep iterating – fast – focusing about 80 per cent of your time testing product improvements and features to improve the conversion rates on your main metrics. The remaining 20 per cent of your time should be spent thinking about brand-new, unique features that make users love your app even more. This process is one that you’ll be repeating throughout the life of your app.

Your goal is to get users to love – or even hate – your app. Death is when they don’t feel anything strong about you and you become someone stuck in the zone of indifference.

You need to discover the triggers that drive people to want to download, use and talk about your app. Start by finding the keywords, themes, phrases and images that excite people about your app.

• The top five emotions you want your app to elicit •

The top fifty words that describe your app •

The top fifty words that describe your brand •

The top customer needs your app satisfies and benefits it delivers •

The top problems your app solves •

The top fifty words that describe your competitors’ apps • The top fifty words that describe your competitors’ brands.

We distilled a lexicon, and then used it across our website, app, PR and marketing material.

‘Step 1: The Million-Dollar App’:

ensure you have a responsive website with a clear call to download your app; core SEO (search-engine optimisation) elements in place on your website; ASO (app-store optimisation) in place; and then a basic understanding of PPD (pay-per-download) advertising. We also talked about leveraging social features in your app, empowering people to more easily share your app and broadcast it to social-media channels.

Attribution. This is something you need to be able to track from the very beginning.

Generate simple, short and unique codes that users can send to other users.

If you design your campaign carefully, and ensure there is sufficient motivation for both the ‘inviter’ to send the codes (e.g. they earn credits or money for each one redeemed and not just shared – remember that!)

It’s worth investing the time in tracking all your advertising and referral in this way

If you’re an e-commerce (or gaming) site or app you should be generating $50,000 per month • If you’re a marketplace you should also be generating $50,000 per month • If you’re building a consumer audience app

You should have at least 100,000 downloads • $10 per user per month.

Average transaction value (ATV),

Your annual revenue per user (ARPU)

Customer lifetime value

Customer Acquisition Cost (CAC).

A typical cohort analysis compares the behaviour of all the users who registered in a given month (let’s say that all the users who downloaded your app in January use it on average five minutes per day) with all the users who downloaded it in another month (let’s say that customers who downloaded it in February use it on average six minutes per day). By comparing the January cohort with the February cohort, investors can see that users are using the app more – a great sign. Cohort analysis allows you to present a trend – typically from month to month – showing clear improvements across any metric: from session length, to customer acquisition cost, to lifetime value.

Check out CrunchBase. It’s one of the best (free) collections of information about startups around the world. Find companies that are similar to what you’re doing, or ones that you would consider comparable in terms of sector, product, team or traction.

One of the first things you should do at this point is figure out which VCs do invest early in Series A funding rounds.

But be careful, and identify investors with a strong history of investing early so that you don’t spend too much time pitching to investors who won’t actually be useful at this point.

Make sure that you get a good introduction from a friend, or, if that is not an option, visit the Billion-Dollar App website, where I’ve put together a list of some of the top firms in a number of capital cities.

The major term-sheet elements are the following: •

PRO-RATA RIGHTS. This allows an investor to continue to invest money to maintain their percentage ownership. •

LIQUIDATION PREFERENCE. This allows an investor to get their money out first in the case of an exit or other scenario. •

PREFERENTIAL RETURN. Investors will try to negotiate at least a 1x, if not a 2x, return on their original investment before other classes of shares are paid out. Be careful about this provision: 1x is normal; 2x is bad. •

BOARD SEATS. Your lead investor will insist on a board seat, especially if they are investing a considerable amount of money. Remember to select your board members very carefully, and make sure that you can maintain majority control of your board. Investors often want observer rights either alongside a board seat (or in lieu of) as well as asking for information rights (guaranteed updates about the company’s performance on an agreed frequency).

PREFERRED SHARES. Investors will require that you create a new class of share that has voting (and other) rights above and beyond that of common stock.

EMPLOYEE OPTION POOL. You will need to formalise an employee option pool (typically 10–20 per cent of the company) to ensure that you have a mechanism by which to attract and retain top talent.

EMPLOYEE AGREEMENTS. If you’ve set things up properly these will be in place. Investors will want to see that there are adequate intellectual property assignment provisions confidentiality provisions and non-competition/non-solicitation provisions in place.

FOUNDER VESTING. Most investors will try to add a guarantee to ensure the founders stay around for at least four years by making their founder shares vest over a fixed schedule. Most investors are adamant about this; some are more flexible. Recall the benefits that I outlined about adding this in yourself, especially if your company has several cofounders, when we discussed the million-dollar app.

The Clauses that Can Screw You

Liquidation Preference.

Anti Dilution Rights.

Non-Participating Liquidation Preference.

Drag Along Rights.

Warranties.

it’s standard to include non-compete clauses (so that employees can’t create a new company that directly competes with the business, or go and work with a direct competitor), anti-poaching clauses (so that, if you leave, you are forbidden from trying to take other members of the company with you)

Scales. Are you going to be profitable with a few thousand users? Or do you need to attract (and retain) millions of users?

Will your same business model appeal to people all over the world? Will everyone pay $0.99 to download it? Or will everyone be equally willing to make in-app purchases? Will some users be a lot more valuable than others? If so, should you spend a lot more acquiring more valuable users?

Innovative investors such as USV bring together the product, engineering and marketing teams from their portfolio companies a few times a year. This allows a free exchange of information, challenges and, most importantly, solutions.

If you want to be successful, you must demand that your VP of marketing be also a big-time data geek.

How to hire a VP of marketing

What you need first and foremost is someone who gets data, who gets analytics and who gets conversion.

That means presenting a single consistent and powerful profile of your app to everyone in the world.

In terms of remuneration,

where the VP of marketing comes in a bit later, and is getting paid £150,000, they would typically have a multiplier of 0.53 – or £75,000 of options at the time they join. So, if the company increases in value 5x, then they will have £375,000 worth of shares, or,

One of the most frequent mistakes I have heard about is using too few traffic sources to acquire new app users.

A mistake many app businesses make is to rely on traditional marketing channels.

Often the channels are helpful in bumping up your download numbers, but they don’t typically translate into valuable users.

The better the product, the longer the customer lifetime.

The time it takes to earn back that acquisition cost is important: the longer it takes to earn back, the more money you’re going to need to raise.

COMMUNICATION VIRALITY. ‘P.S.

‘Sent from my iPhone’ auto-signature.

SOCIAL-NETWORK VIRALITY. This is all about making it easier for your users to share content – or other relevant information – with their social networks, such as Facebook, Twitter, Pinterest and Google+. There are plenty of ways to do this automatically.

How do I measure my virality?

Business intelligence tools such as QlikView

it is critical that data should have a key owner in your team – and I would suggest in most cases that falls under the VP of marketing,

Mixpanel.

KISSmetrics

Uber messages me once or twice per month with interesting and relevant PR stories.

It recently improved its referral programme, now offering $20 every time I get a friend to sign up. That got my attention!

Email me every week with a bespoke round-up of what my friends are reading or recommending on the service.

Tip: make it super-easy for a user either to unsubscribe from your emails or to change the frequency or type of email alerts they receive. If users are unsubscribing, then listen to their actions.

People get excited – when you alert them to something relevant and interesting. Snapchat alerts me when a friend joins the app;

People love alerts about a new message, or new friend requests, but a weekly update about new social news content is something you need to be a bit more careful with.We found that if a user saw this message during their first attempt to book a taxi, they never opened the app again. Bummer.

We created a rule in our CRM system that would fire an email to a first-time user seeing the ‘No taxis available’ message. In the email we included a thoughtful message appealing to the user’s reasonableness – and, most importantly, offered them $10 off their next ride as an apology.

Finding Fanatics

make sure the words in your app – is actually contained in a ‘strings file’.

LANGUAGE TOOLS.

WebTranslateIt (WTI)

Smartling

TRANSLATIONS.

Beluga Linguistics and Lingo24.

They turned to cunning, rather than persevering with a full-frontal assault.

For example, just a few hundred purchases took the game to number one in the Finnish App Store. Rovio duplicated that strategy in other

Some apps were designed from the ground up to be easy to adopt, use and enjoy – and be language- and culture- neutral (there are massive benefits to this,

Uber targets the cities it wants to launch in and then goes about finding GMs

In recruiting these GMs, Uber tends to target ex-investment-banker-with-an-MBA types (I have met a number of them) who characterise the company’s personality. They are essentially entrepreneurs – with or without local market expertise – who go in there and make things happen. The goal is to get the service up and running with as few as 25 drivers.

The GMs receive all the collective experience and wisdom of the rapidly expanding company through their ‘Playbook’. The Playbook comes directly from the CEO and executive team and presents an extensive collection of strategies for overcoming obstacles on a local level, and includes everything from how to launch and operate social-media channels, to how to throw a launch party, to how to recruit key employees (such as D-Ops, or driver operations staff, and CMs, community managers) and deal with regulators. This last point is particularlyimportant.

Hailo recruited brilliant local GMs. However, its focus was not on building a network of ex investment bankers and B-schoolers to grow the business, but rather seasoned operators with talent for people management and operations.

The whole company and every team has one objective and three measurable key results every quarter, and, if you achieve two of the three, you achieve your overall objective; if you achieve all three, you’ve killed it. It is a good, simple organising principle that keeps people focused on the three things that matter – not the ten.

Friday Updates When Hailo started holding a Friday afternoon ‘all-hands meeting’, it elevated the company to a new level of openness and efficiency.

Conferences : Some members of the team will afford them opportunities to talk on behalf of the company – thus raising everyone’s profile in the tech community.

We send our iOS engineers to the WWDC (Worldwide Developers Conference) every year to see the latest and greatest from Apple, and, similarly, our Android team to the Google I/O conference.

Team responsible for building your app: product managers, designers, developers and QA (quality assurance – or testers).

The vast majority of your team should be focused on product and development.

A good rule of thumb is one product manager for eight to ten engineers, one designer for every two product managers, and one tester for every product manager.

Make sure that you hire product managers before you hire engineers. This ensures that you have a backlog of features for engineers to work on – and there’s someone there to guide the engineers well as they work.

Scrum Masters

The scrum master is the person in charge of helping the developers focus on building software, by removing all distractions and dependencies.

Running Lean

A complete list of meetups and links to other resources can be found at the official Lean Startup homepage: http://theleanstartup.com.

People confuse bootstrapping with self-funding. A stricter definition is funding with customer revenues.

DECK network (primarily targeted at designers and developers).

We started listening to the most popular (vocal) requests and ended up with a bloated application and lots of one- time-use features.

Principles guide what you do. Tactics show you how.

Document your Plan A. Identify the riskiest parts of your plan. Systematically test your plan.

Customers don’t care about your solution. They care about their problems.

Your job isn’t just building the best solution, but owning the entire business model and making all the pieces fit.

“tackling the riskiest parts first.” Not coincidentally, for most products, the solution isn’t what’s riskiest. The bigger risk for most startups is building something nobody wants.

A problem worth solving boils down to three questions: Is it something customers want? (must-have) Will they pay for it? If not, who will? (viable) Can it be solved? (feasible)

Pivot is a term used by Eric Ries to describe a change in direction of a startup while staying grounded in learning.

In order to maximize learning, you have to pick bold outcomes instead of chasing incremental improvements. So, rather than changing the color of your call-to-action button, change your entire landing page. Rather than tweaking your unique value proposition (UVP) for a single customer segment, experiment with different UVPs for different customer segments.

Instead, your first goal should be to establish just enough of a runway to allow you to start testing and validating your business model with customers.

Define the Solution. With that knowledge, I spent a day building a demo. It was a teaser landing page with a table of contents, a title, and a stock book-cover image

About half of the people agreed to this arrangement. The others chose to wait for the “finished product,” citing print, iPad, and/or Kindle as their preferred reading format. This further helped me distinguish early adopters from latter-stage customers. These early adopters were driven by the content alone and didn’t care how it was packaged.

Distinguish between customers and users.

If you have multiple user roles in your product, identify your customers. A customer is someone who pays for your product. A user does not. Split broad customer segments into smaller ones.

Put everyone on the same canvas at first. If you are building a multi sided business, you might find it necessary to outline different problems, channels, and value propositions for each side of the market. I recommend starting with a single canvas first and using a different color or tag to identify each customer segment. This helps you visualize everything on a single page.

Sketch a Lean Canvas for each customer segment. As you’ll find shortly, the elements of your business model can and will vary greatly by customer segment. I recommend starting with the top two or three customer segments you feel you understand the best or find most promising.

Think in the present.

When people need to get a job done, they hire a product or service to do it for them. The marketer’s task is to understand what jobs periodically arise in customers’ lives for which they might hire products the company could make. —

Many times these solutions may not be from an obvious competitor. As an example, the biggest alternative to most online collaboration tools is not another collaboration tool, but email. Doing nothing could also be a viable alternative for a customer if the pain is not acute enough.

Identify other user roles. Identify any other user roles that will interact with this customer.

The first battle isn’t even selling; it’s getting a prospect’s attention.

First-time visitors spend eight seconds on average on a landing page. Your UVP is their first interaction with your product. Craft a good UVP and they might stay and view the rest of your site. Otherwise, they’ll simply leave.

Be different, but make sure your difference matters.

Target early adopters.

Your sole job should be to find and target early adopters, which requires bold, clear, and specific messaging.

Focus on finished story benefits. You’ve probably heard about the importance of highlighting benefits over features. But benefits still require your customers to translate them to their worldview. A good UVP gets inside the head of your customers and focuses on the benefits your customers derive after using your product.

So, for instance, if you are creating a résumé-building service:

the finished story benefit would be “landing your dream job.”

Instant Clarity Headline = End Result Customer Wants + Specific Period of Time + Address the Objections

A classic example that fits this formula is Domino’s slogan: Hot fresh pizza delivered to your door in 30 minutes or it’s free. Pick your words carefully and own them.

Picking a few “key” words that you consistently use also drives your search engine optimization (SEO) ranking.

Answer: what, who, and why.

A good UVP needs to clearly answer the first two questions — what is your product and who is your customer. The “why” is sometimes hard to fit in the same statement,

Because all you have are untested problems, it is fairly common for them to get reprioritized or completely replaced with new ones after just a few customer interviews. For this reason, I recommend not getting carried away with fully defining your solution just yet. Rather, simply sketch out the simplest thing you could possibly build to address each problem. Bind a solution to your problem as late as possible.

Failing to build a significant path to customers is among the top reasons why startups fail. The initial goal of a startup is to learn, not to scale. So, at first it’s OK to rely on any channels that get you in front of potential customers.

If your business model relies on acquiring large numbers of customers to work with, that path may not scale beyond the initial stages, and it’s quite possible you’ll get stuck later. For this reason, it’s equally important to think about your scalable channels from day one so that you may start building and testing them early.

A commonly cited paid channel is search engine marketing (SEM). Eric Ries has written about how he tested his early product on $5 a day using Google AdWords, driving 100 clicks at a cost-per-click of 5 cents. If you can pull this off today, by all means use it,

Examples of inbound channels:

Blogs

SEO

Ebooks

White papers

Webinars

Examples of outbound channels:

SEM

Print/TV ads

Trade shows

Cold calling

Something I hear a lot is that an MVP is, by definition, embarrassingly minimal. How can you possibly charge for it?

First, an MVP is not synonymous with a half-baked or buggy product. Your MVP should address not only the top problems customers have identified as being important to them, but also the problems that are worth solving. By that definition, you should plan to deliver enough value to justify charging.

The mindset most of us have when we’re launching a new product is one of lowering signup friction. We want to make it as easy as possible for the customer to say yes and agree to take a chance on our product, hoping the value we deliver over time will earn us the privilege of his business. Not only does this approach delay validation of one of the riskier parts of the model (because it’s too easy for a user to say yes), but a lack of strong customer “commitment” can also be detrimental to optimal learning.

Here’s why:

Price is part of the product.

Price defines your customers.

Getting paid is the first form of validation.

One technique for setting initial pricing is pricing against the list of existing alternatives from the Problem box. These alternatives provide reference price anchors against which your offering will be measured.

What will it cost you to interview 30 to 50 customers?

What will it cost you to build and launch your MVP? What will your ongoing burn rate look like in terms of both fixed and variable costs?

specifically measure successful acquisition as getting my visitors to view my signup page.

Retention measures “repeated use” and/or engagement with your product.

A real unfair advantage is something that cannot be easily copied or bought.

some examples of real unfair advantages that fit this definition: Insider information The right “expert” endorsements A dream team Personal authority Large network effects Community Existing customers SEO ranking

Visit http://LeanCanvas.com and create your online canvas there.

Incorrect prioritization of risk is one of the top contributors of waste.

We know that startups are highly uncertain, but uncertainty and risk aren’t the same thing. We can be uncertain about a lot of things that aren’t risky.

Uncertainty: The lack of complete certainty, that is, the existence of more than one possibility.

Risk: A state of uncertainty where some of the possibilities involve a loss, catastrophe, or other undesirable outcome.

Customer pain level (Problem) Prioritize customer segments that you believe will need your product the most. The goal is to have one or more of your top three problems as must-haves for them. Ease of reach (Channels)

Building a path to customers is one of the harder aspects of building a successful product. If you have an easier path to one segment of customers over others, take that into consideration. It doesn’t guarantee you’ll find a problem worth solving or a viable business model, but it will get you out of the building faster and speed up your learning.

Price/gross margin (Revenue Streams/Cost Structure) What you can charge for your product is largely driven by the customer segment. Pick a customer segment that allows you to maximize your margins. The more money you get to keep, the fewer customers you need to reach to break even.

Market size (Customer Segments) Pick a customer segment that represents a big enough market given the goals for your business.

Technical feasibility (Solution) Visit your Solution box to ensure that your planned solution not only is feasible, but also represents the minimum feature set to put in front of customers.

Start with a blank canvas and incrementally reveal parts of the business model

Devote 20% of your time to set up, 80% to conversation.

Leaving the complete canvas open in front of people always evokes a reaction because people can visualize the entire model and they

Ask specific questions. I specifically want to know: What do they consider to be the riskiest aspect of this plan? Have they overcome similar risks? How? How would they go about testing these risks? Are there other people I should speak with?

The key is not to take this feedback as either “judgment” or “validation,” but rather as a means of identifying and prioritizing risk.

Interacting with customers is everyone’s responsibility.

The three must-haves: development, design, and marketing

Development If you are building a product, you need strong product development skills on your team. Having prior experience building stuff is key, along with expertise in the specific technology you are using.

Design By “design” I mean both aesthetics and usability. In newer markets, function can take precedence over form, but we live in an increasingly “design-aware” world where form cannot be ignored. Also, a product is not just a collection of features but rather a collection of user flows. You need people on your team that can deliver on the right experience that matches your customers’ worldview. Marketing Everything else is marketing. Marketing drives the external perception of your product, and you need people that can put themselves in the shoes of your customer. Good copywriting and communication skills are key here, along with an understanding of metrics, pricing, and positioning.

You need all three — speed, learning, and focus — to run an optimal experiment.

Speed and focus When you are going fast and are focused but not learning, the image of a dog chasing its tail comes to mind. You are expending a lot of energy but simply going around in circles.

Learning and focus When you are focused on the right thing and learning but you are not moving quickly enough, you stand the danger of running out of resources or getting outpaced by a competitor.

Speed and learning Finally, when you are going fast and learning but you are not focused, you can fall into the premature optimization trap. Some examples of premature optimization are scaling servers when you have no customers, and optimizing landing pages when you don’t yet have a product that works.

Identify a Single Key Metric or Goal A startup can focus on only one metric. So you have to decide what that is and ignore everything else.

Challenge yourself to find the simplest thing you can do to test a hypothesis. This is an underappreciated skill. Once you truly understand what’s riskiest about your product, it’s often possible to build something other than the product to test it.

You don’t need automation to validate a marketplace.

started with a single customer and manually built these weekly plans to validate their riskiest assumptions first. Their objective was learning over efficiency. Over time, they signed up more customers and incrementally replaced the most inefficient portions of their solution with “just enough” automation to move them closer to their original big vision.

Formulate a Falsifiable Hypothesis

A falsifiable hypothesis is a statement that can be clearly proven wrong.

This is best illustrated with an example.

Too vague Being known as an “expert” will drive early adopters. Specific and testable A blog post will drive 100 signups.

Falsifiable Hypothesis = [Specific Repeatable Action] will [Expected Measurable Outcome]

Validate Qualitatively, Verify Quantitatively

Make Sure You Can Correlate Results Back to Specific Actions

When running qualitative experiments (like interviews), it’s important to run them the same way until certain repeatable patterns emerge.

Risks are tackled through experiments.

There are two common fallouts of this. One is that startups get discouraged from their initial lukewarm or negative learning and either pivot prematurely or abandon further experiments. The other is the complete opposite.

You can’t afford to blindly follow a process (even this one) or aimlessly run experiments just for the sake of learning. Instead, you need to start with the end in mind and carefully align your experiments into “staged iterations” so that your learning is additive.

The starting point is a completed Lean Canvas that lays out a plan that you believe should work. You then methodically run staged experiments that visit every box on the canvas.

Your business model is not a dartboard.

top three starting risks on the Lean Canvas as Problem, Channels, and Revenue streams.

Stage 1: Understand the problem

Stage 2: Define the solution

Will the solution work? Who is the early adopter? Does the pricing model work?

Stage 3: Validate qualitatively

Build your MVP and then soft-launch it to your early adopters. Do they realize the unique value proposition (UVP)? How will you find enough early adopters to support learning? Are you getting paid?

Stage 4: Verify quantitatively

Launch your refined product to a larger audience. Have you built something people want? How will you reach customers at scale? Do you have a viable business?

Product risk:

Getting the product right First make sure you have a problem worth solving.

Then define the smallest possible solution (MVP). Build and validate your MVP at a small scale (demonstrate UVP).

Then verify it at a large scale.

Customer risk: Building a path to customers

First identify who has the pain. Then narrow this down to early adopters who really want your product now. It’s OK to start with outbound channels. But gradually build/develop scalable inbound channels — the earlier the better.

Market risk: Building a viable business Identify competition through existing alternatives and pick a price for your solution. Test pricing first by measuring what customers say (verbal commitments). Then test pricing by what customers do. Optimize your cost structure to make the business model work.

Are Surveys Good for Anything? While surveys are bad at supporting initial learning, they can be quite effective at verifying what you learn from customer interviews.

The customer interview is a form of qualitative validation that is quite effective in uncovering strong signals

Once you have preliminary validation on your hypotheses, you can then use what you have learned to craft a survey and verify your findings quantitatively.

Build a frame around learning, not pitching.

The problem with starting with a pitch is that it is predicated on having knowledge about the “right” product for the customer (Problem/Solution Fit). Before you can pitch the “right” solution, you have to understand the “right” customer problem.

In a learning frame, the roles are reversed: you set the context, but then you let the customer do most of the talking.

People are generally willing to help if you set the right expectation of seeking their advice over trying to pitch to them.

Don’t ask customers what they want. Measure what they do.

It’s fairly common to find customers lying in interviews — sometimes out of politeness and sometimes because they really don’t know or don’t care enough.Your job shouldn’t be to call out their lies, but rather to find ways to validate what they say with what they do, preferably during the interview. For example, if a customer declares a problem as a must-have, probe deeper. Ask him how he solves the problem today. If he is doing nothing and still getting by, the problem may not be as acute. If, however, he is using a homegrown or competitor’s solution and he is not happy, that may be a problem worth solving.

Stick to a script.

While exploration is a critical aspect of talking to customers, you need to bind the conversation around specific learning goals.

Cast a wider net initially. Even though your first objective will be to home in on the defining attributes of early adopters, not all of your prospects will (or should) be early adopters.

Prefer face-to-face interviews.

Start with people you know.

Then use them to get two or three degrees out to find other people to interview. Not only does this help you practice and get comfortable with your script, but it’s an effective way to get warm introductions to other prospects.

Take someone along with you.

Ask for sufficient time. My interviews typically run between 20 and 30 minutes, without feeling rushed.

Avoid recording the interviewees. I tried recording interviewees early on (with their permission), but found that it made some people self-aware

Document results immediately after the interview.

Finding Prospects Whenever possible, you want to prioritize finding prospects through a channel you will actually use to acquire future customers.

Start with your first-degree contacts. The first place to start is with your immediate contacts that meet your target customer demographic.

Ask for introductions. The next step is to ask your first-degree contacts for introductions to people who meet your customer demographic.

Hey [friend], Hope all is well… I have a quick favor to ask. I’ve got a product idea that I’m trying to validate with wedding photographers. My goal is to chat with local photographers to better understand their world and evaluate whether it’s worthwhile pursuing this product. I’d really appreciate it if you could send this message along to people you know who fit this target.

Give something back. Turn the interview into a “real interview” and offer a write-up, blog post, or video in exchange.

You might be building a product that you think isn’t designed to solve a problem — for example, a video game, a short film, or a fiction novel. I argue that even in these cases there are underlying problems, albeit more desire- than pain-driven.

first spend time understanding your audience (early adopter) and then look for smaller, faster ways to test your solution — for example, build a teaser trailer for your video game, short film, or book.

It’s equally important to remember that your sustainable advantage will come from your ability to outlearn your current (and future) competition.

The Problem Interview

What You Need to Learn

Product risk: What are you solving? (Problem) How do customers rank the top three problems? Market risk: Who is the competition? (Existing Alternatives) How do customers solve these problems today? Customer risk: Who has the pain? (Customer Segments) Is this a viable customer segment?

Testing the Problem

Your first objective is measuring how customers react to your top problems.

engage customers more actively to truly understand the problems they face — specifically if/how they solve them today.

The interview will work like this. I’ll start by describing the main problems we are tackling, and then I’ll ask if any of those resonate with you. I’d like to stress that we don’t have a finished product yet, and our objective is to learn from you, not to sell or pitch anything to you. Does that sound good?

State the top one to three problems and ask your prospects to rank them:

Note So that you don’t bias the ranking, frequently reorder the Problem list.

Go through each problem in turn. Ask the interviewees how they address the problem today. Then sit back and listen. Let them go into as much detail as they wish. Ask follow-up questions, but don’t lead them or try to convince them of the merits of a problem (or solution).

Sometimes people unknowingly lie to you during the problem rankings, either because they are being polite or they simply don’t know. Check for that here. If they claim a problem is a “must-have,” but they aren’t actively doing anything to solve it, there’s a disconnect.

Even though you aren’t ready to talk about your solution in detail, you need to provide a hook to maintain interest. The high-concept pitch is perfect for this. It not only helps explain your solution at a high level, but also leaves a memorable sound bite that helps the interviewees spread your message.

Then you need to ask for permission to follow up. Your goal is to establish a continuous feedback loop with prospects. And finally, you need to ask the interviewees for referrals to other potential prospects:

Document Results

Do You Understand the Problem?

Review your results weekly.

debrief at the end of each week to review that week’s batch of interviews, summarize your learning, and make any adjustments to your script.

The goal is to adjust the script and customer demographic along the way so that you can incrementally get stronger and more consistent positive signals with each subsequent batch.

Start to home in on early adopters.

Refine the problems. If you get a strong “don’t need” signal across the board, drop that problem from the script.

Similarly, if you discover a new “must-have” problem, add it to the script. Your eventual goal is to distill your product down to one “must-have” problem — one Unique Value Proposition (UVP).

Really understand their existing alternatives. Understanding your early adopters’ existing alternatives is key to formulating the right product. Early adopters will use their existing alternatives as anchors against which they will judge your solution, pricing, and positioning.

You are done when you have interviewed

Can identify the demographics of an early adopter Have a must-have problem Can describe how customers solve this problem today

The Solution Interview Test the solution with a “demo” before building the actual product.

You will start by double-checking your learning from the Problem interview, then look to test the following additional risks: Customer risk: Who has the pain? (Early Adopters) How do you identify early adopters? Product risk: How will you solve these problems? (Solution) What is the minimum feature set needed to launch? Market risk: What is the pricing model? (Revenue Streams) Will customers pay for a solution? What price will they bear?

For software products, mock-ups and videos are a great way to “demo” your intended solution.

The demo needs to be realizable. I have friends at design studios that have special teams in place just to build early user demos. These demos are very much a part of the sales process and a lot of emphasis is placed on them, but they often rely on technologies (like Flash) that aren’t what the final product is built in. While they are quite effective at making the sale, they make the implementation team’s job quite difficult — with many of the more “flashy” elements sometimes being impossible to recreate. This leads to a disconnect in what is promised (and sold) to the client and what is eventually delivered.

The more real your demo looks, the more accurately you’ll be able to test your solution.

Content precedes design. Design in the absence of content is not design, it’s decoration.

Testing Your Pricing I find that people often misunderstand the “learning versus pitching” metaphor for customer interviews. Yes, your objective in customer interviews is to learn, not to sell, but you can’t learn effectively when you’re too vague or open-ended. You have to go into interviews with clear falsifiable hypotheses that may very well be shattered. That’s

Don’t Ask Customers What They’ll Pay, Tell Them

The mindset most of us have during Solution interviews is one of “lowering signup friction.” We want to make it as easy as possible for customers to say yes and agree to take a chance on our product, hoping the value we deliver over time will earn us the privilege of their business. Not only does this approach delay validation because it’s too easy to say yes, but a lack of strong customer “commitment” can also be detrimental to optimal learning.

Don’t Lower Signup Friction, Raise It

In most pitches, the presenter plays the role of a jester entertaining in a royal courtyard (of customers). Rather than trying to impress, position yourself to be the prize.

The first objective with your MVP is to learn. I’d much rather have 10 “all-in” early adopters I can give my full attention to than 100 “on-the-fence” users any day.

Most people are reluctant to charge for their MVP because they feel it’s too “minimal,” and they might even be embarrassed by it. I don’t subscribe to this way of thinking. The

The Solution Interview as AIDA. AIDA is a marketing acronym for Attention, Interest, Desire, and Action,

Attention

The most effective way to get noticed is to nail a customer problem.

Interest

Use the demo to show how you will deliver your UVP and generate interest.

Desire

Then take it up a notch. When you lower signup friction, you make it too easy for the customer to say yes, but you are not necessarily setting yourself up to learn effectively. You need to instead secure strong customer commitments by triggering on desire. The earlier pricing conversation generated desire through scarcity and prizing.

How Is This Different from a Pitch?

A pitch tends to be an all-or-nothing proposition. Here,

If you fail to elicit the expected behavior at each stage, it’s your cue to stop and probe deeper for reasons. For instance, you might have your positioning wrong or be talking to the wrong customer segment.

It’s a good idea to mix in new prospects with every batch of interviews so that you test all the hypotheses with a “beginner’s mind.”

The interview will work like this. I’ll start by describing the main problems we are tackling and then I’ll ask whether any of those resonate with you. I also would like to show you an early demo of the application. I’d like to stress that we don’t have a finished product yet, and our objective is to learn from you, not to sell or pitch anything to you.

Go through each problem in turn and illustrate how you solve it using the supporting demo. <For each problem> Illustrate how you solve the problem using the supporting demo. Pause after each one and ask if they have any questions. <Repeat for other problems> So, that’s what the application looks like right now. We are trying to prioritize what to finish and release first and would like to ask you a few more questions: What part of the demo resonated with you the most? Which could you live without? Are there any additional features you think are missing?

Usually the right price is one the customer accepts, but with a little resistance.

Don’t ask the customer for ballpark pricing. Instead, tell him your pricing model

If he accepts the pricing, make a note of whether he hesitated or readily accepted.

Wrapping Up (the Ask)

The first is permission to follow up with them to test the service when it’s ready.

The second is to ask for referrals to other people you could potentially interview.

Refine pricing. If you have no resistance to your pricing, consider testing a higher price.

Get to Release 1.0

The first step is to reduce the scope of your minimum viable product (MVP) to its essence so that you build the smallest thing possible.

Reduce your MVP A danger with iterating through mock-ups during the Solution interview is that it is quite easy to get carried away and end up with more than you need for your MVP.

Your MVP should be like a great reduction sauce — concentrated, intense, and flavorful.

Start with your number-one problem. The job of your unique value proposition (UVP) is to make a compelling promise. The job of the MVP is to deliver on that promise.

Eliminate nice-to-haves and don’t-needs. From your Solution interviews, you should be able to label every element on your mock-up as “must-have,” “nice-to-have,” or “don’t need.”

Repeat Step

for your number-two and number-three problem mock-ups.

Charge from day one, but collect on day 30.

It is also generally a good practice to defer up-front collection of credit card information to reduce signup friction and avoid negative option billing.

Focus on learning, not optimization.

Get Started Deploying Continuously

technique for shortening the cycle time from requirements to release is implementing a Continuous Deployment process

Continuous Deployment is a practice of releasing software continuously throughout the day — in minutes versus days, weeks, or months.

The biggest waste in software is created from waiting for software as it moves from one state to another: waiting to code, waiting to test, waiting to deploy. Reducing or eliminating these wait times leads to faster iterations, which is the key to success.

Right now is the perfect time to lay the groundwork and practice with Continuous Deployment — while you don’t have customers, lots of code, or servers to worry about. While Continuous Deployment won’t help you launch your MVP faster, starting with a basic system won’t slow you down and will help lay the foundation for speeding up future iterations after you launch.

Define your activation Flow

Your activation flow describes the path customers take from signing up for your service to having a gratifying first experience.

While the ultimate objective of your activation flow is to get your customers to experience your UVP as quickly as possible, most of what goes wrong right after you launch happens here. For this reason, it is far more critical to architect your activation flow for learning over optimization.

Reduce signup friction, but not at the expense of learning.

Reduce the number of steps, but not at the expense of learning.

Deliver on your UVP.

Be prepared for when things go wrong.

Build a Marketing Website

Your marketing website is critical in driving the acquisition trigger in your customer lifecycle.

Acquisition describes the path a customer takes from first landing on your website as an unaware visitor to becoming an interested prospect.

Each page should have a primary call to action and a secondary call to action. My primary call to action directs visitors to my pricing page (acquisition subgoal), while my secondary call to action offers a link to more information (e.g., product tour).

The landing page is by far the hardest of the three. Its job is to make a case for your product to an unaware visitor in fewer than eight seconds.

While the job of your landing page is to provide a compelling reason to buy your product, the job of your About page is to provide a compelling reason to buy from your company.

Tour page (video/screenshots)

there are several basic elements that make up a successful landing page,

Unique value proposition

Supporting visual

A clear call to action

Invitation to learn more

Get Ready to Measure

An actionable metric is one that ties specific and repeatable actions to observed results.

It’s not what you measure, but how.

Understanding the difference between a vanity metric and a macro metric is the first step. In order to make your metrics actionable, you have to additionally make them accessible (through simple reports) and auditable (by being able to go behind the numbers). The three A’s of metrics are: Actionable, Accessible, and Auditable.

Metrics Are People First

The ideal conversion dashboard is part analytics and part customer relationship management.

Metrics can’t explain themselves.

Don’t expect your users to come to you.

Not all metrics are equal.

When you just look at numbers, you get an averaging effect that can be greatly skewed if you don’t yet have a lot of traffic (or the right traffic). You need a way to segment your metrics into different buckets.

Micro-level funnels are characterized by short lifecycle events typically measured in minutes, while macro-level funnels are characterized by long lifecycle events typically measured in days or months.

This poses the following issues: Inaccurate conversion rates The numbers reported for the revenue event most likely include purchases made in May and exclude purchases made in July, which skews the overall conversion rates. Dealing with traffic fluctuations This skewing of numbers is further exacerbated by any fluctuations in traffic. If signups go down in July, your conversion rates will appear to be better when they may not be. Measuring progress (or not) Another problem with this sort of reporting is that your product is also constantly changing. It is hard, if not outright impossible, to tie back observed results (good or bad) to actions you took in the past, such as launching a new feature. Segmenting funnels Over time, you will probably run a split test or need to segment your funnel to isolate one group of customers from another. You can’t do this with a simple funnel report.

So, while funnels are a great visualization tool, funnels alone are not enough. The answer is to couple funnels with cohorts. Cohort analysis is very popular in medicine, where it is used to study the long-term effects of drugs and vaccines: A cohort is a group of people who share a common characteristic or experience within a defined period (e.g., are born, are exposed to a drug or a vaccine).

The MVP Interview

If you can’t convert a warm prospect in a 20-minute face-to-face interview, it will be much harder to convert a visitor in less than eight seconds on your landing page.

During the MVP interview, you are specifically looking to answer the following questions: Product risk: What is compelling about the product? (Unique Value Proposition or UVP) Does your landing page get noticed? Do customers make it all the way through your activation flow? What are the usability hot spots? Does your MVP demonstrate and deliver on your UVP? Customer risk: Do you have enough customers? (Channels) Can you bring on more customers using your existing channels? Market risk: Is the price right? (Revenue Streams) Do customers pay for your solution?

The MVP interview, like the Problem and Solution interviews, is less about pitching and more about learning.

record the testing session for others to watch later.

Signup and Activation (Test Solution) (15 minutes) This is the heart of the interview. Ask the interviewee to sign up and watch how he navigates your activation flow. Are you still interested in trying out this service? You can do so by clicking the “Sign up” link. It would be immensely valuable to us if we could watch you go through the signup process. Would that be OK?

Document Results

write down the top three problems you observed.

Make Feedback Easy

The fastest way to learn from customers is to talk to them.

A toll-free number sends a signal to your customers that you care and that you went the extra mile to make it easy for them to call you.

You don’t have a scaling problem yet.

Tech support is a continual learning feedback loop.

Tech support is customer development.

Tech support is marketing.

Your first objective during trials is to reduce user abandonment on your acquisition and activation paths. Your next objective is to increase retention and engagement, get paid (if that applies), and collect favorable customer testimonials. Your goal should be to get 80% of your early adopters through the complete cycle.

Acquisition and Activation

Drill into your sub funnels. Explore your acquisition and activation sub funnels to see where users are dropping off. Start with the leakiest bucket first. Are you losing them on a particular page, such as the landing page or pricing page? Look for patterns. Do certain types of users (e.g., Mac versus Windows users) experience higher failure rates than others?

Reach out to your users. You should be able to extract the list of users that failed at a particular step in your funnel. If you know what went wrong, correct it, and ask those users to come back.

Catch and report unexpected errors. When early users run into problems, they don’t turn into testers. They leave.

Retention Priority: Get users to come back and use your product during the trial. Send gentle email reminders.

Email can be automated, tracked, and measured. A common technique used by email marketers is drip marketing,

Even better than drip marketing is lifecycle marketing. Lifecycle marketing additionally considers the user’s stage in the customer lifecycle. So, for instance, if a user gets stuck during activation, instead of educating him about your advanced features, you would know to send him timely and appropriate troubleshooting help.

Follow up with your interviewees.

Get paying customers to talk to you.

Get “lost sales” prospects to talk to you.

Don’t spend a lot of effort acquiring customers and then just let them walk away.

Ask for customer testimonials. Get happy customers to write a short paragraph on your product’s value proposition.

Are You Ready to Launch?

Review your results frequently. Usability testing research shows that you can uncover 85% of your product’s problems with as few as five testers. Start with the most critical problems. Review everyone’s top three problems and rank them by severity. Do the smallest thing possible. Resist the temptation to completely redesign a new landing page or signup flow at this stage. Your objective is to first establish a baseline that works, and you can get there by making smaller tweaks. You’ll have lots of opportunities to test alternate hypotheses in Part IV of this book. Make sure things improve. Validate that your fixes actually improve things in subsequent interviews. Repeat Steps 1–3. Audit your conversion dashboard. This is the perfect opportunity to audit your conversion dashboard and make sure everything works as expected.

What Are the Launch Criteria? You are ready when at least 80% of your early adopters consistently make it through your conversion funnel. Specifically, they should: Be able to clearly articulate your unique value proposition (UVP) Be primed to sign up for your service Accept your pricing model Make it through your activation flow Provide positive testimonials

Your goal is to establish “just enough” traffic to support learning.

The reason both reactions were bad is that you don’t have five minutes on a landing page.

When people don’t trust you, they leave.

So, even though we could have added a “how it works” page or graphic on the landing page, chances are people wouldn’t stick around long enough to notice it.

Iteration 3: Emotional hook Rather than trying to present a particular benefit or explain how the product works, we took a more aspirational tack; one that used an image to connect with the target customer and communicated a finished story benefit

CloudFire landing page, iteration 3 This version worked. The first reaction we got from moms was: “That’s my life.” That connection made them more open to reading the left hand side of the page, which further connected with them by making the promise: “Get back to the more important things in your life. Faster.” That piqued their interest enough to want to learn more, which is exactly what you want out of your UVP headline. UVP: Why you are different and worth paying attention to. Qualitative versus quantitative learning Interestingly, this experiment in landing pages also serves as a great example of showing how qualitative learning can trump quantitative learning in the early stages of a product.

started an A/B split-test using Google Website Optimizer, driving traffic using Facebook ads, Google AdWords, and StumbleUpon.

Features Must Be Pulled, Not Pushed

While Continuous Deployment helps you streamline your product development process for speed, you have to be wary of simply cranking out more features faster.

Give your MVP a chance. First troubleshoot and resolve issues with existing features before chasing new features.

Implement an 80/20 Rule

Most of your time immediately after launch should be spent measuring and improving existing features versus chasing after shiny new features.

A good practice for keeping your features pipeline in check is to limit the number of features that can be concurrently worked on and only work on new features after you’ve validated that the features you just deployed had a positive or negative impact (i.e., yielded learning).

It is important to distinguish between minimal marketable features (MMFs) and smaller features/bug fixes.

A good test for an MMF is to ask yourself if you’d announce it to your customers in a blog post or newsletter. If it’s too tiny to mention, it’s not an MMF.

A key principle of Kanban that works to constrain the work queue involves setting limits on the number of features that can be in progress at any given time.

In a Lean Startup, however, a feature is only “Done” when it provides validated learning from customers

Defining “Done” this way further constraints your feature pipeline and prevents you from working on any new features unless you can prove that the current features just deployed provided validated learning.

The first determination involves checking the request against your product’s immediate needs and priorities: is it “Right action, right time?” So, for instance, if you have serious problems with your signup flow, all other downstream requests should take a backseat to that.

Customer-pulled requests If the feature is a customer-pulled request, arrange a call or meeting with the customer. Even though the customer might be asking for a specific solution, get to the root of the problem. Try to talk the customer out of wanting the feature. Have the customer sell you on why you should add the feature.

Validate qualitatively: Partial rollout Once the feature is coded and ready for use, partially deploy it to just a few customers first.

Validate qualitatively Conduct usability interviews similar to the MVP interview. Iterate as needed to correct issues.

Verify quantitatively: Full rollout You are ready to do a full rollout. Once your feature is rolled out, it is marked “Done,” and the lock of the work-in-progress limit is released. This allows you to start working on the next feature in the backlog queue.

Verify quantitatively With the feature fully live, you should now be able to compare your conversion cohorts for the week the feature went live against the previous week to verify the expected macro impact.

Depending on the type of feature, you might additionally need to set up a split-test.

The more concurrent split-tests you have going, the longer the verification time window. Long-running experiments can also start interfering with other experiments and complicate your cohorts. For these reasons, it is best to use your judgment to decide when to split-test and when not to.

Here are some guidelines: I generally don’t split-test a brand-new feature because you can compare against older cohorts that didn’t have this feature. I don’t split-test experiments that get very strong signals during qualitative testing. I do recommend split-testing experiments that get a medium to strong signal during qualitative testing and those that test improvements or alternate flows.

How would you feel if you could no longer use [product]? Very disappointed Somewhat disappointed Not disappointed (it isn’t really that useful) N/A – I no longer use [product]

If you find that over 40% of your users are saying that they would be “very disappointed” without your product, there is a great chance you can build sustainable, scalable customer acquisition growth on this “must have” product.

Surveys are more effective at verification than learning.

How do you steer your product toward product/market fit? The answer lies within your conversion dashboard.

measuring your product’s early resonance with users using two key metrics from your customer lifecycle — activation and retention, which together make up your value metrics.

revenue is only the first form of validation and, when used just by itself, could be a false positive as a product/ market fit test.

I’ve experienced numerous cases with my products where customers kept paying for a product they did not use (not even sporadically). Sometimes this was because someone else was paying (their company, for instance) or they simply forgot to cancel the product.

Have You Built Something People Want?

Review your conversion dashboard results weekly. Set a time every Monday to review your weekly conversion dashboard with the entire team.

Identify the leakiest buckets you need to fix first.

Prioritize your goals and features backlog.

Review your features backlog to prioritize new and existing feature improvements.

Formulate bold hypotheses. At this stage, avoid micro-optimization experiments. Instead, come up with bold hypotheses, but build the smallest thing possible to test them.

Add/kill features.

Review features throughout the feature lifecycle to ensure that they have a positive impact. Otherwise, rework or kill them.

Monitor your value metrics.

Review your retention cohorts.

Your goal is to see steady upward movement in these numbers. Otherwise, you’re simply spinning your wheels.

Run the Sean Ellis Test. Once your retention numbers approach 40%, consider running the Sean Ellis Test.

Growth here is driven by keeping the Viral Coefficient > 1 (i.e., each user brings in at least one other user).

While I had great passion for the technology behind the solution, I found myself with little passion for the customers or their problems. Only having passion for the solution is a problem.

Being different is good only if that difference matters.

While I succeeded in discovering viable “customer problems” to solve and even got pretty far in terms of validating the business model (with positive cash flow), something was grossly missing: passion for customers and their problems.

I had unknowingly tweaked my founding vision along the way from being problem-based — “connecting everyone on this planet” — to being solution-based — “a peer-to-web framework that blurs the boundaries between the desktop and the Web.” I had become a company with a “solution looking for a problem”

Create canvases for both sides. In a way, you are building two business models in one. You have to understand who the sellers are, how you’ll reach them, and what unique value you’ll provide them. Then do the same for the buyers.

Rather than creating a new or large marketplace, identify a prototypical preexisting “early adopter” marketplace where both the motivation and the friction for transacting business is currently high.

Run separate Problem and Solution interviews to validate your assumptions around pain level and motivations of both buyers and sellers. Get commitments, build an MVP, and start connecting buyers with sellers. For

Don’t automate match making. Matching buyers and sellers is a hard problem. Consider using a “Concierge MVP” model (like the Food on the Table case study from Chapter 5) to keep the quality level high while you learn what to automate.

The key is to build a continuous learning culture of experimenters versus specialists, where it’s everyone’s job to be accountable toward creating and capturing customer value.

more money might tempt you to hire more people and build more features — both of which may lead you off course and slow you down.

Constraints drive innovation, but more important, they force action.

Don’t hire until it hurts.

Charge from day one. Make a goal of first covering your hardware/hosting costs, and then your people costs.

build up your online reputation and brand, which pays off over time and could even lead to an unfair advantage.

In a Lean Startup, eliminating waste is a fundamental principle. Waste is any human activity which absorbs resources but creates no value.

What about work that needs to get done inside the building? Who is going to implement the solutions to problems uncovered outside the building?

create two teams that feed into each other: a problem team and a solution team. The problem team focuses on customer development, while the solution team focuses on product development. However, if you are a founder, you need to be on both teams, and this is where the fundamental scheduling tug-of-war problem lies.

Start with a single pricing plan. Starting with multiple plans that cover everyone under the sun is a form of waste.

One rule of thumb for building a successful business (by way of David Skok, Matrix Partners) is to ensure that the lifetime value of your customers exceeds the cost of customer acquisition by at least a factor of three.

do a back-of-the-envelope calculation based on your people/hardware costs and subscription revenue to find your break-even point.

Unless you are deriving monetary value from free users, the freemium model is less of a business model and more of a marketing tactic to fill your pipeline with potential prospects.

pricing is one of the riskiest (and most critical) parts of the business model and should be tested early. Freemium delays this learning.

Pricing should be set with the buyer in mind, not the seller.

Jason Cohen, who writes the popular A Smart Bear blog, even advocates accounting for free users as a “marketing expense” on your balance sheet, much like you would an ad buy or trade show expense.

Since your eventual goal is to charge for your product anyway, why not start there? Pick features and a plan based on what customers will pay for today and sign them on as your first customers. Not only is this simpler to build, but it’s also simpler to measure. Then, once you have learned how your customers are using your product, you can always offer a free plan if you want to. You would have collected valuable usage data along the way, which puts you in the best position to design multiple upstream and downstream plans.

A good free plan should ideally behave similarly to a free trial. The difference is that while a free trial is time- based, freemium is usage-based. If you understand the usage pattern of your product, you should be able to design the free plan so that a user naturally outgrows it at some point in the future that you can reasonably predict.

The number-one way to get a prospect (cold or warm) to agree to an interview is to “nail his problem.” One of the best exercises for crafting such a message involves spending an afternoon writing a shorter version of a long- form sales letter — no matter what type of business you’re building. You will not be sending this letter to any prospects. The point of the exercise is to get you to explain your product in narrative form, which will be helpful when requesting interviews, when conducting interviews, and while building a marketing landing page.

Establishing a website early with the right keywords from your UVP will also give you a head start in building your search engine optimization (SEO) ranking. Don’t worry about giving away too much about your product. We’re only going to mention the “Problem,” not the “Solution.”

Follow basic SEO practices. Make sure you also use your UVP in your title tag and place your keywords (not your product name) early. For example, use this: Customer Lifecycle Management Software – USERcycle not this: USERcycle – Customer Lifecycle Management Software

Collect email addresses. Pick your favorite tool, like Campaign Monitor or MailChimp, to collect email addresses using a “Notify Me” call-to-action button.

Measure your website. Start with a free analytics tool like Google Analytics to track visitors on your landing page.

How to Get Started with Continuous Deployment Figure A-1 shows an overview of the continuous deployment cycle. You probably already have (or should have) the pieces needed to put together a basic continuous deployment system. I’ll cover each stage of the continuous deployment cycle next. Commit One of the ways continuous deployment strives to reduce waste is by reducing work-in-progress inventory (i.e., undeployed code). Having lots of undeployed code increases inertia and reduces your ability to react quickly (more integration, more coordination, more planning). Here are two techniques that help you reduce your work-in-progress inventory: Code in smaller batches.

The basic idea here is to deploy less code but more frequently. The definition of a small batch is relative, but strive to make it as small as possible. I used to deploy code on a biweekly schedule with my last product and eventually got my batch size down to the output of a two-hour coding session. Sure, you won’t usually finish a full feature in two hours, but you’ll get pretty good at building and deploying features incrementally.

The number of lines of code in my average batch went from several hundred to about 25. A direct side effect of deploying fewer than 25 lines of code versus hundreds is that troubleshooting unexpected production issues immediately after a deployment becomes a whole lot easier, as does fixing and releasing them. Always be trunk-stable.

Another practice for reducing work-in-progress inventory is to not use any branching in your source control tree. I know this sounds a little extreme because branching and merging are among the most touted features in a source control management system — they allow you to isolate big, risky changes off the “stable” mainline trunk. But the longer you stay off the trunk, the more integration debt you collect, which again inevitably leads to more integration risk, coordination, and planning headaches. It’s more efficient to train yourself to always be trunk-stable and build and deploy your features incrementally. It’s important to point out that deploying features incrementally doesn’t necessarily mean

they are made live to all users immediately. This allows you to incrementally roll out big features and make them available to select users like your internal team until you are ready to go live. I’ll cover how you do this using a feature flipping system in the Deploy section.

Test Taking the continuous deployment plunge is particularly scary because it eliminates manual testing (QA), which typically has served as a safety net for catching defects after development and before deployment.

Here are some guidelines for overcoming this fear: Testing is everyone’s responsibility. First, I don’t know of any two- or three-person startup that has a QA department, which makes testing everyone’s responsibility. Second, having long test cycles creates the same work-in-progress inventory problems we discussed earlier. The solution is not creating a separate QA function, but rolling it into the development process and investing more heavily in automated testing.

Use a continuous integration server. Set up a continuous integration server, like Hudson, to automatically trigger a build (if you have compiled code) and run your application against your test suite after every commit.

Do not tolerate any failing tests. I’ve worked at places where developers train themselves to ignore failing tests because they know they are outdated. In a continuous deployment system, these tests serve as your last line of defense before pushing code into production, and you cannot tolerate a single failing test, especially since your ultimate goal is to automate deployment.

Prefer functional tests over unit tests. I don’t advocate achieving “full test coverage.” On the contrary, I believe writing unit tests for obscure edge cases is a form of waste and is not the most optimal use of time when the focus is speed and learning. I instead prefer creating functional tests over unit tests whenever possible. There are several great options, like Selenium and Sauce Labs, for writing and automating functional tests for web applications. Start with your activation flow. Building tests for features that your customers never get to is also a form of waste. When building tests, use your customer lifecycle to prioritize your tests. Start with the activation flow and then incrementally add other functional tests over time.

Deploy The deployment step pushes your tested code into your production environment. As this can get quite sophisticated when you have a cluster of machines, it is best to start early when you have just a few servers: Outsource as much of your server infrastructure as possible.

Spending effort setting up and configuring your own servers at this stage is a form of waste. You should instead pick a cloud or platform provider (like Amazon or Heroku) and focus all your efforts on building your application, not your infrastructure. Many cloud providers offer free tiers to get you started.

Create a separate staging area if you are so inclined. A separate staging area serves as an additional safety net before pushing code to production and can be a good idea for building up confidence in your deployment system. However, I’ve found staging areas to be of limited use beyond basic spot checking, and at some point your continuous integration server should be able to serve this function in a more repeatable and automated fashion.

Build one-click push and rollback scripts. The next step is to write a set of deploy scripts that can push your code to your production server and roll back your code to the last release. The rollback is used in the event you push a bad change. If you are deploying small enough batches, you should never need to roll back beyond the last release. If you are on Heroku, one-click push and rollback is offered out of the box. Deploy manually first, then automate. It is usually a good idea to run the push script manually at first and audit every deployment while you build up your confidence. If you are using Hudson as your continuous integration tool, it is fairly easy to add a task to automatically trigger your push script when you are ready for that.

Implement a simple feature flipper system. You will inevitably be faced with having to deploy a new “big” feature while maintaining the old ones, and you’ll need a mechanism in place to isolate your users from these changes. A feature flipper system fits that bill. A feature flipper system uses flags in your code that allow you to enable/disable features on a per-user basis.

Monitor The job of your monitoring system is to enable you to automatically detect, alert, and eventually even automatically recover from unexpected errors. An example of recovering from an error might be automatically triggering your rollback script in the event of a bad release. To be able to do this, your monitoring system would have to get pretty sophisticated and not just monitor your server health but also your application health (i.e., business metrics). The good news is that you don’t need to start there. It is actually a form of waste to try to overbuild your monitoring system, because the Pareto Principle rules here. The Pareto Principle: Roughly 80% of the effects come from 20% of the causes. The continuous deployment cycle has a built-in feedback loop that helps you build this monitoring incrementally. Here’s how to get started: Start with off-the-shelf monitoring. There are numerous off-the-shelf monitoring and alerting applications, including Ganglia, Nagios, and New Relic, that you can use to start monitoring basic server health metrics. Tolerate unexpected problems only once. You build up your monitoring system by implementing a Five Whys root cause analysis to every unexpected problem you encounter.

The Five Whys is a questions-asking method used to explore the cause/effect relationships underlying a particular problem. Ultimately, the goal of applying the Five Whys method is to determine a root cause of a defect or problem. The following example demonstrates the basic process: My car will not start. (the problem) Why? – The battery is dead. (first why) Why? – The alternator is not functioning. (second why) Why? – The alternator belt has broken. (third why) Why? – The alternator belt was well beyond its useful service life and has never been replaced. (fourth why) Why? – I have not been maintaining my car according to the recommended service schedule. (fifth why, a root cause) Why? – Replacement parts are not available because of the extreme age of my vehicle. (sixth why, optional footnote) I will start maintaining my car according to the recommended service schedule. (solution) — http://en.wikipedia.org/wiki/5_Whys Applied to unexpected problems in your production environment, the outcome of each Five Whys analysis should provide a slew of tests, monitoring, and alerts that you then add to your existing suite.

How to Build a Conversion Dashboard A key design principle is to decouple data collection from data visualization. This lets you minimize waste by allowing you to build your conversion dashboard incrementally.

How to Collect Data Here’s how to get started with data collection: Map metrics to events. The first step is to identify all the key events (user actions) that map back to your metrics. You should already have all your steps for your acquisition and activation funnels clearly defined. Mapping metrics to events It is helpful to also identify any key events for the other macro metrics

Figure A-3. Other macro metrics Track raw events. I recommend tracking your raw events in a separate events table/database or using a third-party system like Google Analytics, KISSmetrics, or Mixpanel. While logging data in your production tables might seem easy and harmless enough, your production tables are probably not designed for the kinds of queries you’ll need to run over time. You’ll end up either spending a lot of time dumping tables and massaging the data, or taxing your production system heavily for reports. Log everything. A good practice to complement tracking raw events is to log every “potentially interesting” property along with each event.

An example of a property could be your user’s browser, operating system, or referrer. While you may not use a particular property today (or think you’ll ever use it in the future), it’s fairly inexpensive to log a few extra bytes of information that could end up saving you time later, and more importantly, could provide a treasure trove of historical data.

How to Visualize Your Conversion Dashboard Now you’re ready to start visualizing your data: Build a weekly cohort report. The first report I use on my conversion dashboard is the weekly cohort report by join date I showed earlier. Weekly cohort report You’ll notice that I base my activation conversion rate off the number of “acquired” users versus total visitors. This is because I like to measure my activation rate (signup flow efficiency) independently from my acquisition rate (marketing efficiency). This way, if you get a surge of unanticipated PR traffic (like getting Digg’d or TechCrunch’d), unless these visitors truly intend to use your service (i.e., click your signup link), they will not affect your overall activation numbers. The weekly cohort report serves like a canary in a coal mine. If you find none of your numbers changing from week to week, you are simply spinning your wheels and not really making progress. A change in the numbers in a particular week lets you tie back those results to actions taken in that week. Be able to drill into your sub funnels. You should be able to drill into your detailed sub funnels and visualize all the steps, which is valuable for troubleshooting problems. Activation funnel Be able to go behind the numbers. At any given sub funnel event, you should be able to go behind the numbers and get to the list of people

How to Track Retention Retention measures repeated activity over a period of time. So the first step is to define what constitutes activity. Define an active user. There are many ways to define an active user. The most basic definition measures activity simply in terms of logins (i.e., does the user come back?). A more representative definition for tracking activity for product/market fit should measure not just usage but also “representative usage.” Every product has a core set of user actions that track ongoing representative usage. For example, writing blog posts is a key activity for a blogging platform. Also note that your key activity for activation may not be the same as your key activity for retention. A more advanced approach to measuring representative engagement comes from Dharmesh Shah, who coined the term “Customer Happiness Index,” or CHI. The idea is to use a formula to grade activity on a scale of 1 to 100 that is calculated using frequency, breadth, and depth of feature usage. At this stage, I recommend starting with the simplest formula. This formula should measure representative engagement that centers around your key activity. You can tweak the formula for your product over time to get a more graded CHI score that helps you segment your users into different buckets and focus your marketing, troubleshooting, and customer development activities.

Case Study: CloudFire The key activity in CloudFire that tracks ongoing usage is the sharing of content. I would start by simply defining an active user as someone who shares at least one photo album or movie during the trial period (30 days). A more advanced approach might be to calculate a Customer Happiness Index using a weighted formula similar to the following: CHI = [(Number of days logged in)/(Desired number of logins)*0.2 +

(At least one key activity) *0.8)] * 100 Then define an active user as someone with a CHI > 80. While this yields the same number of active users as before, it gives me a graded scale for segmenting my users by activity. Figure A-7 shows what four users with varying levels of activity over the trial period would look like.

Active users Visualize retention in your conversion dashboard. Now that you have a definition of an active user, you can visualize your conversion dashboard to show what percentage of users were active during your trial period (see Figure A-8). Figure A-8. Visualizing retention The retention rate is based on the number of “activated” users. Provide a detailed view. As with your other macro metrics, drilling into the retention macro should provide a detailed view. However, in this case, instead of showing a sub funnel, you would show the trending of your retention numbers over time (see Figure A-9). Figure A-9. Retention table Note You should ideally be able to change the time periods on both axes in Figure A-9, allowing you to visualize this report by day, week, or month.

Lean Start Up

How will early adopters spread this product ?

1. Do consumers recognize that they have the problem you are trying to solve?

2. If there was a solution, would they buy it?

3. Would they buy it from us?

4. Can we build a solution for that problem?

· Online surveying tool KISSinsights

Start with the creation of a simple hotline number using one of the new breed of low-cost and fast setup platforms such as Twilio. With a few hours’ work, they could add simple voice prompts, offering callers a menu of financial problems to choose from.

Instead of paying for expensive television or radio advertising to let people know about the service, use highly targeted advertising. Flyers on billboards, newspaper advertisements to those blocks, or specially targeted online ads would be a good start. Since the target area is so small, they could afford to pay a premium to create a high level of awareness in the target zone. The total cost would remain quite small.

The minimum viable product lacks many features that may prove essential later on.

A critical question to consider is whether customers will in fact sign up for the free trial given a certain number of promised features (the value hypothesis).

· Did something unexpectedly easy: he made a video

· “It drove hundreds of thousands of people to the website.

· In this case, the video was the minimum viable product.

· “We self-funded the company and released very cheap prototypes to test. What became Aardvark was the sixth prototype. Each prototype was a two to four week effort.

· : We invited one hundred to two hundred friends to try the prototypes and measured how many of them came back. The results were unambiguously negative until Aardvark.”

· “As we refined the product, we would bring in six to twelve people weekly to react to mockups, prototypes, or simulations that we were working on. It was a mix of existing users and people who never saw the product before. We had our engineers join for many of these sessions, both so that they could make modifications in real time, but also so we could all experience the pain of a user not knowing what to do.”

· As you consider building your own minimum viable product, let this simple rule suffice: remove any feature, process, or effort that does not contribute directly to the learning you seek.

· Sooner or later, a successful startup will face competition from fast followers. A head start is rarely large enough to matter, and time spent in stealth mode – away from customers – is unlikely to provide a head start. The only way to win is to learn faster than anyone else.

· make a habit of asking startups whenever we meet: are you making your product better? They always say yes. Then I ask: how do you know?

a startup might prefer to build separate MVPs that are aimed at getting feedback on whether a company might perform a smoke test with its marketing materials. This is an old direct marketing technique in which customers are given the opportunity to preorder a product that has not yet been built. A smoke test measures only one thing: whether insufficient to validate an entire growth model. Nonetheless, it can be very useful to get feedback on this assumption before committing more money and other resources to the product.

To demonstrate validated learning, the design changes must improve the activation rate of new customers. If they do not, the new design should be judged a failure. This is an important rule: a good design is one that changes customer behavior for the better.

We tracked the “Funnel Metrics” behaviors that were critical to our engine of growth: customer registration, the download of our application, trial, repeat usage, and purchase.

Five dollars bought us a hundred clicks-every day. From a marketing point of view this was not very significant, but for learning it was priceless. Every single day we were able to measure our product’s performance with a brand new set of customers. Also, each time we revised the product, we got a brand new report card on how we were doing the very next day.

For example, one day we would debut a new marketing message aimed at first-time customers. The next day we might change the way new customers were initiated into the product. Other days, we would add new features, fix bugs, roll out a new visual design, or try a new layout for our website. Every time, we told ourselves we were making the product better, but that subjective confidence was put to the acid test of real numbers.

Day in and day out we were performing random trials. Each day was a new experiment. Each day’s customers were independent of those of the day before. Most important, even though our gross numbers were growing, it became clear that our funnel metrics were not changing. Is there a crowd trial site ?

The graph shows the conversion rates to IMVU of new customers who joined in each indicated month. Each conversion rate shows the percentage of customers who registered in that month who subsequently went on to take the indicated action.

This is the pattern: poor quantitative results force us to declare failure and create the motivation, context, and space for more qualitative research. These investigations produce new ideas – new hypotheses – to be tested, leading to a possible pivot. Each pivot unlocks new opportunities for further experimentation, and the cycle repeats. Each time we repeat this simple rhythm: establish the baseline, tune the engine, and make a decision to pivot or persevere.

· A split-test experiment is one in which different versions of a product are offered to customers at the same time. By observing the changes in behavior between the two groups, one can make inferences about the impact of the different variations.

BACKLOG

IN PROGRESS

BUILT

VALIDATED

Work on A begins. D and E are in development. F awaits validations.

BACKLOG

IN PROGRESS

BUILT

VALIDATED

F is validated. D and E await validation. G, H, I are new tasks to be undertaken. B and C are being built. A completes development.

BACKLOG

IN PROGRESS

BUILT

VALIDATED

H à

I à

G à

B à

C à

B and C have been built, but under Kanban, cannot be moved to the next bucket for validation until A, D, E have been validated. Work cannot begin on H and I until space opens up in the buckets ahead.

· Pretty soon everyone gets the hang of it. This progress occurs in fits and starts at first. Engineering may finish a big batch of work, followed by extensive testing and validation. As engineers look for ways to increase their productivity, they start to realize that if they include the validation exercise from the beginning, the whole team can be more productive.

For example, why build a new feature that is not part of the split-test experiment? It may save your time in the short turn, but it will take more time later to test, during the validation phase. The same logic applies to a story that an engineer doesn’t understand.

Under the old system, he or she would just build it and find out later what it was for. In the new system, that behavior is clearly counterproductive: without a clear hypothesis, how can a story ever be validated

Most important, teams working in this system begin to measure their productivity according to validated learning, not in terms of the production of new features

· Three A’s of metrics: Actionable, Accessible, and Auditable

Departments too often spend their energy learning how to use data to get what they want rather than as genuine feedback to guide their future actions.

There is an antidote to this misuse of data. First, make the reports as simple as possible so that everyone understands them. Remember the saying “Metrics are people, too.” The easiest way to make reports comprehensible is to use tangible, concrete units. What is a website hit? Nobody is really sure, but everyone knows what a person visiting the website is: one can practically picture those people sitting at their computers.

This is why cohort-based reports are the gold standard of learning metrics: they turn complex actions into people-based reports. Each cohort analysis says: among the people who used our product in this period, here’s how many of them exhibited each of the behaviors we care about. In the IMVU example, we saw four behaviors: downloading the product, logging into the product from one’s computer, engaging in a chat with other customers, and upgrading to the paid version of the product. In other words, the report deals with people and their actions, which are far more useful than piles of data points

It is only because David focused on actionable metrics for each of his leap-of-faith questions that he was able to accept that his company was failing.

· a startup’s runway is the number of pivots it can still make

· Measuring the runway through the lens of pivots rather than that of time suggests another way to extend that runway: get to each pivot faster. In other words, the startup has to find ways to achieve the same amount of validated learning at lower cost or in a shorter time.

· a virtual trading account and build a portfolio that was based on real market data without having to invest real money. The idea was to identify diamonds in the rough: amateur traders who lacked the resources to become fund managers but who possessed market insight. Amateur entrepreneurs ? stock traders ?

· This is also common with pivots; it is not necessary to throw out everything that came before and start over. Instead, it’s about repurposing what has been built and what has been learned to find a more positive direction.

The kind of pivot we needed is called a customer segment pivot. In this pivot, the company realizes that the product it’s building solves a real problem for real customers but that they are not the customers it originally planned to serve. In other words, the product hypothesis is confirmed only partially.

· : Just as lean manufacturing has pursued a just-in-just approach to building products, reducing the need for in-process inventory, Lean Startups practice just-in-time scalability, conducting product experiments without making massive up-front investments in planning and design.

· The biggest advantage of working in small batches is that quality problems can be identified much sooner. This is the origin of Toyota’s famous andon cord, which allows any worker to ask for help as soon as they notice any problem, such as a defect in a physical part, stopping the entire production line if it cannot be corrected immediately. This is another very counterintuitive practice. An assembly line works best when it is functioning smoothly, rolling car after car off the end of the line. The andon cord can interrupt this careful flow as the line is halted repeatedly. However, the benefits of finding and fixing problems faster outweigh this cost. This process of continuously driving out defects has been a win-win for Toyota and its customers. It is the root cause of Toyota’s historic high quality ratings and low costs.

· Instead of working in separate departments, engineers and designers would work together side by side on one feature at a time. Whenever that feature was ready to be tested with customers, they immediately would release a new version of the product, which would go live on our website for a relatively small number of people. The team would be able immediately to assess the impact of their work, evaluate its effect on customers, and decide what to do next. For tiny changes, the whole process might be repeated several times per day.

· This is not the way the Lean Startup model works, because customers often don’t know what they want. Our goal in building products is to be able to run experiments that will help us learn how to build a sustainable business. Thus, the right way to think about the product development process in a Lean Startup is that it is responding to pull requests in the form of experiments that need to be run.

· Remember that although we write the feedback loop as Build-Measure-Learn because the activities happen in that order, our planning really works in the reverse order: we figure out what we need to learn and then work backwards to see what product will work as an experiment to get that learning. Thus, it is not the customer, but rather our hypothesis about the customer, that pulls work from product development and other functions. Any other work is waste.

· : Sustainable growth is characterized by one simple rule: New customers come from the actions of past customers

1. As a side effect of product usage: Fashion or status, such as luxury goods products, drive awareness of themselves whenever they are used. “Startups don’t starve; they drown.” There are always a zillion new ideas about how to make the product better floating around, but the hard truth is that most of those ideas make a difference only at the margins. They are mere optimisations

· The Hotmail team. Everything changed when they made one small tweak to the product. They added to the bottom of every single email the message “P.S. Get your free email at Hotmail” along with a clickable link.

· The viral engine is powered by a feedback loop that can be quantified. It is called the viral loop, and its speed is determined by a single mathematical term called the viral coefficient, the higher this coefficient is, the faster the product will spread.

· For a product with a viral coefficient of 0.1, one in every ten customers will recruit one of his or her friends. This is not a sustainable loop. Imagine that one hundred customers sign up. They will cause ten friends to sign up. Those ten friends will cause one additional person to sign up, but there the loop will fizzle out.

By contrast, a viral loop with a coefficient that is greater than 1.0 will grow exponentially, because each person who signs up will bring, on average, more than one other person with him or her.

· Companies that rely on the viral engine of growth must focus on increasing the viral coefficient more than anything else, because even tiny changes in this number will cause dramatic change in their future prospects.

· Lifetime value (LTV)

· Suppose an advertisement costs $100 and causes fifty new customers to sign up for the service. This ad has a cost per acquisition (CPA) of $2.00. In this example, if the product has an LTV that is greater than $2, the product will grow. The margin between the LTV and the CPA determines how fast the paid engine of growth will turn (this is called the marginal profit).

· This is one of the most important discoveries of the lean manufacturing movement: you cannot trade quality for time. If you are causing (or missing) quality problems now, the resulting defects will slow you down later. Defects cause a lot of rework, low morale, and customer complaints, all of which slow progress and eat away at valuable resources.

· THE WISDOM OF THE FIVE WHYS

· At the root of every seemingly technical problem is a human problem. Five Whys provides an opportunity to discover what that human problem might be. Taiichi Ohno gives the following example:

When confronted with a problem, have you ever stopped and asked why five times? It is difficult to do even though it sounds easy. For example, suppose a machine stopped functioning:

1. Why did the machine stop? (There was an overload and the fuse blew)

2. Why was there an overload? (The bearing was not sufficient lubricated)

3. Why was it not lubricated sufficiently? (The lubrication pump was not pumping sufficiently)

4. Why was it not pumping sufficiently? (The shaft of the pump was worn and rattling.)

5. Why was the shaft worn out? (There was no strainer attached and metal scrap got in.)

Repeating “why” five times, like this, can help uncover the root problem and correct it. If this procedure were not carried through, one might simply replace the fuse or the pump shaft. In that case, the problem would recur within a few months.

Exponential Organizations

https://www.amazon.in/Exponential-Organizations-Better-Faster-Cheaper/dp/1626814236/ref=sr_1_1?crid=2TIJOMOLCATFO&keywords=exponential+organisations&qid=1701539042&s=books&sprefix=exponential+%2Cstripbooks%2C171&sr=1-1

· Abundance: The future is better than you Think (co-authored with Steven Kotler)

· The Virtual Corporation (with Bill Davidow) and the Protean Organization.

· 6D’s: Digitized, Deceptive, Disruptive, Dematerialize, Demonetize and Democratize.

Any Technology that becomes Digitized (our first “D”) enters a period of Deceptive growth. During the early period of exponentials, the doubling of small numbers(0.01, 0.02, 0.04, 0.08) all basically looks like zero. But once it hits the knee of the curve, you are only ten doublings away from 1000x, twenty doublings get you to 1,000,000x, and thirty doublings get you a 1,000,000,000x increase.

Such a rapid rise describes the third D, Disruptive. And, as you shall see in the pages of this book, once a technology becomes disruptive it dematerializes,which means that you no longer physically carry around a GPS , video camera or flashlight. All of them have dematerialized as apps onto your smartphone. And once that happens, the product or service Demonetize. This, Uber is demonetizing taxi fleets and Craigslist demonetized the classified ads (taking down a flock of newspapers in the process.)

The final step to all this is Democratization. Thirty years ago if you wanted to reach a billion people, you needed to be Coca-Cola or GE, with employees in one hundred countries. Today you can be a kid in a garage who uploads an app onto a few key platforms. Your ability to touch humanity has been democratized.

· The driver fuelling this phenomenon is information. Once any domain, discipline, technology or industry becomes information-enabled and powered by information flows, its price/performance begins doubling approximately annually.

· Futurist Paul Saffo

· Because mobile phones in the early 80s were bulky and expensive to use, renowned consulting firm McKinsey & Company advised AT&T not to enter the mobile telephone business, predicting there would be fewer than one million cellular phones in use by 2000. In fact, by 2000, there were one hundred million mobile phones.

· 1 percent doubling seven times is 100 percent.

· The marginal cost of taking an extra photograph didn’t just diminish, as it would with a linear improvement in the technology; instead, it essentially sank to zero. It didn’t matter if you took five pictures or five hundred. The cost was the same.

· Once you had them in the form of image recognition, artificial intelligence, social technologies, filtering, editing, and machine learning. Now anyone with minimal training could become a “darkroom wizard”

· Multiple directions: cameras, film, processing, distribution, retailing, marketing, packaging, storage and, ultimately and most decisively, a radical change in the perceptions of the marketplace.

That is the very definition of a paradigm shift.

A fundamental change in the role of information: semiconductor chips assuming the role of image capture , display, storage and controller; the Internet transforming supply, distribution and retail channels; and social network and groupware reorganizing institutions. Together, all indications are that we are shifting to an information-based paradigm.

The Singularity is Near : When Humans Transcend Biology.

Will be able to afford 3D printers to fabricate toys, cutlery, tools and fittings

Doblin Group, a noted innovation strategy consulting firm

· Skybox, Planet Labs, Nanosatisfi and Satellogic- are all launching nanosatellites

· Rather than owning assets or workforces and incrementally seeing a return on those assets, ExOs leverage external resources to achieve their objectives.

· Two key factors enabled Waze to succeed

· Access resources you don’t own

· Information is your greatest asset. More reliably than any other asset, information has the potential to double regularly. Rather than simply assembling assets, the key to success is accessing valuable caches of existing information.

· Quirky : “Make invention accessible”

· The most important outcome of a proper MTP is that it generates a cultural movement-what John Hagel and John Seely Brown call the “Power of Pull”. That is, the MTP is so inspirational that a community forms around the ExO and spontaneously begins operating on its own, ultimately creating its own community, tribe and culture.

· The biggest imperative of a worthy MTP is its Purpose.

· SCALE:

o Staff on Demand

o Community & Crowd

o Algorithms

o Leveraged Assets

o Engagement

· Staff On Demand

· Book, The Startup of You, LinkedIn Founder Reid Hoffman

· Staff-on-demand initiatives similar to Gigwalk are springing up everywhere: oDesk, Roamler, Elance, TaskRabbit and Amazon’s venerable Mechanical Turk are platforms where all levels of work, including highly skilled labor, can be outsourced.

· Data science company Kaggle.

· Community & Crowd

· “If you build communities and you do things in public,” he says, “you don’t have to find the right people, they find you.”

· Throughout human history, communities started off as geographically based (tribes), became ideological (e.g. religions) and then transitioned into civic administrations (monarchies and nation-states). Today, however, the Internet is producing trait-based communities that share intent, belief, resources, preferences, needs, risks and other characteristics, none of which depend on physical proximity.

· For an organization or enterprise, its “community” is made up of core team members, alumni(former team members), partners, vendors, customers, users and fans.

· Typically, there are three steps to building a community around an ExO:

o Use the MTP to attract and engage early members.

o Pg.# 65: Nurture the community. Anderson spends three hours every morning attending the DIY Drones Community.

o Create a platform to automate peer to peer engagement.

· Crowd

· Staff on Demand is hired for a particular task and usually via a platform like Elance.

· Creativity, innovation and the overall process of generating, developing, and communicating new ideas can be accomplished through the use of tools and platforms. Some platforms that aid this process include IdeaScale, eYeka, Spigit, InnoCentive, SolutionXchange, Crowdtap and Brightidea.

· Validation is achieved by obtaining measurable evidence that an experiment, product or service succeeds in meeting predetermined specifications. Tools such as UserVoice, Unbounce and Google AdWords can accomplish this.

· Gustin, a premium designer jeans company, uses crowdfunding for all of its designs. Customers back specific designs, and when a predetermined monetary goal has been reached, the products are created and shipped to all backers. Gustin thus has no product risk or inventory costs.

· ExOs are leveraging community and crowd for many functions traditionally handled inside the enterprise, including idea generation, funding, design, distribution, marketing and sales. This shift is powerful and taps into what university professor and social media guru Clay Shirky calls cognitive surplus.

· Algorithms

· There is even a marketplace called Algorithmia, where companies are matched with algorithms that can potentially make sense of their data.

· Machine Learning.

· Key open source examples include Hadoop and Cloudera.

· Deep Learning

· Leading startups in this space are DeepMind, bought by google in early 2014 for $500 million, back when Deep Mind had just thirteen employees, and Vicarious.

· Founded in 2004, Palantir builds government, commercial and health software solutions that empower organizations to make sense of disparate data.

· Leveraged Assets

· The ability to lease on-demand computing that would scale on a variable cost basis utterly changed the IT industry.

· In the same way that gyms use a membership model to aggregate expensive exercise machinery that few could afford to have at home, TechShop collects expensive manufacturing machinery

· If you own a car, it sits empty about 93 percent of the time

· Rachel Botsman and Roo Rogers in their book, What’s Mine is Yours: The Rise of Collaborative Consumption

· Engagement

· Engagement consists of digital reputation systems, games and incentive prizes, and provides the opportunity for faster growth due to more innovative ideas and customer and community loyalty.

· 11 Rules for Creating Value in the Social Era: Nilofer Merchant

· Eye Wire illustrates how an ExO can apply game elements and mechanics in non-game products and services to create a fun and engaging experience, converting users into loyal players- and in the process accomplish extraordinary things.

· To be successful, every Gamification initiative should leverage the following game techniques:

1. Dynamics: motivate behavior through scenarios, rule and progression

2. Mechanics: help achieve goals through teams, competitions, rewards and feedback

3. Components: track progress through quests , points levels badges and collections

· To increase awareness of the issues , Pep Boys implemented a platform called Axonify, which used a quiz to educate employees about specific incidents .

· The Gamification company provides a list with more than ninety examples including Badgeville, Bunchball, Dopamine and Comarch. Organizations can also use work.com(a Salesforce company)in which gamification is fully integrated, or Keas, which was specially created to improve employee wellness.

· INTERFACES : Interfaces are filtering and matching processes by which ExOs bridge from SCALE externalities to internal IDEAS control frameworks .

· Quirky has had to develop special processes and mechanisms to manage , rank, filter and engage .

· In response , Many ExOs are adopting the Objectives and key Result ( OKR), OKRs as the answer to two simple question

1. Where do I want to go? (Objectives)

2. How will I know I’m getting there?(Key Result to ensure progress is made)

· An Objective, for example, might be to “Increase sales by 25 percent, “along with “Form two Strategic partnership “ and “ Run Adwords campaign” as the desired key result. OKRs are about focus, simplicity, short(er) feedback cycle, and openness. As a result, insight and improvements are easier to see .

· Some Characteristics of OKRs:

1. KPI’s are determined top-down, while OKRs are determined bottom-up.

2. Objectives are the dream; Key results are the success criteria (i. e a way to measure incremental progress toward the objective.)

3. Objectives are qualitative and Key results are quantitative .OKRs are not the same as employee evaluation . OKrs are about the company’s goal Performance evaluations – which are entirely about evaluating how an employee performed in a given period are independent of OKRs.

4. Objectives are ambitious and should feel uncomfortable .

[ In general, upto five objectives and four key result per initiative are optimal, and key result should see and achievement rate of 60 to 70 percent ; if they don’t the base has been set too low.]

· Scientific results in neuroscience, gamification and behavioral economics have shown the importance of both specificity and frequent feedback in driving behavioral change and ultimately , having an impact . Specificity and rapid feedback cycle energize, motivate and drive company morale and culture. As a result , a number of services, including OKR Hub, Cascade, Teamly and 7 Geese, have been formed to help businesses track these measures .

· At Google, for example , all OKRs are completely transparent and public within the company.

· Large numbers of bottom-up ideas ,properly filtered , always trump top-down thinking , no matter the industry or organization.

· The Lean startup philosophy (also known as the Lean Launchpad) is in turn based upon Toyota’s “ Lean Manufacturing “Principle, first established a half – century ago ,in which the elimination of wasteful processes is paramount .(Sample Principle: “Eliminate all expenses with any goal other than the creation of value for the end customer.”

· Steve Blank’s Book, The Four Steps to the Epiphany,

· The most important message of the Lean Startup movement is to “ Fail fast and fail often, while eliminating waste .” Its approach can be summarized as a new , scientific, data-driven, interactive , and highly customer-driven approach to practical innovation .

· The traditional waterfall approach to product development is a linear process ( Most often referred to as NDP , for New Product Development is a linear process (most often referred to as NDP, for new product development )that uses sequential steps such as idea generation ,screening ,product design , development and commercialization. This process not only burns up a great deal of precious time but more importantly increasingly results in new products that don’t fit—Or , because the market is changing so quickly , no longer fit —the needs of the customer , culminating in a product no one wants.

· “Knowledge gives you a little bit of an edge, but tinkering ( trial and error) is the equivalent of 1000, IQ points. It is tinkering that allowed the Industrial Revolution. “

· The Modern rule of competition is whoever learns fastest, wins.”

· Procter & Gamble Heroic Failure award honors the employee or team with the biggest failure that delivered the greatest insight. Similarly , Tata offers an annual Dare To Try award, which recognizes the manager who took the biggest risk.

· There are some limitations to the Lean Startup approach, including lack of competitor analysis or consideration in design thinking ,Also it is important to note that the ability to fails is much easier in software and information based environments because iteration is so much easier, for a hardware company, it’s much harder to iterate. Apple launches hardware only when it’s perfect. You wouldn’t want to iterate and fail fast when building a nuclear reactor.

· AUTONOMY

· Holacracy (a concept as well as the company’s name )is defined as a social technology and or system of organizational governance , in which authority and decision making are distributed via fractal , self organizing terms rather than being vested at the top of a hierarchy. The system combines Experimentation , OKRs Openness, transparency and Autonomy.

· “ There are still hierarchies in a network, but the hierarchies tend to be competence-based hierarchies, relying more on peer accountability than on authority-based accountability — that is , accountability to someone who knows something , rather than to someone simply because they occupy a position, regardless of competence. It is a change in the role of the manager, not an abolition of the function.”

· SOCIAL TECHNOLOGIES “ Transparency is the new currency. Trust is the bill we’ll just be paying for.” Priestley’s equation for social business is : Connections + Engagement + Trust+Transparency.”

· Asana, a software company founded by Dustin Moskovitz (a co-founder of Facebook) and Justin Rosenstein. Improve work productivity .

· Linear Attributes:

Linear Organization characteristics	Exo characteristics
Top-down and hierarchical in its organization	Autonomy, Social Technologies
Driven by Financial outcomes	MTP dashboard
Linear, Sequential thinking	Experimentation, autonomy
Innovation primarily from within	Community & Crowd , Staff on demand , Leveraged Assets, Interfaces (innovation at the edges )
Strategic planning largely an extrapolation from the past	MTP, Experimentation
Risk intolerance	Experimentation
Process inflexibility	Autonomy Experimentation
Large numbers of FTE’s	Algorithms , Community & Crowd , staff on demand
Controls/Owns its own assets	Leveraged Assets
Strongly invested is status quo	MTP Dashboard, Experimentation

· The key question for any organization is not whether you “look” like an Exponential Organization, But ”How Exponential are you?

· Today, Hollywood operates in exactly the same loosely coupled , networked environment of an ExO ecosystem. Each participant, From the writer and actor , to the director and camera grip, manages his or her own career. Meanwhile , agents at every level help find and connect script with talent , Production companies and equipment. These days when a film is created, a team of independent entities come together for the duration of the production , operating on 24/7 schedules and in close collaboration. Once the film is finished, sets are broken down for reuse , equipment is reassigned and all the actors, grip and production assistants disband and scatter to pursue their next project, which often starts the very next day.

· Information Accelerates Everything

· Mobile networks (5G)sporting speeds of five gigabits per second .

· Many products are now launched early—unfinished and in perpetual beta—for the sole purpose of gathering data from users as early as possible to determine how to “finish’ the Product .

· As LinkedIn founder Reid Hoffman has said “If you’re not embarrassed by the product when you launch , you’ve launched too late.”

· Notes that whenever he gets stuck on a robot configuration or sensor problem, he posts a question online before he goes to bed, waking the next morning to find answers from tens of thousands of robot enthusiasts.

· Every industry is becoming information based either by being digitized or by using information to identify under – utilized assets (e.g, Collaborative consumptions).

· As technology brings us a world of abundance, access will triumph over ownership. By comparison, scarcity of supply or resources tends to keep cost high and stimulates ownership over access.

Many established companies still consider transparency to be the height of progressive business thinking. But the truth is that the five-year strategic plan is itself an obsolete instrument .In fact, rather than offering a competitive advantage, it is often a drag on operations, as has been well documented in the seminal book by Henry Mintzberg, Rise and Fall of Strategic Planning .

A five-year plan is a suicidal practice for an ExO. If it doesn’t send the company racing off in the wrong direction, it can present an inaccurate picture of what lies ahead., even in the right direction, The only solution is to establish a big vision (i.e., an MTP), set an ExO structure into place, implement a one year plan (at most) and watch it all scale while course –correcting in real time .

The answer to the question of how big an Exponential Organization can get yields yet another, more precise, question: How quickly can you convert exponential growth into the critical mass needed to become a platform? Once that happens there is no practical limit. It’s one big coral reef.

Importantly, the platform must be symbiotic to serve the feeders as well.

Organization can rent staff on demand from Gigwalk .

Much of this movement has grown out of the realization that the ownership of assets, even if mission-critical, is better handled by experts .

Focus on those areas in which you are really outperforming. This not only maximizes profit, but in a world with pervasive digital reputational systems , also set your image at the highest possible level .

There are five key precepts to Zappos that drive culture across the organization:

1. Vision: What you’re doing

2. Purpose : why you do it

3. Business model:What will fuel you as you’re doing it

4. Wow and uniqueness factors: what sets you apart from others .

5. Values : What matters to you

Teamly, which combines project management, OKRs and performance reviews with the power of an internal social network .

At Facebook, however, development teams enjoy the full trust of management. Any team can release new code onto the live site without oversight .As a management style, it seems counterintuitive, but with individual reputation at stake-and no one else to catch shoddy coding –Facebook teams end up working that much harder to ensure there are no errors. The result is that Facebook has been able to release code of unimaginable complexity faster than any other company in Silicon Valley history. In the process, it has seriously raised the bar.

everything is measurable and anything is knowable

Welcome to the sensor revolution.

Starting An Exo

Local Motors is a good example of an ExO startup.

Open sources with a Creative Commons license .

Technology Risk

PCH has aggressively turned his company into a platform on which anyone can launch hardware start-ups. To the extent that an individual wants to create the equivalent of an APP store for hardware startups, to the extent that an individual wants to create the equivalent of an App Store for Hardware startup. Brady Forrest, head of Highway1, a PCH incubator puts it simply: “We want hardware to be as easy as software.”

Startups could test the market like never before by leveraging A/B testing, Google AdWords campaigns, Social media and landing pages. Now an idea could be partially validated before product engineering even began

Select An Mtp (Massive Transformative Purpose)

Don’t just ask what the world needs. Ask what makes you come alive and go do it . what the world needs is people who have come alive.”

Step 2: Joint Or Create Relevant Mtp Communities

If you think your problem space doesn’t have community support , take a look at www.meetup.com. Meetup’s mission is both to revitalize local communities and to help people around the world organize.

The Innovator’s DNA : Mastering the five Skills of Disruptive Innovators. Co-author Clayton Christensen

Remember, the three key success factors for an ExO, idea are

1. First, a minimum 10x improvement over the status quo.

2. Second, leveraging information to radically cut the cost of marginal supply (i.e., the cost to expand the supply side of the business should be minimal).

3. Third, the idea should pass the “toothbrush test” originated by Larry Page: Does the idea solve a real customer problem or use case on a Frequent basis? It is something so useful that a user would go back to it several times a day?

“The day before a major breakthrough, it is just a crazy idea.”

The following eight ways to build a business model when the underlying information is free:

1. Immediacy : Immediacy is the reason people order In advance on Amazon or attend the theater on opening night. Being the first to know about or experience something has intrinsic cultural, social and even commercial value. In short: time confers privilege

2. Personalization: Having a product or service customized just for you not only gives added value in terms of quality or experience and ease-of-use or functionality, it also creates “ stickiness.” As both parties are invested in the process .

3. Interpretation : Even if the product or service is free there is still considerable added value to any service that can help shorten the learning curve to using it- or using it better . Kelly often jokes: “Software: free; the manual :$10,000.”

4. Authenticity : Added value comes from guarantee that the product or service is real and safe that it is , in Kelly’s words” bug free, reliable and warranted .”

5. Accessibility : Ownership requires management and maintenance. In an era where we own hundreds of apps on several platforms, any service that helps us organize everything and improve our ability to find what we need quickly is of particular value .

6. Embodiment : Digital information has no “ body” , no physical form, until we give it one—-high definition, 3D, a movie screen, a smartphone. We willingly pay more to have free software delivered to us in the physical format we prefer.

7. Patronage: “It is my belief that audiences want to pay creators.” Kelly wrote. “Fans like to reward artists, musicians, authors and the like with tokens of their appreciation, because it allows them to connect. But they will only pay if it is very easy to do , the amount is reasonable, and they feel certain the money will directly benefit the creators.” He adds that another benefit of a simple payment process is that it capitalizes on users’ impulsiveness. Examples include iTunes songs and Spotify, as well as Netflix subscription. Customers choose to pay for each of these services even though the same content can be acquired through piracy.

8. Findability : A creative work has no value unless its potential audience can find it. Such “findability” only exists at the aggregator level, as individual creators typically get lost in the noise. Thus, attaching yourself to effective channels and digital platforms like a app stores, social media sites or online marketplace where potential users can find you has considerable value to creators (and, Ultimately, to users)

Major disruption in business models as either unbundling or rebounding For example, let’s look at the financial services industry, A classic bank offers many services such as payment infrastructure ,trust, mobile and social wallets, e-commerce and m-commerce solution , lending ,investment, stocks etc. it’s a consolidated or aggregated offering of different individual financial services . Those banks are now being disrupted by a variety of financial startups, including square, clinkle, stripe, Lending Club, Kickstarter, e Toro and Estimize. We consider this fragmentation of individual financial services a form of unbundling .

Now, what if all these startups decided to cooperate or merge within the next five years? What if they agreed to create alliances via open APIs? What if they partnered and rebundled? You’d end up with a completely new bank with at least 10x less overhead than that of its predecessors, as the new entity would require less real estate and fewer employees.

Acquisition : How do users locate you? (Growth metric)

· Activation : Do users have a great first experience? (value Metric)

· Retention : Do users come back? (Value metric)

· Revenue : How do you make money ? (value metric)

· Referral : do users tell others ? (Growth metric)

The following is a guide to implementing ExO attributes into a startup

1. MTP: formulate an MTP in a particular problem space, one that all founders feel passionate about .

2. Staff on Demand : Use contractors, SoD Platforms wherever possible; keep FTEs to a minimum.

3. Community & Crowd : Validated idea in MTP communities.

Get product feedback.

Find co-founders, contractors and experts .

Use crowdfunding and crowdsourcing to validate market demand and as a marketing technique .

4. Algorithms : Identify data streams that can be automated and help with product development, implement cloud-based and open source machines and deep learning to increase insights.

5. Leveraged Assets: Do Not acquire assets.

Use cloud computing, Techshop for product development. Use incubators like Y combinator and Techstars for office, funding, mentoring and peer input. Starbucks as an office .

6. Engagement : Design product with engagement in mind and gather all user interaction. Gamify where possible .

Create a digital reputational system of users and suppliers to build trust and community . Use incentive prizes to engage crowds and create buzz.

7. Interfaces: Design custom processes for managing SCALE; do not automate until you’re ready to scale.

8. Dashboards: Set up OKR and value, serendipity, and growth matric dashboard; do not implement value metric until product finalized (see Step 10)

9. Experimentation : Established culture of Experimentation and constant iteration. Be willing to fail and pivot as needed .

10. Autonomy: Implement lite version of Holacracy. Start with the General company Circle as a first step; then move onto governance meetings. implement the GitHub technical and organizational model with radical openness, transparency and permission.

11. Social Technologies : Implement file sharing, Cloud based document management. Collaboration and activity streams both internally and within your community.

Make a plan to test and implement telepresence, virtual worlds and emotional sensing .

· Establishing a corporate culture starts with learning how to effectively track, manage and reward performance. And that begins with designing the OKR system we outlined in chapter Four, and then continuing through the process of getting the team habituated to transparency, accountability, execution and high performance.

· Ask key questions Periodically

1. Who is your customer?

2. Which customer problem are you solving?

3. What is your solution and does it improve the status quo by at least 10x?

4. How will you market the product or services ?

5. How are you selling the product and service ?

6. How do you turn customers in to advocate using viral effect and net promoter Scores to drive down the marginal cost of demand ?

7. How will you scale your customer segment ?

8. How will you drive the marginal cost of supply towards zero?

“ An invention needs to make sense in the world in which it is finished, not the world in which it is Started.”

It is about understanding the evolutionary trajectory of technology. That is, which functionalities and capacities will become feasible in two or three years given the pace of Moore’s Law? When you develop a product with the near future in mind instead of the present, it greatly increases your chances of success.

· Building and maintaining a Platform

1. Identify a pain point or use case for a consumer.

2. Identify a core value unit or social object in any interaction between a producer and consumer. This could be anything. Pictures, jokes, advice. Reviewing information about sharing rooms, tools and car-rides are examples of things that have led to a successful platform . Remember that many people will be both producers and consumers, and use this to your advantage.

3. Design a way to facilitate that interaction. Then see if you can build it as a small prototype that you can curate yourself. If it works at that level, it will be worth taking to the next level and scaling .

4. Determine how to build a network around your interaction. Find a way to turn your platform user into an ambassador. Before you know it, you’ll be on a roll.

· To implement platforms, ExOs follow four steps in terms of data and APIs:

1. Gather : The algorithmic process starts with harnessing data, which is gathered via sensors, people, or imported from public datasets.

2. Organize : Once the data is accessible. Algorithms such as machine or deep learning extract insights, identify trends and tune new algorithms. These are realized via tools such as Hadoop and Pivotal, Or even (open source)deep learning algorithms like Deep Mind or Skymind.

3. Expose: The final step is exposing the data in the form of an open platform . open data and APIs can be used such that an Exos community develops valuable services, new functionalities and innovation layered on top of the platform by remixing published data with their own. Examples of companies that have successfully exposed their data this way are the Ford company , Uber, IBM Watson, Twitter and facebook .

C2C

To engaged the community, Bla bla Car relies on its own digital reputation system , a framework it refers to as D.R.E.A.M.S (Declared Rated, Engaged, Activity Based, Moderated and Social) [Engagement], which is outlined below

1. Declared : Trusted Online profile, providing more information about users.

2. Ratings: Collaborative service asks users to rate one another after having met ‘ In real life,” enabling people to build good online reputation .

3. Engagement : If members are to feel completely comfortable transaction with one another they must believe other parties will honor financial commitments.

4. Activity-Based: Offer contextually relevant and real-time information to both buyer and supplier ensuring that the transaction progresses smoothly,from initial interest through to payment .

5. Moderation: All payment information transferred by users of a sharing service must be third party verified.

6. Social: Allow users to connect their online identity with their real world identity, be it socially, via Facebook, or professionally via LinkedIn .

When a Developer submits code to a GitHub project , that code is reviewed and commented upon by other developers, who also rate that developer. Github’s coding environment has instant messaging embedded within it, along with a distributed version control system ( instead of a central code repository). In practice, what that means is you don’t need a server; you have everything you need locally, and can start coding without first needing to get permission, And you can do so anywhere, even offline.

Coyote Logistics

For recruiting, the company prefers to hire young college graduates who show passion, attitude and personality, and who are completely new to the logistics industry .

A data –driven selection management solution created by Hireology and in 2012 hired 400 of 10,000 candidates using hireology’s platform. New employees receive extensive training and are informed of apprenticeship possibilities.

The primary mechanism used by Zynga to manage growth without diluting its culture was the formal application of objectives and Key Result (OKRs) to track terms and keep everyone synchronized.

Most acquisition fail because the mother company intentionally slow the newly acquired operation in order to better understand it, adapt its internal operation to the new order,

Achieve integration synergies and inculcate new employees into the company culture.

It is an understandable impulse, but one that almost always confuses and frustrates the new team. resulting in what Goldberg calls “ impedance mismatch.” That is, the newly arrived team has a sense of being stuck at the starting gate—feeling forgotten, ignored or punished-a situation that often leads key people to depart the company.

If you are relying on innovation solely from within your company, you’re dead”

Partner With, Invest In Or Acquire Exos

Recommendation; implement a program to identify, partner with, invest in or acquire the ExO in your industry. Give it teeth.

Inspire Exos At The Edge

John Hagel, Co-chairman of the aptly named Center for the Edge.

Move three proven Changemakers in your enterprise to the edges of the organization and unleash them as ExOs to disrupt other markets. Learn how they interact with the mother ship, and then add more .

Mach49

Are implementing several ExO principles to help global companies create new, “adjacent” businesses generated from within their organization. They intend to offer facilities, Valley networks and a seasoned team of executives familiar with both the corporate and startup worlds to jumpstart new corporate businesses – and to do so by leveraging resources that the corporation itself does not (and perhaps cannot) own.

H-Farm (Treviso, Italy)

ExO-oriented incubators are springing up in countries all over the world: Communitech and OneEleven in Ontario; SocialLab, with several offices throughout South America; Start-up Chile, in Santiago; and Thinkubator , which is headquartered in Copenhagen. Google has been especially busy, partnering with Startup Weekend and women 2.0 in the U.S, iHub in Kenya and Le Camping in France.

Our belief that large organizations can create successful partnerships with local, grassroots business accelerators. Business integration partners (BIP), a global consulting firm based in Italy, even has a “Corporate Accelerator in a Box” service. BIP has helped several blue-chip clients set up their own operation with recruiting, VC connection and university partnership. This service comes complete with process management and software to help run incentive competition and manage open source projects.

Algorithms

Smart companies are already using services such as Kaggle, Cloudera, Data Torrent, Splunk and Platfora for data insight; they’re also using an open source machine learning variation of Apache Hadoop.

Zara bucked the trend of trying to achieve success via economies of scale and instead focused on small, unique batches and nearly real-time production processes. For example, almost half of Zara’s garments are manufactured centrally, a decision that allows it to move from new design to distribution in less than two weeks.

80 percent of Fortune 500 companies have deployed social software such as Yammer.

The company also Opened a makerspace in Chicago called GE Garages, which is powered by TechShop and works in partnership with Skillshare, Quirky, Make and Inventables.

Amazon. If you’re a manager at Amazon and a subordinate comes to you with a great idea, your default answer must be YES. If you want to say no, you are required to write a two-page thesis explaining why it’s a bad idea. In other words, Amazon has increased the friction entailed in saying no, resulting in more ideas being tested (and hence implemented) throughout the company.

GVs Startup Lab, a private program that is part incubator, part hackathon and part co-working space.

AngelList , a Craigslist-like marketplace that matches entrepreneurs and angel investors.

Book age of Context: Mobile sensor Data and the Future of Privacy.

Automate and measure different processes in all departments

Using free code/algorithms optimized within the GitHub or Gitlab social platforms and the vast data available, classic throughput or process-based models will be substituted by performance-based models (e.g, cost per sale)

Vendor Relationship management

Extension of intention economy- the age of CRM is over, replaced by vendor Relationship management (VRM), a term coined by Doc Searls from Harvard University. VRM is an extension of the intention economy, and VRMs offer the ultimate in customer-driven. marketplace (e.g., Uber, BlaBla car).consumer own their own personal data and expose demand and purchasing intention with different vendors in the cloud, mostly in real time. CRM is initiated by companies, VRM by customers.

www.exponentialorgs.com

Pg.# 9: Abundance: The future is better than you Think (co-authored with Steven Kotler)
Pg.# 9: The Virtual Corporation (with Bill Davidow) and the Protean Organization.
Pg.# 10: 6D’s: Digitized, Deceptive, Disruptive, Dematerialize, Demonetize and Democratize.

Pg.# 19: The driver fuelling this phenomenon is information. Once any domain, discipline, technology or industry becomes information-enabled and powered by information flows, its price/performance begins doubling approximately annually.
Pg.# 21: Futurist Paul Saffo
Pg.# 25: Because mobile phones in the early 80s were bulky and expensive to use, renowned consulting firm McKinsey & Company advised AT&T not to enter the mobile telephone business, predicting there would be fewer than one million cellular phones in use by 2000. In fact, by 2000, there were one hundred million mobile phones.
Pg.# 27: 1 percent doubling seven times is 100 percent.
Pg.# 28: The marginal cost of taking an extra photograph didn’t just diminish, as it would with a linear improvement in the technology; instead, it essentially sank to zero. It didn’t matter if you took five pictures or five hundred. The cost was the same.
Pg.# 28: Once you had them in the form of image recognition, artificial intelligence, social technologies, filtering, editing, and machine learning. Now anyone with minimal training could become a “darkroom wizard”
Pg.# 29: Multiple directions: cameras, film, processing, distribution, retailing, marketing, packaging, storage and, ultimately and most decisively, a radical change in the perceptions of the marketplace.

That is the very definition of a paradigm shift.

The Singularity is Near : When Humans Transcend Biology.

Will be able to afford 3D printers to fabricate toys, cutlery, tools and fittings

Doblin Group, a noted innovation strategy consulting firm

Pg.# 34: Skybox, Planet Labs, Nanosatisfi and Satellogic- are all launching nanosatellites
Pg.# 45: Rather than owning assets or workforces and incrementally seeing a return on those assets, ExOs leverage external resources to achieve their objectives.
Pg.# 47: Two key factors enabled Waze to succeed
Pg.# 47: Access resources you don’t own
Pg.# 47: Information is your greatest asset. More reliably than any other asset, information has the potential to double regularly. Rather than simply assembling assets, the key to success is accessing valuable caches of existing information.
Pg.# 54: Quirky : “Make invention accessible”
Pg.# 55: The most important outcome of a proper MTP is that it generates a cultural movement-what John Hagel and John Seely Brown call the “Power of Pull”. That is, the MTP is so inspirational that a community forms around the ExO and spontaneously begins operating on its own, ultimately creating its own community, tribe and culture.
Pg.# 55: The biggest imperative of a worthy MTP is its Purpose.
Pg.# 58: SCALE:

o Staff on Demand

o Community & Crowd

o Algorithms

o Leveraged Assets

o Engagement

Pg.# 58: Staff On Demand
Pg.# 59: Book, The Startup of You, LinkedIn Founder Reid Hoffman
Pg.# 60: Staff-on-demand initiatives similar to Gigwalk are springing up everywhere: oDesk, Roamler, Elance, TaskRabbit and Amazon’s venerable Mechanical Turk are platforms where all levels of work, including highly skilled labor, can be outsourced.
Pg.# 61: Data science company Kaggle.
Pg.# 63: Community & Crowd
Pg.# 63: “If you build communities and you do things in public,” he says, “you don’t have to find the right people, they find you.”
Pg.# 63: Throughout human history, communities started off as geographically based (tribes), became ideological (e.g. religions) and then transitioned into civic administrations (monarchies and nation-states). Today, however, the Internet is producing trait-based communities that share intent, belief, resources, preferences, needs, risks and other characteristics, none of which depend on physical proximity.
Pg.# 63: For an organization or enterprise, its “community” is made up of core team members, alumni(former team members), partners, vendors, customers, users and fans.
Pg.# 64: Typically, there are three steps to building a community around an ExO:

o Use the MTP to attract and engage early members.

o Pg.# 65: Nurture the community. Anderson spends three hours every morning attending the DIY Drones Community.

o Create a platform to automate peer to peer engagement.

Pg.# 66: Crowd
Pg.# 66: Staff on Demand is hired for a particular task and usually via a platform like Elance.
Pg.# 66: Creativity, innovation and the overall process of generating, developing, and communicating new ideas can be accomplished through the use of tools and platforms. Some platforms that aid this process include IdeaScale, eYeka, Spigit, InnoCentive, SolutionXchange, Crowdtap and Brightidea.
Pg.# 67: Validation is achieved by obtaining measurable evidence that an experiment, product or service succeeds in meeting predetermined specifications. Tools such as UserVoice, Unbounce and Google AdWords can accomplish this.
Pg.# 67: Gustin, a premium designer jeans company, uses crowdfunding for all of its designs. Customers back specific designs, and when a predetermined monetary goal has been reached, the products are created and shipped to all backers. Gustin thus has no product risk or inventory costs.
Pg.# 67: ExOs are leveraging community and crowd for many functions traditionally handled inside the enterprise, including idea generation, funding, design, distribution, marketing and sales. This shift is powerful and taps into what university professor and social media guru Clay Shirky calls cognitive surplus.
Pg.# 68: Algorithms
Pg.# 69: There is even a marketplace called Algorithmia, where companies are matched with algorithms that can potentially make sense of their data.
Pg.# 69: Machine Learning.
Pg.# 69: Key open source examples include Hadoop and Cloudera.
Pg.# 69: Deep Learning
Pg.# 69: Leading startups in this space are DeepMind, bought by google in early 2014 for $500 million, back when Deep Mind had just thirteen employees, and Vicarious.
Pg.# 72: Founded in 2004, Palantir builds government, commercial and health software solutions that empower organizations to make sense of disparate data.
Pg.# 74: Leveraged Assets
Pg.# 75: The ability to lease on-demand computing that would scale on a variable cost basis utterly changed the IT industry.
Pg.# 75: In the same way that gyms use a membership model to aggregate expensive exercise machinery that few could afford to have at home, TechShop collects expensive manufacturing machinery
Pg.# 75: If you own a car, it sits empty about 93 percent of the time
Pg.# 75: Rachel Botsman and Roo Rogers in their book, What’s Mine is Yours: The Rise of Collaborative Consumption
Pg.# 77: Engagement
Pg.# 77: Engagement consists of digital reputation systems, games and incentive prizes, and provides the opportunity for faster growth due to more innovative ideas and customer and community loyalty.
Pg.# 77: Nilofer Merchant
Pg.# 77: 11 Rules for Creating Value in the Social Era:
Pg.# 79: Eye Wire illustrates how an ExO can apply game elements and mechanics in non-game products and services to create a fun and engaging experience, converting users into loyal players- and in the process accomplish extraordinary things.
Pg.# 79: To be successful, every Gamification initiative should leverage the following game techniques:

Dynamics: motivate behavior through scenarios, rule and progression
Mechanics: help achieve goals through teams, competitions, rewards and feedback
Components: track progress through quests , points levels badges and collections

Pg.# 80: To increase awareness of the issues , Pep Boys implemented a platform called Axonify, which used a quiz to educate employees about specific incidents .
Pg.# 80: The Gamification company provides a list with more than ninety examples including Badgeville, Bunchball, Dopamine and Comarch. Organizations can also use work.com(a Salesforce company)in which gamification is fully integrated, or Keas, which was specially created to improve employee wellness.
Pg.# 86: INTERFACES : Interfaces are filtering and matching processes by which ExOs bridge from SCALE externalities to internal IDEAS control frameworks .
Pg.# 86: Quirky has had to develop special processes and mechanisms to manage , rank, filter and engage .
Pg.# 92: In response , Many ExOs are adopting the Objectives and key Result ( OKR), OKRs as the answer to two simple question

Where do I want to go? (Objectives)
How will I know I’m getting there?(Key Result to ensure progress is made)

Pg.# 92: An Objective, for example, might be to “Increase sales by 25 percent, “along with “Form two Strategic partnership “ and “ Run Adwords campaign” as the desired key result. OKRs are about focus, simplicity, short(er) feedback cycle, and openness. As a result, insight and improvements are easier to see .
Pg.# 93: Some Characteristics of OKRs:

KPI’s are determined top-down, while OKRs are determined bottom-up.
Objectives are the dream; Key results are the success criteria (i. e a way to measure incremental progress toward the objective.)
Objectives are qualitative and Key results are quantitative .OKRs are not the same as employee evaluation . OKrs are about the company’s goal Performance evaluations – which are entirely about evaluating how an employee performed in a given period are independent of OKRs.
Objectives are ambitious and should feel uncomfortable .

[ In general, upto five objectives and four key result per initiative are optimal, and key result should see and achievement rate of 60 to 70 percent ; if they don’t the base has been set too low.]

Pg.# 94: Scientific results in neuroscience, gamification and behavioral economics have shown the importance of both specificity and frequent feedback in driving behavioral change and ultimately , having an impact . Specificity and rapid feedback cycle energize, motivate and drive company morale and culture. As a result , a number of services, including OKR Hub, Cascade, Teamly and 7 Geese, have been formed to help businesses track these measures .
Pg.# 94: At Google, for example , all OKRs are completely transparent and public within the company.
Pg.# 96: Large numbers of bottom-up ideas ,properly filtered , always trump top-down thinking , no matter the industry or organization.
Pg.# 97: The Lean startup philosophy (also known as the Lean Launchpad) is in turn based upon Toyota’s “ Lean Manufacturing “Principle, first established a half – century ago ,in which the elimination of wasteful processes is paramount .(Sample Principle: “Eliminate all expenses with any goal other than the creation of value for the end customer.”
Pg.# 97: Steve Blank’s Book, The Four Steps to the Epiphany,
Pg.# 97: The most important message of the Lean Startup movement is to “ Fail fast and fail often, while eliminating waste .” Its approach can be summarized as a new , scientific, data-driven, interactive , and highly customer-driven approach to practical innovation .
Pg.# 98: The traditional waterfall approach to product development is a linear process ( Most often referred to as NDP , for New Product Development is a linear process (most often referred to as NDP, for new product development )that uses sequential steps such as idea generation ,screening ,product design , development and commercialization. This process not only burns up a great deal of precious time but more importantly increasingly results in new products that don’t fit—Or , because the market is changing so quickly , no longer fit —the needs of the customer , culminating in a product no one wants.
Pg.# 98: “Knowledge gives you a little bit of an edge, but tinkering ( trial and error) is the equivalent of 1000, IQ points. It is tinkering that allowed the Industrial Revolution. “
Pg.# 99: The Modern rule of competition is whoever learns fastest, wins.”
Pg.# 101: Procter & Gamble Heroic Failure award honors the employee or team with the biggest failure that delivered the greatest insight. Similarly , Tata offers an annual Dare To Try award, which recognizes the manager who took the biggest risk.
Pg.# 102: There are some limitations to the Lean Startup approach, including lack of competitor analysis or consideration in design thinking ,Also it is important to note that the ability to fails is much easier in software and information based environments because iteration is so much easier, for a hardware company, it’s much harder to iterate. Apple launches hardware only when it’s perfect. You wouldn’t want to iterate and fail fast when building a nuclear reactor.
Pg.# 102: AUTONOMY
Pg.# 104: Holacracy (a concept as well as the company’s name )is defined as a social technology and or system of organizational governance , in which authority and decision making are distributed via fractal , self organizing terms rather than being vested at the top of a hierarchy. The system combines Experimentation , OKRs Openness, transparency and Autonomy.
Pg.# 105: “ There are still hierarchies in a network, but the hierarchies tend to be competence-based hierarchies, relying more on peer accountability than on authority-based accountability — that is , accountability to someone who knows something , rather than to someone simply because they occupy a position, regardless of competence. It is a change in the role of the manager, not an abolition of the function.”
Pg.# 109: SOCIAL TECHNOLOGIES “ Transparency is the new currency. Trust is the bill we’ll just be paying for.” Priestley’s equation for social business is : Connections + Engagement + Trust+Transparency.”
Pg.# 111: Asana, a software company founded by Dustin Moskovitz (a co-founder of Facebook) and Justin Rosenstein. Improve work productivity .
Pg.# 113: Linear Attributes:

Linear Organization characteristics	Exo characteristics
Top-down and hierarchical in its organization	Autonomy, Social Technologies
Driven by Financial outcomes	MTP dashboard
Linear, Sequential thinking	Experimentation, autonomy
Innovation primarily from within	Community & Crowd , Staff on demand , Leveraged Assets, Interfaces (innovation at the edges )
Strategic planning largely an extrapolation from the past	MTP, Experimentation
Risk intolerance	Experimentation
Process inflexibility	Autonomy Experimentation
Large numbers of FTE’s	Algorithms , Community & Crowd , staff on demand
Controls/Owns its own assets	Leveraged Assets
Strongly invested is status quo	MTP Dashboard, Experimentation

Pg.# 115: The key question for any organization is not whether you “look” like an Exponential Organization, But ”How Exponential are you?
Pg.# 116: Today, Hollywood operates in exactly the same loosely coupled , networked environment of an ExO ecosystem. Each participant, From the writer and actor , to the director and camera grip, manages his or her own career. Meanwhile , agents at every level help find and connect script with talent , Production companies and equipment. These days when a film is created, a team of independent entities come together for the duration of the production , operating on 24/7 schedules and in close collaboration. Once the film is finished, sets are broken down for reuse , equipment is reassigned and all the actors, grip and production assistants disband and scatter to pursue their next project, which often starts the very next day.
Pg.# 118: Information Accelerates Everything
Pg.# 118: Mobile networks (5G)sporting speeds of five gigabits per second .
Pg.# 119: Many products are now launched early—unfinished and in perpetual beta—for the sole purpose of gathering data from users as early as possible to determine how to “finish’ the Product .
Pg.# 119: As LinkedIn founder Reid Hoffman has said “If you’re not embarrassed by the product when you launch , you’ve launched too late.”
Pg.# 121: Notes that whenever he gets stuck on a robot configuration or sensor problem, he posts a question online before he goes to bed, waking the next morning to find answers from tens of thousands of robot enthusiasts.
Every industry is becoming information based either by being digitized or by using information to identify under – utilized assets (e.g, Collaborative consumptions).
As technology brings us a world of abundance, access will triumph over ownership. By comparison, scarcity of supply or resources tends to keep cost high and stimulates ownership over access.

Importantly, the platform must be symbiotic to serve the feeders as well.

Organization can rent staff on demand from Gigwalk .

Much of this movement has grown out of the realization that the ownership of assets, even if mission-critical, is better handled by experts .

There are five key precepts to Zappos that drive culture across the organization:

Vision: What you’re doing
Purpose : why you do it
Business model:What will fuel you as you’re doing it
Wow and uniqueness factors: what sets you apart from others .
Values : What matters to you

Teamly, which combines project management, OKRs and performance reviews with the power of an internal social network .

everything is measurable and anything is knowable

Welcome to the sensor revolution.

Starting An Exo

Local Motors is a good example of an ExO startup.

Open sources with a Creative Commons license .

Technology Risk

Select An Mtp (Massive Transformative Purpose)

Don’t just ask what the world needs. Ask what makes you come alive and go do it . what the world needs is people who have come alive.”

Step 2: Joint Or Create Relevant Mtp Communities

The Innovator’s DNA : Mastering the five Skills of Disruptive Innovators. Co-author Clayton Christensen

Remember, the three key success factors for an ExO, idea are

First, a minimum 10x improvement over the status quo.
Second, leveraging information to radically cut the cost of marginal supply (i.e., the cost to expand the supply side of the business should be minimal).
Third, the idea should pass the “toothbrush test” originated by Larry Page: Does the idea solve a real customer problem or use case on a Frequent basis? It is something so useful that a user would go back to it several times a day?

“The day before a major breakthrough, it is just a crazy idea.”

The following eight ways to build a business model when the underlying information is free:

Immediacy : Immediacy is the reason people order In advance on Amazon or attend the theater on opening night. Being the first to know about or experience something has intrinsic cultural, social and even commercial value. In short: time confers privilege
Personalization: Having a product or service customized just for you not only gives added value in terms of quality or experience and ease-of-use or functionality, it also creates “ stickiness.” As both parties are invested in the process .
Interpretation : Even if the product or service is free there is still considerable added value to any service that can help shorten the learning curve to using it- or using it better . Kelly often jokes: “Software: free; the manual :$10,000.”
Authenticity : Added value comes from guarantee that the product or service is real and safe that it is , in Kelly’s words” bug free, reliable and warranted .”
Accessibility : Ownership requires management and maintenance. In an era where we own hundreds of apps on several platforms, any service that helps us organize everything and improve our ability to find what we need quickly is of particular value .
Embodiment : Digital information has no “ body” , no physical form, until we give it one—-high definition, 3D, a movie screen, a smartphone. We willingly pay more to have free software delivered to us in the physical format we prefer.
Patronage: “It is my belief that audiences want to pay creators.” Kelly wrote. “Fans like to reward artists, musicians, authors and the like with tokens of their appreciation, because it allows them to connect. But they will only pay if it is very easy to do , the amount is reasonable, and they feel certain the money will directly benefit the creators.” He adds that another benefit of a simple payment process is that it capitalizes on users’ impulsiveness. Examples include iTunes songs and Spotify, as well as Netflix subscription. Customers choose to pay for each of these services even though the same content can be acquired through piracy.
Findability : A creative work has no value unless its potential audience can find it. Such “findability” only exists at the aggregator level, as individual creators typically get lost in the noise. Thus, attaching yourself to effective channels and digital platforms like a app stores, social media sites or online marketplace where potential users can find you has considerable value to creators (and, Ultimately, to users)

Acquisition : How do users locate you? (Growth metric)

Activation : Do users have a great first experience? (value Metric)
Retention : Do users come back? (Value metric)
Revenue : How do you make money ? (value metric)
Referral : do users tell others ? (Growth metric)

The following is a guide to implementing ExO attributes into a startup

MTP: formulate an MTP in a particular problem space, one that all founders feel passionate about .
Staff on Demand : Use contractors, SoD Platforms wherever possible; keep FTEs to a minimum.
Community & Crowd : Validated idea in MTP communities.

Get product feedback.

Find co-founders, contractors and experts .

Use crowdfunding and crowdsourcing to validate market demand and as a marketing technique .

Algorithms : Identify data streams that can be automated and help with product development, implement cloud-based and open source machines and deep learning to increase insights.
Leveraged Assets: Do Not acquire assets.

Use cloud computing, Techshop for product development. Use incubators like Y combinator and Techstars for office, funding, mentoring and peer input. Starbucks as an office .

Engagement : Design product with engagement in mind and gather all user interaction. Gamify where possible .

Create a digital reputational system of users and suppliers to build trust and community . Use incentive prizes to engage crowds and create buzz.

Interfaces: Design custom processes for managing SCALE; do not automate until you’re ready to scale.
Dashboards: Set up OKR and value, serendipity, and growth matric dashboard; do not implement value metric until product finalized (see Step 10)
Experimentation : Established culture of Experimentation and constant iteration. Be willing to fail and pivot as needed .
Autonomy: Implement lite version of Holacracy. Start with the General company Circle as a first step; then move onto governance meetings. implement the GitHub technical and organizational model with radical openness, transparency and permission.
Social Technologies : Implement file sharing, Cloud based document management. Collaboration and activity streams both internally and within your community.

Make a plan to test and implement telepresence, virtual worlds and emotional sensing .

Establishing a corporate culture starts with learning how to effectively track, manage and reward performance. And that begins with designing the OKR system we outlined in chapter Four, and then continuing through the process of getting the team habituated to transparency, accountability, execution and high performance.
Ask key questions Periodically

Who is your customer?
Which customer problem are you solving?
What is your solution and does it improve the status quo by at least 10x?
How will you market the product or services ?
How are you selling the product and service ?
How do you turn customers in to advocate using viral effect and net promoter Scores to drive down the marginal cost of demand ?
How will you scale your customer segment ?
How will you drive the marginal cost of supply towards zero?

“ An invention needs to make sense in the world in which it is finished, not the world in which it is Started.”

Building and maintaining a Platform

Identify a pain point or use case for a consumer.
Identify a core value unit or social object in any interaction between a producer and consumer. This could be anything. Pictures, jokes, advice. Reviewing information about sharing rooms, tools and car-rides are examples of things that have led to a successful platform . Remember that many people will be both producers and consumers, and use this to your advantage.
Design a way to facilitate that interaction. Then see if you can build it as a small prototype that you can curate yourself. If it works at that level, it will be worth taking to the next level and scaling .
Determine how to build a network around your interaction. Find a way to turn your platform user into an ambassador. Before you know it, you’ll be on a roll.

To implement platforms, ExOs follow four steps in terms of data and APIs:

Gather : The algorithmic process starts with harnessing data, which is gathered via sensors, people, or imported from public datasets.
Organize : Once the data is accessible. Algorithms such as machine or deep learning extract insights, identify trends and tune new algorithms. These are realized via tools such as Hadoop and Pivotal, Or even (open source)deep learning algorithms like Deep Mind or Skymind.
Expose: The final step is exposing the data in the form of an open platform . open data and APIs can be used such that an Exos community develops valuable services, new functionalities and innovation layered on top of the platform by remixing published data with their own. Examples of companies that have successfully exposed their data this way are the Ford company , Uber, IBM Watson, Twitter and facebook .

C2C

Declared : Trusted Online profile, providing more information about users.
Ratings: Collaborative service asks users to rate one another after having met ‘ In real life,” enabling people to build good online reputation .
Engagement : If members are to feel completely comfortable transaction with one another they must believe other parties will honor financial commitments.
Activity-Based: Offer contextually relevant and real-time information to both buyer and supplier ensuring that the transaction progresses smoothly,from initial interest through to payment .
Moderation: All payment information transferred by users of a sharing service must be third party verified.
Social: Allow users to connect their online identity with their real world identity, be it socially, via Facebook, or professionally via LinkedIn .

Coyote Logistics

For recruiting, the company prefers to hire young college graduates who show passion, attitude and personality, and who are completely new to the logistics industry .

The primary mechanism used by Zynga to manage growth without diluting its culture was the formal application of objectives and Key Result (OKRs) to track terms and keep everyone synchronized.

Most acquisition fail because the mother company intentionally slow the newly acquired operation in order to better understand it, adapt its internal operation to the new order,

Achieve integration synergies and inculcate new employees into the company culture.

If you are relying on innovation solely from within your company, you’re dead”

Partner With, Invest In Or Acquire Exos

Recommendation; implement a program to identify, partner with, invest in or acquire the ExO in your industry. Give it teeth.

Inspire Exos At The Edge

John Hagel, Co-chairman of the aptly named Center for the Edge.

Move three proven Changemakers in your enterprise to the edges of the organization and unleash them as ExOs to disrupt other markets. Learn how they interact with the mother ship, and then add more .

Mach49

H-Farm (Treviso, Italy)

Algorithms

80 percent of Fortune 500 companies have deployed social software such as Yammer.

The company also Opened a makerspace in Chicago called GE Garages, which is powered by TechShop and works in partnership with Skillshare, Quirky, Make and Inventables.

GVs Startup Lab, a private program that is part incubator, part hackathon and part co-working space.

AngelList , a Craigslist-like marketplace that matches entrepreneurs and angel investors.

Book age of Context: Mobile sensor Data and the Future of Privacy.

Automate and measure different processes in all departments

Vendor Relationship management

www.exponentialorgs.com

The Inevitable

Products will become services

Cars as example will become mode of transportation as a service

Becoming

Everything in tech will be about upgrades, all the time.the old will get pushed for new

We are neither in utopia or dystopia, we are in protein…a state of becoming, a state of constant process change. Incremental

progress…not sudden, easy to miss

Embrace the future, its becoming, a product of the process

We tend to look at old to define future, first movies were like theater plays, first video recordings were like movie making

Most software cos software questions are answered by other users thru the net

Users are not just customers are not just users…they could be ur vendors, programmers, developers, labs and marketers

In 2050 it will not be a better web or internet just like the internet did not turn out to be a better TV

Cognifying …..AI

Google is but AI . Using search to make AI better, not the other way round

Big Data

Every intelligence, needs to be taught

Engine is learning algorithm but fuel is the data that needs to be fed

Artificial smartness instead of conscious intelligence ….develop AI without conscious…concious would be the human element

We are a society of intelligence….as web shows ….we all are connected together..bits of smartness

All cognition is Specialized ….to perform specialized tasks

Machines have to think what we can’t think

We are not defining Artificial intelligence we are redefining humans

To demand AI be human-like is a flawed logic of asking if artificial flying should be like flapping wings !!

As robots make manufacturing cheap (dip) transport becomes the main cost and thus smart manufacturing maybe closer

We are not giving good jobs to robots we giving jobs they can do better

Jobs we didn’t know we wanted to get done. This is the most genius of the robot

Jobs only humans can do

Humans decide what they want to do …our desires are results based on our previous invention and this makes it circular question….map what next when AI takes over a task…thINC university

Anything repetitive will move to robot, automation

Race not against but with machines

FLOWING

Internet is worlds biggest copying machine

Wishlists are the result of JIT (just in time) reading , watching etc

Information age is exact and free…from exact and cheap of the industrial age

Trust cannot be copied….brand is trust

Quality other than trust that cannot be copied : why would anyone pay for something that they could get for free…and yet still if they are paying , then its a generative value . Generative value is created at the time of the transaction And cannot be copied , stored or warehoused …it is generated at that time

8 generative better then free are-

Immediacy…available immediately . Beta version is also immediately

Personalisation….requires ongoing conversation between producer and user

Interpretation…software free, manual high price. DNA mapping will become free but what u can do about it will become expensive

Authenticity ….free sw but authentic version with upgrade and bug free

Accessibility….ownership sucks …others tend to our possessions ..free material is available but with a paid service I can get free material anywhere

Embodiment ….luxurious to have physical possession. Gamers wld love to play face to face…so they need to book a theater , stadium, concert. Book is free, talk is expensive

Patronage….fans love artists….must be easy to pay, not expensive, give them value, their money has to be directly benefiting the creator

Discoverability ….being found is valuable. Fans pay for Amazon to get them what they want to read even though they can read the same.book for free

We accept the reality of what we are presented

Flowing stages

Fixed

Ubiquitous…copying

Sharing..unbundling and shares in bits

Opening, becoming. Audience becomes artist

SCREENING

Would everything be linked to a screen? Irrespective of the size ?

Screens elicit response..unlike books (page)…reading is almost athletic

Screens create reflexes , create patterns, are instruments of now…

ACCESSING

Possession is no more important, accessing is

5 deep tech trends accelerate accessing

Dematerialisation …make better stuff using fewer stuff. Lesser use but greater value

Subscription versus owning

Access can’t modify…some open platforms allow

Firechat…HK…direct to direct without using cell towers….via wifi radio….keep adding enough and cell tower data is gone.called mesh network

If your data goes through the cloud, who owns it then ? Do you own your own thoughts or are merely accessing it ?

Facebook most powerful asset, is the persistent online identity they need to create for us in order for constant sharing to work

Hot wired …users submit…editorial oversight helps..editors assign…user generated, editors enhance..hybrid model ….Wikipedia is also hybrid.. check…chapter 6, sharing..37 mins into. 1500 editors work behind

Deliver more of what I like…recommendation engine

Perhaps offer a stream i don’t like but may like

(People who disliked those, like this now)….age and other factor based likes and changes. Liking

2nd life

Sensors…review nest….every dumb product can be.made smart by adding sensors

Wearables

FB key success is true identity of a billion people.user i.d maybe fake but AI tracks friends and connects

Become a wired india partner ?

Quantified self meeting….hundreds across world

Society of questions and answers. Questioning is more powerful than answering

Innovator's DNA

Always question everything . Right questions are key . Challenge the status quo….provocative

What caused you to develop this ….? Who, what, when where questions to emerge

Ask why and why not questions…

What if questions to impose constraints …creativity triumphs constraints

Not just provocative questions but better ones

– Engage in question storming …. Identify a problem then write 50 questions about it.

– Cultivate question thinking…..

– Track your q to a ratio…..q have to outnumber answers , good questions are better than good answers

– keep a question centric notebook

Observing

Networking

Network for ideas…..not resource networker….or career progression….innovators seek ability to launch ideas.

Attend idea networking events…ted, davos, aspen idea festival

When people reject to engage with u, tell them u want to engage for ideas , perspective not resources ..they will feel like an expert

For someone to stay engaged with you..

Be interesting….breadth of experience…travel widely , Broadway, scuba, read widely, novel..history, networked widely…make sure your elevator pitch on the issue is prepared well

Sg …be authentic

Experimenting

Ask, what if ? Why ?

Philosophies

innovation is everyone’s job

Disruptive innovation is part of our innovation portfolio

Deploy lots of small innovation project teams

Take smart risks in pursuit of innovation

Lots of team are great to deliver / execute and most mix success between deliver and innovation

How to find an innovative team ?

Hire

Strong discovery skills.those showing any inventive record.

Deep expertise in one area and breadth in other areas

Passion to change the world and make a difference

Cheeky, restless

What if is as important as asking why

Anything u want

Everyone is selling ideas, sell execution. Ur business should say why and then only execution

Mail went from “cababy loves ….”

Where did you hear this musician..we will pass on the message to him , her

Delegate but don’t abdicate…trust but verify

Lessons from Private Equity Any Company Can Use

rigorous application of six main lessons:

Define the full potential: To improve profits and stock price, you need to make strategic choices with a clear picture of the full potential of your company in mind.

defining the full potential of your business is rigorously asking and factually answering the question “How high is up?” The target is increased equity value—how do you turn $1 of equity value today into $3, $4, or $5 tomorrow?

“Strategic due diligence” is the way to set the number, and growing your cash flow by pursuing a few core initiatives derived from this due diligence is the way to get there. Here is the key concept: no company can be successful when it divides its resources among too many initiatives. Focusing on the right critical issues—no more than three to five, in most cases—is crucial to achieving success.

Develop the blueprint: The blueprint is the road map for getting to that full-potential destination—the who, what, when, where, and how. In most cases, the blueprint zeroes in on the few initiatives you identified in the full potential thesis: the ones that will create the most value for the company in the medium term.

The emphasis is on measurable actions.

Accelerate performance:

This means molding the organization to the blueprint and matching talent to key initiatives.

It also means getting people to own the key initiatives, and setting up appropriate program management tools to support the initiatives and their “owners.”

Finally, accelerating performance means monitoring a few key metrics.

When you track the most critical data, you are in a position to determine whether the business is moving in the right direction or not. Your blueprint determines the key measures that are required to track the success of the chosen initiatives; the company then drives the entire corporate language and rewards system around those metrics.

Harness the talent:

Value-added boards help coach CEOs, provide real business input and make quick decisions on corporate requests. This first requires just the right composition: board members who really understand the industry and the company they represent, as well as the strengths and weaknesses of the management team. Of course, board members should also be well steeped in the key initiatives and the blueprint, and use its language with management. Indeed,

Make equity sweat: You have to embrace LBO economics, which in part means getting comfortable with leverage

This is a critical distinction as portfolio companies of PE firms can always ask the parent to write a check for needed investment.

Fostering a results-oriented mind-set, it also rests on developing a repeatable formula: repeatable within one activity and also across multiple activities. This repeatability is the key to sustaining results in company after company for smart PE investors.

It is a mind-set that rewards an attitude that seeks solutions proactively rather than reacting to events (we call this being at cause). It is the opposite of a passive, take no risk, “it happened to us” culture (or being at effect).

Creating operating value. Increasing the cash flow (and hence the value) of acquired companies is the process that the best PE firms are vigorously pursuing to keep generating attractive returns Shifting gears as soon as a deal is completed, they use a systematic approach to collaborate with management and spot, stage, lead, measure, and profit from strategic and operational improvements

The first thing that the best PE firms do is to develop a clear understanding of where and how a business makes money and why they’d want to own it.

they focus on at least five things:

Derived demand analysis (What are the true underlying drivers, how are they changing, and how will they affect demand?) india, world opening up, platform trade between partners ..not just discovery which amazon, alibaba do…but ease of transaction on a regular basis…analyze what benefits do amazon, alibaba, indiamart, flipkart give to its vendors

Customer analysis (What are this business’s customers going to do?)

Competitive analysis (What are this business’s competitors doing, and how does it stack up against this business?)

Environmental analysis (Are there technological, regulatory, or other issues or trends that may affect future performance positively or negatively?)

Microeconomic analysis (How does this business really make money and where?)

The only compelling reason to pay more than the next bidder is the discovery that the microeconomics of the business can be better than conventional wisdom would imply.

They live by the motto “In God we trust. All others bring data.”

KKR willingly paid this price because of the strength of the full-potential plan and clear momentum in results already banked.

You must collect facts on the key drivers of demand and how they are likely to behave in the future. You must interview customers to understand how they make purchase decisions and how your key products or services stack up against those of the competition. Are there gaps in performance that need to be addressed? Where and how? What are the customers’ future purchase intentions if we do nothing? How will that affect our market share? If we change things, what is the upside? What are the risks? How has pricing changed over time for key products and services? What are customers demanding and competitors doing that will affect the future pricing environment? Are my costs truly competitive? How can we conduct an apples-to-apples cost comparison versus key competition to understand how much and where we are advantaged or disadvantaged? What can we do to close any gaps? What can we do to leapfrog competitors? Will regulations or technology change in some fashion that will impact the business? How and how much? Do we understand where and how we really make money? Do we have unprofitable products? Do we make money on all of our customers? All

In the blueprint phase, PE buyers start with two key sets of data points: The three- to five-year full-potential equity value. The few big initiatives (again, usually somewhere between three and five, rarely more than a half dozen) that the management team and PE firm have decided to embrace aggressively in their full-potential analysis.

key point: the PE’s blueprint is very different from the traditional company’s strategic planning binders, which often tend to focus on “what we want to be” at the expense of “how we are going to deliver.”

The PE’s blueprint is only about action. It is about executing on the initiatives and how one dollar becomes several dollars within a specific time period.

The best PE firms foster senior management accountability. They do so in a number of ways, including insisting on executive sponsorship of individual initiatives. Each initiative gets an “owner”—someone who has a direct personal stake in its success. They also make the blueprint the centerpiece of their senior management dialogue. This means, among other things, monthly in-depth reviews of progress and results. In addition, they tie their executives’ compensation (including the equity portion) to the results of the executives’ own units and initiatives, effectively making them owners. Often, management teams own 10 to 30 percent of the total equity in their businesses, through grants, direct investment (if necessary, borrowings from the PE firm) and rewards for hitting blueprint targets. Not only do they “think like owners,” they are owners.

At the risk of stating the obvious: PE firms obsessively watch key metrics, including market data and performance data.

What may not be so obvious, however, is that not all PE firms track the same things. Some stop with the fundamentals of markets and financial results. Others—the more activist buyers—dig deeper. They track metrics that help them monitor progress toward operational goals before it shows up in the financial results

PE firms watch cash more closely than earnings, knowing that cash remains a true barometer of financial performance, as earnings are subject to distortion. As a rule, they prefer to calculate return on invested capital, which indicates the actual return on the money put into a business rather than fuzzier measures like return on accounting capital employed.

We often help companies think through what we call a “RAPID” scenario for decision making: in other words, just who is responsible for recommending an action (the R), agreeing (A), providing input (I), deciding (D), and ultimately performing (P), or executing against the decision.Think of it as decision making software, shared across the organisation.If you can effectively rewrite the software of decision making, you can effect significant change while still steering clear of the grand reorganization. Reorganizations are toxic, by and large because they tend to be time-consuming and intensely political. And, too often, the new structure is divorced from the very initiatives that lead to full potential.

look for data that will help you understand whether a specific initiative is succeeding according to the most relevant metrics. Is that data cash based, market based, competition based, or operationally based? If you can’t get it with your current resources, what do you have to add?

you’re the head of a publicly traded company, there are limits on the ways that you can use equity as an incentive. Even the time-honored tool of the stock option has its limits—and may be subjected to additional limits in the near future. There’s nothing to prevent you, however, from using bonuses—substantial bonuses—to reward outstanding performance within a key initiative. The simple screen to put all such bonuses through is whether the additional compensation is directly linked to an outcome that was within the individual’s control. Too many corporations tie incentives to the bottom line, which isn’t easily moved by an individual or working group within the organization. As a result they waste money intended to focus motivation.

(The members of merger integration teams, for example, often receive bonuses equal to 100 percent of their salaries—in part because if they do their jobs well, they may work themselves out of a job.)

Harnessing Talent in the Corporation.

you can ensure that your financial offer to talent is at least in line with the risks you are asking them to take. What does this mean? It means you have to pay close to market value for the skills you require. Don’t be handcuffed by tradition-bound notions of pay grades and antiquated hierarchical systems. Get market data on the alternatives talented people have and make sure your compensation package is competitive.

play up the non-financial elements of the rewards

Does your location appeal to him or her? Does the prospect of extensive travel—or the complete absence of travel—hold strong appeal for this individual?

you will need to find ways to include contingent compensation in your packages. But if the contingent piece of the compensation is large enough—and if the targets are ambitious but realistic—you have nothing to apologize for.

you need to find people who are more interested in opportunities than guarantees. To do so, you will have to scramble, invent, and push against the tide.

Explore “phantom equity” and other mechanisms that have been introduced in recent years by companies who are trying to solve exactly these kinds of problems. Phantom equity refers to plans (such as phantom stock or stock appreciation rights) that provide employees with a cash or stock payout based on the increase in the company’s stock value, but without granting them an actual ownership stake in the company. Look for people who aren’t yet infected with the “lifer” mentality.

Look for people in lower-paying sectors who don’t yet know what they’re worth and would welcome the chance to sign on with a company

PE Firms Love Cash

in a private equity environment, managing down working capital can be an indispensable part of the larger value creation formula

Let’s say in our fictional example that the annual debt service is $50. Let’s further say that the working capital as a percent of sales is 30 percent, and that next year’s growth in sales is budgeted at $100. That means that $30 (30 percent of $100) of cash will be required to fund budgeted growth. Finally, let’s assume that capital expenditures are $10 (maintenance expenditures plus required expenditures to fund sales growth). Adding those three deductions ($50 + $30 + $10) means that this business has $90 of cash requirements, and prior-year EBITDA of $125 to fund them. In this example, therefore, the real cash creation is $35. Bear in mind that no picture of cash flow is static, but depends on changes in market forces, competitors and customers. Thus, smart PE investors and CEOs measure the cash-generation potential of their businesses on a regular basis.

get an accurate handle on exactly where and when in the process you begin to make cash.

Say you buy a billion-dollar business, putting in $300 million in equity. You do so on the basis of a certain full potential thesis (as described in our earlier sections). Over the subsequent five years, you double the size of that business to $2 billion. But how much additional equity have you invested? Let’s say it’s another $300 million. You have to hold that second $300 million to the same return standards that you held the first $300 million to— otherwise, you are diluting your overall return

Senior managers have to push accountability down to its most effective level,

The general managers of your business units have to feel that they are on the hook to deliver the results. The people who own the initiatives and whose names are on the actions in the blueprint have to feel that they are equally on the hook.

“I tell my people, ‘Here is the framework. I want you to spend 50 percent of your time doing what you are supposed to do, but spend 50 percent on telling me how you can create more value,

Platform Scale

How an emerging business model helps startups build large empires with minimum investment

On platforms, the business does not create the end value; rather, the business only enables value creation.

the shift in media distribution power from journalists to

Unlike hotels, which invest in resource creation, platforms like Airbnb invest in creating better trust mechanisms that identify and differentiate good behavior from poor behavior and minimize interaction risks.

Threadless and 99Designs.

At their core, platforms enable a plug-and-play business model. Other businesses can easily connect their business with the platform, build products and services on top of it, and co-create value.

This ability to drive interactions through a “plug-and-play” infrastructure is a defining characteristic of platform scale.

In the quest to transform into platforms, organizations must shift from a culture of dollar absorption to a culture of data absorption. Business units should be measured not just in terms of dollars absorbed but also in terms of monetizable data absorbed.

Managing community incentives and governance is as important as managing internal employee conduct and compliance.

The Instagram founders understood the importance of managing ecosystems and communities. Employee #1, Josh Riedel, was a community manager, tasked solely with managing the growing community of content creators on Instagram.

Liquidity Management Is The New Inventory Control

Platforms do not hold inventory, but they must work similarly toward avoiding idle supply and unfulfilled demand. Producers will abandon the platform in the absence of relevant demand. Consumers searching for items become discouraged unless they are matched with relevant supply. Matching supply and demand isn’t merely an exercise in efficiency; it is the only way that a platform can hold the two sides together.

Platforms must focus on liquidity management to ensure that both producers and consumers find value in using the platform. High liquidity ensures that the demand on the platform is reliably served with supply and that the supply created on the platform is liquidated with demand efficiently.

Curation And Reputation Are The New Quality Control. Platforms cannot control quality as pipes did.

The importance of quality control on an open-access system cannot be overstated. Open systems encourage unrestricted production, leading to abundance, which can lead to a dip in quality and higher search efforts for consumers.

Many platforms determine producers’ (or consumers’) reputation and quality by aggregating social signals from the community.

When hosts and guests rate each other on Airbnb, both sides create signals of quality.

user journeys are the new sales funnels

AARRR (acquisition-activation-retention-revenue-referral) framework that tracks usage metrics – are often designed as funnels.

distribution is the new destination

Consumers had to visit a retail outlet to purchase a product or sit in front of a television to consume an advertising message. However, in an age of always-on connectivity, users are always connected to businesses, sometimes on multiple channels simultaneously.

The business should no longer focus simply on drawing users to a destination. Instead, a business should work on identifying new ways to distribute its experience into the context of the user.

BEHAVIOR DESIGN IS THE NEW LOYALTY PROGRAM

To ensure that producers and consumers participate regularly and often, platforms must invest in behavior design. By creating a new habit, Facebook, Instagram, and Pinterest ensure that users stick around of their own accord.

data science is the new business process optimisation

social feedback is the new sales commission

In addition to traditional inorganic incentives, social feedback is a key source of user incentivization on platforms. Producers on a platform may participate more often when explicit social feedback from consumers is communicated back to them. Readers share Buzzfeed and Upworthy articles because of the social feedback that results from such an action. Instagram users share their creations for social feedback.

algorithms are the new decision-makers

On platforms, algorithms are the arbiters of both resource allocation and reputation assignment

Self-policing communities and the algorithms that nudge them along are the new decision-makers.

real-time customization is the new market research

The Facebook newsfeed is a highly customized gossip column that rearranges itself in real time based on user preferences and actions.

excessive customization may also pose a challenge by constantly showing more of what a user has enjoyed in the past to the detriment of the overall experience. Platforms must ensure that they balance relevance with serendipity.

plug-and-play is the new business development

In the world of platforms, APIs, and self-serve interfaces, the very nature of business development has fundamentally changed. Increasingly, APIs are enabling a new form of business development. Prospective partners can plug and play, obviating the need for complex integration and, in some cases, complex contractual agreements. The API is the contract and the integration interface.

THE INVISIBLE HAND IS THE NEW IRON FIST.

The invisible hand – typically taking the form of algorithmic decisions – nudges producers to continue creating value on the platform. In a networked age, we are moving from a world of command and control to a self-serve world where user participation is encouraged through an invisible hand powered by data, APIs, and algorithms.

Platforms compete with each other on the basis of their ability to enable interactions sustainably. Platforms do not compete merely on the strength of better features or larger user base.

The importance of understanding the platform business, as an enabler of interactions, cannot be overstated.

Producers and Consumers Every interaction involves two participating roles. The producer creates supply or responds to demand on the platform.

The concepts of value and currency apply to all social and economic interactions. Producers create value in the form of goods or services. The exchange of value may involve the exchange of physical goods (e.g., eBay and Etsy), virtual goods (e.g., Medium, YouTube, and Facebook), standardized services (e.g., Uber and Airbnb), non- standardized services (e.g., TaskRabbit and Upwork), or data (e.g., Waze and Nest).

seven specific principles that guide the design of interaction-first businesses.

Plug-and-play business design Platforms must create a plug-and-play infrastructure to encourage interactions. Producers and consumers should be able to plug in to the infrastructure and interact with each other

Platforms must create a plug-and-play infrastructure to encourage interactions. Producers and consumers should be able to plug in to the infrastructure and interact with each other

Incentives must be architected into the platform to attract producers and consumers repeatedly.

However, open participation leads to the creation of noise. This makes the platform ineffective at enabling interactions.First, open participation may encourage undesirable behaviors by allowing access to all kinds of users.

Hence, platforms must architect some form of access control, especially for producers who create value on the platform. Second, open participation leads to an abundance of content, which could increase the efforts required by consumers to find the most relevant items. Hence, platforms need to implement and strengthen consumption filters that determine which items should be served to which consumers. The design of access control and consumption filters helps with the governance of interactions.

Balancing value creation for both producers and consumers

Optimizing the experience for a producer may lead to a poor experience for a consumer

For instance, removing barriers to production may help producers but lead to the creation of noise for consumers. In the same way, optimizing the experience of consumers may discourage producers. Consumers in a marketplace may benefit from competitive bidding among producers, but producers may not find it beneficial.

Strategic choice of “free”

“Free” is not a strategy by itself; it can only be part of a larger strategy that involves some form of monetization made possible by offering some value for free.

On platforms, “free” is strategic only if it follows at least one of the following two principles:

a.It increases the repeatability of interactions. If the provision of free services to consumers, producers, or both increases the repeatability of interactions, the choice of “free” is strategic.

b.It involves the capture of monetizable data. Facebook and Google offer free services but capture monetizable data: user interests and search keywords, respectively. Advertisements are served in real-time based on this captured data.

On most platforms, at least one role is subsidized to participate on the platform. Producer participation may be subsidized, and producers may get free access to the production tools to encourage value creation on the platform. Likewise, consumers may be allowed free access to the platform.

Pull, facilitate, and match

Platforms focus on enabling repeatable interactions

With the goal of enabling interactions, platform businesses have three rather different priorities: a.Pull. The platform must pull producers and consumers to participate on the platform. b.Facilitate. It must facilitate interactions between them. c.Match. It must match demand with supply to ensure that the right producers and consumers interact with each other. The platform achieves this by: 1.Architecting incentives that repeatedly pull these participants to the platform. 2.Providing a central infrastructure that facilitates the creation and exchange of value. 3.Matching participants with each other and with content/goods/services created on the platform.

Layering on new interactions

LinkedIn, for example, has multiple interactions, such as recruiters serving jobs to candidates and thought leaders publishing posts for readers. However, the central purpose of LinkedIn continues to be centered on enabling professionals to connect with each other. LinkedIn’s failure to power this core interaction would lead to the failure of all edge interactions that the platform enables.

Enabling end-to-end interactions

Increasingly, platforms are expanding beyond the matching function to enable end-to-end interaction. Uber doesn’t merely match the driver to the passenger. It also tracks the duration of the ride and uses that information to charge the passenger accurately and transfer the money back to the driver. Finally, it allows the two sides to rate each other – the exchange of social currencies – to determine signals of quality that it can leverage in subsequent interactions.

Creation of persistent value beyond the interaction

Airbnb hosts and guests rate and review each other during every interaction, creating a reputation that enables future transactions. Twitter followers may choose a new account to follow based on a tweet they read, thereby building that particular account’s influence. Reddit enables the development of crowd opinion on news articles by aggregating reader inputs and creating authority and visibility for articles.

PLATFORM SCALE IMPERATIVE

Platforms require completely different mental models to succeed. They need interaction-first thinking. Pipes rely on user-first thinking, not interaction-first thinking. In user-first thinking, the single user’s perspective rules all business decisions.

In interaction-first thinking, the focus on users does not cease but becomes subservient to the focus on interactions. Single user benefits may be overruled if the interaction between users suffers.

We are not in the business of selling products and services. We are in the business of mediating and enabling interactions!

Across all platforms, the following three distinct layers emerge repeatedly.

Network-Marketplace-Community layer

The first layer of a platform is the network or community layer, comprised of the participants on the platform and their relationships.

Marketplaces may not require users to form explicit connections but may regularly match buyers and sellers, allowing them to interact. Some platforms may have an implicit community layer. For example, users of Mint.com are not connected to each other, but every user’s financial analytics is benchmarked against that of similar users. Every user benefits implicitly from the community without the requirement to connect with others explicitly.

Infrastructure layer The infrastructure layer encapsulates the tools, services, and rules that enable the plug-andplay nature of a platform business. In itself, this layer has little value unless users and partners create value on the platform. External producers build on top of this infrastructure. On Android, developers build apps. On YouTube, video creators host videos. On eBay, sellers host product availability.

The infrastructure layer provides the infrastructure on top of which value can be created. Large-scale value creation leads to the problem of abundance. With an abundance of production, search costs increase for consumers. Too many videos on YouTube may make it harder for consumers to find the best ones. To solve for this, platforms need a third layer: data

Data layer The final platform layer is the data layer. Every platform uses data in some way.

The data layer powers relevance, matching the most relevant content/goods/services with the right users.. In some cases, the data layer may play an even more dominant role. The Nest thermostat is a data-intensive platform, where the value is created entirely through the data aggregated across thermostats.

Basic configuration 1: The marketplace/community platform

Airbnb, Uber, and most marketplace platforms have a thick marketplace/community layer. The network is the key source of value. Online communities like Reddit, social networks like Twitter, and content platforms like YouTube benefit from thick community layers.

Basic configuration 2: The infrastructure platform

Development platforms like Android provide the infrastructure on top of which apps may be created. In tandem with the Play marketplace, Android’s development infrastructure is the key source of value for developers.

Basic configuration 3: The data platform

Facebook uses data to fashion newsfeeds, and Airbnb uses data to match hosts to travelers. But on certain platforms, the data layer itself constitutes the key value created on the platform. Some of them may not even seem like platforms,

Wearables. Nike’s shoes and FuelBand constantly stream data to an underlying platform that integrates the user experience across the shoe, the wearable, and the mobile apps.

Nest Thermostat And The Internet Of Things. The

Industrial Internet. GE’s focus on the industrial Internet is another example of a data platform.

Enterprise 2.0. Andrew McAfee highlights the rise of social software in the enterprise and how it’s replacing traditional enterprise systems. Enterprise-wide social software needs an underlying data platform to aggregate the many workflows and knowledge exchanges within an organization. The streaming and aggregation of data from multiple input points and the subsequent provision of services to multiple stakeholders is an outcome of a central data platform.

Omnichannel Customer Journeys. Retailers like Burberry and Target use an underlying data platform to unify customer journeys across the store and other remote touchpoints.

Airbnb started out with poor network effects but with better use of data and a more robust infrastructure to enable interactions between hosts and guests.

It enabled end-to-end transactions and invested in the creation of trust mechanisms.

As YouTube gained traction, the focus of the platform moved from improving video hosting (infrastructure layer) to improving the matching of videos with consumers (data layer) and increasing viewer engagement (network layer).

Facebook’s largest draw, arguably, is the newsfeed. By focusing on the use of data to drive higher community engagement, Facebook built an entirely different business.

Quicken provides a tool to manage finances. In its initial days, Mint did the same but provided it for free. This allowed Mint to gain traction through a superior tool.

Mint enables an implicit network of consumers, who benefit from social analytics that benchmark their spending habits vis-a-vis that of their peers. It also powers a marketplace that allows financial institutions to sell their offerings to these consumers.

Instagram vs. Hipstamatic

Hipstamatic provided the technology to take beautiful photos using filters. As a software creator, not a platform business, it based its revenue model on charging for the app and for premium filters

The core value provided by Instagram – and the reason it succeeded despite a late start – was the network and community for sharing pictures.

Flickr still attracts a large base of users with its storage infrastructure. But a larger base of users uses Facebook to generate conversations around photos.

FIVE DRIVERS OF PLATFORM SCALE

Minimal marginal costs of production and distribution

Airbnb doesn’t incur additional costs associated with servicing new rooms. Airbnb does invest in community management to ensure that hosts follow best practices. It also offers insurance cover to hosts to encourage them to participate on the platform. However, compared to a hotel, the marginal costs of value creation are drastically lower for Airbnb

Network effects powered by positive feedback
Behavior design and community culture

Behavior design involves the creation of subtle cues that nudge the user toward the desired behavior. Through subtle cues, notifications, and feedback, users are encouraged to take small steps toward desired actions.

as platforms scale activity and achieve scale, they often suffer from the problem of abundance. As the number of videos on YouTube increases, its ability to serve the most relevant videos to users must also improve. This leads us to a fourth driver of platform scale: learning filters.

Learning filters

Facebook’s most important feature may well be the newsfeed. The news feed filters and serves content based on its judgment of what is most relevant to a particular user. Its ability to filter relevant content improves with greater usage. The news feed is a filter that learns.As a user uses the feed more often, it captures signals on what the user finds desirable (or undesirable) and leverages the data to strengthen the filter further

The news feed filters and serves content based on its judgment of what is most relevant to a particular user. Its ability to filter relevant content improves with greater usage. The news feed is a filter that learns. As a user uses the feed more often, it captures signals on what the user finds desirable (or undesirable) and leverages the data to strengthen the filter further.

Weak filters can weaken network effects, while strong filters constantly strengthen it.

Platforms that fail to scale relevance often fail despite achieving scale. Scale, ironically, is their undoing.

Virality

Instagram serves as a great example of viral growth, as explained in further detail in Section. Every time a user clicks a picture on Instagram and shares it with friends on Facebook, the platform is exposed to new users. This is a unique driver of growth that is very different from traditional word of mouth, where users would recommend an offering.

Virality doesn’t require a user’s recommendation.

Scaling is not a marketing or user acquisition or retention problem. This isn’t merely an issue of scaling the ability to generate and fulfill demand. Achieving platform scale requires the ability to scale value creation to scale value exchange – the ability to scale production and consumption simultaneously – and to repeat the two so that each reinforces the other.

Multiple user roles: A platform must cater to multiple user bases, each of which may perform one or more roles in the system. It needs to balance value, costs, and incentives across all these user bases and roles
Open architecture: Platforms are open systems that allow users to contribute and add value

It is important to ensure that a platform offers quality and relevance to ensure that the abundance does not overwhelm consumers. This priority is in conflict with being open and participative and needs to be carefully architected.

User-generated value: Since users create all the value, a platform often starts with no value. Design decisions, again, are critical to ensure that platforms attract usage, even at a low value.

The value of a platform is created by the interactions on top of the platform. The value is in neither the technology nor the rate of user adoption. Value lies solely in the activity of an ecosystem of connected users powers on the platform.

The one metric that platforms should really be judged on is the rate at which value is created on the platform.

SOCCER: THINKING SOCIAL AND INTERACTIONS

fixated on three things: • The ball or the puck • Who has control over it now • Who is likely to receive/intercept it nexT

Much like the rules of play in a game and the role of the referee, the platform’s purpose is to provide the conditions that are necessary for such interactions to occur efficiently

To design a building, one shouldn’t start with thinking about the building. When architects get down to thinking on paper, they start with a center and build things around and in relation to that center.

The notion of thinking in terms of centers instead of wholes is an important one.

When we look at a website or an app, we see it as a whole. We don’t see a center.

Thinking in whole leads us to start thinking about features. When building a platform, it is important that features are not the starting point. Features should instead be built around a center. The center determines how platform users will interact and guides the choice of features on the platform.

The true value of platforms lies in the value created by external producers and exchanged with consumers on the platform, not in technology, nor in user adoption.

The core value unit is the minimum standalone unit of value that is created on top of the platform. It represents supply or inventory created on top of the platform. Without this supply, the platform has very little value in and of itself.

the core value unit in light of these different configurations.

PATTERN 1: NETWORK/MARKETPLACE/COMMUNITY-DOMINATED

1.Goods. If the platform powers a marketplace for the exchange of goods,

eBay and Etsy are examples of such platforms

2.Standardized Services. If the platform powers a marketplace for the exchange of standardized services

A ride on Uber is a standardized service. The availability of accommodations on Airbnb is standardized

Non-Standardized Services. In contrast to the above, the service offered by a plumber on TaskRabbit cannot be standardized.

PATTERN 2: INFRASTRUCTURE-DOMINATED

Articles on Medium, videos on YouTube, and the ephemeral messages on Snapchat, all denote the core value units for the respective platforms.

While a single selfie on Instagram – the core value unit – is created by a single producer, a single article on Wikipedia may be created by multiple producers. When multiple producers collaborate to create value, as on platforms like Wikipedia or Quirky, the actions of all producers need to be designed for.

PATTERN 3: DATA DOMINATED

What is the equivalent of an app or a video for the Nest thermostat? The Nest thermostat is like every other thermostat except that it also streams data on its usage.

How does one think of a core value unit in a scenario where there is no infrastructure and no explicit community or marketplace? On data-dominated platforms, the data itself is the source of value.

Retail loyalty platforms capture a consumer’s interests based on past consumption to offer him/her more shopping deals in the future.

When information businesses behave like pipes, they transfer value units from the point of production to the point of consumption. The difference, though, is that these units are not produced by external producers. For example,Google’s crawlers crawl the Web to create the Web page indices (value units) that make Google valuable as a search engine. even though the indexed pages are being created by Google’s crawlers, not by external users.

Platforms are information factories without control over inventory. They can create the factory floor, i.e., provide the infrastructure. They can create a culture of quality control, but they do not employ an iron fist in controlling the amount and quality of what is produced and consumed.

Google’s ability to serve results and solve the world’s problems collapses if its crawlers don’t work well and its algorithms (filters) fail to serve the most relevant results.

platform design should follow the following principles. 1. Start With The Core Value Unit The design of all platforms should start with the core value unit. (see Figure 8a) Start with the unit. When designing Twitter for X, look at what the tweet for X looks like. When building Uber for Y, focus on the equivalent of the ride. What is the unit of supply on the new platform? What will it take for the platform to encourage its repeated and regular production? Start with the core value unit – and build out from there.

Build The Core Interaction Around The Core Value Unit

platforms are built around a set of actions that enable the creation, curation, and consumption of value.

In all interactions, the producer creates value for the consumer and the consumer “pays” for it using some form of currency. Currencies may range from actual money to attention, reputation, influence, and even data.

One important difference between pipes and platforms is worth noting. Consumers don’t add value in real time to the product in the case of a pipe. Value creation is the sole prerogative of the producer. On platforms, consumers may add value as well.

A producer may take a picture on Flickr, but consumers may tag it and help it get discovered. A producer may upload a video on YouTube, but consumer votes determine how often it is consumed.

Design The Platform Around The Core Interaction

Once we identify the core value unit and design the core interaction as a set of actions, platform design follows.

A common fallacy in a lot of software management is the temptation to start with the interface rather than the heart of the system. YouTube, for instance, is a complex system but has many different interfaces/functionalities for creators, viewers, brands, advertisers, media houses and other stakeholders on different channels.

When designing a platform, one must distinguish between the system and the interfaces. The design of the interfaces should be consistent with the design of the system.

All platform businesses require the exchange of information, goods/services, or currency

The platform’s monetization options are dictated by which transfers can be captured and/or tracked by the platform.

Clarity is a platform that connects experts with advice seekers through a consulting call.

Communities like CouchSurfing work similarly to Airbnb but without the exchange of actual money. In such cases, goodwill and reputation are generated and transferred within the community.

Google’s crawlers index the Web and create billions of units of value. When users type in a search query, they create a filter. Value units are passed through this filter, and the ones that are most relevant are served to the user.

HOW FILTERS DRIVE CONSUMPTION Successful platforms must ensure that the most relevant value units pass through filters.

1.Overlap. Ensuring that there is significant overlap between what producers produce and what consumers need.

2.Data. Ensuring that the platform captures rich data about core value units as well as

Consider how a YouTube video is served to a consumer. The video (core value unit) has various forms of data associated with it. These include information on What it is (title, description), How Good it is (indicated by votes), and Who it can be served to. The video is served in various ways: 1.It may show up on a user’s newsfeed. The news feed uses a filter that takes into account data on WHAT the user has consumed in the past. 2.It may show up in response to a search query. The search query acts as the filter. A user may slice and dice the search results further by adding parameters to the filter (video length). 3.It may be shown as a related video alongside a video that the user consumes. In this case, the similarity to the current video and to past consumption behavior work together to create the filter.

BRIEF TAXONOMY OF FILTERS

For a location-based application, the location may serve as a filter. For search engines, search queries act as filters. A newsfeed creates a filter based on a user’s past actions and social signals. A Twitter feed’s filter relies almost exclusively on recency.

Filters may pull units to themselves. That’s what search queries do. Units may also be pushed through filters. That’s how a news feed works.

Filters may be point-in-time or cumulative. If a search engine serves results to queries based only on search terms, it is employing a point-in-time filter.

If, however, it also factors in the user’s past search behavior, it is incorporating a cumulative filter as well.

A search query is an active intent filter. A news feed works on a passive context filter.

Context may be static or dynamic. Many Web 1.0 era filters were created based on long sign-up forms that the user filled out. Today, filters are created based on data captured on an ongoing basis through a user’s actions.

Facebook’s social graph. Through the social graph, third-party platforms like TripAdvisor serve reviews based on a collaborative filter of people who are close to you on the graph

the network itself is a filter. Who you follow determines what you consume. On Twitter, who you follow is the critical filter. Relevance is almost entirely dictated by it. On Facebook, who you are connected to and how often you interact with them strengthen the news feed filter. On Quora, users may follow other users, topics, and even questions. All of these, in turn, act as filters. The new economy runs on data. Platforms use data to match value units with filters.

brilliance of game design. A large goal can be broken down into a set of simple actions for users to perform repeatedly. These simple actions enable users to obtain value from the game and progress towards a larger goal.All actions in the core interaction fall into one of the following buckets:

Creation. In every interaction, there is at least one producer role that creates value.

2.Curation. Curation is a necessary component of every interaction.

Curation scales the quality of the supply on the platform. It encourages desirable behaviors and discourages undesirable behaviors. Rating and reviews help with curation. Upvoting and downvoting of content enable curation. Curation also has a more persistent impact throughout the system.

New users signing up on Twitter or Facebook are encouraged to connect and follow certain recommended users, as this creates a filter for them to start receiving content.

If a platform fails at encouraging creation, it breaks down.

If a platform fails at encouraging consumption, there’s a different problem.

A platform that fails to encourage curation becomes loaded with poor-quality content and fails to stay useful and engaging.

Finally, a platform that fails to encourage customization will increase search costs for the consumer. Consumers will find the experience irrelevant.

To design the core interaction, ask the following questions:

1.For a particular platform, what is the core value unit? What is the unit of supply on the platform that defines value for its users?

2.Who is the producer?

3.How does the producer create the core value unit?

4.Who is the consumer?

5.How does the consumer consume the unit?

6.How is the quality of the unit determined?

7.What is the filter used to serve the unit to the consumer?

8.What consumer actions help to create the filter?

9.How does the consumer consume relevant units?

The core interaction is the repeatable formula for value creation and exchange on the platform.

ORGANIZING FOR PLATFORM SCALE

The design of the organization that runs a platform business should also stem from the platform stack.

A platform that creates value sustainably and repeatedly must ensure that it has a healthy network layer, a functioning infrastructure layer, and a data layer that ensures a relevant and compelling experience at all times.

Platform strategy involves three primary priorities,

Pull. The platform must pull the producers and consumers to itself on an ongoing basis.

2.Facilitate. The platform must ensure that the tools and services it provides to its users enable them to interact with each other. It also needs to set the rules of access and usage to ensure that desirable interactions are encouraged and undesirable ones are discouraged.

Match. The platform uses data to serve relevant items to consumers.

The failure to create ongoing pull leads to the failure to create network effects and virality.

Platforms that create unnecessary friction in access and usage may hinder user participation, leading to a loss of network effects and failure of the platform to enable interactions. However, platforms that make it too easy for users to participate may invite a rapid deterioration in quality. Users rapidly abandon such platforms.

In its initial days, a platform may have no pull. In fact, platforms often suffer from a chicken-and-egg problem. Producers won’t participate without consumers and vice versa. Many platforms exhaust their resources through a traditional marketing approach, lacking a clear strategy for creating pull. The initial pull may need some form of inorganic effort.

Platforms also need to ensure that they create some form of long-term investment for producers and consumers that keeps them loyal to the platform. Our traditional view of loyalty has often involved lock-in and other forms of schemes that are not in a consumer’s best interest. On platforms, loyalty is created through designing new behaviors for users and by providing greater reputation and influence to producers over time.

Creating pull also requires reactivating deactivated users. It involves creating off-platform notifications that drive users back to the platform

New users who start participating on Quora see their Quora Credits – virtual currency on Quora – grow as their participation is appreciated by other users.

The blogging platform Medium keeps providing feedback to bloggers who write articles on it. Every time readers recommend these articles, the platform provides feedback to encourage producers to produce more.

An escrow payment service encourages buyers and sellers to participate without fear of losing money in a fraudulent transaction. Central insurance coverage encourages travelers and hosts to interact on Airbnb.

A platform’s ability to scale matchmaking helps it to achieve platform scale (see Figure 16). Matchmaking is accomplished through data. As a result, data acquisition becomes an important priority for platforms. Designing the data model – specifications for what data are required for the value unit and the filter – is a critical step in platform design. This informs a platform’s data acquisition strategy. Data acquisition is subtle but critical. LinkedIn’s progress bar encourages users to provide more data to the platform by showing them the completeness of their profiles and suggesting simple actions to enrich them further.

Data may also be acquired from third-party data providers, e.g., Facebook Connect. Platforms need to capture implicit forms of data based on usage patterns. These data points strengthen the filters for serving value to consumers.

The platform business model is structured around the core interaction that it enables. If a platform enables multiple interactions, the business model and architecture must be planned out one interaction at a time, starting with the core interaction. The focus on the interaction is very important.In a traditional, linear, pipe business, analysis is focused on the customer or the user. In the case of a platform, focusing analysis on the user isn’t useful enough. It is possible to engage and serve users without enabling the core interaction of the platform. When different types of users use the platform simultaneously, optimizing the experience for one user group may discourage the other user group from participating. The design of platforms needs to move away from user- centricity to interaction-centricity.

Producer, Consumer, And Platform. The platform acts as the infrastructure on which value is created and exchanged. The producer and consumer plug in to the platform to create and exchange value. As mentioned earlier, the terms “producer” and “consumer” refer to specific roles rather than specific user bases. The same person may act as a producer and consumer but will perform only one role in a particular interaction.

Value. The concept of value created on the platform is one of the most important concepts.

On a platform like Facebook, the status updates and other content create value. On Etsy, the goods listings act as inventory. The supply of value on TaskRabbit refers to the availability of service providers. On a data platform like Nest, the data captured by the thermostat creates the supply of value. The platform must balance the creation of an open, participative system with the need for quality control and relevance.

To enable open participation, the platform must create channels by which producers and consumers can plug in to the platform. Channels may involve websites and apps, but they may also involve distributed access mechanisms like widgets, browser plug-ins, and share buttons or the provisioning of APIs and SDKs. More importantly, channels may even refer to other forms of access, including channel partners who help certain kinds of producers and consumers participate. The sales force is a channel that helps merchants plug in to Groupon.

Access Control For Producers. The platform must create checks and balances that determine what kinds of producers are allowed and which types of production actions can be encouraged. It is important to note that access control may be designed to apply to both platform access and post-access rights. Wikipedia allows platform access but controls access at the level of post-access rights. Access control mechanisms may be editorial, algorithmic, or even social.

Filter Creation For Consumers. The platform must invest in the creation of consumption filters that ensure that content served to the consumers is highly relevant to them. To create filters, the platform must acquire data on an ongoing basis.

Across the interaction, the platform should provide the following:

Tools And Services Of Creation. This may constitute explicit specialized creation tools for producers, such as SDKs and content creation interfaces. Not all platforms require specialized creation tools. Platforms that enable the exchange of virtual goods (content) and remote services typically have the most sophisticated tools of creation.

Tools And Services Of Curation And Customization. This details the features, functionalities, and services that enable curation and customization on the platform. These may constitute in-house or partner-driven services as well as internal or external algorithms and social feedback mechanisms.

Tools and services of consumption.This may involve the set-up of consumption interfaces, newsfeeds, external widgets, and other such consumption tools, that serve value to consumers. It may even involve static interfaces. For example, an answer from Quora published in the Forbes magazine is an additional consumption outlet for value created on the platform.

The last step of building out the platform canvas focuses on value capture by the platform. This involves two factors

Currency. First, in every interaction, the consumer pays the producer using some form of currency. This currency may be money, but it may also be attention, reputation, influence, or some other form of non-monetary currency.

Capture. Finally, the platform must ensure that it captures value in some fashion.When actual money is exchanged through the platform, the platform may capture a cut of the transaction. If not, the following are five other ways in which the platform may capture value:

1.Charging one side to access the other

2.Charging a third party for advertising

3.Charging producers and consumers for premium tools and services

4.Charging consumers for access to high-quality, curated producers

5.Charging producers for an ability to signal high quality

MULTI-SIDED PLATFORMS WITH MULTIPLE INTERACTIONS Some platforms focus almost entirely on enabling one core interaction, but many platforms have more than one interaction. These platforms enable edge interactions around the central core interaction. The architecture of these platforms must evolve one interaction at a time. Starting with the core interaction, the platform canvas may be used to lay out the architecture of the platform. Once the platform is architected to enable the core interaction, the canvas may now be leveraged to lay out an edge interaction. In all likelihood, the edge interaction leverages some part of the core interaction and thus benefits from platform elements that have already been laid out. In addition, the value captured in the core interaction may be leveraged in the edge interaction and vice versa.

LinkedIn’s core interaction involves the connection and interaction of professionals with each other. An edge interaction allows recruiters to target professionals with jobs.

In general, designing the platform around the core interaction fleshes out most elements that the platform business must have. Additional elements may be designed on top of this by visiting each interaction in turn and building out the incremental components required to enable the same.

The business architecture of the platform (see Figure 17a) starts with the following questions:

1.What is the core interaction that the platform enables?

2.What is the unit of value created on the platform such that, without it, the platform has little or no value? What is the supply or inventory created on the platform?

3.Who are the producers of value? What motivates them to produce?

4.Who are the consumers of value? What motivates them to consume?Once the core interaction is laid out in relation to the platform, the plug-and-play nature of the platform needs to be designed (see Figure 17c):

5.What channels are used by producers to create value on the platform?

6.How does the platform manage access control for producers on these channels? What are the rules of access?

7.What channels are used by consumers to consume value from the platform?

8.What filters does the platform need to serve relevant content to consumers and to connect them with relevant producers?The third phase involves the definition of platform tools and services (see Figure 17e):

9.What tools and services should the platform provide to enable the interaction?

What creation tools and services should the platform provide?
What curation and customization tools and services should the platform provide?
What consumption tools and services should the platform provide?
How do these tools and services help the platform to 1) pull, 2) facilitate, and 3) match? The final phase of platform architecture involves value capture (see Figure 17f):
What currency does the consumer provide to the producer in exchange for value?
How does the platform capture some portion of this currency for itself? The canvas should first be laid out for the core interaction and subsequently for all edge interactions. Leveraging the 15 questions above, platform builders can design and architect a platform business centered around an interaction. For a platform with multiple interactions, the same process is repeated for the edge interactions after the core interaction has been designed.

emergence. A small set of micro-level rules gives rise to macro-level movements on emergent systems. Larger outcomes emerge as a consequence of these seemingly insignificant actions.they must allow for emergent behavior, some of which may redefine the architecture and lead the platform in an entirely new direction.

Tools and Rules The tools (and services) that a platform provides involve the infrastructure of the platform. The video uploading and hosting capabilities on YouTube are examples of tools. The rules are baked into the platform and lay out the boundaries of user behavior. The 140-character limit on Twitter is an explicit rule. A more implicit rule is the search algorithm on Airbnb that determines which listings show up on the first results page for a query. These are the boundaries of platform control. A platform may build out the technology (tools) and structure the constraints and algorithms that facilitate behavior (rules), but none of this guarantees success with the platform. Success can be planned for but not guaranteed.

The Interaction Unless users come on board and interact with each other, the platform will remain a ghost town.

The Experience Producers and consumers participate on a platform repeatedly if they get value out of using it.

While the interaction lays out the structure of value creation, there are various reasons that different users may use the same platform. The same interaction structure may yield different experiences. This is usually determined by the nature of the core value unit on the platform. Some users use YouTube for education, while others use it for entertainment. Different use cases may be powered by the same interaction structure

The inside-out perspective must be complemented with the outside-in perspective. The structure of tools and rules should be balanced with an understanding of producer and consumer motivations and the job to be done for both roles.

To understand, identify, and plan for emergence, the platform manager should lay out the job to be done for both the producer and the consumer, and should constantly monitor the platform for new behaviors and use cases emerging on it.

In hindsight, Twitter’s 140-character limit is a brilliant rule, as it enables more people to participate because of the much lower investment required to create content.

You know you have a platform when the users can shape their own experience – not just accept the maker’s ideas” — Jeff Jarvis

Experiences that prove rewarding are repeated more often in the interaction layer.

CASE STUDY: TWITTER

Hashtags are clickable and reorganize the feed.

What you get is determined by who you follow.

The stream is reverse-chronological (though it now allows for threading). 6.Favorites, retweets, and mentions will drive notifications.

The TRIE framework also demonstrates that the problem of feature creep has much larger implications in the case of platforms.

Repeatable and efficient interactions hold the key to platform scale. Repeatability involves ensuring that: 1.All actions in the interaction are executed smoothly. 2.The feedback loop in an interaction is executed so that it kickstarts the next interaction organically.

Six Elements Of Execution : To execute toward platform scale, the following elements must be in place:

1.Choice of the overall interaction space. The organization of producers and consumers around an interaction determines their motivation to participate in these interactions.

2.Production incentives. Producers must be appropriately incentivized to participate repeatedly.

3.Building long-term cumulative value. Platforms must ensure that participants – particularly producers – find long-term value in participation, value that scales as producers participate repeatedly on the platform. A platform that becomes more valuable with usage will attract greater usage.

4.Strong curation mechanisms and trust. All participants must be encouraged to repeatedly participate by ensuring that the platform rewards quality and mitigates risk.

5.Strong filters and relevance. Consumers should be able to find items of relevance with minimal effort and risk.

6.Ownable interactions. The platform should be able to own interactions sustainably and create enough value to prevent off-platform collusion among producers and consumers.

Understanding how users interact in physical space helps in building out the physical space that helps such users interact most efficiently. Platforms must build virtual interaction spaces

The creation of virtual interaction spaces follows the same set of principles that guides the creation of physical interaction spaces.

Six different forms of interaction drivers are commonly observed in physical and virtual interaction spaces: •

Connection. Participants in an interaction must have a pre-existing relationship before they can interact. Families are organized around this principle. Social networks like Facebook and LinkedIn are organized in this manner.

Content. Participants in an interaction interact through the creation and consumption of content, without any prior relationship requirements. Shared interests rather than participant relationships drive interactions. Special-interest clubs and city walking tours work on this principle. Platforms like Medium and YouTube as well as marketplaces like eBay and Etsy are structured around content.

Clout. The interaction space is structured such that certain participants – typically producers – drive interactions across multiple other participants because of their greater influence. Conferences are structured around this organizing principle. Twitter works on a clout-based model, but so do producer-driven marketplaces like Udemy.

Coordination. Interactions arise from a set of instructed actions that coordinate participants toward an outcome rather than deriving from existing relationships, influence, or shared interests. Open workshops, especially those targeted at a mixed audience, work along these lines. Wikipedia, Viki, and Quirky are examples

Competition. Interactions may be dominated by competitive moves among participants. Racing events may seem like an obvious example, but long-term urges to keep up with one’s neighbors are also governed by these principles. 99Designs is a platform that allows designers to bid competitively on design projects. Many crowdfunding platforms are organized under this model.

Culture and code. Certain interaction spaces may be structured entirely around a shared culture and code. The exchange of content, development of influence, coordination of work, and the creation of relationships are all subservient to the shared culture and code. Cults and movements organize themselves along these lines.

CONNECTION

Social networks like Facebook and LinkedIn are organized in this manner.

Unlike eBay or Airbnb, where the listing to be transacted takes precedence, a connection-based marketplace is organized around user relationships.

Users transact with people they already know.

CONTENT

Platforms like Medium and YouTube as well as marketplaces like eBay and Etsy are structured around content

CLOUT

Twitter works on a clout-based model, but so do producer-driven marketplaces like Udemy.

Clout may be explicit, as in the form of a Twitter following or a StackOverflow badge. Clout may also be implicit, where highly reputed users may receive greater exposure on the platform algorithmically.

COORDINATION

Wikipedia, Viki, and Quirky are examples of platforms that are structured around the coordination of different types of producers toward a common goal. B2B supply networks are also structured around coordination mechanisms and will increasingly benefit from platforms with interaction spaces designed around coordination mechanisms.

coordination mechanisms invariably rely on a reputation management system to ensure that users are accorded rights and access on the basis of their reputation, derived from past activity on the platform.

COMPETITION

99Designs is a platform that allows designers to bid competitively on design projects. Many crowdfunding platforms are organized under this model.

competitive mechanisms work best in scenarios where participants can compete with minimal investment to cap the losses incurred by those who do not win. If participation costs are high, participants who lose often may gradually become discouraged from participation, reducing the efficacy of such an interaction space.

CULTURE AND CODE

Very few interaction spaces start centered on culture alone

Reddit and HackerNews are functionally organized around content and clout but are well known for their strong, insular culture.

Less than 1% of users on Twitter have more than 10,000 followers. These interaction spaces scale by bringing high-quality producers on board and constantly nurturing and incentivizing them to increase their participation on the platform.

Quora is another example of a platform based on a combination of interaction drivers. While the core interaction is centered on content (questions and answers), the mechanism of answers being upvoted and gaining greater exposure is based on competition. Its virtual currency (credits), combined with the ability to develop a user following, enables the development of clout on the platform. Users can collaboratively suggest edits to improve answers. Finally, it also allows some level of connection, allowing users to connect directly and exchange messages with each other.

Understanding producer and consumer roles and catering to them individually is important for driving interactions on the platform. To execute toward platform scale, every platform needs to: 1.Understand the motivations of the producers. 2.Create enabling technology that caters to those motivations.

3.Have a clear strategy to maximize the number of producers on the platform and the frequency of their participation

Platforms that provide producers with both tools and access often beat platforms that provide only one of the two.Instagram created a thriving community around such photos, thereby providing tools as well as access. WordPress provides superior tools to producers, but Medium provides tools as well as access

Facebook provided access to an audience while Flickr provided only hosting tools. WordPress provides superior tools to producers, but Medium provides tools as well as access. In a networked age, access constitutes much of the value proposition. Platforms that offer producers only tools may be disrupted by those that provide access as well

Platforms that make creation easy and allow users with lower skills to create high-quality creations may achieve higher traction. The number of people who tweet is much higher than the number of people who blog.

Similarly, Instagram lowers the level of skills required to create beautiful pictures, a factor that led to its widespread adoption.

The platform should have a robust model to separate the bathroom singers from the award winners.

Algorithmic curation. The key ingredient of a scalable model of curation is the algorithmic detection of good versus bad, based on certain rules. While algorithmic curation is highly scalable, it may also lead to false positives and reject good creations, similar to a spam filter erroneously capturing legitimate email and classifying it as spam. Hence, it should be scaled carefully and constantly “teach” and optimize itself with social and editorial inputs.

Social curation. Social curation leverages the networked and distributed nature of platforms. The community of consumers is provided with tools (such as voting, rating, and flagging tools)

Editorial curation helps in understanding patterns that can then be automated and scaled. In some cases, editorial curation can even be used to kick-start the platform when there aren’t enough producers on the platform. Quora, the popular community-driven Q&A platform, has employed editorial resources in both forms. In the early days of the platform, editors would ask and answer questions to generate activity.

If the mechanism of ranking high and gaining visibility is unclear, producers may not be motivated to participate on the platform. Platforms often struggle to ensure democratic exposure for all producers. Those who join early get to the top faster. Early Twitter and Pinterest users succeeded in building massive followings. Producers who come in later have a greater problem being discovered. The platform must ensure that all users, regardless of when they join, find equal opportunity.

While marketplace platforms allow producers to earn money and run businesses, most other platforms do not provide content creators with monetary benefits.

In its initial days, a platform must focus on attracting producers. But once a minimum number of producers are on board, a second cycle must be started: the platform needs to convert consumers into producers.

Producers coming on board attract consumers, and consumers, in turn, are converted to producers. This ensures that the platform constantly scales the number of producers on board.

How Does The Platform Communicate Feedback From Consumers Back To Producers?

Feedback may take various forms. Producers on Twitter get explicit feedback in the form of retweets and favorites. Sellers on marketplaces may receive ratings and reviews that help them stand out for future transactions. Communicating feedback from consumers to producers is the single most important driver of sustainable and repeatable interactions on the platform.

Production interfaces and technologies should be built not with a feature-centric approach but with the intent to lower the barriers to participation in the core interaction. To ensure repeatability of the core interaction, producers should be able to participate in it with minimum effort.

The Skill Barrier

Instagram lowers the skill barrier required to create beautiful photographs that once required Photoshop prowess.

The Time/Effort Barrier

Twitter lowers that barrier and enables publishing with a very low investment of time and effort. Medium helps more serious writers build an audience while simplifying the writing interface and the act of finding an audience.Platforms that abstract all non-core activities for producers and act as true plug-and-play infrastructures succeed in attracting more production activity.

The Investment Barrier

platforms allow producers to obtain market access without commensurate investment.

Dribble, Behance, and other designer-focused platforms gained traction with the democratization of design software and the associated rise in freelancing among designers.

Uber offers benefits and vehicle purchase schemes to drivers who want to buy a new car and start participating on Uber.

The Resource Barrier

It is much easier to start a business in 2015 than it was in 1995. One of the most important reasons is the significant reduction in the amount of resources required to get a business up and running.

Today, the power of the network effect is fading. The network effect isn’t the one-stop solution for repeatable interactions that it once was.

Platforms with network effects often benefit from a winner-takes-all dynamic. The winner usually aggregates all producers and consumers onto one platform because of ever-strengthening network effects.

There is, however, a small caveat: the consideration of multihoming costs

In the world of platforms, this notion is an important one. If producers and/or consumers can co-exist on multiple platforms, the platform faces a constant competitive threat.

Users stick to Facebook or LinkedIn because they’ve invested in creating their personal network of connections.

Two shifts have brought about a rapid decline in multihoming costs. First, the rise of the social graph allows users to port their personal networks between different platforms.

The network effect isn’t quite as effective at retaining producers and consumers as it once was. Today, platforms need additional mechanisms to ensure that their best producers and consumers stick with them and continue to participate.

Platforms achieve this today by creating “cumulative value”: value that scales as the producer/consumer uses the platform more often.

Cumulative value doesn’t merely encourage repeatable interactions; it increases the repeatability of desirable interactions. By design, it scales the participation of the best producers and consumers on the platform.Cumulative value takes four forms.

Reputation

Reputation may take the form of explicit reputation, based on ratings and reviews, or implicit reputation, which does not have an explicit manifestation but is leveraged by a platform’s algorithms to promote or demote a producer based on past actions

Some platforms may even create a reputation based on editorial curation and vetting at the time of sign-up.

Reputation increases multihoming costs because it’s difficult for producers to build reputation on multiple platforms.

First, platforms that utilize a one-sided follow model enable producers to gain influence by building a loyal and engaged following of consumers

Influence may also be created through a second mechanism. Platforms like Wikipedia and StackOverflow give producers access to new rights on the platform as they participate more. The best producers acquire higher creation and moderation rights on these platforms.

Collections A third source of cumulative value comes through allowing producers to create a collection. Photographers and designers use platforms like 500px and Dribbble to showcase their portfolios. Writers may use Medium to showcase theirs someday. A larger collection creates increasingly higher feedback for a producer.

Learning filters

The Facebook newsfeed understands a consumer better over time and becomes more relevant. These feeds are based on learning filters that constantly seek input from the user’s explicit and implicit actions and refine themselves

Friction is often considered undesirable.

friction can also serve as a source of value by discouraging the repeatability of undesirable interactions.

Getting friction right is critical to the success of any plug-and-play architecture.

Friction is a good thing only if it increases the repeatability of desirable interactions and decreases the repeatability of undesirable ones.

A platform may constantly need to juggle the quality of interactions with the number of interactions.

Some platforms may avoid friction entirely. This is especially true for platforms with low interaction risks. For instance, Instagram’s adoption was driven by low friction in usage.

Craigslist enjoys strong network effects because it extends across categories with low as well as high interaction risks. The platform allows anyone to post a listing, without appropriate checks and balances. While the lack of friction may work very well for low-risk categories and encourage interactions there, it may lead to undesirable and dangerous interactions in high-risk categories.

Embracing friction with scale Quora has been increasing participation friction as it scales in a way that encourages quality on the platform. Anyone could ask a question in its early days, but asking a question on the platform now requires the user to pay in Quora credits. Promoting a question or answer on Quora may also be accomplished using Quora credits. As the platform has gained further traction, it has gradually embraced a higher level of friction. Content promotion increasingly requires more credits than it once did.

Friction as a source of superior signaling Friction may also lead to better signaling.

The following is a non-exhaustive list of design questions to consider while introducing friction onto a platform.

Does the friction affect one side or both? Does friction on either side add value to the other side? Does friction on either side deplete value for the other side?
What are the sources of friction? Do they improve quality and help with signaling?
Does friction increase the repeatability of desirable interactions?
Is the interaction high- value or high-risk?

SAMPLING COSTS The Failure Of Social Curation System

YouTube and Quora enable the community to curate content through upvotes/downvotes and the ability to report abuse. Airbnb and Uber leverage social curation to determine the quality of participants on the platform.

For all its benefits, social curation has its limitations. Social curation requires effort on the part of users. Platforms may fail when users either refuse to curate or are unable to judge quality well. Both these scenarios arise as a result of high sampling costs

Unlike retail sampling, social curation goes a step further and aggregates these inputs to create: 1. Social proof for new consumers to base their decisions on : The number of upvotes may help a user decide which answer to read first for a question on Quora. Higher ratings invite more business on TripAdvisor

Quality scores for ranking algorithms :Votes on an article determine where it shows up on the Reddit home page; 3. Feedback loop for the producer :Social curation allows producers to gather feedback. Photographers use 500px and designers use Dribbble to gather peer feedback.

Finding new artists to listen to by sampling a random assortment of artists is time-consuming. Rummaging through YouTube is equally time-consuming.

Instead, choosing whom to follow on Instagram by sampling twenty photos in the feed is much more efficient.

The cost of sampling an online course is much higher than the cost of sampling photos.

As interaction risks increase, editorial control becomes increasingly important. When hosting content and services with high sampling costs, platforms often introduce additional friction to ensure quality through editorial checks

Healthcare and banking/lending have very high sampling costs and rely on editorial control to a greater degree. A default on a loan is much more damaging than an irrelevant search result on a content platform

social curation tends to be more inefficient on platforms with higher sampling costs.

Not all user feedback is useful. A platform may often benefit more from the opinions of a few users than from that of the entire user base. Agoda allows only users who have already booked and stayed at hotels through them to rate those particular hotels. This prevents users from entering false reviews, a problem that is often associated with TripAdvisor. Agoda’s social curation system is designed to manage curation rights.

Kick-Starting Social Curation Systems Social curation doesn’t kick-start on its own

Platforms like Quora and Medium have succeeded in building highly effective social curation systems by starting editorially and building a culture of quality on the platform. The creation of culture is especially important when sampling judgment is subjective. Decisions to downvote answers on Quora can be subjective.

To avoid rampant downvoting or the lack of it when needed, users need to be made aware of the do’s and don’ts of down-voting. They need to be invited into a culture that encourages or discourages certain types of downvoting. In its early days, Quora editors and administrators handled a lot of curation. As the community grew and took over the curation, the editors scaled down. In all such transitions, building reputation systems to differentiate good curators from bad ones helps to scale curation. Wikipedia built out a virtual hierarchy of editors in a similar fashion. Medium started as an editorially managed platform and today has a large distributed editorial workforce built across its user base. These user-editors own and manage collections of articles across the platform and manage the writers’ access to readers.

Trust Drives Interactions

Trust is a critical factor in enabling interactions on platforms.

To understand trust, it is helpful to understand the evolution of trust as a driver of market interactions

The 7c’s of trust – Confirmed Identity, Centralized Moderation, Community Feedback, Codified Behavior, Culture, Completeness, Cover

Confirmed Identity

Lyft riders link their accounts to their Facebook profiles. Tinder and a whole range of other social platforms require users to sign up through Facebook Connect. Airbnb confirms a listing by sending out photographers to a specific apartment.

Centralized moderation is the first line of defense for building trust. In its early days, every platform uses centralized moderation in some form

Moderators also reach out to guests who are flagged as posing the greatest property-damage risk. The platform looks for signals for guests that potentially pose a risk, such as first-time renters booking high-end listings

Instagram, Twitter, and other social content platforms have community managers to help moderate the content. Centralized moderation is the simplest method to implement trust in the early days of the platform, but it is also the least scalable source of trust creation.

Community Feedback Community feedback is by far the most scalable mechanism for creating trust.

On Fiverr, where all prices are standardized to $5, community feedback is the single most important decision making factor for a buyer.

Codified Behavior Codified behavior involves the implementation of implicit rules in the workings of the platform.

These rules may be baked into the platform in the form of algorithms that implement checks and balances on user actions. They may also manifest themselves as small cues on the user interface that encourage a user to take certain kinds of actions.

Centralized Moderation, Instagram, Twitter, and other social content platforms have community managers to help moderate the content. Centralized moderation is the simplest method to implement trust in the early days of the platform, but it is also the least scalable source of trust creation.

Codified Behavior, Airbnb algorithmically blocks messages between hosts and guests that include the words “Western Union.” If a certain host and guest repeatedly book rooms with one another, they may be identified as a scam to build a reputation based on fake reviews.

Culture, often overlooked by developers, can have a significant impact in building trust

Lyft’s motto – “Your friend with a car” – encourages riders to converse with drivers and sit in the front seat as a friend would. Airbnb hosts do not simply provide accommodations; they also create a local experience when hosting the guests in person

Completeness,LinkedIn builds trust by encouraging professionals to complete and frequently update their resumes and the world’s largest professional database.

Airbnb hosts do not simply provide accommodations; they also create a local experience when hosting the guests in person

Cover,or insurance, is the final contributor to trust on the platform.

Cover works similar to a product guarantee: if the interaction does not work as expected, the platform covers the loss. Uber and Airbnb encourage producers to participate by offering them cover against undesirable situations.

Platforms must define interaction failure scenarios and track metrics that help to determine the degree of interaction failure on a platform. Freelancers who don’t get business within X days, requests that don’t get satisfied within Y minutes, and products that aren’t liquidated within a certain period may all be indicative of interaction failure.

When The Ecosystem Avoids The Platform

Most such platforms cannot facilitate a transaction before the buyer and seller meet and discuss the scope and terms of service. However, connecting the buyer and seller often encourages off-platform collusion, in which the buyer and seller take the transaction off-platform to avoid the transaction cut that the platform charges.

Encouraging repeatable interactions isn’t useful unless the platform can own the interaction and prevent off platform collusion.

Platforms that enable the sale of products (such as eBay and Etsy) or standardized services (such as Uber and Airbnb) do not require the buyers and sellers to discuss before transacting. These products and services are highly standardized, and the buyer can make a purchase decision based on the information available in the listing.

When hiring a freelancer on a freelancer platform, the client must define requirements and potentially interview freelancers. Once the end users know each other, they can potentially connect directly on LinkedIn or other networks, thus avoiding the platform cut. Connecting buyers and sellers directly before charging the transaction cut weakens the platform’s ability to capture value. The party that is charged the transaction cut is motivated to abandon the platform and conduct the transaction off-platform

on platforms like TaskRabbit, a client may want to continue using the same plumber for subsequent interactions once he finds a good one. Every time the platform enables a successful interaction, it is reducing its repeatability, as the client and the service provider can connect off-platform for subsequent interactions. This is a challenge that is not necessarily faced by Airbnb or as most travelers are unlikely to travel to the same city every time and will need to discover new accommodations. This is not a problem for a platform like Uber, either, as travelers care more about waiting time than about riding with a specific driver

forms that fail to extract the transaction cut often resort to a lead-generation, paid placement, or subscription based revenue model.

Dating websites and B2B platforms work on a subscription-based model while several financial comparison engines work on a lead-generation model. However,lead-generation models are attractive only at very high levels of activity, and subscription-based revenue models make the chicken-and-egg problem worse than it already is. A monetization model that involves extracting a cut from the buyer–seller transaction requires a mechanism for owning the end-to-end interaction. To own the interaction, platforms must create more value than they capture.

Exchange tracking tools

Clarity connects advice seekers with experts

Clarity provides additional call management and invoicing capabilities that help to capture the transaction on the platform. Since the call management software manages per-minute billing, advice seekers have the option to opt out of a call that isn’t proving useful. For the experts, the integrated payments and invoicing provide additional value.

Perhaps we don’t give them news but snippets of news and articles which allows us more control on what we show

Workflow management tools Upwork allows clients to manage the work being done by freelancers.Since most freelancers charge by the hour, Upwork provides time-tracking software and constantly monitors freelancers’ work by taking regular screenshots of their screen to ensure that they are working as required.

Reputation as a source of value Some platforms may not allow service providers to gather a rating unless the transaction is executed on the platform.

Design Principles

The workflow tools should create additional value for both sides, not just for one. This prevents either side from abandoning the platform for the transaction. 2.The tools should reduce friction in the interaction. 3.The interaction management tools should feed back into some form of on-platform reputation. Reputation is an added source of value that ensures stickiness on the platform. Clarity calls are followed by a request to rate the other side. Over time, the rating increases the discoverability of an expert on the platform

Chicken versus egg

The solution to the chicken and egg problem requires a bait that can break the vicious cycle of no activity.

The first and most important step in the creation of network effects is crafting a sustainable solution to the chicken-and-egg problem.

The problem can be reduced to the following pattern: Problem. How do I get producers and consumers, given that Condition 1. I need producers to get consumers, and Condition 2. I need consumers to get producers? If the two roles are not too distinct (e.g. Skype), the pattern may simply be stated as: Problem: How do I get users, given that: Condition 1: Users will not come unless there is value in the platform, and Condition 2: There is no value in the platform without having users on it?

Positive Feedback. Once a starting point to the loop is created, it is set in motion through a positive feedback loop.

the longer a network takes to reach critical mass, the longer it has to grapple with this problem

Getting The Harder Side In First.

Content platforms find it harder to attract content creators, compared to consumers. Hence, the platform needs to figure out a model that incentivizes the harder side to join in.

On-Boarding Of Two Distinct Markets

Uber : Serving two-sided markets requires reaching minimum traction on both sides. Hence, two-sided markets require building two companies, often with completely different challenges, not just building two forms of behaviors among users.

Five Design Principles For Solving Chicken-And-Egg Problems

Finding A Compelling Bait To Start The Loop.The first step in breaking a vicious cycle is to find an inorganic bait that attracts and hooks one of the two roles without the need for the other role being present.

Ensuring There Is No Friction In The Feedback Loop.

If producers come in first, the platform should make it easier for the consumers to follow suit, and vice versa. This works best when the first role is organically incentivized to bring the second role on board.

As an example, project creators host their projects on Kickstarter and subsequently spread the word about their project among their followers and friends. A virtuous cycle of producers bringing in consumers – some of whom then become producers – is set into motion.

Minimizing The Time It Takes For The Startup To Reach Critical Mass.

Facebook’s launch at Harvard University, and subsequently in similar closed markets, ensured that critical mass was reached a lot faster than the many Myspace copycats that were launching globally around that time.

Incentivizing The Role That Is More Difficult To Attract.Some user types may require more incentive to be pulled in.

Staging The Creation Of Two-Sided Markets.In

OpenTable used this strategy to get restaurants on board by providing restaurant management software (the bait) before any consumers signed up. Conversely, Megaupload seeded content (the bait) on its site to attract consumers on board, and subsequently, converted some consumers to producers of content.

How do I get initial users to start using my platform when there is no activity on it? One of the ways of solving this problem is to ensure that the first launch of the platform has a ‘standalone mode’. Essentially, a user should be able to derive value out of it even when other users are not on it.

OpenTable (and subsequently, other service booking systems) was one of the first platforms to execute this successfully. Entering a highly fragmented market (restaurant), the company distributed booking management systems, which the restaurant could use as standalone software for managing table reservations. This enabled OpenTable to aggregate table inventory, and real-time data on table availability, across restaurants. Once it had enough restaurants on board – and, hence, access to their seating inventory, as well – it opened out the network to allow consumers to start booking tables at participating restaurants.

In OpenTable’s case, the standalone model also provides additional revenue streams for the business, in addition to the lead generation fee that it charges for customer reservations.

RedBus, an Indian bus-booking platform, and one of the biggest success stories from South Asia, used a similar approach to create a comprehensive database of real-time seating inventory across buses. Bus operators would use the standalone reservation management systems to manage their business. With enough operators on board, redBus opened its ticketing solution to consumers and created a thriving platform to aggregate a highly fragmented and inefficient industry.

Delicious Approach To Curation

Tools like ScoopIt and PaperLi allow users to reorganize existing content into new consumption formats, like magazines, newspapers, and boards. The subsequent goal for many such ‘tools’ is to enable a thriving community on top of the content that is created and develop competitive advantage through network effects

Flipboard provided a compelling consumption interface for consuming content on the iPad. It delivered this through a unique magazine format for the tablet interface. Once it gained enough traction, it allowed users to start creating their own ‘magazines’ on Flipboard, simply by flipping’ content from another magazine. Unlike the other curation-as-creation platforms above, Flipboard’s content universe is closed within the Flipboard platform, and users cannot (yet) flip content in from outside Flipboard, but the principle of launching a network on top of a standalone tool remains the same

Mint.com is a platform that enables users to gain insights into their finances, helps them benchmark themselves against peers and connects them with relevant financial products, based on their individual financial profiles.

The platform approach allows Mint to offer its standalone value for free, thereby disrupting earlier competitors that required users to pay for the standalone value of personal finance management.

From Social Graphs To Commercial Graphs – Powered By The Standalone Mode

Software as a service (SAAS) providers like Tradeshift, SPS Commerce, and Procurify are powering the first few instances of the commercial graph today.

1.Provision Of Tools. At the outset, they provide invoicing and procurement software to enable companies to manage their network interactions better. As the companies interact through the software, interaction data is captured. This may include explicit data about interaction between companies, but it is more likely that this will include implicit indicators like the turnaround time on a request.

2.Provision Of The Standalone Mode. Data is aggregated and packaged as analytics for every individual company. Every business can track suppliers that regularly default or buyers who fail to meet contractual requirements

3.Provision Of Implicit Network Benefits. Commercial graphs use interaction data between companies to create a reputation score for every company.

4.Creation Of A Platform With Explicit Network Effects. Finally, the reputation layer provides visibility into the reputation of suppliers and customers outside one’s network. This enables companies to find new partners and suppliers that outperform their existing partners and suppliers on certain parameters

A general rule of thumb while creating a standalone mode is the following: The standalone mode, for producers, should encourage the creation of value units on the platform, which can then be used to pull in the consumption side.

How Paypal And Reddit Faked Their Way To Traction Case Studies In ‘Growth Faking’

Initial adoption was significantly driven by the fact that the platform allowed pirated content to be hosted. If you wanted to watch the latest episode of a sitcom for free, YouTube was your best bet. This strategy worked for a while, but being involved with pirated content was always likely to result in problems. Megaupload went under when it was alleged that the provisioning and hosting of pirated content was a deliberate part of the platform’s strategy. Faking initial supply may often serve as the bait needed to kick-start network effects.

The in-house team acts as a substitute for the producer side of the platform. First-time consumers get the impression that the platform is already in business, and continue participating. Over time, the user base grows, users start contributing themselves, and the platform sustains activity without having to fake it. There are three broad approaches to faking traction:

Seeding And Weeding Dating platforms often simulate initial traction by creating fake profiles and conversations.

Marketplaces may also showcase fake activity, initially, to attract buyers or sellers. Early on, a common tactic is to show top transactions of the day or most recent transactions – to signal high activity – even when very few transactions are taking place on the platform.

Faking usually works only for the first player in a new category. As a late entrant to a category that already boasts players with strong network effects, faking may hurt the platform, instead of helping

Seeding Demand The book, PayPal Wars, talks about how PayPal converted a base of eBay sellers, into PayPal users, by faking buyer-side demand for the service.

The company created a bot that would buy goods on eBay, and insist, as a prospective buyer, on paying for those goods using PayPal. Not only did sellers come to know about the service, they rushed onto it, as multiple bots, masquerading as buyers, insisted on using the same service, thereby creating an illusion of ubiquity. The fact that it reduced friction compared to every other existing payment mechanism

Seeding Supply

Lending marketplaces like Australian startup, Rentoid.com, seeded initial activity when the founder himself bought products as they were requested and lent them out to users. In its early days, oDesk hired a captive group of service providers to guarantee service provision and attract an initial set of clients. It subsequently used that initial traction to attract freelancers and set off the virtuous cycle of increasingly attracting more of both demand and supply

Use User – Facing Tools And Workflows While Faking It Even if an editorial team is employed to fake initial activity, the team should focus on using the same tools that the users would eventually use.

Fake It Well Dating communities do not fake it much anymore, but it was not uncommon to see a whole community of models ‘hanging out’ on dating websites

It is equally important not to indulge in any unethical behavior while faking traction.

Encourage Behavior That Is Desired On The Platform

Reddit cofounder, Steve Huffman, has gone on record stating that the link-sharing platform was initially seeded with fake profiles posting links to simulate activity. The links were posted by fake profiles and the vote counts assigned, to indicate activity, were fake as well. This fake activity was based on one principle: to ensure the seeding of content that the founders wanted the community to eventually discuss.

all attempts at faking supply – or even demand – should be executed carefully. When not done well, fake activity may destroy users’ trust in the platform and wreck it before it even gets started

Every Producer Organizes Their Own Party

Designing your platform so that your producers can bring along consumers helps to solve the chicken-and-egg problem,

This strategy works when the following design considerations are satisfied

The platform offers a compelling organic incentive for producers to bring consumers onto the platform. The ‘off-platform’ influence and following of the average individual producer is significant enough to attract a large number of consumers to the platform. The platform allows producers to interact with their followers (consumers) in a much more efficient way than currently allowed by alternative channels.

Kickstarter allows project creators to raise funding from their connections and followers. Skillshare allows teachers to teach a course to their followers (and subsequently others). These ‘follower harvesting’ use cases offer compelling incentives for producers to bring in their following.

From Loyalty To Markets

Merchants may use loyalty platforms to offer discounts to their existing customer base.

In turn, these customers stay more engaged with the merchant. As a result, merchants see value in promoting the consumer-facing applications among their customer base. As a result, every individual merchant brings their existing customer base onto the loyalty platform

The ‘vote Me Up’ Contest Gone Viral

Early traction on YouTube suggests that the platform conducted contests among its user base, asking creators to create videos. Creators were then encouraged to invite their friends to ‘upvote’ these videos. The videos with the maximum upvotes would win a prize.

Attracting a marquee tenant, by offering prime real estate helps to attract consumers to the mall, subsequently exposing them to smaller merchants as well This strategy works equally well for kicking off network effects on digital platforms.

The Ladies’ Night Strategy

Many dating platforms offer inorganic incentives to women to get them on board

Without appropriate curation, some of the most active members often tend to be the most undesirable ones: stalkers and spammers. CupidCurated tries to solve this by letting ‘real women’ curate the membership and determine the men who are allowed to register on the platform

On Sittercity, parents – consumers on the platform – pay a subscription fee for access to a curated list of babysitters.

Platforms that facilitate high-risk interactions often find it more difficult to attract the side that bears the risk of participating in the interaction. These platforms need to rely on one of two strategies. They can initially incentivize the side that is more difficult to attract, much like the Ladies’ Night strategy used by bars and pubs. However, to sustainably encourage high-risk interactions, these platforms must invest in curation, and must signal high-quality supply to the demand side. Solving the chicken-and-egg problem on such platforms requires solving quality control issues rather than gunning for a critical mass of users.

The Platform Is The Producer

Unlike the ‘fake-it-till-you-make-it’ strategy, the platform owner explicitly declares their role as the producer.

Apple, acting as a producer on its platform, launched the iPhone with a few apps,

platform seeking to match service providers with consumers.

Step 1. Source supply proxies Supply proxies are data points that represent true supply but which are not created by the producer. The platform, hence, does not own the supply side yet. Instead, it intends to have producers come in and claim their supply proxies, eventually creating true supply on the platform.

Step 2. Provide a superior interaction experience. The platform does not simply act as a directory of service providers. It provides a superior producer-consumer interaction – discovery, navigation, personalisation

Step 3. Gather consumer activity

The Challenge Of Horizontal Reputation Systems Craigslist is a horizontal platform, a one stop source for listings across categories. This compounds the problem of setting up a reliable reputation system. Trust and reputation tend to be very contextual. Factors that contribute to reputation in one interaction or use case may be irrelevant in another.

Airbnb famously leveraged Craigslist to solve its chicken-and-egg problem. It allowed hosts to post their listings to Craigslist and directed travelers back, from Craigslist to Airbnb, for the transaction. Additionally, it also lured sellers on Craigslist to list on Airbnb, offering a better transaction experience

Starting With Micro Markets A Leaf From Facebook’s Playbook

An enduring principle for growth on platforms is the following: Start with interactions and scale interactions

As far as network effects are concerned, small user bases with thriving interactions trump large user bases with low activity.

Etsy, a niche marketplace for arts and crafts, figured an elegant solution to this problem. Etsy is a two-sided market of buyers and sellers. The founders of Etsy, who had earlier built thriving forums and communities for arts and crafts creators, discovered that people who make crafts, also like to buy from other craftspeople. This insight helped them precisely target one group and spark transactions within that successfully.

In the specific case of networked platforms, launching at a technology industry event is unlikely to be very helpful.

Twitter needed to build concentration in time, similar to how Facebook built concentration in space by targeting Harvard. It needed a lot of users to come on board at the same time to discuss similar topics.

twitter: the best way to launch a platform business at a conference is to ensure that the core interaction on the platform is organically embedded into the conference experience. Location-based, real-time applications have a unique challenge while getting traction. To enable interactions, a lot of people need to be present at the same place at the same time. Traditional marketing does not help. The best way to develop network effects, in such scenarios, is to launch at an event and ensure the core interaction of the platform fits in with the activity at the event. This is what Tinder did by launching at college parties.

Airbnb gained initial traction by promoting itself around important conferences, in specific cities

Virality is a business design problem, not a marketing or engineering effort. It requires design before optimization.

All these offerings are designed to get greater exposure through usage, and that is a common design pattern that we see repeated across scalable startups. As more users use the offering, it gets exposed to new users, leading to greater.

They leverage users to expose their offering to more users. Many startups erroneously believe that getting users to send out invites equals creation of such a growth engine.

Instead, they rely on users to share elements of the offering – core value units created on top of the platform – with their network. YouTube users share videos, Kickstarter users share projects and Airbnb users share listings.

It needs to design growth that accelerates with usage.

YouTube users share videos, Kickstarter users share projects and Airbnb users share listings.

Instagram did not stop at taking pictures and applying filters onto them; it encouraged the photo creator to share the photo on an external network like Facebook. Converting a single-user activity to a social, multi-user activity was the key reason for Instagram’s growth. Leveraging Facebook, a network where users interact with photos, furthered the cause. Instagram achieved something quite remarkable – it succeeded in converting most of its users into marketers.

Every point of app usage worked as an instance of app marketing. In essence, Instagram achieved something quite remarkable – it succeeded in converting most of its users into marketers.

Misconception #1: Virality And Word Of Mouth Are Two Names For The Same Phenomenon

Organic virality, on the other hand, is a phenomenon where users spread the word about an offering, in the context of using it. Unlike word of mouth, virality is not a consequence of users loving the offering, it is a consequence of users using it.

Misconception #2: Virality And Network Effects Are The Same And Lead To Rapid Growth

there are many businesses that exhibit virality without exhibiting network effects

A sender using Gmail can send an email to a recipient using Hotmail.

closed network like LinkedIn, where users need other users to join the network before they can communicate with them. Both email providers and closed social networks like LinkedIn, benefit from virality, but email providers do not benefit from network effects, whereas closed networks like LinkedIn do.

Sellers may be discouraged from bringing in other sellers, because of competition, and may play no role in inviting buyers either. Likewise, buyers may not invite other buyers into the network without any clear incentive. Craigslist, arguably, has very high network effects but very low virality.

Misconception #3: Virality Is All One Needs For A Growth Strategy

Virality involves users bringing in other users.

Misconception #4: Virality Involves Manipulating Users To Send Out Invites To Other Potential Users Virality is a design challenge.

Startups still implement virality as an invite loop that can be slapped onto any offering. More often than not, this approach spams recipients and gets in the way of good user experience.

revisiting the Instagram example, mentioned earlier in this section, the following four elements are observed: 1.The Sender. A user on the platform sends out a message about the platform. 2.The Core Unit. The message is typically the core value unit that the user creates or consumes on the platform. A user taking a picture on Instagram shares it on Facebook. 3.The External Network. These units spread on an external network, connecting people. For Instagram’s growth, Facebook served as a very effective external network, enabling the spread of pictures (units) created on Instagram. 4.The Recipient. Finally, a recipient on the external network interacts with the unit and is brought back to the original platform. At this point, the user from Facebook gets intrigued by the picture and visits Instagram to potentially create a photo.

Airbnb reverse-engineered an integration with Craigslist that allowed hosts on Airbnb to post their listings (value units created on Airbnb) simultaneously on Craigslist. Travelers on Craigslist (the external network, in this case) would see the listing and join Airbnb to make a booking. How do we do this for our communities ?

Startups – as well as enterprises – building platforms, often make the error of engineering viral growth before designing the right incentives for users to stay on in an engaged fashion.

Sender Incentives. Why will the sender send units out of the platform?

Spreadable Unit. What is the minimum transferable unit on the platform that can move on an external network?

External Network. Where will the unit from the platform meet current non-users?

Recipient Incentives. Why will a non-user on an external network convert to a user on the platform?

Some games may enable users to unlock game levels or weapons if they comply by sending invites.

Senders are appropriately incentivized (usually organically), and the act of sharing these units externally enhances the value derived from the core interaction on the platform.

Producers may be driven to share their creations for the purpose of self-expression and self-promotion. Consumers may be driven to share content they associate with.

The most viral platforms often have two things in common: 1.Low friction in creating core value units: The easier it is to create units, the more often producers produce and share. 2.High percentage of producers: The most viral platforms have a high percentage of their user base creating units.

Producers never spread the word about the platform: they merely spread the word about their creations • Platforms that succeed with viral growth reward users with accelerating social feedback

The second point above is worth noting, as accelerating feedback encourages users to keep repeating their actions. Platforms like YouTube and Quora perform because of social curation. The videos and answers that get higher upvotes get greater exposure on the platform. While on-platform discovery of content leads to higher upvotes, sharing the content on an external network helps to gather a few initial upvotes.

Media companies like Upworthy and Buzzfeed scale solely on the strength of consumer-initiated viral spread. These outlets focus on creating content and headlines that inspire shock and awe among content consumers, encouraging them to spread the word on their respective social networks.

Are units on the platform designed for spread on an external network? The most misunderstood contributor to viral adoption is the core value unit created on the platform.

Word of mouth can work for any offering, irrespective of whether it is physical or digital, but viral adoption only occurs in the case of networked systems, where core value units, created on the system, can be spread on an external network.

When the founders of Hotmail inserted: “P.S. I love you. Get your free email at Hotmail” at the bottom of every email generated on Hotmail, they were adopting a design choice that would be repeated across multiple viral platforms. Every email (unit) created on Hotmail would travel to users of other email providers and act as a demonstration of the free email value proposition that Hotmail championed. YouTube videos embedded in Facebook feeds have accounted for the rapid spread of viral successes like Psy’s Gangnam Style, the many Harlem Shake videos, and the ALS Ice Bucket challenge, to name a few.

A business exchange platform enabling exchange of proprietary documents may not have units that are spreadable. Users are unlikely to be interested in sharing confidential documents the way they would share photos on Instagram.

A spreadable unit has the following characteristics:

1.It triggers an interaction on an external network.

YouTube explicitly created the functionality to embed videos

2.It plays on the producer-as-sender dynamic. Encouraging producers to spread their creation at the point of production drives growth for many content platforms.

The spread of the unit helps to complete an incomplete interaction. An unanswered question on Quora is a spreadable unit demanding social feedback in the form of an answer. A fresh survey on SurveyMonkey needs responses.

While not necessarily a requirement for all spreadable units, the incompleteness of the interaction creates an active call to action for the recipient, prompting them to act. Spreadable units remain the most important, yet least understood, element of designing for viral adoption.

These pictures work well with Pinterest boards and get spread around on Pinterest. The connections and/or interactions you want to enable on your platform may already exist elsewhere. Look for external networks that facilitate similar connections/interactions.

There are four key decisions that determine success of viral growth while leveraging an external network

Choice of network.

One is often tempted to believe that an effective external network for viral growth is likely to be one that publicly offers sharing buttons. Hence, Facebook, Twitter, Google + and their ilk are the first networks that often come to mind. However, any network where users are explicitly or implicitly connected, and which would allow an external party to insert a unit, is a possible choice for an external network. Email and the mobile phone contact list are implicit networks, as is the blogosphere (when imagined as a network connecting blog writers and blog readers, many of whom are writers as well). Viral applications and platforms have long leveraged chain mails, contact list integration, widgets, phone notifications and news feed update

In another example of an intelligent choice of network, LinkedIn chose to integrate with Microsoft Outlook,

Relevant look and feel: Pinterest is one of the largest external sources of traffic to Etsy.

On an Etsy profile page, users are explicitly encouraged to share on Pinterest, over other networks;

2.Add value to users on an external network.

While using an external network, one needs to add value to users on that network to achieve sustainable scale.

Unfair advantage. Companies that are first to leverage a new network often benefit from an unfair advantage.

WhatsApp used the phonebook, Airbnb used Craigslist, and PayPal used eBay.

Ease of integration.

Why will the recipient perform the desired action?

YouTube does not control the kinds of videos users create. It plays its part in ensuring that the best videos get greater exposure, and hence, spread further. However, as a platform, it cannot itself introduce interestingness and relevance into the content of the video in the way a publisher like Buzzfeed or Upworthy

There are two elements that need to be incorporated into a spreadable unit to incite conversions:

1.Pitch. The unit should serve as a compelling pitch for the platform.

2.Call To Action. There should be a targeted and compelling call to action, inciting conversions.

four key optimization priorities, for achieving sustainable viral growth.

Send: Maximize Outflow Of Units From The Platform The platform should constantly – and explicitly – promote the creation as well as the spread of new units. As more producers create and share from the platform, new cycles of viral growth get started. Producers need to be encouraged to create new units more often.
Spread: Ensure that units spread on the external network. The next priority for the platform is to maximize the spread of the unit on the external network. To a large extent, this spread is determined by the design of the external network. Facebook’s Share, Twitter’s Retweet and email’s Forward functions make units easily spreadable within these networks.

Click: Maximize Clicks On External Network.

Convert: Minimize Cycle Time. Virality works as a cycle with a sender sending out units, the receiver clicking, visiting the platform and eventually converting to the original sender, and starting a whole new cycle.

It is important to ensure that the number of steps between first exposure to a unit on an external network, and the start of a new cycle, is minimized. This ensures that users move from being recipients to initiators of a new cycle without much friction.

As quantity increases, platform managers often have to tackle a second issue: the quality of interactions may fall with increasing scale. Quality issues are often glossed over in most discussions of scale.

The core interaction consists of four key actions: Creation, Curation, Customization, and Consumption. Depending on the type of platform and the stage of evolution it is in, scaling interactions may involve scaling one or more of these individual actions.

Scaling Quantity: Creation

the platform needs to focus on fostering an active producer base,

The platform also needs to ensure repeat participation by producers.

Medium, the blogging platform, encourages frequent and repeated contributions from writers by constantly conveying feedback about the performance of their existing articles on the platform. This feedback encourages writers to create more content and to participate more often.

Scaling Quality: Customisation

The platform needs to strengthen its filters. It needs to capture better data about the consumer and use that data to make more relevant recommendations.

To strengthen filters, platforms need to constantly acquire data about users. A scaling strategy for platforms is incomplete without an ongoing data acquisition strategy.

Data acquisition must start right at the point of signing up, and must continue as the platform scales. For example, Pinterest asks users to ‘like’ a few boards and a few topics, as part of its on-boarding flow. This data helps Pinterest build out the initial filter. This filter needs to be strengthened throughout the life cycle of the user, through the explicit and implicit capture of data.

Scaling Quality: Curation

It needs to encourage actions that result in high-quality creations, and discourage actions that result in low- quality contributions. Wikipedia blocks IPs and accounts, which generate a lot of suspicious activity, in its bid to discourage undesirable actions. It also scales an editor’s rights on the platform as they perform desirable actions, to further encourage such actions.

Curation is managed in one of three forms:

1.Editorial: An editor, administration or community manager approves or rejects contributions to the platform.

2.Algorithmic: Algorithms make decisions on what is desirable and what is not, based on certain parameters.

3.Social: The community curates through signals about quality; signals may include rating and voting.

Scaling editorial curation.

On platforms, editorial actions scale well only when they are gradually moved out to the community over time. The editors do not become redundant; they simply take on more abstracted roles. These new roles may involve educating the community on how to curate and ensuring that the tools of curation (e.g. rating, reviewing, and reporting) are being used correctly and often enough.

Scaling algorithmic curation.

algorithmic curation should be implemented with care. A common approach to implementing algorithmic curation is to look for frequently repeated curative actions among editors, and identify repeated actions that can be automated as algorithms. With every iteration, algorithms take on repetitive curative actions and editors elevate themselves to a higher level of abstracted curation.

Scaling social curation.

Social curation mechanisms, especially on platforms needing strict curation, may scale by permeating a reputation model through the community. As a consequence of this reputation model, the opinions of experts are given more weight than that of novices. On platforms with lower curation needs, and those that gain traction faster, social curation may rely merely on the strength of numbers. On such platforms, all opinions have the same value. It is important to note that reputation models may be implicit or explicit, or a combination of the two. Explicit reputation manifests itself as a badge, score, level, rating or some other form externally, while implicit reputation is used solely within the mechanics of the platform to differentiate highly reputed users from others.

Viki is a platform that leverages an engaged community of translators to add subtitles to Asian soaps and movies. In Wikipedia-like fashion, translators add subtitles to videos and highly reputed translators moderate these insertions. Viki has created a virtual hierarchy across its community, to differentiate the actions of highly reputed subtitle creators from those of less reputed ones. Privileges on the platform are gradually phased out, from internal editors to highly reputed user-editors, and so on.

Scaling Quality: Corner Cases

A murderer using a dating site to find their next victim is engaging in an undesirable interaction, as is a contributor defacing the Wikipedia profile of a public figure. These corner cases can often be resolved through a combination of advance screening of producers before they access the platform and by allowing consumers to flag inappropriate actions. These can be implemented in tandem with a reputation model that carefully guards privileges on the platform and rewards users with privileges only when they have exhibited a successful track record on the platform.

Scaling Quality: Mitigating Interaction Risk

Depending on the degree of risk involved, the platform may have to invest heavily in offering centralized guarantees and insurance. Most ‘sharing economy’ platforms, like Airbnb and Uber, invest in creating insurance and trust mechanisms to ensure that users are not discouraged from participating.

a failure in any one of the four actions – Creation, Curation, Customization, and Consumption – may lead to a failure of the core interaction. When one or more of these actions start to fail with increasing scale, we see the onset of reverse network effects.

LinkedIn creates friction by preventing users from communicating with distant connections. It also marks out users whose connection requests have often been denied. This ensures that users do not receive unsolicited messages, and the ones who are sending unsolicited messages are appropriately discouraged from repeating the act.

Curation mechanisms may break down as the volume of content increases. This may happen because of one of the following reasons:

1.Excessive reliance on editorial moderation that fails to scale as the platform scales.

2.Curation algorithms that are too customized to the initial use cases of the platform, and do not scale well, as the platform expands to include more use cases.

3.A failure to spread the culture of curation throughout the user community as the user base scales

As Medium opened access to all writers, it transitioned the editorial function to the community. Writers now had to submit their creations to collections, moderated by user-editors, before the article could be published. In doing so, Medium moved the editorial function from a centralized, non-scalable model to a decentralized, scalable model. The editorial power of every user-editor was determined by their ability to gather a following for their collection.

As Quora expanded beyond the US and gained rapid traction in India, users in the US started experiencing customization failure. As an example, users in India would tag their questions and answers with the ‘Startups’ topic and this content would be delivered to readers in the US. Some questions would be so specific to Indian startups as to be irrelevant for a reader in the US.

The Many Roads to Failing With Scale

Feedback loops serve to power platform scale and lead to rapid traction. Conversely, they also serve to magnify poor design decisions in a manner that can eventually wreck most platforms.

seven specific manifestations of reverse network effects,

#1: Uber-Abandonment

ChatRoulette had absolutely no checks and balances to screen users,

Myspace’s relatively poorer privacy guidelines led to undesirable experiences for many users. The site also allowed users to play around with the HTML and customize their respective pages. By giving users too much power over the platform, the social network ended up compromising the navigation experience.

Platforms are often as valuable as the participants they connect with.

#2: Output Abuse

Wikipedia demonstrates that an online platform is open to abuse.

The presence of incorrect articles demonstrates the vulnerability of a user-powered platform

Over time, Wikipedia has strengthened the governance of its platform to prevent abuse. However, it has ended up creating a virtual, centralized hierarchy,

#3 Echo Chambers

Filters that customize the experience of every consumer on the platform can lead to inadvertent reinforcement of what they already believe in.

YouTube, for example, serves videos based on past views and interests. Facebook’s news feed works on similar parameters and is often criticized for reinforcing an echo chamber.

As a system scales, over-customization may lead to a constant plethora of information that is geared to what its users already believe in, not necessarily what they need. This can prevent those seeking a solution from being served a solution that is radically different (and effective), and may over-serve obvious solutions.

#4: The Hive Mind

If certain forms of behavior are encouraged during the early days and certain others are discouraged, the platform runs the risk of creating a hive mind. With scale, certain behaviors get reinforced and established as desirable behaviors. The governance on Reddit and Hacker News is so stringent that it overtly favors existing users (who have earned their karma) over new ones. These communities are often criticized for developing a hive mind.

#5: Crowd-As-A-Herd

On platforms, reputation and influence are often conferred by the community. The best answer to a question on Quora is decided by the community through upvotes and downvotes.

Curation by the crowd is often shown as being superior to that by experts, but it comes with its unique set of disadvantages. If enough curators accept something as true, it becomes the new truth, even if it is untrue. As a community scales, user-curators tend to help the rich get richer. A restaurant that is already rated well on Yelp may continue to get high ratings even if a patron’s experience may not be quite as good.

#6: The Rich Become Richer

experts are constantly created based on the community’s feedback on their past creations. As such platforms scale, they often find it increasingly difficult to identify new experts. Community sentiment tends to be biased towards early participants.

One-sided following follows a rich-becomes-richer dynamic. Those with higher counts attract even more followers, thereby growing their follower count further. A higher follower count signals legitimacy and credibility on the platform.

2.The platform itself features users with greater social proof and recommends new users to follow them. New users are prone to get deactivated and abandon the platform. To mitigate abandonment by new users, the platform recommends that they then connect with and follow seasoned users with strong social proof. This, in turn, feeds the rich-becomes-richer feedback loop.

Users who join later find it more difficult to develop a following and may stop using the platform. These platforms need a mechanism to ensure new users have equal access and exposure to the community, to develop influence. A portfolio-hosting platform for highly proficient photographers, 500px, differentiates Top creations from Upcoming creations, to expose recent activity (often from undiscovered users) to the community.

The Long Tail Abuse For all its efforts at curation, Wikipedia successfully controls the quality of only the top 20% of articles that account for 80% of the views. As any platform scales, curation methods tend to work very effectively for the ‘Head’ but not for the long tail of user contributions. This runs the risk of long tail abuse.

Platform managers must watch out for early signs of reverse network effects. This may involve reaching out to abandoners, especially those who were highly engaged in the past. It may also include proactive monitoring of users, whose activity falls drastically, and may involve creation of feedback loops to encourage them back to the platform. The

The Unscalable Social Network

Networks and platforms that fail to scale, by design, often exhibit one of the following three patterns:

1.The need to solve the chicken-and-egg problem multiple times, not just once:

In such cases, a typical growth graph looks like a series of steps rather than one that grows non-linearly throughout

2.A cap to organic virality: Existing users cannot bring in more than a certain number of other users.

3.Very low overlap between clusters within which network effects operate: This leads to a low probability of easily expanding from one cluster to the other

Network Clusters

Within a cluster, producers and consumers benefit from each other. Geographical limits create a common form of cluster. More Uber drivers in San Francisco do not lead to more rides in New York City.

LinkedIn also has network clusters, though not geographical. These clusters are industry-specific. However, unlike geographical clusters, industry boundaries are not quite as rigid.

Path: The Anti-Viral Network

Path is a network that mirrors very strong offline family ties.

Facebook benefits from high virality because a user obtains greater value out of the network by getting all their friends on board. In contrast, Path structurally requires users to invite only family members. The use case itself imposes a natural cap on virality.

Nextdoor: Solving Thousands Of Chicken-And-Egg Problems Nextdoor is a social network for the neighborhood and each neighborhood forms a unique network cluster. Since users are unlikely to be part of multiple neighborhoods, these network clusters do not overlap. Every neighborhood is insular.

City Networks: When Spillovers Do Not Happen City-specific networks and marketplaces like Uber, Yelp and OpenTable also have fairly insular network clusters.

Spillover helps networks scale across clusters. However, spillover is discouraged when a platform encourages the creation of insular non-interacting network clusters like families, neighborhoods or cities.

Cross-Cluster Interactions: The platform may create an interaction where a user in network cluster, A, needs to interact with a user in network cluster, B. The more often such interactions occur, the higher is the platform’s ability to scale.

Cross-Cluster Incentive: Groupon is another example of a buyer-seller network, where every city is an isolated network cluster.

Groupon combated this by creating national deals – a multi-cluster incentive –that attracted consumers in cities where Groupon had not yet launched.

By amassing consumers through national deals, Groupon had an initial base of consumers to start with while kick-starting a new city and just needed to get the merchants and deals on board.

A free app is a user benefit in exchange for data.

To be strategic, a free app should be a data acquisition interface that powers a larger business model.

10 Product Validation Experiments

Innovation Adoption Cycle. The cycle was created by Everett M. Rogers,

Your first set of customers are the so-called early adopters (or early evangelists). As they say, they are the ones who would pay for the shittiest version of your product and thank you for

Why are they like this? Well, because the problem you’re trying to solve is very important to them

They WANT to solve that problem and solve it NOW.

A lot of people underestimate the power of “feeling good” when it comes to digital products. They focus on functionality over experience.

What’s the point in implementing advanced features if you lose users because of a poor first-time experience, and they never become returning customers? It’s like building a big house with a beautiful back garden that has a poorly designed entryway

Fake Door testing. The concept is pretty simple: instead of building a product or feature, we build a façade, pretend it works, and measure how many people are getting hooked and buying into our idea

Conducting a Fake Door Experiment is mainly useful if you already have a product, and it works best for testing out new feature ideas.

upsetting users. It’s true; it’s not the best feeling when you realize things aren’t the way you thought they were

A word of advice, always try to deliver value to the users; think about how you would react if you encountered a Fake Door Experiment. Make an effort to have people leave feeling satisfied instead of feeling deceived

Collect email addresses from users. You definitely want to reach out to the people who fell into your trap; you need their email addresses. Reach out, provide content, provide support, build a relationship, and let them know when the feature becomes available.

Find out what would make your users happy after they realize that they have been part of a Fake Door Experiment. What content would be relevant? What support could you give them? What would make them feel good? If you have live chat support, make sure you chat with everyone who sees your experiment. This is a great opportunity to do some lightning user interviews! Ask them what made them click and what they were expecting to see. Chat about your feature idea! This way, you will also eliminate the feeling of deception simply by being human and nurturing the relationship.

The concept of the Wizard of Oz Experiment is to build the product and make it look like it’s working. Then, behind the curtains, you use human power to make the product work.

What you can do to test whether there’s a need for your concept at all is to be the chatbot! Sign up for an account, use a chat interface, and pretend you are the “bot.”

Behind the scenes, the staff of Zappos would go after the selected shoes, buy them in a store, and send them to you.

When should you build a Wizard of Oz Experiment? This experiment works well when the technical entry barrier of the product is high―in other words, when it costs you a lot of time and money to build the first version of the product and go to market.

I prefer to do “real” tests, where people have to pay―not because I’m greedy but because I want to see whether they would actually pay money for my solution or not. After signing up, they have to specify what type of content they want and for which social platforms (Instagram, Facebook, etc.). Then, select what keywords they like to focus on―doing all this using a simple Google Form. After that, my users would press ‘Submit’ and get the content in 12 to 24 hours. It might look a little bit strange, but I don’t think it would turn people away. Maybe I’d come up with something like “Your content is generated analyzing the latest trends and always using the freshest, most up-to-date content. It takes a bit of time, but you’ll see it’s worth your while!” Yep, that was bullshit. So, what’s next? I would sit down and create the content for them myself.

Tips and tricks

Offer Outstanding customer support. The more you do it, the quicker you learn, the more satisfied users you’ll have.

The focus of the Concierge Experiment is more toward learning about the users and finding out how to help them rather than validating a product concept

Food on the Table is a wildly successful business that offers complex meal planning and grocery shopping services.

The CEO of Food on the Table stepped in and visited that first set of customers personally, every week, to learn their likes and needs

After the first customer, it was easier to acquire the next one, and then the next, since they could use the knowledge they gained from these in-person sessions.

They went after similar customers who cooked recipes and bought their groceries in the same stores.

then they started to automate the process―fewer personal meetings, handling payments online, using templates for recipes, then introducing the first website, and drumroll, please, . . . the digital product was born. This story clearly illustrates that a product is not your website, an app, or even a service; it’s the solution you provide to the users.

When should a Concierge Experiment be used? As a rule of thumb, if you don’t know your market well enough, it’s wise to think through whether doing a Concierge Experiment would help you gain more insight. If you see a loophole in the market but are not certain about HOW to solve it, do a Concierge Experiment.

One important note here: though you can gain an immense amount of insight with the Concierge Experiment, it’s not possible to validate a product concept

You’re providing real-life assistance and sorting things out for people. That’s a greater value proposition than any digital product has to offer

if people are not interested in having you sort out a problem for them in person, they won’t use a digital tool to do it

The Concierge Experiment only lets you learn more about the users.

Experiment #4: Product Video

You can still see the original Dropbox video on YouTube

You need to consider whether your animated video would convey your message or turn people off

While an animated video would work well for an online marketing product, it could come across as strange in a medical environment

focus on how the product will make your audience feel.

product showcase video,

to show how a mobile app works. And it’s especially useful if you haven’t yet built the app, but you have some designs already in place

Combine this type of video with a landing page to tell all about your product; what it is, how it works, why it’s good for people. Oh, and put a CTA in there too.

remember the priorities―make sure that visitors understand what you’re talking about, know what to do next (CTA), and want to click on your CTA.

Include CTAs and promote them! If your video is on your landing page, put a CTA button on the site

Explainer videos

Be cautious with them, since they are not good for every product!

In most cases, they’re just painful to watch and look cheap.

Don’t forget to combine videos with other validation experiments (e.g., do a Fake Door Experiment and then use a video to explain how the feature would work)

Experiment #5: Landing Page

It’s not enough to build a landing page; you have to show it to the right people. It’s all about traffic and targeting.

Where are you going to get the traffic from? Let’s review some of your options: Paid ads (Facebook, Google) Social media Blogs, content-related activities Email lists

90% of people who choose this method of validation make one big mistake The number one mistake they make is putting together a landing page, throwing a couple hundred dollars into Facebook ads, then leaving disappointed after seeing no results

Let’s say that getting 100 people signed up to our mailing list and expressing their desire to be notified when the product launches would do it for us.

#1 What percentage of visitors will click on our CTA? A conservative number would be 5 to 10%, an optimistic number would be 10 to 15% or more. Let’s say 5 out of 100 visitors will sign up. That leaves us with a conversion rate of 5%. #2 How many visitors do we need in order to get our desired 100 signups? Basic math: X*0.05=100. X=2,000. Using a 5% conversion rate, we need 2,000 people to look at our site in order to get the 100 signups. #3 What would our click-through rate be? Click-through rate is the number of people clicking on our ad. According to industry averages, it’s going to be between 0.4 and 1%. Let’s stick with a conservative 0.5%. #4 How many people do we need to show our ad to in order to get enough clicks? Use the click-through rate! X*0.005=2000. X=400,000. We need to show our ad to 400,000 people in order to get 2,000 clicks. #5 How much do we need to pay for a click? Ultimately, this is the question. The CTR is more important when it comes to optimizing our ad and getting the most out of the situation. But at the end of the day, we’ll pay whenever somebody clicks on our ad. The number we’re looking for is the Average Cost Per Click (ACPC). Speaking very broadly, it’s awesome to have our ACPC between 1 and 5 dollars, we’re doing pretty good between 5 to 10 dollars, and we’re possibly doing something wrong if we’re spending more than ten bucks on a click. However, keep these as ballpark numbers. There are several factors affecting ad spending, and costs vary by industry. Let’s say we’re doing pretty good and stick with 5 dollars per click: 2,000*5=10,000. We would need to spend 10K to get 2,000 clicks (out of which 100 people will sign up to our mailing list).

the point here is to show you how unrealistic it is to think that running some ads for 400 bucks would do the trick for us

If you do a video, guess what? You need to put it on a website so people can subscribe

If you do a Concierge Experiment, it’s good to redirect people to a website where they can enter an email address to keep in touch with you. Having a website is a must.

I wouldn’t rely solely on landing pages when validating product ideas simply because they don’t give feedback and insight into what users want

Think of landing pages as a must-have complementary tool for validation―at the end of the day, you need to collect email addresses, and you’re going to put your product on a website where people can buy

Buffer is a platform that connects social media accounts and schedules posts all from one place.

would people actually pay money to use it?” Gascoigne updated the landing page with simple pricing included. He measured how many people would click on the paid options. Receiving positive feedback, he went ahead and invested in creating the first MVP for Buffer.

Experiment #6: Crowdfunding

Kickstarter, Indiegogo, and other such platforms are awesome for Product Validation Experiments.

There are products that work well in a crowdfunding campaign. But I haven’t seen a successful service start out using one. Trendy topics like tech gadgets, VR, and AR are well hyped on Kickstarter.

Kickstarter has millions of visitors every day, but the payments do not primarily come from the visitors; they’re mostly from outside people coming to the platform to support a campaign. Kickstarter can bring you exposure. If you build up a good campaign, it will “buy you” exposure (e.g., feature you in the trending campaigns) that will enable you to reach even more people. Also, don’t forget about the innovation adoption cycle! Innovators and early adopters come first. They’re the people who will pay you first so you can get momentum. When you have wild success on Kickstarter, it becomes exponential.

There are products that work well in a crowdfunding campaign. But I haven’t seen a successful service start out using one. Trendy topics like tech gadgets, VR, and AR are well hyped on Kickstarter.

Why is it good to do a Crowdfunding Experiment?

You’ll get good PR. Successful campaigns get a ton of exposure. Blogs and magazines will write about you and your product, and there’s your momentum. It’s especially handy when you NEED PR or PR is part of your marketing strategy

Experiment #7: Pre-Order

The premise is getting a better price in exchange for paying for a product (sometimes months) before it’s released

The biggest difference between pre-order and crowdfunding is commitment.

Experiment #8: Piecemeal Product

The idea behind the Piecemeal Product Experiment is to NOT build what you can REUSE as a starting point.

The most common objection at this point is, “My idea is SIMILAR but not THE SAME, there’s a lot to it that makes it unique.” I get it; that’s why you want to build it. But we’re talking about validation here, not about reselling another company’s software. If you can combine multiple products to validate your product idea before building it, you’re golden.

How can you make a good return on investment without reaching that critical mass of users?

The team behind Groupon put together a simple WordPress blog featuring offers from local restaurants and T-shirt makers. Whenever a user requested a discounted offer, they used FileMaker to create the coupon in PDF, and sent the coupon to the user. So the initial recipe was a WordPress blog + PDF + coupons (created manually).

You can do two things: reuse or repurpose already existing products.

Set up a Slack channel to communicate with my students. This will give me the ability to do one-on-one coaching (I can chat and make video calls through Slack) and provide feedback on the submitted work. I can also create student groups to keep track of their progress and put them into a community where they can support each other.

Use a Slackbot (like Meeting Bot) to schedule one-on-one sessions to minimize time spent on scheduling

To provide feedback on the designs, I’ll use the built-in markup tool of macOS―it works like a charm. To record videos, I’ll use Loom.

Don't Make Me Think, Revisited

“Don’t make me think!”

is my first law of usability

Things that make us think

Typical culprits are cute or clever names, marketing-induced names, company-specific names, and unfamiliar technical names.

Another needless source of question marks over people’s heads is links and buttons that aren’t obviously clickable. As a user, I should never have to devote a millisecond of thought to whether things are clickable—or not

Why are things always in the last place you look for them? Because you stop looking when you find them

FACT OF LIFE #1: We don’t read pages. We scan them.

FACT OF LIFE #2: We don’t make optimal choices. We satisfice,most of the time we don’t choose the best option—we choose the first reasonable option, a strategy known as satisficing.

As soon as we find a link that seems like it might lead to what we’re looking for, there’s a very good chance that we’ll click it.

So why don’t Web users look for the best choice?

(Back is the most-used button in Web browsers.)

Guessing is more fun. It’s less work than weighing options, and if you guess right, it’s faster.

FACT OF LIFE #3: We don’t figure out how things work. We muddle through.

people use things all the time without understanding how they work, or with completely wrong-headed ideas about how they work. Faced with any sort of technology, very few people take the time to read instructions.

If we find something that works, we stick to it. Once we find something that works—no matter how badly—we tend not to look for a better way

Billboard Design 101 DESIGNING FOR SCANNING, NOT READING

Conventions are your friends One of the best ways to make almost anything easier to grasp in a hurry is to follow the existing conventions—the widely used or standardized design patterns

Innovate when you know you have a better idea, but take advantage of conventions when you don’t.

CLARITY TRUMPS CONSISTENCY If you can make something significantly clearer by making it slightly inconsistent, choose in favor of clarity.

The more important something is, the more prominent it is. The most important elements are either larger, bolder, in a distinctive color, set off by more white space, or nearer the top of the page

Things that are related logically are related visually.

good visual hierarchy saves us work by preprocessing the page for us, organizing and prioritizing its contents in a way that we can grasp almost instantly

(Banner blindness—the ability of users to completely ignore areas they think will contain ads

A large part of what people are doing on the Web is looking for the next thing to click, it’s important to make it easy to tell what’s clickable.

People also rely on the fact that the cursor in a Web browser changes from an arrow to a hand when you point it at a link,

it doesn’t work on touch screens because they don’t have a cursor

Just don’t make silly mistakes like using the same color for links and non clickable headings.

The truth is, everything can’t be important. Shouting is usually the result of a failure to make tough decisions about which elements are really the most important and then create a visual hierarchy that guides users to them first.

When you’re editing your Web pages, it’s probably a good idea to start with the assumption that everything is visual noise (the “presumed guilty until proven innocent” approach) and get rid of anything that’s not making a real contribution

In the face of limited time and attention, everything that’s not part of the solution must go.

Format text to support scanning

important things you can do to make your pages scan-friendly:

Use plenty of headings. Well-written, thoughtful headings interspersed in the text act as an informal outline or table of contents for a page. They tell you what each section is about or, if they’re less literal, they intrigue you. Either way they help you decide which parts to read, scan, or skip.

If you’re using more than one level of heading, make sure there’s an obvious, impossible-to-miss visual distinction between them.

Even more important: Don’t let your headings float. Make sure they’re closer to the section they introduce than to the section they follow.

Keep paragraphs short. Long paragraphs confront the reader with what Caroline Jarrett and Ginny Redish call a “wall of words.”

Reading online is different. Even single-sentence paragraphs are fine

Almost anything that can be a bulleted list probably should be.

Highlight key terms. Much page scanning consists of looking for keywords and phrases.

Don’t highlight too many things, though, or the technique will lose its effectiveness.

WHY USERS LIKE MINDLESS CHOICES It doesn’t matter how many times I have to click, as long as each click is a mindless, unambiguous choice.

what really counts is not the number of clicks it takes me to get to what I want (although there are limits), but rather how hard each click is—the amount of thought required and the amount of uncertainty about whether I’m making the right choice.“three mindless, unambiguous clicks equal one click that requires thought.”

“scent of information.”1 Links that clearly and unambiguously identify their target give off a strong scent that assures users that clicking them will bring them nearer to their “prey.”

Ambiguous or poorly worded links do not

When you can’t avoid giving me a difficult choice, you need to go out of your way to give me as much guidance as I need—but no more. This guidance works best when it’s Brief: The smallest amount of information that will help me Timely: Placed so I encounter it exactly when I need it Unavoidable: Formatted in a way that ensures that I’ll notice it

Get rid of half the words on each page, then get rid of half of what’s left. —KRUG’S THIRD LAW OF USABILITY

Happy talk must die

It’s the introductory text that’s supposed to welcome us to the site

It focuses on saying how great we are, as opposed to explaining what makes us great.

Another major source of needless words is instructions. The main thing you need to know about instructions is that no one is going to read them

When instructions are absolutely necessary, cut them back to the bare minimum.

The Web equivalent of asking directions is searching—typing a description of what you’re looking for in a search box and getting back a list of links to places where it might be.

“search-dominant” users) will almost always look for a search box as soon as they enter a site

“link-dominant” users) will almost always browse first,

When we want to return to something on a Web site, instead of relying on a physical sense of where it is we have to remember where it is in the conceptual hierarchy and retrace our steps. This is one reason why bookmarks—stored personal shortcuts—are so important, and why the Back button is the most used button in Web browsers.

Navigation isn’t just a feature of a Web site; it is the Website, in the same way that the building, the shelves, and the cash registers are Sears. Without it, there’s no there there. The moral? Web navigation had better be good.

There is one exception to the “follow me everywhere” rule: forms.On pages where a form needs to be filled in, the persistent navigation can sometimes be an unnecessary distraction. For instance, when I’m paying for my purchases on an e-commerce site, you don’t really want me to do anything but finish filling in the forms. The same is true when I’m registering, subscribing, giving feedback, or checking off personalization preferences.

For these pages, it’s useful to have a minimal version of the persistent navigation with just the Site ID, a link to Home, and any Utilities that might help me fill out the form.

One of the most crucial items in the persistent navigation is a button or link that takes me to the site’s Home page. Having a Home button in sight at all times offers reassurance that no matter how lost I may get, I can always start over,

every page should have either a search box or a link to a search page.

If there is any possibility of confusion about the scope of the search (what’s being searched: the site, part of the site, or the whole Web), by all means spell it out.

But think very carefully before giving me options to limit the scope (to search just the current section of the site, for instance). And also be wary of providing options for how I specify what I’m searching for (search by title or by author, for instance, or search by part number or by product name)

one of the most common problems in Web design (especially in larger sites): failing to give the lower-level navigation the same attention as the top.

In so many sites, as soon as you get past the second level, the navigation breaks down and becomes ad hoc.

there’s a tendency to think that by the time people get that far into the site, they’ll understand how it works.

But the reality is that users usually end up spending as much time on lower-level pages as they do at the top. And unless you’ve worked out top-to-bottom navigation from the beginning, it’s very hard to graft it on later and come up with something consistent.

The moral? It’s vital to have sample pages that show the navigation for all the potential levels of the site before you start arguing about the color scheme.

There are four things you need to know about page names: Every page needs a name. Just as every corner should have a street sign, every page should have a name

The name needs to be in the right place. In the visual hierarchy of the page, the page name should appear to be framing the content that is unique to this page.

The name needs to be prominent.

The name needs to match what I clicked

“You are here” One of the ways navigation can counteract the Web’s inherent “lost in space” feeling is by showing me where I am in the scheme of thing

In this example, the current section (Bedroom) and subsection (Lighting) have both been “marked.”

Too-subtle visual cues are actually a very common problem. Designers love subtle cues, because subtlety is one of the traits of sophisticated design. But Web users are generally in such a hurry that they routinely miss subtle cues

Breadcrumbs Like “You are here” indicators, Breadcrumbs show you where you are

They’re most useful in a large site with a deep hierarchy

Three reasons why I still love tabs

They’re self-evident. I’ve never seen anyone—no matter how “computer illiterate”—look at a tabbed interface and say, “Hmmm. I wonder what those do?”

They’re hard to miss.

They’re slick.

For tabs to work to full effect, the graphics have to create the visual illusion that the active tab is in front of the other tabs. This is the main thing that makes them feel like tabs—even more than the distinctive tab shape.

When you’re designing pages, it’s tempting to think that people will reach them by starting at the Home page and following the nice, neat paths you’ve laid out. But the reality is that we’re often dropped down in the middle of a site with no idea where we are because we’ve followed a link from a search engine, a social networking site, or email from a friend, and we’ve never seen this site’s navigation scheme before.

Here’s how you perform the trunk test: Step 1: Choose a page anywhere in the site at random, and print it. Step 2: Hold it at arm’s length or squint so you can’t really study it closely. Step 3: As quickly as possible, try to find and circle each of these items: Site ID Page name Sections (Primary navigation) Local navigation “You are here” indicator(s) Search Try it on your own site and see how well it works. Then ask some friends to try it, too. You may be surprised by the results.

Compared to the early days of the Web, the Home page has lost its preeminence. Now people are just as likely— or more likely—to enter your site by clicking on a link in an email, a blog, or something from a social network that takes them directly to a page deep in your site.

Because of this, every page of your site should do as much as it can to orient them properly: to give them the right idea about who you are, what you do, and what your site has to offer.

The tagline. One of the most valuable bits of real estate is the space right next to the Site ID. When we see a phrase that’s visually connected to the ID, we know it’s meant to be a tagline,

Good taglines are clear and informative and explain exactly what your site or your organization does.

Good taglines convey differentiation and a clear benefit.

Bad taglines sound generic.

A motto expresses a guiding principle, a goal, or an ideal, but a tagline conveys a value proposition. Mottoes are lofty and reassuring, but if I don’t know what the thing is, a motto isn’t going to tell me.

ALL WEB USERS ARE UNIQUE AND ALL WEB USE IS BASICALLY IDIOSYNCRATIC

The point is, it’s not productive to ask questions like “Do most people like pull-down menus?” The right question to ask is “Does this pull-down, with these items and this wording in this context on this page create a good experience for most people who are likely to use this site?” And there’s really only one way to answer that kind of question: testing.

Repeat after me: Focus groups are not usability tests.

I’ve often had to work very hard to make clients understand that what they need is usability testing, not focus groups—so often that I finally made a short animated video about just how hard it can be (someslightlyirregular.com/2011/08/you-say-potato).

Testing one user early in the project is better than testing 50 near the end.

Be careful that your responsive design solutions aren’t loading up pages with huge amounts of code and images that are larger than necessary for the user’s screen.

Memorability can be a big factor in whether people adopt an app for regular use. Usually when you purchase one, you’ll be willing to spend some time right away figuring out how to use it. But if you have to invest the same effort the next time, it’s unlikely to feel like a satisfying experience.

Watching a test without seeing the participant’s fingers is a little like watching a player piano: It moves very fast and can be hard to follow. Seeing the hand and the screen is much more engaging.

Unless you’re going to make a blanket decision that people with disabilities aren’t part of your audience, you really can’t say your site is usable unless it’s accessible.

Mary Theofanos and Janice (Ginny) Redish

“Guidelines for Accessible and Usable Web Sites: Observing Users Who Work with Screen Readers.”6

Screen-reader users scan with their ears.

Web for Everyone: Designing Accessible User Experiences by Sarah Horton and Whitney Quesenbery.

Platform Revolution: How Networked Markets Are Transforming the Economy

Platforms beat pipelines because platforms scale more efficiently by eliminating gatekeepers.

The sharing economy is built on the idea that many items, such as automobiles, boats, and even lawnmowers, sit idle most of the time.

Platforms beat pipelines by using data-based tools to create community feedback loops

Platforms invert the firm. Because the bulk of a platform’s value is created by its community of users, the platform business must shift its focus from internal activities to external activities. In the process, the firm inverts —it turns inside out, with functions from marketing to information technology to operations to strategy all increasingly centering on people, resources, and functions that exist outside the business, complementing or replacing those that exist inside a traditional business. The

changes reflect the fact that marketing messages once disseminated by company employees and agents now spread via consumers themselves—a reflection of the inverted nature of communication in a world dominated by platforms

when there’s only one telephone in the world, you can’t call anyone. But as more people buy telephones, the value grows. With two telephones, one connection is possible. With four telephones, six. With twelve, sixty-six. And with 100 telephones, there are 4,950 connections. This is known as nonlinear or convex growth,

(Working in reverse, it explains the convex collapse of Blackberry in the 2000s: as users began to flee the Blackberry platform,

On PayPal, sellers attract buyers, and buyers attract sellers. And on Airbnb, hosts attract guests, and guests attract hosts. All of these businesses attract two-sided network effects with positive feedback.

platform businesses will often spend money to attract participants to one side of the market.weekly Ladies’ Night, When the women show up, the men appear

They know that, if they can get one side to join the platform, the other side will follow.

Two-sided network effects with positive feedback explain how Uber can afford to use millions of dollars of money from Bill Gurley and other investors to give away free rides worth $30 each.

familiar (non-tech) example is a local bar that holds a weekly Ladies’ Night, when discounted drinks are offered to female customers. When the women show up, the men appear—and they’re happy to buy their own drinks at full price.

Thus, in a two-sided market, it can sometimes make economic sense to accept financial losses—not just temporarily, but permanently!

in Market A if growing that market enables growth in a related Market B. The only proviso is that the profits to be earned in Market B must outweigh the losses incurred in Market A.

“free” to “premium” to “freemium” (free + premium) pricing of the product or service

Typically, only 1–2 percent of customers convert from free to paying.

Freemium models also create freeloaders than can be hard to monetize (that is, to profit from),

Virality can attract people to a network—for example, when fans of an irresistibly cute, funny, or startling video persuade their friends to visit YouTube. But network effects keep them there. Virality is about attracting people who are off the platform and enticing them to join it, while network effects are about increasing value among people on-platform.

Scaling a network requires that both sides of the market grow proportionally.

If one side becomes disproportionally large, coupons or discounting to attract more participants to the other side becomes good business.

The growth of a platform can be facilitated by an effect we call side switching. This occurs when users of one side of the platform join the opposite side—for example, when those who consume goods or services begin to produce goods and services for others to consume.

OkCupid implemented a curation strategy involving multiple levels of network matching. The first level addresses the obvious issue of matching compatible interests. Do both parties smoke? Do both parties like tattoos and horror movies? Do both parties believe in dinosaurs? This level eliminates many clearly unsuitable matches and reduces the number of participants in the process

“in her league” question. If OkCupid’s algorithm determines, based on reactions by other users, that Joe is significantly less attractive than Mary (for example), then Joe’s routine search for matches will not turn up Mary’s picture. (She might show up in a highly targeted search, but not otherwise.)

A two-sided network (i.e., one with both producers and consumers) has four kinds of network effects.

The first category, positive same-side effects, includes the positive benefits received by users when the number of users of the same kind increases

consumer-to-consumer side can be seen with a gaming platform

Adobe’s all-but-universal image production and sharing platform. The more people who are creating and sharing images using the PDF platform, the greater the benefit you get from using the same platform for your own image production needs

negative same-side effect.

As the number of competing suppliers on the Covisint platform grows, customers are attracted to the platform, which makes the suppliers happy. But when the list of suppliers grows too great, it becomes more difficult for appropriate providers and customers to find one another.

Positive cross-side effects occur when users benefit from an increase in the number of participants on the other side of the market. Think about a payment mechanism like Visa: when more merchants (producers) agree to accept the Visa card, the flexibility and convenience of the shopping experience increases for shoppers (consumers), creating a positive cross-side effect.

cross-side effects are not necessarily symmetrical. On OkCupid, women attract men more than men attract women. On Uber, a single driver is more critical to growth than a single rider. On Android, a single developer’s app attracts users more than a single user attracts developer apps.

negative cross-side effects

when the proliferation of messages from competing merchants on a platform site leads to unpleasant advertising clutter, the positive impact of expanding producer choice may be transformed into a negative cross-side effect

Deloitte published research that sorts companies into four broad categories based on their chief economic activity: asset builders, service providers, technology creators, and network orchestrators

where network effects are present, industries operate by different rules.

The management of human resources shifts from employees to crowds.18 Innovation shifts from in-house R & D to open innovation.19 The primary venue for activities in which value is created for participants shifts from an internal production department to a collection of external producers and consumers—which means that management of externalities becomes a key leadership skill.

So where do we start in designing a new platform? The best way is to focus on the fundamentals. What exactly does a platform do, and how does it work? As we’ve seen, a platform connects producers with consumers and allows them to exchange value.

In every such exchange, the producer and the consumer exchange three things: information, goods or services, and some form of currency.

As a result of the information exchange, the platform participants may decide to exchange valuable goods or services as well

On Facebook, photos, links, and posts with personal or other news are exchanged among users, while on YouTube videos are exchanged. Each item exchanged among platform users can be referred to as a value unit.
consumers “pay” producers in the world of platforms. Video viewers on YouTube or followers on Twitter pay the producer with attention, which adds value to the producer in a variety of ways. (If the producer is a political pundit or business leader, for example, he gains value in the form of growing influence as a thought leader; if she is a singer, actor, or athlete, she gains value in the form of a growing fan base.) Community members on sites like TripAdvisor, Dribbble, and 500px pay by enhancing the reputation of producers

Attention, fame, influence, reputation, and other intangible forms of value can play the role of “currency” on a platform.

the design of every platform should start with the design of the core interaction that it enables between producers and consumers. The core interaction is the single most important form of activity that takes place on a platform— the exchange of value that attracts most users to the platform in the first place. The core interaction involves three key components: the participants, the value unit, and the filter

All three must be clearly identified and carefully designed to make the core interaction as easy, attractive, and valuable to users as possible. The fundamental purpose of the platform is to facilitate that core interaction.

One nuance of platform design is recognizing that the same user may play a different role in differing interactions.

On YouTube, users may upload videos as well as view them. A well-designed platform makes it easy for users to move from role to role.

The value unit. As we’ve noted, every interaction starts with an exchange of information that has value to the participants

Videos on YouTube, tweets on Twitter, profiles of professionals on LinkedIn, and listings of available cars on Uber are all value units.

Participants + Value Unit + Filter → Core Interaction

Google’s search engine acts in a fundamentally similar way. Google’s crawlers search the web, creating web page indices (value units). A consumer types in a query. Google combines the query with other specified inputs, such as social signals—the volume of “likes,” retweets, comments, and other responses received by a particular posting on the Internet. This combination of inputs constitutes the filter, which determines which value units are delivered to the consumer.

When designing a platform, your first and most important job is to decide what your core interaction will be, and then to define the participants, the value units, and the filters to make such core interactions possible.

in cases like LinkedIn and Facebook, platforms often expand over time to embrace many kinds of interactions, each involving different participants, value units, and filters.

But successful platforms begin with a single core interaction that consistently generates high value for users. A

valuable core interaction that is easy, even enjoyable, to engage in attracts participants and makes the emergence of positive network effects possible.

in most cases, platforms don’t create value units; instead, they are created by the producers who participate in the platform. Thus, platforms are “information factories” that have no control over inventory. They create the “factory floor” (that is, they build the platform infrastructure within which value units are produced). They can foster a culture of quality control (by taking steps to encourage producers to create value units that are accurate, useful, relevant, and interesting to consumers). They develop filters that are designed to deliver valuable units while blocking others. But they have no direct control over the production process itself.

PULL, FACILITATE, MATCH: THE HOW OF PLATFORM DESIGN

Facebook, for example, discovered that users found the platform valuable only after they had connected to a minimum number of other users. Until then, they were likely to stop using the network entirely. In response, Facebook shifted its marketing efforts away from recruiting new members to helping them form connections

One kind of feedback loop is the single-user feedback loop. This involves an algorithm built into the platform infrastructure that analyzes user activity, draws conclusions about the user’s interests, preferences, and needs, and recommends new value units and connections that the user is likely to find valuable.

since the more the participant uses the platform, the more the platform “learns” about him and the more accurate its recommendations become.

In a multi-user feedback loop, activity from a producer is delivered to relevant consumers, whose activity in turn is fed back to the producer. When effective, this creates a virtuous cycle, encouraging activity on both sides and ultimately strengthening network effects.

Facebook’s news feed is a classic multiuser feedback loop. Status updates from producers are served to consumers, whose likes and comments serve as feedback to the producers. The constant flow of value units stimulates still more activity,

One aspect of facilitating interactions is making it as easy as possible for producers to create and exchange valuable goods and services via the platform. This may involve providing creative tools for collaboration and sharing, as the Canadian photography platform 500px does with its infrastructure, which allows photographers to host their entire portfolios on the platform

Not long ago, a Facebook user who wanted to share photos with friends had to use a camera, transfer the images to a computer, use Photoshop or another software package to edit them, and finally upload them to Facebook. Instagram enabled users to snap, modify, and share pictures in three clicks on a single device.

As part of the design process, platform companies need to develop an explicit data acquisition strategy. Users vary greatly in their willingness to share data and their readiness to respond to data-driven activity recommendations. Some platforms use incentives to encourage participants to provide data about themselves; others leverage game elements to gather data from users. LinkedIn famously used a progress bar to encourage users to progressively submit more information about themselves, thereby completing their personal data profiles. Data may also be acquired from third-party providers. Some mobile apps, such as the music streaming app Spotify, ask users to sign in using their Facebook identities, which helps the app pull in initial data to use in facilitating accurate matches. However, resistance from some users has led many app makers, including Spotify, to provide alternative ways to sign in that don’t require a Facebook link.

In its search for new drivers, Uber discovered that many of its best prospects were recent immigrants to the U.S. who were eager to supplement their incomes by driving for Uber but who lacked the credit histories and financial qualifications needed to finance car purchases. Andrew Chapin of Uber’s driver operations group came up with the idea of having Uber act as a middleman to guarantee car loans for its drivers, deducting repayments from driver revenue and sending them directly to the lenders. Finance companies like the program because loans backed by Uber’s massive corporate cash flow are almost risk-free,

in the long run, a successful platform must have a more modular approach.

Modularity is a strategy for organizing complex products and processes efficiently. A modular system is composed of units (or modules) that are designed independently but still function as an integrated whole. Designers achieve modularity by partitioning information into visible design rules and hidden design parameters. Modularity is beneficial only if the partition is precise, unambiguous, and complete. The visible design rules (also called visible information) are decisions that affect subsequent design decisions. Ideally, the visible design rules are established early in a design process and communicated broadly to those involved

the system is partitioned into a set of “core” components with low variety and a complementary set of “peripheral” components with high variety.

The implication is that subsystems can be designed independently so long as they adhere to overall design rules and connect to the rest of the system only through standard interfaces

application programming interfaces, or APIs. These are the standard interfaces that systems

use to facilitate access by external entities to core resources.16

When firms are pursuing narrow market windows with limited engineering resources, they can easily be tempted to skip the hard work of decomposing systems into clean modules and instead proceed as quickly as possible to a viable solution. Over time, however, this approach makes it much more difficult to mobilize an external ecosystem of developers who can build on top of the core platform and extend its offerings into new markets.18 Thus, a firm that has an integral architecture will likely have to invest in remaking its core technology.19

Videos on YouTube, tweets on Twitter, profiles of professionals on LinkedIn, and listings of available cars on Uber are all value units.

RE-ARCHITECTING THE PLATFORM

“design structure matrices” that allow a visual examination of the dependencies in complex systems.20

Platform designers should always leave room for serendipitous discoveries, as users often lead the way to where the design should evolve.

Airbnb works to lower the hurdles for its member-hosts by regularly conducting events and programs designed to illustrate and teach its best practices. Uber works to remove economic barriers that might discourage wouldbe drivers by providing financial incentives like sign-up bonuses.

When new platforms such as YouTube, Airbnb, and Wikipedia are launched, they are often widely criticized, even ridiculed. This is because, in their early stages, they fail to offer the quality and reliability provided by their traditional competitors. YouTube’s early content often bordered on pornography; much of it was pirated. Apartments listed on Airbnb would get raided by city inspectors responding to complaints about orgies. Wikipedia biographies declared many a living person deceased.

Once platforms start scaling, they need to ensure that the curation mechanism doesn’t break down. Platforms that successfully scale their curation efforts gather better data on their users and improve their matching algorithms over time.

three forms of platform-driven disruptions as de-linking assets from value, re-intermediation, and market aggregation.

Many corporations own massive fixed assets

de-link ownership of the physical asset from the value it creates. This allows the use of the asset to be independently traded and applied to its best use—that is, the use that creates the greatest economic value—rather than being restricted to uses specific to the owner

De-linking assets from value also allows expensive health care equipment such as MRI machines (each costing $3–5 million) to be used more efficiently. A single hospital may use just 40 to 50 percent of its own MRI capacity. Solution: time-slice the usage, and create a market for slices among other hospitals and small clinics that cannot afford their own machines. Separating the asset from the value it creates can drive the utilization rate to 70 or even 90 percent, producing incremental revenue for the machine’s owner. It’s

Re-intermediation. During the first stage of Internet-driven disruption, many business commentators predicted that the biggest impact of the new information and communication technologies would be widespread disintermediation—the elimination of middlemen, or intermediate layers, from industries, establishing direct connections between producers and consumers. Experts pointed to the decline of traditional businesses like travel agents and insurance brokers, as consumers learned to shop for airline tickets and insurance policies without intermediaries

The reality has proven to be somewhat different Across numerous industries, platforms have repeatedly re- intermediated markets, introducing new kinds of middlemen rather than simply eliminating layers of market participants. Typically re-intermediation involves replacing non-scalable and inefficient agent intermediaries with online, often automated tools and systems that offer valuable new goods and services to participants on both sides of the platform.

Networked platforms serve as more efficient intermediaries owing to their ability to use market-mediating mechanisms that scale. While traditional intermediaries relied on manual efforts, platform intermediaries rely on algorithms and social feedback, both of which scale quickly and efficiently. Moreover, their ability to gather data over time and use it to make the system more intelligent allows platforms to scale their intermediation in the market in a manner that was impossible for traditional middlemen.

Literary agents search for new authors on content platforms such as Quora and Medium. Small businesses run advertising campaigns without using traditional ad agencies or media channels by relying on Google’s AdWords platform. This, in turn, has led to the rise of an entire new range of intermediary agencies in Asia that manage AdWords campaigns for a fraction of the traditional price. Thus, while platforms displace large and inefficient intermediaries, they empower small and nimble service providers who leverage the platform to provide services to end users.

Market aggregation is the process whereby platforms provide centralized markets to serve widely dispersed individuals and organizations.

What can incumbents do to respond?

They’ll need to ask questions such as: • Which processes that we currently manage in-house can be delegated to outside partners, whether suppliers or customers? • How can we empower outside partners to create products and services that will generate new forms of value for our existing customers? • Are there ways we can network with current competitors to produce valuable new services for customers? • How can the value of the goods and services we currently provide be enhanced through new data streams, interpersonal connections, and curation tools?

The ability to sync contents and data over iTunes and iCloud makes the ownership of multiple Apple products particularly valuable,

Data acts as an integration glue to make all these products and services perform in concert.

Can any product or service become the basis of a platform business? Here’s the test: if the firm can use either information or community to add value to what it sells, then there is potential for creating a viable platform.

the chicken-or-egg problem might seem insoluble. PayPal solved the problem through a series of ingenious strategies. To start with, PayPal reduced the friction involved in accepting online payments. All a user needed was an email address and a credit card.

user commitment was more important than user acquisition.

Sellers, in turn, began displaying PayPal logos on their product pages to inform buyers that they were prepared to honor this method of online payment.

PayPal also introduced a referral fee for sellers, incentivizing them to bring in still more sellers and buyers

in the world of platform marketing, pull strategies rather than push strategies are most effective and important.

Traditionally, the marketing function was divorced from the product. In network businesses, marketing needs to be baked into the platform

Rather than pushing PayPal into the consciousness of users through, for example, television commercials, print advertisements, or email blasts, they created incentives that gave the platform itself a pull appeal.

During its initial days, YouTube conducted contests incentivizing content creators to upload videos.

Strengthening its focus on producers, YouTube even elevated top content creators to a partner status that entitled them to a share of ad revenue.

it created a curation dynamic on the platform to identify quality content by letting viewers vote up or down on the videos they watched.

most important, it created a set of content creators who had an investment in the platform, had a user following, and would not be easily incentivized to invest in another one

EIGHT STRATEGIES FOR BEATING THE CHICKEN-OR-EGG DILEMMA

chicken-or-egg problem still looms for virtually all platform founders. How to begin building a user base for a two-sided market when each side of the market depends on the prior existence of the other side?

building a platform business on the foundation of an existing pipeline or product business. This approach is known as: 1. The follow-the-rabbit strategy.

Consider Amazon. It never faced the chicken-or-egg problem because, as a successful online retailer, it operated an effective pipeline business that used online product listings to attract consumers. With a thriving consumer base, Amazon converted itself into a platform business simply by opening its system to external producers. The result is Amazon Marketplace, which enables thousands of merchants to sell their products to millions of consumers—with Amazon enjoying a small slice of revenue from every transaction.

Intel partnered with the Japanese telecom company NTT to demonstrate that a market existed. Once NTT showed that money could be made by catering to this market, dozens of other firms followed suit

these strategies involve three techniques:

Staging value creation.

The Huffington Post followed this strategy by hiring writers to create an initial array of high-quality blog posts for the site, thereby attracting readers. Some of these readers began contributing blog posts of their own, leading to the gradual development of a wider network of content creators and attracting even more readers.

Designing the platform to attract one set of users.

The restaurant reservation platform OpenTable used this strategy by creating useful electronic tools for restaurateurs.

Once a large number of restaurants were on board, consumers began to discover the site and started using it to make their dining plans.

Simultaneous on-boarding. To start, the platform creates conditions such that value units can be created that are relevant to users even when the overall size of the network is small. It then strives to stimulate a burst of activity that will simultaneously attract consumers and producers in sufficient numbers to create larger numbers of value units and value-producing interactions, so that network effects can begin to kick in.

The piggyback strategy. Connect with an existing user base from a different platform and stage the creation of value units in order to recruit those users to participate in your platform.

Another compelling example of the piggyback strategy is the way YouTube rode the Myspace growth wave by offering its powerful video tools to attract indie bands that were members of the social network.

The seeding strategy. Create value units that will be relevant to at least one set of potential users.

The value units may be “borrowed” from another source rather than created by the platform developer from scratch. Adobe launched its now-ubiquitous PDF document-reading tool in part by arranging to make all federal government tax forms available online.

Adobe induced the IRS to cooperate by suggesting that millions of dollars in printing and postage costs could be saved. Taxpayers, in turn, got fast, convenient access to documents that everyone needs, at least once a year. Impressed by the value provided, many adopted Adobe as their document platform of choice.

PayPal employed this strategy when it created bots that made purchases on eBay, thereby attracting sellers to the PayPal platform. This was especially clever, since a bot could then turn around and list for sale the item it had just bought, thereby covering both sides of the two-sided market—and precluding PayPal from ever having to warehouse and ship the item itself.

Dating services often simulate initial traction by creating fake profiles and conversations. Many skew their profiles to showcase attractive women, in a bid to attract men to the platform.

Reddit is a highly popular link-sharing community that circulates vast amounts of Internet content. When it first launched, the site was seeded with fake profiles posting links to the kind of content the founders wanted to see on the site over time.

The marquee strategy. Provide incentives to attract members of a key user set onto your platform.

For a number of years, software producer Bungie specialized in games, like the popular Marathon, for use on Apple computers.

In 2000, with the Xbox nearing launch, Microsoft bought out Bungie and repurposed a game then in development under the title Halo: Combat Evolved as an Xbox exclusive. Halo became the marquee app that sold hundreds of thousands of Xbox devices, as well as a billion-dollar franchise in its own right

The single-side strategy. Create a business around products or services that benefit a single set of users; later, convert the business into a platform business by attracting a second set of users who want to engage in interactions with the first set.

OpenTable solved the problem by first distributing booking management software

The producer evangelism strategy: Design your platform to attract producers, who can induce their customers to become users of the platform

Platforms that provide businesses with tools for customer relationship management (CRM) can often solve the chicken-or-egg problem simply by attracting one set of users—producers—who then take on the task of bringing along the other set—consumers—from their own customer base

sign up influential teachers, allowing them to easily host online courses and prompting them to get their students on board.

Mercateo, a German B2B platform for business and industrial supplies, employs a producer evangelism strategy with a novel twist. It shrewdly offers producers this invitation: “Bring us your customers, and you will have the last word in any bidding competition … but only for the customers you bring.” Thus, suppliers are incentivized to invite their customers to join Mercateo, and to do so promptly, before a competing company can claim them and enjoy the advantage of final-offer bidding.

The big-bang adoption strategy. Use one or more traditional push marketing strategies to attract a high volume of interest and attention to your platform.

Twitter invested $11,000 to install a pair of giant flat-panel screens in the main hallways at SXSW. A user could text “Join sxsw” to Twitter’s SMS shortcode number (40404) and find his or her tweets instantly appearing on the screens.Seeing the feedback on large screens in real time and watching as thousands of new users jumped into the fray created enormous excitement around Twitter and helped make it the hottest networking site in cyberspace.

The micromarket strategy. Start by targeting a tiny market that comprises members who are already engaging in interactions. This enables the platform to provide the effective matchmaking characteristic of a large market even in the earliest stages of growth.

Growth took off when Facebook started allowing cross-campus friend connections. This eliminated the need to solve the chicken-or-egg problem afresh in every new campus. Users coming onto the network at a new campus had an existing list of connections across other campuses to keep them engaged while they waited for others from their own campus to join.

Stack Overflow started out as a question-and-answer community for programming topics (category focus)

Now Stack Overflow has a voting mechanism that allows the community to choose topics they are interested in

four key elements are necessary to begin the process of viral growth for a platform business—the sender, the value unit, the external network, and the recipient.

The sender. A user on Instagram shares a picture that he has just created. This launches the cycle that will eventually bring in a new user. • The value unit. On Instagram, the value unit is the picture that the user shares with friends. • The external network. For Instagram, Facebook serves as a very effective external network, allowing value units (photos) to spread and be exposed to potential users. • The recipient. Finally, a user from Facebook gets intrigued by the picture and visits Instagram. This user may create her own photo and start the cycle all over again. Now the recipient is acting as the sender.

Dropbox,

offers free storage space to the sender as well as the recipient

company partners will not want to spread their confidential information

designing spreadable value units is a crucial step toward virality

leveraging an external network is not as simple as introducing a “Share on Facebook” button

Facebook has enforced limitations on the gaming apps that outside companies offer its users.

LinkedIn chose instead to engineer a more technologically challenging integration with Microsoft Outlook,

sometimes a platform can nudge users in directions that will make seeds more attractive to recipients. For example, Instagram provides photo editing tools to help users enhance the attractiveness of the images they post, and it encourages users to label their photos with hashtags that are specific and relevant—#vwbus for a photo of a Volkswagen van rather than the more generic #van or (worse yet) the self-explanatory #photo.11

founders shouldn’t charge either side to be listed on their platform

rather than charging users to join the platform, the founders should be subsidizing their participation— perhaps by providing tools and services to make it easy, fast, and effective for them to complete their profiles.

“scrapers”—automated software tools for collecting data from the Internet—to produce user profiles.

They can charge users for the value they accrue from the ecosystem, but the charge should be levied on deal completion, not at the time of listing.

They would make it possible for firms to post a deal risk-free by charging a fee only once the firms get what they need. The fee becomes performance-based, and it feels negligible because it simply skims off a small fraction of a transaction that’s occurring anyway

Why not charge ad agencies for a service that helps them do a postmortem to discover why they lost a deal?

Platforms may also offer free or subsidized pricing to one user base while charging full price to an entirely different user base. This makes the design of monetization models more complex, since the platform must ensure that the value it gives away to one side can be used to capture value on the other side

they invite users to join the platform—and then they seek to monetize the platform by charging for the value that the platform technology creates for those users. This value falls into four broad categories:

For consumers: Access to value created on the platform. Video viewers find the videos on YouTube valuable; Android users find value in the various activities made possible by the apps; students on Skillshare

For producers or third-party providers: Access to a community or market. Airbnb is valuable for hosts because it provides access to a global market of travelers. Company recruiters find LinkedIn valuable because it enables them to connect to potential job-seekers

For both consumers and producers: Access to tools and services that facilitate interaction. Platforms create value by reducing the friction and barriers that prevent producers and consumers from interacting

For both consumers and producers: Access to curation mechanisms that enhance the quality of interactions

Network effects as measured by numbers of visitors alone don’t necessarily reflect the monetary value of a platform. The interactions facilitated must generate a significant amount of excess value that can be captured by the platform without producing a negative impact on network effects.

Meetup’s leaders made a risky decision. They decided to start charging meetup organizers, despite the potential for drastically diminishing the scale of the platform and weakening its network effects

They reasoned that charging organizers would help them solve their monetization problem while weeding out organizers who weren’t serious about their goals.

fixed fee per transaction.

is simpler to administer, is particularly appealing when a high frequency of transactions is expected without a significant variation in the transaction size. Charging a transaction fee is a powerful way of monetizing the value created by the platform without hampering the growth of network effects. Because buyers and sellers are charged only when an actual transaction occurs, they are not discouraged from joining the platform and becoming part of the network. Of

As a result of avoiding the transaction fee, the consumer can obtain a discount on the service, while the provider gets to keep more of the total service charge. The only loser is the platform company itself. Platforms like Fiverr, Groupon, and Airbnb solve this problem by temporarily preventing participants from connecting.

Groupon does this by featuring services that are largely standardized, while the less-standardized Airbnb and Fiverr provide rating mechanisms and other social metrics that indicate the reliability of a service provider, making direct contact between the parties less necessary.

platforms that create a market for professional services, which often require discussions, exchanges, and workflow management before and during the provision of services. As a result, it may not be possible for the platform to retain control of all communications between the producer and the consumer, and charging the consumer ahead of the interaction may not be an option. In cases like these, the platform must extend its role as an interaction facilitator to include more value-creating activities. For example, Upwork provides tools for monitoring the service provider remotely. This enables consumers of professional services to monitor projects and make payments based on actual delivery of work.

To benefit producers, Clarity offers integrated payments and invoicing, making it simple for advice givers to generate income through small, one-off engagements. To benefit consumers, the call management software provides per-minute billing, which gives them the option to opt out of a call that isn’t proving useful.

to monetize the site, Dribbble has invited third parties to pay for access to the community. In this case, companies looking for designers are charged to post employment listings on the site’s jobs board.

CHARGING FOR ACCESS

Dribbble’s highly targeted job listings generate value for the community, enhance the core interaction, and strengthen network effects rather than adding noise and depleting value

Tumblr, a micro-blogging platform acquired by Yahoo in 2013, allows users to promote their posts to a larger audience for a fee.

Facebook was widely criticized for making curation changes that limit the reach of brands on the platform— except for those that pay extra for access to a wider audience

Skillshare began to allow students access to multiple courses via a monthly subscription fee. Teachers are paid “royalties” based on the number of subscription-paying students who sign up for their classes.

The growing number of students who choose this model get better value per course consumed, while generating recurring revenues for the platform.

vetting processes such as requiring recommendations from existing members) serve as curating techniques to guarantee member quality.

Carbon NYC, a platform for multimillionaire residents of New York City. However, in many social and business settings, “willingness to pay” and “quality” are far from synonymous, so this pricing system must be used very carefully and selectively.

Charging one side while subsidizing another.

bars and pubs in the offline world have long used this strategy by offering women free or discounted drinks on Ladies’ Nights. Many online dating websites follow a similar strategy, incentivizing memberships for women as a way of attracting male members who will pay full freight.

Charging most users full price while subsidizing stars. Certain platforms choose to subsidize or incentivize stars —super-users whose presence attracts large numbers of other users. In offline business, malls have been known to offer attractive lease terms to popular large retailers like Target, whose presence guarantees the customer traffic that other mall occupants will readily pay a premium

Charging some users full price while subsidizing users who are price-sensitive.

avoid reducing access to value that users have become accustomed to receiving. As we noted, Facebook was offering tremendous value for free and actually needed to cut down on that organic value when it decided to provide premium content promotion to paying producers. This led to complaints from both producers and consumers. Facebook’s enormous network effects enabled it to survive this course correction, but for many lesser platforms it might have been fatal.

If platform managers hope to monetize by charging for access to their user base, the platform should be designed to control the avenues through which content reaches the users as well as the flow of data about users.

Jobs liked to recast the open/closed dilemma as a choice between “fragmented” and “integrated,” terms that subtly skewed the debate in favor of a closed, controlled system. He wasn’t completely wrong: it’s true that, the more open a system becomes, the more fragmented it becomes.

When Facebook launched Facebook Platform to help developers create apps in May 2007, the big shift began. An ecosystem of partners willing to extend the capabilities of Facebook quickly took root.7 By November 2007, there were 7,000 outside applications on the site.

opened itself earlier to contributions from a wider community of outside developers—especially those who had world-class technology for specific functions

such as classified advertising, an effective spam filter, and user-friendly communication tools

There are three kinds of openness decisions that platform designers and managers need to grapple with. These are: • Decisions regarding manager and sponsor participation • Decisions regarding developer participation • Decisions regarding user participation

When the manager and the sponsor are separate, the manager is closest to the customer/producer relationship as well as to outside developers who may contribute to the platform. This gives the manager considerable influence over the daily operations of the platform. But, in general, the sponsor has greater legal and economic control over the platform and therefore a larger measure of power over its long-term strategy.

Google, for example, sponsors the “stock” Android operating system, but it encourages a number of hardware firms to supply devices that connect consumers to the platform.

three kinds of developers as core developers, extension developers, and data aggregators

Core developers create the core platform functions that provide value to platform participants. These developers are generally employed by the platform management company itself.

Extension developers add features and value to the platform and enhance its functionality. They are normally outside parties, not employed by the platform management firm, who find ways to extract a portion of the value they create and thereby profit from the benefits they offer. A familiar group of extension developers is the individuals and companies that produce apps sold via the iTunes store—games, information and productivity tools, activity enhancers, and so

If the platform is too open—if it is too easy for extension developers to appear on the site—then it’s likely that poor-quality service providers will join the platform. Furthermore, excessive openness may lead to too many providers of the same type of service, which will reduce the profit earned by any one provider and reduce the incentive to extension developers to customize services

To work toward the “open out” goal, the Guardian created a set of APIs that made its content easily available to external parties. These interfaces include three different levels of access. The lowest access tier, which the paper calls Keyless, allows anyone to use Guardian headlines, metadata, and information architecture (that is, the software and design elements that structure Guardian data and make it easier to access, analyze, and use) without requesting permission and without any requirement to share revenues that might be generated. The second access tier, Approved, allows registered developers to reprint entire Guardian articles, with certain time and usage restrictions. Advertising revenues are shared between the newspaper and the developers. The third and highest access tier, Bespoke, is a customized support package that provides unlimited use of Guardian content— for a fee.

The third category of developers who add value to the interactions on a platform are data aggregators. Data aggregators enhance the matching function of the platform by adding data from multiple sources. Under license from the platform manager, they “vacuum up” data about platform users and the interactions they engage in, which they generally resell to other companies for purposes such as advertising placement.

The platform that is the source of the data shares a portion of the profits generated.

For example, if a Facebook user has been posting information about plans for a vacation in France, a data aggregator might sell that data to an advertising agency that, in turn, would generate messages about Paris hotels, tour guides, discount airfares, and other topics likely to be of interest.

question: when does the power of an outside developer threaten that of the platform itself? And when this happens, how should the platform manager respond

If you are a platform manager, you don’t want to let an outside firm control a primary source of user value on your platform. When this happens, you need to move to take control of the value-creating app—most often by buying the app or the company that created it. On the other hand, when an extension app adds a modest amount of additional value, then it’s perfectly safe and generally very efficient to allow the outside developer to retain control of it.

platform managers should consider when weighing whether an extension app represents a threat to their economic power. First, if a particular app has the potential to become a powerful platform in its own right, the manager of the platform that hosts the app should seek to own it—or to replace it

if particular functionality is reinvented by a number of extension developers and gains widespread acceptance by platform users, the manager of the platform should acquire the functionality and make it available through an open API. Widely useful functions such as video and audio playback, photo editing, text cutting-and-pasting, and voice commands have often been invented by extension developers. Recognizing their broad applicability, platform managers have moved to standardize these functions and incorporate them into APIs that all developers can use.

many platforms are designed to facilitate side switching, which enables consumers to become producers, and vice versa;

How can Wikipedia establish high standards for the quality of the platform’s content? Guidelines are promulgated through articles like “Wikipedia: five pillars,”

VandalProof, a software program written especially for Wikipedia that highlights articles edited by users with a track record of unreliable work; tagging tools that draw attention to potentially problematic articles so that other editors can review and, if necessary, improve them; and a range of blocking and protection systems that can only be employed by users who have earned special privileges through the general consensus of the Wikipedia community.

Curation usually takes the form of screening and feedback at critical points of access to the platform. Screening decides who to let in, while feedback encourages desirable behavior on the part of those who have been granted entry. A user’s reputation, as shaped by past behavior both on and off the platform, is usually a key factor in curation: users rated positively by the rest of the community are more likely to pass through the screening process and to receive favorable feedback than those with poor reputations.

Facebook relies on users to flag objectionable content such as hate speech, harassment, offensively graphic images, and threats of violence. Service platforms like Uber and Airbnb incorporate user ratings into their software tools so consumers and producers can make informed choices about whom they choose to interact with.

Google closed the Android applications for functions such as search, music, calendar, keyboard, and camera, while also working hard to encourage handset manufacturers to join its so-called open handset alliance, dedicated to developing and maintaining open software and hardware standards for mobile devices

ADP has substantial customer relationships of its own and can serve as the platform host linking customers to a number of data/computing/storage partners. Thus, the partnership creates an opportunity for ADP to displace SAP as the primary manager of the customer relationship.

question of openness needs to be at the top of every platform manager’s agenda

three fundamental rules of good governance: • Always create value for the consumers you serve; • Don’t use your power to change the rules in your favor; and • Don’t take more than a fair share of the wealth

WHY GOVERNANCE MATTERS: PLATFORMS AS STATES

value-creating networks grow faster outside the firm than inside, ruling the ecosystem wisely puts a premium on not ruling it selfishly.

LinkedIn has angered its developers by turning off their access to APIs

In general, there are four main causes of market failures: information asymmetry, externalities, monopoly power, and risk.

Information asymmetry arises whenever one party to an interaction knows facts that other parties don’t and uses that knowledge for personal advantage.

Externalities occur when spillover costs or benefits accrue to anyone not involved in a given interaction. Imagine that one of your friends provides your private contact information to a gaming company in exchange for a few digital points

The concept of a positive externality is a bit more ambiguous. Consider what happens when Netflix analyzes the movie-watching behavior of someone whose tastes match yours and uses this data to give you a more accurate movie recommendation

Monopoly power arises when one supplier in an ecosystem becomes too powerful because of its control of the supply of a widely sought good,

At the height of its popularity (2009–10), game-maker Zynga became excessively powerful on Facebook, leading to conflicts over issues such as the sharing of user information, the split of gaming revenues, and the cost to Zynga of ads on the social network

view of platform governance

systems of control involve four main sets of tools: laws, norms, architecture, and markets.20

Laws.

Case law does not generally hold platforms accountable for misdeeds of platform users, even though the owners of the platform may be reasonably well positioned to regulate and control the behavior of the users

The “laws” of a platform are its explicit rules—for example, the terms of service drafted by lawyers or the rules of stakeholder behavior drafted by the platform’s designers.

Stack Overflow, the most successful online community for answering programming questions, offers an explicit list of rules for earning points as well as the rights and privileges those points confer. One point confers the right to ask and answer questions. Fifteen points confers the right to vote up someone else’s content. At 125 points, you gain the right to vote down content—which also costs one point. And at 200 points, you’ve added so much value that you earn the privilege to see fewer ads. This system of explicit, transparent laws solves a public goods problem by encouraging members to share their best insights with everyone else on the platform.

An exception to the principle of transparency applies to laws that might facilitate bad behavior. Dating sites discovered this the hard way. When the sites applied laws that gave stalkers a quick “hand slap” when they misbehaved, the stalkers soon learned to avoid the specific trigger that flagged them. If, instead, the platform delayed the negative feedback, the stalker had a harder time learning how he’d been caught, which led to a more powerful and lasting disincentive.

Smart platform managers started making nuisance posts invisible to everyone but the troll.

The underlying principle: Give fast, open feedback when applying laws that define good behavior, but give slow, opaque feedback when applying laws that punish bad behavior.

devised a system under which people who uploaded quality content could earn their way to becoming inspectors and community organizers.

Groups emerged to handle specific categories of images—for example, images linked to locations like “New York” or categories like “Food.”

Bruce himself worked relentlessly to praise, give feedback, and build his community. Under the online name Bitter, he regularly posted comments on the platform’s homepage promoting members and their work, such as when he noted “great new stuff from Delirium, also tasty food series from Izusek.”27

These norms included feedback, high-quality content, open engagement, and a natural role progression to greater levels of authority.

Finally, Pinterest asks Barbara, whom they just rewarded, to make a small investment. She may be asked to invite friends, state preferences, build virtual assets, or learn new Pinterest features.29 Any of these actions will set up a new set of triggers for Barbara and others, and the cycle starts over.

Recall the middlemen on eBay who took advantage of seller misspellings. Although one might lament the lost opportunity for the hapless sellers to complete the deal, these middlemen provided market liquidity (“thickness” in Alvin Roth’s formulation) through the process known as arbitrage. If no one bids on misspelled items, the interaction never happens—so arbitrageurs can be viewed as providing a valuable service

eBay now uses automated systems to provide spelling assistance,

Nakamoto’s invention has given birth to a new kind of platform—one with open architecture and a governance model but no central authority. Having no need for gatekeepers, it will put serious pressure on existing platforms that rely on costly gatekeepers. Financial services that claim 2–4 percent of transactions simply for passing them may in the future be hard pressed to justify their rake

Social currency, measured as the economic value of a relationship, includes favorites and shares.39 It also includes the reputation a person builds up for good interactions on eBay, good news posts on Reddit, or good answers on Stack Overflow. It includes the number of followers a user attracts on Twitter and the number of skill endorsements she garners on LinkedIn.

iStockphoto evolved a useful market mechanism based on social currency to manage exchange of photos. Every photo download cost the downloader one credit and earned one credit for the person who’d originally uploaded the photo.40 Credits could also be purchased for 25 cents each, and photographers received cash payment for accumulated credits valued at $100 or more. This system created a fair social exchange that allowed professional photographers and non-photographers to participate in the same market.

The enterprise management platform company SAP uses a social currency like that of iStockphoto or Stack Overflow to motivate developers to answer one another’s questions. Points earned when the employee of a development company answers a question are credited to a company account; when the account reaches a specified level, SAP makes a generous contribution to a charity of the company’s choice

The system has saved SAP $6–8 million in tech support costs, generated numerous new product and service ideas, and reduced average response time to thirty minutes from the one business day that SAP promises.

When SAP introduced a new customer relationship management (CRM) product, it offered double points on any answer, code, or white paper relating to CRM. During the two-month duration of this “monetary expansion” policy, developers found gaps in the software and devised new features at a vastly higher rate.

If a developer working on a platform invents a valuable idea, who should own it, the developer or the platform?

SAP has tackled this problem through two practices. First, it publishes an 18–24-month advance road map indicating what new products and services it intends to build to enhance its offerings to its corporate clients.

Second, SAP has made a policy of partnering with developers financially or buying them out at a fair price. This assures developers that they will be fairly compensated for their work, reduces partner risk, and encourages outside investment in the SAP platform.

Initially, Airbnb refused to indemnify hosts against bad guest behavior, and Uber refused to insure riders against bad driver behavior.46 Eventually, both companies realized that this refusal was hurting the growth of their platforms.

different divisions of Amazon kept having to develop web service operations to store, search, and communicate data.

varied projects should be combined into a single operation with one clear, flexible, and universally comprehensible set of protocols

AWS was born

A big principle of platform self-governance is participation. It’s crucial for platform managers to give external partners and stakeholders a voice in internal decision processes equal to that of internal stakeholders. Otherwise, the decisions made will inevitably tend to favor the platform itself, which will eventually alienate outside partners and cause them to abandon the platform.Do not promise to not change the platform. Do promise early notice. Have skin in the game, so change bites the platform, not just the partner. It’s okay to offer differential benefits to partners with differentiated assets. Just make sure everyone understands how to qualify. Promote the long-term financial health of partners, especially smaller ones

Fairness helps create wealth in two ways.52 First, if you treat people fairly, they are more likely to share their ideas. Having more ideas creates more opportunity to mix, match, and remake them into new innovations.fair governance leads participants in a market to allocate their resources more wisely and productively.

if good governance allows third parties to innovate, then, as they create new sources of value, they will simultaneously create new struggles to control that value.

When such conflicts arise, governance decisions should favor the greatest sources of new value or the direction where the market is headed, not where it used to be.

Governance should not be static. When signs of change appear on the horizon—such as new behaviors by platform users, unanticipated conflicts among them, or encroachments by new competitors—information about the change should spread rapidly through the organization, encouraging creative conversations about how the governance system may need to evolve in response.

What matters is activity—the number of satisfying interactions that platform users experience. If BranchOut had tracked the activity numbers as diligently as it tracked membership, it might have realized that its millions of members weren’t finding much value in the service

when a statistic like inventory turns unexpectedly plummets, it’s generally a sign of overstocking, product obsolescence, or marketing failure, while an excessively high rate of turnover may indicate understocking and consequent loss of sales

platform metrics need to measure the rate of interaction success and the factors that contribute to it. Platforms exist to facilitate positive interactions among users—particularly between producers and consumers of value. The greater the number of positive interactions the platform creates, the more users will be drawn to the platform, and the more eager they will be to engage in activities and interactions of various kinds on the platform. Thus, the most important metrics are those that quantify the success of the platform in fostering sustainable repetition of desirable interactions.

the platform manager is concerned with the creation, sharing, and delivery of value throughout the ecosystem— some occurring on the platform, some elsewhere.

In particular, firms in the startup phase must track the growth of their most important asset: active producers and consumers who are participating in a large volume of successful interactions. These users and the interactions they engage in are the key to generating the positive network effects that will ultimately make the platform successful.

Platform managers will need to devise metrics that focus on some of the key issues related to monetization, for example: Which user groups are enjoying the greatest value from platform activities? Which user groups may need to be subsidized to ensure their continued participation? What fraction of the value creation unleashed by the platform is occurring on the platform rather than outside it? How much additional value can be created through services such as enhanced curation? Which groups outside the platform might find value in access to specific user groups on the platform?

And most important, how can the platform capture and retain a fair share of the value being created on the platform without impeding the continued growth of network effects?

To define success or failure for a platform, and to identify how to improve it, there are three main metrics: liquidity, matching quality, and trust.

Liquidity in a platform marketplace is a state in which there are a minimum number of producers and consumers and the percentage of successful interactions is high. When liquidity is achieved, interaction failure is minimized, and the intent of users to interact is consistently satisfied within a reasonable period of time.

an interaction

on a professional networking platform, it might be the offer of a recommendation, the swapping of contact information, or a posted response to a question on a discussion page.

crucial category of metric for the startup platform is matching quality. This refers to the accuracy of the search algorithm and the intuitiveness of the navigation tools offered to users as they seek other users with whom they can engage in value-creating interactions

One way to measure the efficiency of the platform in successfully matching producers to consumers is by tracking the sales conversion rate, which can be expressed as the percentage of searches that lead to interactions.

majority of users who experience interaction percentage higher than 40 percent during their first week on the platform remain active members for at least three months

Building trust, of course, is central to marketplaces, especially those in which interactions carry some level of risk—and in the world of online platforms, where initial connections among users as well as many interactions are conducted entirely in cyberspace,

You might choose to measure engagement per interaction, time between interactions, and percentage of active users, all of which focus on the degree of user commitment to the ecosystem.

Alternatively, you might choose to measure number of interactions, as, for example, the graphics and design platform Fiverr does. Since Fiverr has a fixed value per interaction—every “gig” traded on the site is priced at five dollars

Platforms that focus on content creation require different metrics. For example, some measure co-creation (the percentage of listings that are consumed by users) or consumer relevance (the percentage of listings that receive some minimum level of positive response from potential consumers). These metrics focus on interaction quality and reflect the skill with which production is being curated.

other platforms focus on market access—the effectiveness with which users have been able to join the platform and find or connect with one another

Some measure producer participation—that is, the rate at which producers join the platform and the growth of this rate over time.

The platform should also monitor interaction failure—the percentage of cases in which interactions, such as sales, are initiated but fall through for some reason.

especially important to monitor instances of producer fraud—for example, the failure of a producer to describe a product offering accurately or to deliver it in a timely fashion.

Producer fraud is, of course, a particularly egregious, painful, and costly form of interaction failure. Examination of the characteristics of users and interactions repeatedly linked to fraud may be used to create predictive models that can help the platform prevent future fraud.

the value of a producer can be calculated using traditional lifetime value (LTV) models used in many kinds of businesses

Airbnb has also discovered that its best source of hosts is people who have been guests. Consequently, it is now working hard to convert consumers on its platform into producers. In this case, the side switching rate—the rate at which people convert from one type of user to another—offers an important metric that the platform can use to track the health of its user base

the size of a company’s advertising budget might be viewed as a reflection of the distance between the company and its customers

technology platforms that have reached the maturity phase should meet three major requirements: they should drive innovation, have a high signal-to-noise ratio, and facilitate resource allocation.14

embed into the platform multiple independent solutions to the same problem. Then this becomes common for everyone else. It’s a question of timing. If you do it right away, your ecosystem is scared that you’ll cannibalize their cash cows. If one provider builds a particular functionality, you don’t want to co-opt it. But if a whole slew of them have [developed the same capability], then competition reduces benefits anyway, and you can fold it in. 16

At one time, oDesk (now known as Upwork) had so many metrics (measuring job postings, registered workers, service variety, and many other factors) that one board member complained, “You’re over-measured and underprioritized.”

As a business leader you need to figure out the metric that matters most for your company and understand that the more you measure, the less prioritized you’ll be

HOW PLATFORMS COMPETE (1): PREVENTING MULTIHOMING BY LIMITING PLATFORM ACCESS

Platforms seek exclusive access to essential assets. They do this, in part, by developing rules, practices, and protocols that discourage multihoming

Multihoming occurs when users engage in similar types of interactions on more than one platform. A freelance professional who presents his credentials on two or more service marketing platforms,

Adobe Flash Player is a browser app that delivers Internet content to users, including audio/video playback and real-time game play. Flash could have been used by app developers on Apple’s iPhone operating system—but Apple prevented this by making its iOS incompatible

Adobe had designed Flash developer tools to allow content and program porting from Apple iOS to Google Android and to web pages more generally. Apps developed in Flash could multihome, reducing the iPhone’s distinctiveness

Early in the evolution of Alibaba,

great explosion” in network effects didn’t occur until it devised a policy requiring every employee to find and list 20,000 items for sale by some person or merchant. The resulting increase in product listings generated twosided demand.

HOW PLATFORMS COMPETE (2): FOSTERING INNOVATION, THEN CAPTURING ITS VALUE

Alibaba (rather than Baidu) owns search on its platform, why Facebook (rather than Google) owns search on its platform, and why Microsoft (rather than some outside software developer) owns Word, PowerPoint, and Excel on its platform

HOW PLATFORMS COMPETE (3): LEVERAGING THE VALUE OF DATA

tactically and strategically

An example of tactical data use is in the performance of A/B testing, to optimize particular tools or features of the platform.

Strategic data analysis is broader in its scope. It seeks to aid ecosystem optimization by tracking who else is creating, controlling, and siphoning value both on and off the platform and studying the nature of their activities.

When a new feature appears on an adjacent platform, it may represent a competitive threat, since there’s a possibility that users of your platform may find the new feature attractive enough to begin multihoming or even to abandon your platform altogether.

the platform manager can choose either to provide a similar feature directly or to offer it indirectly via an ecosystem partner.

the phenomenon we call platform envelopment

The four forces that most often characterize winner-take-all markets are supply economies of scale, strong network effects, high multihoming or switching costs, and lack of niche specialization.

Individually identifiable data about sensitive topics such as sexual orientation, prescription drug use, alcoholism, and personal travel (tracked through cell phone location data) can be purchased through data broker firms such as Acxiom

Blitzscaling

For many BS cos it’s provide only that customer service that does not come in the way to scale and thus many only have email service or no customer service and they rely only on blogs where customers help customers

Distribution is the biggest fire to douse

Referral …address book imports , users used LinkedIn page to prove their professional identity thus users viraled it

Dropbox gave extra space for those who referred it …PayPal paid $ 10 , then $5 for sender and receiver

High gross margin is key

Higher revenue should lead to higher margin which implies low to nil incremental cost when scaling

Potential gross margin is better then realised margin

Free or Freemium ? Free trumps over pricing…1 penny versus 15 cents , customers will go for 15 cents …but free versus 14 cents…customers go for free

Subscription allows scale…Netflix. as monthly cost is low for user and LTV high for brand

Digital goods like stickers….video game purchases …they have nearly 100% gross margins

Linkedin network effects….they became standard professional identity…corporates wanted employees and employees wanted corporations…..what would entrepreneurs want and pay for ?….

If linkedin would send weekly emails to its users to update profile it would have a backlash in user experience

Linkedin did Swiss knife approach by giving different value to different users ..they were criticised for having mish mash of revenue streams….they don’t have a single enough revenue stream ….a 5% gain of a billion dollar opportunity is better than 10 million dollar opportunity

Pull linkedin profile to thinc profile? Easier for LinkedIn users to copy paste

The Science of Managing Our Digital Stuff

define a three-stage model for curation—keeping, management, and exploitation

search everything, tag everything, and group organization.

PIM systems should exploit subjective (user-dependent) attributes in their design

What unifies this disparate data into a personal collection is that we judge that it may be valuable to us in the future

Curation involves three distinct processes: how we make decisions about what personal information to keep, how we organize that kept data, and the strategies by which we access it later.

Dewey decimal system

More importantly, theorizing within information and computer science has been concerned with the organization and retrieval of public data

Innovations in computer science include techniques to automatically index large online public collections, allowing user access via keyword search. PIM is different. Rather than developing theory and methods about how people access public collections, PIM curation focuses on how individual users select, organize, and access their personal collections.

Not Consumers, but Curators

We are sure that you personally have endured each of the following disturbing experiences with your own information:

Lost personal data:

Large, disorganized personal collections of unclear value:

Failing to deal with time-sensitive information that requires action:

Another common, depressing experience concerns time-sensitive personal information that requires you to act in some way. This is particularly pernicious in email, in which we often overlook time-sensitive requests for information or deadlines for action. Again, an infuriating aspect of this experience is that we have often taken great care to create reminders or to organize information so as to guarantee that these deadlines are registered and met.

Curation therefore can be seen as a special kind of communication: a solipsistic interaction between a person and him- or herself at two different times: the time of storage and the time of retrieval.

it is obvious that consumption is important for some types of rapidly changing transient public information (e.g., news, entertainment),

New technologies—such as ubiquitous sensors, medical or fitness trackers, digital video, and wearable cameras like Google Glass—make it increasingly easy to capture new types of personal data.

Between 58 percent and 81 percent of all user accesses are of pages that the user has accessed previously

Personal collections can also contain data that were originally accessed from public archives, such as maps, or links to useful online resources. This public data might be bookmarked or saved to a local disk to increase its availability.

What unifies all these disparate data types into a personal collection is their projected future value for a user. Users seek to preserve and organize personal data themselves because they want to ensure access to that data at some future time

we discuss important distinctions between different types of personal information that have direct implications for curation, such as whether information is unique and whether it requires action.

Keeping is a complex decision process influenced by many factors, including the type of information being evaluated, when we expect we will need it, and the context in which we imagine that it will be needed

Transient information encountered on a public web page will be judged differently than a personal document crafted over several days or an email sent by an important colleague.

curation is like a communication that we have with our future selves, in which the goal is to organize information to improve the likelihood that we will find it again.

To create effective organizations, users have to anticipate the context in which they will be accessing information.

Technologies such as Google Drive, Dropbox, and Microsoft OneDrive allow multiple users to co-organize shared repositories. This field is known as group information management or GIM

Exploitation is at the heart of curation practices. If we cannot successfully exploit the personal information we preserve, then keeping decisions and management activity will have been futile.

If retrieval is to be successful we have to understand what our past selves were trying to tell us.

Emerging technologies such as desktop search

or GIM

There is also a third approach, which analyses prior user actions. It capitalizes on the fact that many information items are repeatedly accessed in PIM and gives the user a direct way to retrieve recently accessed items. For files, lists of recent documents are available, either at the OS level or within an application.

If certain information is difficult to re-access, people may conclude that there is little point in keeping it in future.

People have to implement strategies to remind themselves about their commitments with respect to the undischarged action item. These reminding strategies might involve creating to-do email folders or leaving active documents on the desktop.

Aren’t social media, smartphones, and wearable devices creating vast new archives of personal data of radically different kinds that will require new theories and methods for PIM?

We know from various interview and survey studies that people find it difficult to decide what information they want to keep

Why are keeping decisions so difficult? One reason is that they require us to predict the future. To decide what to keep, we have to determine the probable future value of an information item

prediction requires people to reason about hypothetical situations, a task at which people are notoriously poor. People’s predictions are also subject to various types of bias. For example, they expect the future to be very much like the present, and their predictions are unduly influenced by recent or easily recalled events

People are also loss averse, so thinking about information in a context in which it might be deleted leads them to overvalue it

As the psychology literature on loss aversion

would suggest, there was a bias toward retention.

Second, they engage in deferred evaluation of what to keep—causing them to acquire large amounts of data that later turn out to be extraneous.

Nonurgent data are set aside, often in optimistically named “to read” piles, and accumulate indefinitely;

Three types of unique data accounted for 49 percent of people’s archives: working notes, archives of completed projects, and legal documents, such as contracts or tax documents.

To our surprise, only 49 percent of people’s original archive was unique—with 36 percent consisting of copies of publicly available documents.

Our paper study suggested four main reasons: availability, reminding, lack of trust in external stores, and sentiment.

Having a personal copy of a public document increases the likelihood that people will encounter that document, especially if the document is deliberately stored in a visible place.

Another potential reason for keeping personal copies of publicly available documents is that they contain personal annotations.

there may be less value to keeping annotated materials than people believe.

portion of the information we receive in email is actionable: We have to respond to it or process it, often within a specific time frame.

In our inboxes, we may see many different types of messages, including tasks or to-do items, documents or attachments, FYIs, appointments, social messages, and jokes.

Inbox by Gmail encourage users to make the keeping decision by “swiping” unimportant or discharged emails from view, allowing users to focus on more critical items.

One factor contributing to whether an informative message is read is its length:

Actionable messages demand that we do something specific.

Many important email tasks are too complex or lengthy to be executed immediately

Unless actions are discharged, messages are usually kept as reminders that they are still incomplete.

Our study mainly focused on contacts acquired through email, although we also looked at people’s address books, rolodexes, calendars, and contact management programs

Contact management requires decisions both about the people for whom you will keep detailed information and about the types of information that you will keep about those people.

It is difficult to distinguish important future contacts among the many people that you are exposed to on a daily basis.

Our investigation identified specific factors that were critical in determining important contacts.

People also noted how difficult it was to make decisions about a contact’s future value based on short-term interactions and scanty evidence

important contacts are those with whom we have repeated interactions over extended periods.

In spite of having huge archives of contacts (858 on average), participants rated only 14 percent (118) as important and worth keeping.

Participants chose contacts with whom they interacted frequently and recently, and for a long time, and those who were likely to respond to their email messages.

People are exposed to many more contacts than they can record systematic information about, so they reserve judgment and overkeep data about contacts they may not need.

people expend energy creating bookmarks that they never subsequently use. Tauscher and Greenberg (1997) showed that 58 percent of bookmarks are never used, suggesting poor decision making.

people create a new file folder every three days and make a new email folder every five days.

people are constantly reflecting on how their information is currently organized and finding it to be inadequate

people seldom engage in major reorganizations or extensive deletion. Instead, they tend to modify existing structures incrementally.

Email filing accounts for 10 percent of total time in email

yet information is usually accessed by browsing the inbox or searching, rather than via folder access

two fundamentally different types of organization that people apply to their personal files. The first type is semantic: information items are structured according to conceptual similarity. The second is temporal: it concerns reminding for actionable items, and the goal is to organize these items according to when they have to be processed

people prefer to organize and retrieve their documents spatially rather than by using keyword search

Semantic labels are stronger retrieval cues than spatial organization alone, although combinations of semantic and spatial organization can enhance performance

In addition, semantic and spatial cues are enhanced when they are self-selected, rather than being chosen by an external party

Organizing things within a consistent conceptual structure means that, at recall, remembering one item from that structure may trigger memory of a related one; therefore, applying semantic organization is highly effective in promoting recall

Scanning the contents of a folder can also remind people of where related information is stored, and related information can itself serve to remind people of where a target file is located

Human memory is highly context dependent, with successful long-term retrieval being reliant on reconstructing the specific context in which information was first remembered

Note also that folders usually contain a strong spatial component, with subfolders sitting inside folders; this too can help cue retrieval

Reminding is a critical PIM problem—especially in the case of email, in which actionable items are prevalent.

People can successfully retrieve documents by associating them with personal or public events (“landmarks”) that occurred close to when the documents were encountered or created

people often acquire information that turns out to be of little utility that must be discarded later. If filers are more likely to incorporate documents of uncertain quality into their filing systems, we might expect them to throw away more reference materials than pilers while preparing for the move. This was not true for all documents, but was true for reference documents.

Given their more systematically organized systems, we expected filers to have an easier time finding data and that they would access their data more often. Contrary to our expectations, pilers accessed a greater percentage of documents than filers over the previous year

both strategies had strengths and weaknesses. With a piling strategy, information is more accessible: It can be located in a relatively small number of piles through which people frequently sift.

The result is that valuable, frequently accessed information moves to the top of the piles, and less relevant material is located lower down. This pattern of repeated access allows people to identify important information, discarding unused or irrelevant information. A different reason that filers may access proportionally less of their data is simply that they have more stuff. There are finite constraints on how much data one can access. Filers have more data, and as a consequence they are able to access less of it.

even though filing is more systematic, it does not always guarantee easy access to information. With complex data, filing systems can become so arcane that people forget the categories they have previously created, leading to duplicate categories. Accessing only one of these duplicates leads to incomplete retrieval because some part of the original information has been overlooked.

filers discarded more reference information, they generally found it difficult to discard filed documents, partly because of the investment they had already made in managing that information. That is, filers seemed less disposed to discard information they had invested effort in organizing. In contrast, unfiled information seemed easier to discard.

People also used workarounds to make various types of information more salient—for example, labeling folders “aacurrent” instead of “current” to ensure that important information was more obvious, rising to the top when browsing an alphabetically ordered folder list.

tagging, which allows users to apply multiple labels to a given information item, rather than storing it in a single folder location.

Tagging has several intuitive advantages. It potentially provides richer external retrieval cues (because multiple labels are available as retrieval terms), and it allows users to filter sets of retrieved items in terms of their tagged properties (e.g., entering “pictures + personal” returns files with those tags). Tagging also does not require users to place items in a single unique storage location that may be hard to remember.

To be effective, people need to organize actionable information in such a way that they are reminded of what they need to do and when.

One important insight is that the email inbox is often treated like a pile in which actionable messages are not actively organized but are kept highly available for reminding. In contrast, email folders are generally used for informative messages that users have actively classified into files.

25 percent of users filed actionable items in a to-do folder. Whittaker and Sidner dubbed these people frequent filers.

However, in 95 percent of cases, the to-do folder was abandoned because it did not provide opportunistic reminders.

Gmail and Outlook, allow users to flag messages using “stars” to make certain messages more visible.

However, as we discuss in part III, such flagging is still dependent on having relatively few marked messages in order to allow flags to be visible.

Our own data (Whittaker and Sidner 1996) show that email filing often fails. Research combining multiple studies shows that people have an average of around thirty-nine email folders (Whittaker, Bellotti, and Gwizdka 2007). Whittaker and Sidner (1996) found that on average, 35 percent of email folders contain only one or two items. These tiny folders may be too small to be useful.

Folders can be too large, too small, or too numerous for people to remember individual folder definitions.

Most of the study’s informants reported major problems in organizing and managing their bookmark collections.

users who invested organizational effort, bookmarks seemed to be an indispensable tool.

Web 2.0 social tagging systems—such as Delicious, Dogear, Onomi, and Citeulike

These social tagging systems allow users to create multiple labels for the same data, providing potentially richer retrieval cues

More importantly, they allow tags to be shared among users, reducing the cost of tag creation for each user

Photos are very different

and are usually neither informative nor actionable

participants are able to exploit their familiarity with recently taken pictures to scan, sort, and organize them for sharing with others

Possibly because of these successful experiences with recent pictures, people may expect themselves to be very familiar with their entire picture collection, regardless of its age. As a result, they may not see the need to organize their collections carefully.

Participants universally preferred to view pictures in the thumbnail view

If participants had previously opened these folders, we would have expected to see thumbnails. Yet during retrieval, when participants first opened folders, photos almost always appeared in the “list” view (generally the default on most systems), suggesting folders had rarely been accessed.

attitude to photos was “collect now, organize later, view in the future.”

Actionable items often require deferral, so people need to be reminded about them. Various tracking strategies facilitate reminding, including leaving actionable information in one’s workspace as well as using dedicated task folders. There are trade-offs between these strategies: Keeping information in a workspace affords constant reminding, but it reduces efficiency, because that workspace can become cluttered with many unrelated actionable items. The disadvantage of dedicated to-do folders is that they need to be accessed and monitored deliberately.

To create effective retrieval cues, users need to anticipate successfully when and how they will reaccess information. Exploitation success depends whether the cues/structures that users have generated to anticipate future retrieval match the actual context at the time of retrieval.

researchers can measure structure at a certain point in time using dedicated software

users’ decisions to exploit both shallow structure and relatively small folders are adaptive

we can recommend that users avoid storing more than twenty-one information items per folder; they should create an additional level of subfolders instead.

Mac users are more likely to create shallower folder hierarchies than PC users. We also found that the default Windows presentation is suboptimal: Users are quickest to retrieve information when their default explorer view shows icons. This is important because if this default were changed, retrieval time would be reduced substantially.

modern email clients now allow users to configure their inbox to “snooze” actionable emails, making actionable items disappear from the inbox until their deadline arrives, when they reappear as inbox items

www.boomeranggmail.com/ or Inbox by Gmail).

People remembered content, purpose, or task-related information best, correctly recalling over 80 percent of this type of information—even when messages were months old. People were less good at remembering sender information;

Stuff I’ve Seen (SIS). SIS is a cross-format search engine allowing users to access files, email messages, and web pages by issuing a query in a single, unified interface.

SIS also supports sorting of results via attributes such as date or author.

In a large-scale deployment of SIS, Dumais et al. found that the majority of searches (74 percent) was focused on email as opposed to files. When searching for email messages, there was a very strong focus on recent items, with 21 percent of searched-for items being from the last week and almost 50 percent from the last month. Many of these searches (25 percent) included the name of the email sender in the query, suggesting (contrary to Elsweiler, Baillie, and Ruthven 2008) that sender name is a useful retrieval cue for email messages

We logged each instance of the following operations, along with its duration: Folder access: Whenever users opened a folder. Sort: Whenever users clicked various email header fields, such as sender, subject, date, time, attachments, and so on. Scroll: Whenever users scrolled for more than one second (a conservative criterion adopted to identify when scrolling is used for refinding). This duration was based on pilot data that observed different scrolling actions. Search: Whenever users conducted a search.

high filers are more reliant on folder accesses, which take much longer than the searches and sorts.

important findings. They show that although people who create complex folders indeed rely on these structures for retrieval, such preparatory behaviors are less efficient than opportunistic methods and do not improve retrieval success. In contrast, opportunistic behaviors such as search, scanning, and sorting promote faster and equally successful retrieval

keeping too many pictures, distributed storage across multiple devices leading to misidentifying where they had stored a picture, unsystematic organization, false familiarity, and lack of maintenance.

people who used meaningful labels were neither more successful nor faster at retrieving pictures. Participants’ comments and behaviors also suggested that the meaning of these labels had been forgotten over time.

Participants who consistently created time-based folder names (e.g., Spring13) were more successful than those using other naming schemes, although only a minority of participants used this strategy.

The system-generated date label may be inaccurate, either because of problems with camera settings or because the folder date represents the upload date as opposed to when the picture was actually taken.

In reality, however, it turns out that search is less frequent than we might expect. In addition, users focus on refinding rather than seeking novel information. Instead of foraging for new information, users tend to reaccess previously visited data using a variety of simple browser techniques, including following links, retyping URLs, or using the back button.

having multiple windows or tabs open was very common because reaccess was prevalent. In addition, the most commonly reported ways to reaccess information were to reaccess links, search for information again, directly type a URL, or save pages as local files.

documented a variety of general strategies used to access pages. The most common were using a hyperlink (44 percent of accesses), using forms—including the use of search engines (15 percent), using the back button (14 percent), opening a new tab or window (11 percent), and typing in the URL directly (9 percent).

the most common strategy for refinding information was to follow links (50 percent), with the back button being the next most common strategy (31 percent).

The remaining direct access strategies (using bookmarks, homepage links, history, or direct entry of URLs) accounted for the final 13 percent of accesses.

reaccesses tended to be for recently visited sites; 73 percent of revisits occur within an hour of the first visit, which makes the reported use of the back button appear rather low

For revisits occurring within an hour, the back button and links were the most common ways to refind data. Between an hour and a day, back button usage decreased hugely, with users becoming more reliant on links and direct access (typing in the URL). Between a day and a week, links and typing URLs were the most common strategies, and at intervals of greater than a week, use of links dominated.

the majority of revisits (73 percent) occur within an hour, 12 percent between an hour and a day, 9 percent between a day and a week, and 8 percent at longer intervals.

During exploitation, people’s preference is for manual methods (folder navigation/following links), whether this is for regular files or web data. Search is a less preferred option, even for web documents.

Search is infrequent with personal photos; content-based techniques are weak,

Most importantly, Lansdale (1988) argued that by imitating storage in the physical world, hierarchical folders wrongly force users to store a file in a single location when it may belong in several categories

Tags allow users to apply multiple categorizations to the same information item, thus avoiding having to classify and retrieve information using a single attribute.

The focus on search-based retrieval has led to the development of several experimental PIM search engines, such as Phlat (Cutrell et al. 2006), SIS (Dumais et al. 2003), Haystack (Adar, Karger, and Stein 1999), and Raton Laveur (Bellotti and Smith 2000), as well as commercial systems such as Einfish Personal, Copernic Desktop Search, Yahoo! Desktop Search, and Microsoft Desktop Search.

Other systems take a more radical approach to retrieving personal information by completely eliminating folder- based storage. Such systems include Lifestreams (Freeman and Gelernter 1996b), Canon Cat (Raskin 2000), Presto (Dourish et al. 1999), Placeless Documents (Dourish et al. 2000), MyLifeBits (Gemmell et al. 2002), and iMeMex (Blunschi et al. 2007).Advanced search engines (such as Google Desktop and Apple’s Spotlight) now generate a real-time index that is constantly updated,. Therefore, our results indicate that improved search engines do not affect the preference for navigation over search.

search was typically used as a last resort when users couldn’t remember a file’s location.

Tags enable multiple classification. For example, pictures from a conference in Copenhagen might be stored under Pictures, Trips, Conferences, or Copenhagen.

all information items are stored in a single, flat repository and are retrieved via nonhierarchical means, such as tag search, tag selection, or tag clouds

filing paper documents into physical folders) has a crucial disadvantage: filed documents lose their reminding function

Since most data stored in computers are declarative concepts, user-defined tags can be viewed as cognitive nodes in a concept network”

(Bloehdorn and Völkel 2006), Gnowsis (Sauermann et al. 2006), ConTag (Adrian, Sauermann, and RothBerghofer 2007), TapGlance (Robbins 2008), Zotero (Ma and Wiedenbeck 2009), TAGtivity (Oleksik et al. 2009), BlueMail (Tang et al. 2008; Whittaker et al. 2011) and TagStore (Voit, Andrews, and Slany 2012).

Web Favorites Delicious (mentioned in chapter 3) is web-based bookmarking software that uses tags instead of folders

At first, Gmail allowed users to use labels only as tags (hereafter tag-labels); users could (and still can) add as many tag-labels as they wanted to an email, thus allowing multiple classification.

Gmail users currently have two ways of using labels: tag-labeling, in which labels are dragged to an email, and folder-labeling, in which emails are dragged into labels.

Google results were derived from a vast population that used Gmail for everyday work. Results showed that when given the new possibility of folder-labeling, users’ chances of creating labels doubled, and the percentage of folder-label storage exceeded that of tag-label storage.

Folders vs. Tags Results showed a strong preference for folder over tag usage in PIM for both storage and retrieval. Regarding storage, 67 percent of all labeled messages in the Gmail study were folder-labeled, compared to 33 percent tagged-labeled

Moreover, the main reported reason for tagging behavior was a wish to keep emails visible in the inbox rather than a need for multiple classifications.

In the Gmail study, participants estimated that only one message out of a thousand was retrieved by using multiple labels, and in the Windows 7 study, participants (including the six who used tags for storage) stated that they never used multiple classification for retrieval.

classification by tags is cognitively more demanding because tags tend to be item-specific, whereas folder classification tends to be more generic.

In summary, we suggest that single classification is preferred because it is simpler than multiple classification. It is reasonable to assume that a one-to-one relationship (information item a is in folder x) is easier to remember than a one-to-many relationship (information item a can be retrieved by using tags x, y, or

Gmail introduced nested labels—the ability to create a hierarchical label structure. The Gmail blog noted that “a highly requested feature for labels, though, comes from the world of folders: the ability to organize labels hierarchically.”

Applications like Delicious allow individual users to tag web resources, applying labels that can be shared.

Group Information Management.

Among the individual differences they found were those between (a) purists who preferred to store each file in a single location versus proliferators who preferred to store files in all possible locations; (b) syntactists who based their structure on episodic cues and the context in which the information was used versus semanticists who based their organization on document meaning; (c) scruffies who wanted “only five” top-level categories versus neatniks who wanted “three hundred fine-grained” folders; and (d) savers who wanted to keep all possibly relevant documents versus deleters who thought that doing so would create clutter and thus wanted to keep a minimal set of documents.

Rader (2009) found that there is little feeling of common ownership in shared repositories. In a paper titled “Yours, Mine and (Not) Ours,” she described how her participants restricted activities to their own files in a common repository and were careful not to delete files that possibly might be useful to others. As a result, the repository became cluttered and poorly organized, and participants wasted time and effort when attempting to find information, especially information created by others. One of her participants said: “Probably the biggest problem we have with CTools is that people tend to organize information [in] different ways”

When using GIM, users’ chance of failing to find a file (22 percent) was significantly higher than when using PIM (13 percent). Using PIM instead of GIM makes sense; although with PIM each person in the collaboration needs to classify and manage a shared file individually, this additional effort substantially increases the chances of finding that shared file.

It therefore seems that the root of the problem is not cloud storage and GIM itself but the fact that other people created the folder.

the failure rate for shared folders created by others is also significantly higher than retrievals from default folders, such as My Documents and Dropbox root directories (17 percent), indicating that using other people’s organization leads to worse results than using no organization at all.

When retrieving PIM information, people can rely not only on semantic memory but also on episodic memory (i.e., specific memories of the occasion and context in which the document was stored, such as remembering working on a document over the holidays)

sharing via email does not require all collaborators to use the same email application, so a Microsoft Outlook user has no problems sharing file attachments with a Gmail user, for example. In contrast, sharing files in the cloud requires agreement to use a shared system; Dropbox users cannot share files with Google Drive users. our system to allow users to have different mail i.d together for folder creation

Navigation therefore can be performed semiautomatically, leaving the mind free to think of other tasks at hand. Search, on the other hand, requires thinking of a search term, which has been shown to be an attentiondemanding task

navigation resulted predominantly in bilateral activation of posterior regions of the brain, associated largely with real-world navigation, retrieving information from memory, and low-level sensory-perceptual processing.

On the other hand, search resulted in strictly left-lateralized activation in areas strongly associated with linguistic and working memory processing
it may be concluded that both virtual and real-world navigation requires little or no linguistic processing in the human brain.

PIM can be seen as a special kind of solipsistic communication between a person and him- or herself during two different activities: storage and retrieval (see figure 9.2). The user-subjective approach exploits this unique feature, arguing that PIM systems should make systematic use of subjective, user-dependent attributes in addition to the traditional use of objective attributes.

subjective attributes are user-dependent and cannot be derived directly from the information item itself. Instead, they often can be inferred from user–information interaction. For example, if a user frequently accesses a particular item, we might infer that item is subjectively important to that user.

The user-subjective approach identifies three specific subjective attributes: the importance of the information item to the user, the project to which it belongs, and the context in which the item is used.

Importance is user-dependent and thus subjective: an information item can be very important to one person and completely unimportant to another. The same item might also be important and relevant to a user today but unimportant (irrelevant) to him or her next month. One measure of relevance can be derived from users’ interactions with their information: Recently used information items are generally judged as more relevant than those that have not been used for a long time.

the promotion principle states that important information items should be highly visible and accessible, because they are more likely to be retrieved. The demotion principle proposes that information items of lower importance should be demoted (i.e., made less visible) so as not to distract the user, but should be kept within their original context just in case they are needed.

decision making process described in Prospect Theory (Kahneman and Tversky 1979

Losses loom larger than gains; thus, the possible loss of an information item emotionally affects the decision maker more than the gains of having fewer distracters or reduced retrieval time.

The user-subjective approach suggests that demotion interfaces need to keep information items within their original context. This is a critical point when comparing demotion with deletion or archiving (which can be either a user work-around or a design feature, as with email archiving in Microsoft Outlook and Gmail). In contrast to demotion, archiving removes the information item from its original context (e.g., the folder in which it was stored) to an archive folder. Preserving context is important,

three demotion designs we have already evaluated: GrayArea, DMTR, and Old’nGray

One problem mentioned repeatedly by participants in PIM studies (e.g., Bergman 2006; Boardman 2004) arises from the fact that users keep multiple versions of the same file. These versions are typically improved sequentially over time, so in the large majority of cases, users are interested in retrieving only the latest version. When seeking this latest version, users may become confused and distracted by previous versions of the file.

demotion interface, called DupliPix, which partially hides near duplicates of pictures

fragmentation: documents relating to a given project are stored in one folder hierarchy (e.g., in My Documents), emails in a separate mailbox hierarchy, and favorite websites in yet another browser-related hierarchy (these will be referred to as the three hierarchies)

The ProjectFolders system design is an instantiation of the project classification principle. It allows a user to store all project-related documents, emails, and web favorites as well as related tasks and contacts in a single folder, separated by tabs. This allows users to work in the context of their projects and retrieve all project-related items from a single location.

This approach is now implemented in both Mac OS X and Windows search engines.

commercial software such as OneNote, Snippets, and DragStrip

Our data show that users tend to think about their information items in terms of projects. They simultaneously retrieve information items of different formats when working on the same project and store files of different formats together according to projects when the system design allows them.

The subjective context principle suggests that information should be retrieved by the user in the same context in which it was previously used in order to bridge the time gap between retrieval and prior use.1

a common process in PIM involves users distilling complex information into a summary that is to be used at a future time. Typical examples might include taking notes in a meeting or summarizing a lecture or presentation. One frequently encountered difficulty in such situations is that these notes can be difficult to understand later because their original context is forgotten.

The user-subjective approach identifies four context attributes of an information item: internal, external, social, and temporal. Internal context relates to the user’s thoughts while interacting with the information item; the external context of an information item refers to the other items that the user was dealing with while interacting with a specific information item; social context refers to other persons relating to the information item, such as other people who collaborate with the user regarding that information item; and temporal context pertains to the state in which the user left the information item when she or he last interacted with it and to his or her working plans regarding that information.

ChittyChatty (Internal Context)

ChittyChatty allows users to reconstruct relevant parts of their original context by linking notes to recordings of that context.

The system records user notes along with speech from the original meeting and co indexes them. Clicking on a digital note accesses the original speech that occurred when the note was taken, allowing context to be regenerated.

ItemHistory (External Context)

ItemHistory is a feature that provides this functionality. When working on a specific information item (e.g., a student working on a course paper), a user may open several other information items related to the same task (e.g., web pages, emails, and other documents containing relevant information). In current designs, the connections between these information items are lost and the user needs to retrieve each of them separately. ItemHistory indexes these relations automatically.

ContactMap and PiccyChatty (Social Context)

users commonly relied on social attributes for organization and retrieval

ContactMap

identified groups of important social contacts by analyzing a user’s email interactions with those people, selecting contacts the user emailed both often and in the long term

PiccyChatty used social information to infer the relative importance of information items shared with others

PiccyChatty, users could actively annotate important parts of the lecture, but the system also allowed users to take photos, which could, for example, capture an important slide that the lecturer presented. As with the ChittyChatty system described earlier in this chapter, notes or photos were temporally coindexed to lecture recordings to allow recreation of initial context so that clicking on a note or photo would begin playback of what was being said when the note or photo was created.

In PiccyChatty, notes and photo annotations were pooled across all system users, and the system recorded social information about how many people had accessed a specific note or photo.

Many users may mark such messages as important (e.g., using a star in Gmail), but unless they are using a special inbox mode (e.g., “starred first” in Gmail), these messages may still be pushed out of sight—and also out of mind.

Starlight design

patent any of our design applications because we want users of all operating systems to benefit from them.

One obvious solution is to use machine-learning methods to organize all our personal data automatically, a concept known as the semantic desktop.

these approaches are being explored in cloud deployments, such as Facebook/iPhoto photo tagging, we think there are challenges in the PIM context.

Recent Documents list, which helps to reduce file retrieval time

They first developed a successful algorithm that predicted users’ next actions, including file accesses (Fitchett and Cockburn 2012). They then combined this with navigation and search (Fitchett, Cockburn, and Gutwin 2013), finding that this combined method reduced retrieval time

boomerang add-in for Gmail (http://www.boomeranggmail.com/), and more recently Inbox by Gmail. Both allow users to “snooze” their actionable emails, so they remain invisible until their deadline approaches and thus avoid inbox clutter.

Google Calendar Goals.

Search requires access to verbal working memory, whereas navigation relies on more primitive, locational brain processes.

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http://bit.ly/TechpreneurInterviewsBook

Software is usually protected under copyright law.

“What’s intellectual property got to do with me?” You can access it here: https://youtu.be/PMab4oRGaZc.

Freelance employment contracts

Here are some clauses you may wish to cover in an agreement: A clear description of the work to be done. Describe what you are hiring the developer to do, for example: “Develop a Social Media mobile app for Android devices, including all tasks associated with the build of the app and its launch, which should follow good industry practice and be delivered to a professional standard.”

Obligations might include agreeing to behave in an honest manner, to follow your instructions and to work with reasonable care and skill.

Working hours. Do you want to agree on specific days of the week which will be worked?

Payment cycles. Are you going to pay daily, weekly, monthly, or per project on a fixed fee basis?

or would you consider staged payments based on reaching specific project milestones? If staged payments are to be made, you might agree to split the development work into segments and pay based on the successful completion of each one.

Timesheets and invoicing. When should time sheets or invoices be submitted to you for payment, and in what format?

Termination and Serving notice. What are the terms (or scenarios) under which either party can end the agreement?

Employers often write into their contracts that all IP generated whilst working for their company belongs to them exclusively. You will want to protect your idea, and be recognised as the owner of your product’s source code and any other IP linked with your venture.

Confidentiality / Non-disclosure.

restrictions may include stating that an employee cannot set up and compete with your company in the same market after working for you, or that they may not approach your clients.

Final deliverables. At the end of the project, (or whenever you and your developer agree to part ways), there will be some final deliverables that you should receive and be given access to. These may include source code, designs, and digital assets (such as logos and images, files, databases and data) and any user names, passwords and access codes that your developer holds.

A good contract should also include a clause in which your developer agrees that the software they will provide for you does not infringe the Intellectual Property Rights (IPR) of any other parties.

If you want to create a SOW and use it to form part of your contract with a developer, keep it high level – no more than 20 points, absolute maximum. Your ideas will evolve if you are taking external feedback on board, so you’ll need the freedom to operate with a degree of flexibility, and being too rigid on paper can come back to bite you, as your developer may point out that you’re expanding beyond the scope of your original requirements as stated in the document, which might mean a longer delivery period, or that they are owed more money!

SEQ Legal offer a selection of free and pay-as-you-go legal documents for IT, Internet and Business Law, including documents for those creating mobile apps, NDAs, SaaS agreements, software licence agreements and more: http://www.seqlegal.com/

Public liability insurance

Employer’s liability insurance

Professional indemnity insurance

Cyber insurance

Hacks and data breaches,

Claims from injured parties.

Business interruption. Because loss of data can bring a business to a standstill, affected businesses may experience a loss of income.

Restoration and the repair of damage to websites, programs and data.

Ransom of data,

PR, crisis and reputation management.

Google Trends, https://www.google.co.uk/trends displays trends in the use of search terms over time (rather than providing specific figures). It’s possible to search for global trends and local trends by changing the search filters available at the top of the page. You can compare up to 5 different search terms at once and can search within a specific time-frame.

There are tools you can use to check the relative popularity of keywords used in searches on the web. These tools are generally used for SEM (Search Engine Marketing), which companies use when they wish to pay a search engine like Google or Bing to advertise their businesses by displaying them in people’s search results. However, they can be used to gather a lot of useful information, even if you’re not intending to pay for SEM.

Instakeywords; http://www.instakeywords.com/ The Google Keyword Planner tool, which is part of Google AdWords; used for SEM, paid advertising to help companies rank highly on Google, https:// adwords.google.co.uk/KeywordPlanner. (You may need Gmail and AdWords accounts to access this tool.) Wordtracker; https://www.wordtracker.com/?splash=true Wordstream.com; http://www.wordstream.com/ keywords/

meaning of the column headings shown in the Wordtracker example above: Volume. The number of times a keyword has been searched for in the previous month. IAAT (in anchor and title) shows how many web pages have a given keyword in both the title tag (the title of each search result) and anchor text (the clickable text in a link). Competition. This number ranges between 1 and 100, and represents the number of optimised pages on the internet for each keyword. (The higher the number, the more web pages there are that contain the keywords.) A high KEI indicates keywords which a lot of people are using when they search, but which have a lower competition in terms of the number of web pages that contain these keywords, measured on a 1 to 100 scale.

Look for product reviews using Google and some of the big software comparison review sites such as: Capterra; http://www.capterra.com, G2crowd; https://www.g2crowd.com, TrustRadius; https://www.trustradius.com, AlternativeTo; https://alternativeto.net/, GetApp; https://www.getapp.com, and Product Hunt; which is hugely popular with startups, https://www.producthunt.com/.

and business users hungry for new software – perfect for raising your profile, and getting your new product seen (and purchased) by the right audience!

Get serious about searching with the Google advanced search, https://www.google.com/advanced_search. Include exact words or phrases, or choose to exclude specific keywords from your search results. You can add a + (plus) sign next to words that must appear, and a – (minus) sign next to words that you don’t want to see in your search results.

Turn Google into your personal research assistant with Google Alerts, https://www.google.co.uk/alerts, useful for monitoring the latest news on your topic of interest. Put it to work collecting data from across the web for you 24 hours a day, 7 days a week! Enter the keywords you’re interested in, enter an email address, click on the “show options” menu and specify how often you want to receive notifications and you’re set. Once your app is “live” you could set up an alert to see who’s talking about it! Fig 9. Put Google Alerts to work for you and receive alerts via email or RSS. Google Scholar, https://scholar.google.co.uk/schhp? hl=en&as_sdt=2000b will help you locate research published on your topic of interest including journals and research from leading institutions. Set up an alert so you can receive email notifications about your preferred topic(s).

Google’s Consumer Barometer can be used to review high-level trends across populations. It also provides insights into different consumer groups and their behaviour and usage trends across smartphones, desktops and tablets: https://www.consumerbarometer.com/en/

The PESTLE acronym covers 6 types of external factors that you should consider and stands for – Political, Economic, Social, Technological, Legal and Environmental.

Technological advances can have a big impact on businesses, so watch out for new trends. These may result in software needing to be modified, or updated in order to keep pace with, or to take advantage of changes. Every time Google, Amazon, or Facebook change their algorithms or policies, companies of all sizes scramble to adapt!

Business model canvas; https://strategyzer.com/canvas/business-model-canvas?url=canvas/bmc, or https:// steveblank.files.wordpress.com/2010/10/business-model-canvas.jpg Lean canvas; http://3daystartup.org/wp- content/uploads/2014/04/lean-canvas.jpg Business model canvas; http://www.witszen.com/wp-content/uploads/ 2013/05/Business-Model-Canvas.png

What customers are doing when they aren’t using your product also matters. Learning about their preferences and the products and services that they like to use could have a bearing on how you present and position your own product.

This article contains some useful tips for reaching out to people online: https://www.linkedin.com/pulse/ 20130624114114-69244073-6-ways-to-get-me-to-email-you-back

“Agile” is actually an umbrella term The Agile family includes XP (eXtreme Programming), Scrum, Kanban, Lean and DSDM (Dynamic Systems Development Method) frameworks.

It is usually contrasted with Waterfall, a more traditional software development methodology.

There is an Agile Manifesto (see the link at the end of this chapter) that focuses on putting people, customer interaction and communication first.

Timeboxing is a time management tool used regularly in Agile teams to keep tasks, meetings and non- development activities focused.

recurring development cycles called iterations (meaning “to repeat”), which usually last anything from a week to 30 days before they end and then begin again. At the end of each iteration there is an expected output from the development team, which was defined at the start of the iteration. Agilists believe in making frequent releases of software (a mantra usually referred to as “release early, release often.”) The terms “to iterate,” or “iterate over” are used to describe the process of improving something (in our case, a product, or idea) in stages.

Agile teams use development spikes (which are timeboxed technical investigations), to gather information so that decision can be made, or to undertake research that answers questions such as: “Can we do it?”, “Should we do it?” and “How should we do it?”

Scrum, Scrumban (a Scrum/Kanban hybrid), Kanban and XP practices

Scrum’s repeating development cycles are called sprints. These are usually 2 or 4-week release cycles, where the team prepares and then builds a defined set of functionality pulled from a product to-do list called a product backlog.

Scrum has four “ceremonies”, sprint planning meetings, daily scrums (often called stand-up meetings), sprint review meetings, and sprint retrospective meetings (commonly known as retros). Stand-up meetings are daily micro-meetings that focus on what has been done, what will be done and raising any issues that prevent or impede progress, known as impediments, or blockers,

ScrumMaster, (this spelling is correct, but you’ll see it spelled Scrum Master too) servant leaders who act as facilitators, sometimes perform project management duties, but always help the team operate efficiently and effectively and shield them from distractions.

Product Owner, those responsible for setting the vision of the product and the prioritisation of tasks on the product backlog; the product to-do list. The Scrum team. The technical staff, (including developers) who work together to deliver the functionality.

XP (short for eXtreme Programming), is known for the practice of pair programming. This involves two developers working on a single task on a shared computer, writing code and solving problems together.)

XP has iterations (not sprints), which usually last 1 or 2 weeks.

Kanban, which means “card” in Japanese, emerged from the working practices at the Toyota car manufacturing plants, and favours JIT, (Just In Time planning.) This means not planning too far in advance due to the possibility of change, and setting limits on the number of tasks that each team member can have in their work queue to control throughput and avoid bottlenecks in the software development “production line”.

Scrumban is a hybrid of Kanban and Scrum, whilst Lean, like Kanban emerged from the manufacturing sector and places an emphasis on customer value and eliminating waste.

User stories are used across all the Agile frameworks as a way of breaking down requirements into very small components that can be more easily understood, managed and built because they have been simplified as much as possible.

Some product development teams will use the GWT (Given-When-Then) approach to write them. This can make it easier for developers to translate each user story into code.

A common format for summarising, or describing user stories at a high-level is: As a [insert type of customer / user / actor] I want to be able to [insert the goal] So that I can [insert the benefit]

Concept. This stage includes the birth of the initial idea, the exploratory work needed to decide whether the idea should be pursued and the development of the idea through customer interviews, market research and data analysis. (Some also call this the Discovery phase.)

Requirements gathering and analysis includes taking the initial concept and producing a set of requirements (the description of what the users of the software will need to be able to do, as well as the technical tasks that must be actioned if the software is to run reliably.) This stage involves mapping out the steps and processes involved in helping users get from “A to B” using your product, (these steps are called user journeys),

Design should not be confused with visual design. In this context, we mean architectural design, which looks at how the system needs to be architected to fulfil the requirements, and your vision for the app.

The SDLC does not always explicitly mention the user experience (UX) and visual design elements of the process. This would include the creation of wireframes (which outline the layout of the screens that users will interact with), and the design of the product, so it is easy and pleasant to use.

Build (also called the development or coding stage.) This involves writing code to fulfil the requirements gathered during the requirements gathering and analysis stage, and integration work to ensure that all the functionality that is part of the product (whether it was built by your developers, or bolted-on), all behaves as one cohesive unit. The build phase also includes solving any technical problems which arise as the product is built.

Test. This covers the discovery and management of issues and faults and identifying any parts of the product that don’t behave, or work together as intended.

Testing is an absolutely critical part of the cycle which is often denied the respect and attention it deserves.

Release. Releasing, going live, deploying, pushing to live, or shipping all mean the same thing – making a version of your product publicly available, or pushing specific pieces of functionality out to your customers or users.

Maintenance happens after the initial project to create the software has come to an end. Once a product is live and being used by customers, it needs to be maintained to ensure that it continues to deliver service consistently and to a high standard.

If you’re interested in learning more about Agile frameworks, you can find more resources here: The Agile Manifesto. http://agilemanifesto.org/ Scrum Alliance. https://www.scrumalliance.org/ Agile Alliance. https:// www.agilealliance.org/

Download the entire set of chapter challenges for this book, collated into a workbook with an activity log to help you keep track of important tasks: http://www.mylanderpages.com/ donthireasoftwaredeveloperuntilyoureadthisbook/Free-resource-1

Creating code and manually testing software are two different job roles, using different sets of skills.

Developers do not generally do manual testing as a key part of their work and there are very good reasons why code should not be tested by the person who created

Common software delivery team roles

Back-end developer. “Back-end dev’s” write code that works at the server or database level, rather than focusing on the user interaction and visual appeal of software, or websites, which is the domain of front-end developers. Even if you’re building a simple app, most will require some form of database skill. A back-end developer’s work might include capturing the information entered by a user on a web page and storing it in a database, and the retrieval of that data at a later date.

Business Analyst (BA). (Roles and responsibilities may be similar to a Product Owner, or Product Manager). Business Analysts investigate business problems and assess the pros and cons of business activities using various techniques, setting out conclusions and recommendations on the best course(s) of action.

Business analysts can have very different skill-sets, depending on whether they are wholly business focused, “crunch numbers,” or are involved with computer systems. Technical BA’s often act as the “bridge” between the business and development functions of a company and will document system or product requirements in written and diagrammatic forms using process flows, diagrams, charts or tables and may write the requirements, or user stories for the development team.

Content writer / technical copywriter / content editor. These professionals are skilled in producing content that attracts and resonates with customers. They also need to be able to write clear, simple instructions.

The content writer is usually the person that writes the help text or error messages for your app that explain how to perform activities within the app,

Client / Customer / Sponsor. Depending on the context, the client may be a sponsor – the person who “fronts the cash” to pay for a development project in an organisation, or they may be an eventual user of the product themselves.

In this case, you are the client of the software delivery team and the end-users (the people who will use the software) will be your customers.

Designer (or Visual designer). Designers are concerned with the visual appeal of the product,

They follow key design principles such as balance, contrast, emphasis, and unity and consider design elements such as lines, shapes, texture and colour.

Front-end developer. These developers are skilled at creating the elements of a website, or product that the customer sees and interacts with directly, also taking into consideration the look and feel of the product, and general presentation and style.

Full-stack developer. Developers proficient in both front and back-end skills are called full-stack developers.

Information Architect (IA). These skills are useful for projects where there will be a lot of information to organise, such as on large websites. The IA ensures that users are quickly and easily able to find what they are looking for and may carry out user tests to confirm that users understand the way information has been grouped or classified by the client or software team.

Product Manager. (Also known as Proposition Managers, with some crossover with the Product Owner role.) A product, or software delivery team will usually include one of these three roles, unless a business analyst is able to bridge the gap. Product Managers are usually responsible for setting the product vision and strategy.

Their role may also include managing the project’s budget, forecasting sales figures and keeping track of profits and losses. The product manager will also need to understand how the project should evolve as customer needs and market conditions change. They may be involved in marketing the product; describing and presenting its features (what it does) and benefits (the value to the customer), and answering the WIIFM; “What’s in it for me?” question for customers, by explaining how the product will solve a pain or bring about a desired result. In the early days, most tech founders will find themselves performing these tasks.

Product Owner (PO). This Scrum specific role may be equivalent to a Product Manager or Proposition Manager role in software development environments that do not use Scrum. They may be responsible for the vision for the product, writing user stories, and will maintain the product backlog, (or product to-do list) which keeps the development team supplied with work.

Project Manager (PM). PM’s are known as ScrumMasters in Scrum environments.

ScrumMaster. (Also see the Project Manager role.) ScrumMasters are often called servant leaders

They will organise and bring structure to the team, facilitate team decision making and generally support, coach and challenge the team. They play an important role in removing impediments (often known as blockers, that

prevent the team from making progress or doing their best.) ScrumMasters may perform traditional project management tasks too.

Technical Architect (TA.) These individuals define the architecture, or structure of a system, looking at its purpose from a high-level. They will consider the way data is stored, the future demands on the system as the number of users grow, the other systems the product may need to connect to, or rely upon to function.

The programming language to be used for the project may also be proposed by the TA.

Technical architects will communicate their plans to the development team in verbal, written and diagrammatic form to ensure that their vision is understood and actioned correctly.

Tester, (automation.) Automation testers are skilled at managing software and tools used to automate the testing of web browsers, software and systems, reducing (but not eliminating!) the need for manual testing by humans.

Tests, or test scripts first need to be written to cover all the bases, but once they exist, these scripts can be run at will. Automated tests can be used to check units of code, specific functionality or even to simulate many people performing key activities and important user journeys within your product!

Some developers have automated testing experience, and those with experience of TDD (Test Driven Development) will write tests for each user story based on the requirements of the story before they even start to write the code to complete the work.

Tester, (manual.) Also known as QA’s, (short for Quality Assurance) software testers, or manual testers.

Manual testing is the process of testing software for defects by hand, using the naked eye, checking that the work done by developers has been completed according to expectations, and the way functionality behaves is correct. Some bugs are difficult to pick up via automated tests, which is why manual testing still has value.

Neither customers, nor user testers should be used to help find bugs, so don’t present them with a product in poor shape – you’ll need to tidy it up first.

Tester, (performance, security and other specialised testing roles.) Some software testers perform very specific types of software test, including security testing, stress testing or other forms of test.

User experience designers (are also known by the acronyms UX or UXD).

User experience tester. Also known as UX Tester or Usability tester. These testers observe people’s behaviour to understand how to improve the UX of a product. They are skilled interviewers, and translate the results of user tests done on paper, or via a desktop, or mobile device into actions that can be used to improve, or redesign a product.

Other roles include User Interface design (UI) and User interaction which considers the interfaces, (or screens) we interact with on our devices and the knowledge and study of human behaviour when interacting with computer systems.

All the roles we’ve discussed can be placed into 4 categories. Let’s review each one in turn: Essential skills for your developer Essential roles to fill, or to be outsourced Skills that may be needed from time-to-time Skills you can survive without (with adequate planning)

Essential skills for your developer These should include: Back-end / full-stack development skills. You will definitely need either a back-end or full-stack developer if you are building an app from scratch. If you can find one with technical architecture experience, this may add value at the start of the project in terms of planning the best way for your app to be constructed. Although not quite essential, Automated test skills and Test Driven Development (TDD) experience should be seriously considered

Essential roles to fill, or to be outsourced

Business analyst / Product Owner. As a minimum, you’ll need someone to: i) manage the backlog of development tasks, ii) supply your developer with work to do, and iii) communicate your product requirements as clearly, accurately and in as much detail as possible. Miscommunication will cost you money if your developer builds functionality which isn’t what you wanted.

Project Manager / ScrumMaster. You should have your developer report to you and have a method of tracking their progress. You will also need to manage your budget, so you know how much money you have spent, what it was spent on, how much money you need to keep the project running each month (your burn rate) and how much you have left. Dealing with issues (and actively trying to avoid them in the first place) are activities that fall within the PM’s domain.

Product Manager.

Tester (Manual testing / QA). Testing is essential. If product testing is not up to scratch, your whole product may become unusable, and unstable. You have the option to ask your developer to help with testing, but this is a not necessarily a good idea –

This is why a fresh pair of eyes is so important. If you only have one developer, you’ll also be distracting them from writing code if you give them a range of tasks to do.

Usability or user testing / user experience testing. You can do the tests for usability and experience yourself if on a budget – often the simplest, most minimally designed products are the most usable, so keep your product simple to start with!

Skills that may be needed from time-to-time

Content writing.

Design / UX.

Front-end development skills. Whether you require a front-end developer or not will depend on the type of app you wish to build and the range of skills that your back-end, or full-stack developer has.

Tester, (performance, security and other specialised testing roles.) These types of tests are usually done towards the end of the project, when your app will be tested as a whole system, rather than as a number of small units. Therefore, having your developer do this type of work (if they have the skills to do it) won’t distract them on a daily basis.

Skills you can survive without (with adequate planning and workarounds)

Information architecture.

User interaction expert.

Please set aside a budget for non-functional requirements, and other technical tasks, because they are an important, even essential investment.

Requirements are usually defined as being either functional or non-functional: Functional requirements define how a system, or parts of a system works. They are focused on its features; what the system will do, who for and its behaviours. Non-functional requirements (NFRs) define constraints, control mechanisms or boundaries and set out criteria that can be used to judge the operation of your system.

Accessibility. Software should be easy to use for everyone, including those with disabilities including deafness, impaired vision, blindness, colour blindness, epilepsy, dyslexia or any combination of these.

Auditing and logging. What sorts of records does your app need to keep?

Availability. Let’s consider the availability of your service. When you need to do routine maintenance work on your app, what time of day, or night would be best?

Capacity. Software applications need to be robust and reliable. Your app should be able to handle sudden or unexpected spikes in traffic without crashing or slowing to a snail’s pace.

When your developer comes on board, ask them to estimate the number of transactions (or “requests”) per minute and per hour, and the traffic volumes that your app should be able to deal with, without breaking into a metaphorical sweat! They should also make sure the infrastructure that supports your app can not only handle the expected activity, but a significant percentage more, so it is always protected by a decent safety margin.

Data storage, back-up and recovery. If you’re going to be holding a lot of customer data, make sure your database can handle this.

If you’re going to use a 3rd party company for data storage, make sure you know where the servers that will hold sensitive customer data are located. For example, to comply with the European data protection laws regarding the collection, storage and safeguarding of customer data, UK companies should look to hold their customers’ data on servers located in the EU.

Read the terms and conditions of service carefully when you work with 3rd parties, so you know where their servers are based and which country’s rules they follow.

Disaster recovery. You should have a disaster recovery plan in place which lays out what should happen in the event of a disaster – digital, natural or otherwise and how your app will be made usable again as quickly as possible

Documentation. If you want your developer to create technical documentation for you, then this should be budgeted for. Try to avoid burning developer time on writing documents instead of writing code.

Error handling. In the event of unexpected problems when customers access your app, error handling is standard practice. If your app does fail, make sure it provides useful information to users in the process. This might include explaining what has gone wrong, who to contact or what the user might do to resolve the problem. Avoid the “system does not compute, error 117467699787” style of error message. Don’t allow this kind of messaging in your app – they are eyesores and provide a terrible customer experience!

HTTP response codes. Most people know about the infamous 404 page; which means that you’ve tried to access a web page that can’t be found.

Keep your app professional by asking your developer to provide basic ways to cater for the most common status code errors which arise. This is usually achieved via a customer friendly web page which indicates the type of error found and provides advice to the customer about what to do next – usually along with a link back to your Homepage so the customer can continue with their activities.

Integration. What other systems, tools or software will your product rely on? However many you’re using, your product should feel like one unified product to your customers.

Legal and compliance related requirements. Confirm the national or international laws that you need to comply with.

TermsFeed, https://termsfeed.com provides documents including Privacy Policies, Terms & Conditions, EULA’s (End User Licensing Agreements for software) and Cookie Policies, whilst Iubenda.com provides privacy policies using its custom privacy policy generator, https://www.iubenda.com/en.

EULAs form an agreement between anyone who instals, downloads or purchases software and the person or organisation that provides the software. Apple provides a sample EULA here: http://www.apple.com/legal/internetservices/itunes/appstore/dev/stdeula/ The Google Play store does not have a sample EULA, although they do provide a Developer Distribution Agreement (DDA): https://play.google.com/about/developer- distribution-agreement.html#showlanguages.

You will have to decide whether these will provide you with adequate cover in the event of losses, or the theft of your idea through software piracy or other methods. Consider what sort of losses could be claimed against you as a result of an issue caused by your app. If in doubt, discuss these issues with a lawyer and with your business insurance provider.

Monitoring, and monitoring tools. I’m a big advocate of asking developers to set up early warning detection systems when new products are built.

The monitoring you do will depend on the type of app you’re building. Examples of alerts you could set up include asking for you and your developer to be warned by email, SMS or other methods if: There are errors occurring within your app. The app is failing to process user requests. You are approaching a memory, processing or data storage limit. Your app, or the services that support it have gone down or are struggling for some reason. Page load speeds rise above a certain number of seconds. (Waiting even 3 seconds for a page to load is slow.) Server “pings” fail to get any response. (Server pings are like little pokes to the server asking it, “Are you there?” If the server doesn’t respond, then there is cause for investigation.)

Here are some monitoring tools that can be used for web and / or mobile apps: Uptrends covers websites, web apps, mobile apps and server monitoring; https://www.uptrends.com. Their uptime and availability checker will tell you the availability and page download speed for any web page, from almost anywhere in the world; https:// www.uptrends.com/tools/uptime. Montis specialises in websites, networks, servers and app monitoring; http:// www.monitis.com/product. Site24x7 monitors web apps, mobile apps, servers and more, https:// www.site24x7.com/ and Paessler is a network monitoring company, https://www.paessler.com/tools. Sentry’s calling card is that it provides real-time crash reporting for mobile apps, web apps and games, https:// getsentry.com/welcome/. You could also ask your developer if there are any tools that they would recommend.

Mobile app health monitoring and app crash alert tools. App crashes are a real nuisance.

Fabric, which includes a service called Crashlytics (owned by Twitter), currently serves over 2 billion devices. It includes daily alerts, anomaly detection (so you are alerted to any unusual activity within the app), plus additional stability alerts. This is currently a free service: https://answers.io/pricing. Apteligent, https:// www.apteligent.com/ provides app health dashboards which monitor the “vital signs” of your app and alert you to issues. They also provide crash reporting among other services.

Performance. Every customer expects your app to load and work quickly!

Reliability. In an ideal world, your app would only go down when you take it down.

Unplanned downtime, as it is known, can lead to complaints, reputational damage and general annoyance.

Unplanned downtime can be heavily influenced by the suppliers you use for your services, servers and web hosting, so check the terms and conditions and Service Level Agreements (SLAs) of the 3rd parties you work with, and confirm guarantees relating to service reliability. Uptime of 99.9 to 99.99% means that you can expect unplanned downtime to be between 8.8 hours and 50 minutes per year. If this is not acceptable, consider looking for 99.999% reliability. However, this will cost more and there will be less suppliers able to guarantee this.

Reporting. There are data analytics tools you can set up for mobile apps which will tell you how many downloads you are getting, along with other stats that will indicate how and when your app is being used.

Security. This will include considering your app’s vulnerability to some of the common security threats and forms of cyber-attack. If you have a website, you may want to increase security and apply for an SSL (Secure Sockets Layer) certificate. SSL is the certificate that will enable you to get the green padlock symbol on your web pages.

Brute force attacks (or brute force cracking). These attacks are the digital equivalent of systematically trying every combination on a safe until you crack the combination.

A longer password of at least 8 characters, containing a combination of upper and lowercase letters, numbers, and non-alphanumeric characters is best.

DoS (Denial of Service) attacks

DDoS (Distributed Denial of Service) attacks

SQLi (SQL injections)

XSS attacks (Cross site scripting)

Reverse engineering involves using information gathered from looking at the code in your app and engineering a way to steal the source code or data from the app, or to exploit any vulnerabilities discovered. Mobile apps can be reverse engineered so that the hacker has the elements needed to create a counterfeit version.

Exploitation of loopholes.

Authentication and session management flaws occur where these processes are broken, or deficient.

Cross-Site Request Forgery (also known as CSRF, or one click attacks) involves malicious links, web pages or software tricking a web browser into performing actions,

The Open Web Application Security Project (OWASP) is a community that provides a range of resources to support web application security. They have several cheat sheets available, organised by programming language: Ruby cheat sheet, https://www.owasp.org/index.php/Ruby_on_Rails_Cheatsheet PHP cheat sheet, https:// www.owasp.org/index.php/PHP_Security_Cheat_Sheet There was no cheat sheet available for the Python programming language at the time of writing.

SEO (ASO for mobile apps).

There are four main types of mobile app: Native mobile apps are apps designed specifically to run on mobile devices. They require device storage space and you may, or may not need Wi-Fi in order to use them. Apps that don’t require Wi-Fi and can be used “offline,” or in dual mode may be more convenient for users.

Mobile web apps are software applications that are accessible via the web browser on a mobile device. They are simply web pages that have been mobile-optimised for smaller devices,

Wi-Fi is generally required to use them.

Hybrid apps display characteristics common to both native apps and web apps. They are web apps and were not created to run on iOS or Android, but they can be used as mobile apps and downloaded via the app marketplaces*1. They aren’t as flexible as native mobile apps; the interactions and gestures that can be performed are more restricted and they may also be more dependent on Wi-Fi than native apps. There is often some form of synchronisation between the mobile app and the web app, which keeps the data across the apps consistent, but this can vary depending on the app. Hybrid apps are generally cheaper and quicker to build than native apps.

HTML5 apps. HTML5 is the latest version of Hypertext Markup Language (HTML),

These apps are built using HTML5, JavaScript and CSS.

As with hybrid apps, they are resource efficient; relatively quick to develop and once built, can be used on the web and submitted to the app marketplaces*2. They lack the benefits of native apps in terms of speed and the range of gestures available, and may not be as secure as native apps, being susceptible to cross-site scripting attacks

Mobile websites, for example, https://m.facebook.com are a copy of your website with its own mobile domain specifically for mobile devices. They are now regarded as quite old-fashioned,

Responsive design is now the gold standard and using this approach, one URL (i.e. web address) can be used to access your website, no matter which device is being used. The main reason to mention m. sites is to make sure that you’re aware that it is probably best to reject a proposal to set up your domains in this way!

Any software that can be accessed via a web browser, for example, Chrome, Firefox, Safari or Internet Explorer (I.E.) is known as a web app.

Microsoft Office 365 and Salesforce.com are examples of popular SaaS products which are available “in the cloud.”

Browser extensions (also known as add-ons) and plug-ins also belong to the web app family. Each web browser has its own set of extensions that only work with that specific browser and work by extending the browser’s functionality.

Here is a free Google resource for checking the “mobile-friendliness” of your website: https://www.google.co.uk/ webmasters/tools/mobile-friendly/.

Desktop apps run on a PC or laptop and generally, a web browser or an Internet connection is not required to use them.

payments to have ads or branding removed from content, or other services or conveniences that you might decide to sell to customers whilst they are “in” your app. Upgrading to a paid subscription in exchange for more services, also qualifies as an in-app purchase.

Google AdSense, which will display ads on your website. Just place the AdSense code on the pages where you want the ads to appear. You’ll need to apply to AdSense to do this, which can take several days. After that, you’ll be paid based on the number of clicks the ads receive.

Google’s AdMob for mobile apps

CTR is defined as the number of clicks on an ad, divided by the number of impressions (the number of times that the ad is shown).

You can find a mobile app monetisation directory here: http://appindex.com/app-monetization/. It contains a large network of advertisers who can produce rich media ads such as audio, video ads and other more interactive styles of ad, which entice users to listen, watch or click.

consider your options and attempt to find the optimum way to monetise your app via third parties.

Koum was introduced to a Russian iPhone developer found by a friend on RentACoder.com (now Freelancer.com), and hired him to build the app.

Focus on customer success. Send tips and suggestions to make sure new users get the most value possible from your app, and don’t stop using it.

Be aware that some customers will be deterred if you ask for a payment card up-front. To overcome that barrier, some companies very openly state that customers can sign up for a free trial with no credit card required.

mobile or web app can be made configurable by putting settings, also known as logic or rules, in place behind- the-scenes of your app. Configuration settings, also known as “config” can be adjusted to suit your needs and

can be set up by developers to control who can do what within your app, when they can do it and to impose limits and restrictions on users based on user roles (such as administrator vs. standard user), or according to the package, or payment plan a customer has signed up for.

The sales information you provide in the app marketplace will help people decide whether they want to download your app.

Prepare a title and description for your app which clearly explains: What it does and clearly outlines its features. The problems your app will solve and / or the benefits that customers will receive when they use it.

At the time of writing, WhatsApp uses several keywords in their store listing, including: free, messaging, call, SMS, photos, videos, documents, 4G, 3G, 2G, Edge, Wi-Fi, voice, send and receive.

Include some enticing images, or a video of your app “in action.”

Here’s some more information to help you maximise your marketplace listing from Apple; https:// developer.apple.com/app-store/product-page and the Google Play Store (scroll down to the “Set up your Store Listing” section); https://support.google.com/googleplay/android-developer/answer/113469?hl=en-GB and guidelines; https://developer.apple.com/app-store/guidelines/

If you’re wondering what the App Store equivalent looks like for WhatsApp, that’s a good question! It’s not very easy to display here, but here’s a link to the App Store Product Page for WhatsApp: https:// itunes.apple.com/gb/app/whatsapp-messenger/id310633997?mt=8

http://homescreen.is/

Favicons (short for favourites icons) are tiny icons that make your website easier to identify (especially when you have multiple browser windows open, like I do in the example below!) They too are part of your online branding.

http://www.favicon-generator.org/.

Write page title and meta-description tags for each one of your web pages. The page title is the title of your page and the meta description is a summary of the content on your page, which is displayed in search results. Make sure they are both “keyword rich” and contain the words or phrases your target customers might search for.

Set the headings for each of your web pages. Search engines rely on the headings used on websites and web apps to make sense of the structure of your web pages.

H1 defines the most important heading on your page (usually your product, brand name or business benefits) whilst h6 defines the least important heading, with headings 2-5 in between.

Your developer can set the relevant page headings for you. You don’t have to define all 6 headings, h1 and h2 are most important.

Write SEO friendly “body text.” The main body of content on each page should contain important and relevant keywords that increase the chances of that web page appearing in Google’s search results.

Write image and video descriptions. Images and videos should have descriptions and alt (or alternative) tags, which explain what they are. If your videos are tagged i.e. labelled with relevant keywords,

Some disabled users rely on screen readers and specialist software that will speak aloud the captions and tags on your images and videos to explain what the content is. This improves the accessibility of your website,

Register your website with Google (log in to a Gmail account first): https://www.google.com/webmasters/tools/ submit-url?continue=/addurl&pli=1. Submit your website’s sitemap to Google. Doing this invites Google’s bots or spiders to “crawl” your website or web app, so your pages show up in Google search results.

word of warning, don’t keyword stuff, (repeat the same keywords over and over to try and boost search rankings.) You could be penalised by Google for trying to game the system. They have ways of detecting unusual patterns in text, and the overuse of the same words and phrases, so make sure your content flows naturally.

Create descriptive page titles and good meta-descriptions: https://support.google.com/webmasters/answer/35624? hl=en – 1 SEO starter guide: https://static.googleusercontent.com/media/www.google.com/en//webmasters/docs/ search-engine-optimization-starter-guide.pdf Pro tip! Allow Google to promote your mobile app on the web using Firebase. As soon as you launch your mobile app, get it indexed by Google, so that it’s registered on Google’s servers. Once Google “knows” about your app, it can be launched or installed if it comes up in Google’s search results, https://firebase.google.com/docs/app-indexing/

Page speed is also important, both for SEO (as Google can penalise “slow” websites) and because anyone coming to your site will expect your pages to load quickly. Google has some analysis tools to assess web page loading times. Check periodically to see how your web pages perform: https://developers.google.com/speed/ pagespeed/insights/?hl=en.

Dropdown menus and pop-up boxes are not phone friendly, nor are websites with lots of tabs.

SSL, and HTTPS sites, whereby transfers of data are encrypted, carry the green padlock icon, and can increase customers’ trust in your business.

Push Notifications – a low-cost engagement tool for mobile and web apps

Push notifications for mobile apps are economical to send. Via Amazon Web Services, (AWS), the cost is $0.50 USD per million notifications: https://aws.amazon.com/sns/pricing/. Analytics tools such as Mixpanel https:// mixpanel.com/notifications/ can be used to monitor the effectiveness of the push notifications that you send.

Push notifications for web browsers. Websites and web apps can request permission to send notifications to customers.

If you’d like to see how businesses that sell mobile apps promote themselves online, take a look at these sites: Toshl Finance (iOS, Android, Windows, Blackberry and more), https://toshl.com/ The Headspace app (Android and iOS), https://www.headspace.com/headspace-meditation-app.

Plug-in examples include online review plug-ins, the ability to add PayPal buttons to the site to transform it into an e-commerce store and price plan comparison widgets

Double check that the template you select is responsive and will re-size for mobile.

Landing pages are 1-page websites used to perform a specific purpose such as promoting or selling a product or service, or to collect sales leads. Launchrock http://launchrock.com/ focuses on providing services for startups. Other landing page tools include: Landingi, https://landingi.com/ Leadpages, https://www.leadpages.net ActiveTrail, https://www.activetrail.com/ Mailerlite, https://www.mailerlite.com/full-feature-list Ontraport, https://ontraport.com/ Landerapp, https://landerapp.com/ All the tools offer a free trial, and prices start from around $29 per month, apart from ActiveTrail which currently starts from a budget-friendly price of $7 per month and supports email and SMS marketing and Mailerlite which offers a freemium package. Most of these apps will let you create as many landing pages as you like under the same account, and as a rule, most will allow you to connect domains you have already purchased to a limited number of landing pages. Some also offer A/B testing functionality, so you can compare two different versions of a landing page by displaying them both to customers on rotation. Where this is the case, a page showing the effectiveness of each one is presented within the app for you to review. My tip would be to sign up for 2 or 3 tools on a trial basis with the functionality you want. (Most will give you between 14 and 30 days for free.) See how much you can achieve with each one in a set period of time, then decide which product is right for you.

Mapping out user journeys will help you create useful prototypes

When you’re creating your user journeys, don’t forget to use the customer profiles that you put together in chapter 3 to remind yourself of the key problems that you are trying to solve.

Let’s imagine that we intend to create a software product for Human Resource Managers.

He logs in (step 1) checks the relevant employees’ start dates, (step 2) and then logs out (step 3.) This is just one user journey and each step needs to be investigated: How does an administrator like Sam log into the app? How will they log out? What about passwords and security? (For example, it may be above Sam’s paygrade to see certain information that Robert is permitted to see.) Where does the data Sam is checking come from? How do Sam and Robert want to see their company’s data presented on-screen? You can give each user journey a name that describes what it’s about and what the key activity is – Sam’s user journey might be named View employee information. That name could be improved upon really, it’s a bit vague, so this might become View employee start and end dates, for instance.

Later on, you may discover that you have Rob’s steps in the wrong order, that there are steps missing, or that not all the steps are necessary. If you’d just gone ahead and done what you thought was right, you may have gone off track – that’s the benefit of planning out what you’re going to build using user journeys, wireframes, (see Chapter 12) and prototyping. Once the build cycle starts, you can check that you’re on the right path with the help of user testing.

If you’re interested in B2B software development, always consider the hierarchy within an organisation and seek agreement from all the decision makers and influencers when doing market research.

You can also use an app like Lucidchart to create your diagrams. There is a plan available that will allow you to create a small number of diagrams free of charge. https://www.lucidchart.com/

If flowcharts don’t appeal, a mind map can help you to organise your thoughts. The important thing is to do some planning! Try Bubble https://bubbl.us, Mindmeister https://www.mindmeister.com, or Coggle, https:// coggle.it/ for free and low-cost mind mapping tools, which may be printed, shared, and downloaded.

Making sure you’re truly ready before you hire your developer, and II) Avoiding building too much functionality, are both measures that will help you to reduce your costs!

If you’re familiar with the Pareto Principle (also known as the 80/20 rule), you may be aware of how it applies to software: we use approximately 20% of the same functionality, 80% of the time.

https://www.forbes.com/sites/davelavinsky/2014/01/20/pareto-principle-how-to-use-it-to-dramatically-grow- your-business/.

To find out what your 20% is, listen carefully to what your target customers say about their essential and favourite features – before you pay to have any functionality built! The only way to truly know what functionality people will use is to build it and track what functionality is used, but the more people you ask and the more insight you can draw from their feedback, the closer you’ll get to the right answers. Whatever functionality you do decide to build, make sure that customers know it exists so they can get the maximum benefit from your app. If people can’t or don’t use the functionality you’ve provided, you will have wasted time, energy and money unnecessarily.

Your customers will appreciate clear signposting which confirms: How to start a process. How to continue with that process and what is going to happen next. Where they are right now in the process. (Users should know where they are within your app at all times.)

Here’s a tool that does a good job with user orientation and addresses many of the points that we’ve just covered. Now redesigned and rebranded to Mailshake, https://mailshake.com/ it’s a SaaS web app (formerly known as Connector) that can be used to send out emails.

I’ve worked with people in the IT industry who think being subtle and using lots of icons rather than text is better, but my experience is that people want to know where they are, what options are available and what to do next.

Don’t just “slot” information, buttons or other widgets onto a part of the screen where there’s free space, think about where people would naturally look for it when they need it.

Inline help text might be provided by some applications. This is a preventative measure, rather than a reactive approach to a user error.

Some apps will explicitly tell the user what the problem is using an error message.

Others will highlight the email address field in red and

Other apps will display their error messages right next to the issue so it is easy to spot. (Very helpful.)

Speak to a developer about the cost vs. the benefit of implementing less common gestures before you commit to doing the work.

Standard gestures and their use cases, tech speak for: “under what circumstances would someone need to do that?” include: Pulling / dragging down, to refresh content. Pinching in, to shrink content and make it smaller. Panning out, to enlarge content. Tap, used to confirm, enter, submit or select. Double tap, to zoom in or out, or jump if playing a game. Press and hold, to drag mobile apps to different locations or to see more information. Flick, for scrolling quickly or as a gaming command. Slide / swipe, to move to a new screen or reveal more content. Rotate screen, to switch from portrait to landscape. If it makes sense to do this, how should your app look and behave in landscape mode? If not, ask for screen rotation to be switched off, so the app looks the same even if the smartphone or tablet device is rotated. Scrolling, to bring new content (text, images, options etc.) into view.

You may find it useful to create a table containing all the gestures you want, which you can keep for reference and as a guide for your developer to check against, as they work on your app.

When using a website or web app, it should be possible to hit the tab key and see it highlight every field, button, and option on your page,

Dropdown menus are difficult to manipulate using a smartphone or tablet, so options that can be tapped on, or scrolled through are often used as an alternative.

Hover. Hovering over links with your cursor generally “underlines” that link and shows you the web address for the link in the bottom left-hand corner of your web browser, whilst hovering over menu items on a web page may cause their colour to change and change your cursor from a white arrow to a hand.

The hover action can also cause information to appear in a tooltip, usually where an i or ? is displayed. In this scenario, information usually appears on screen for several seconds.

the following icons are recognised as standard representations for: Image, Video, Menu (hamburger), Settings (cog, gear or wrench), Share, Home, Edit, Comment, Search, Buy (shopping cart), Profile, Location (pin /point), Secure (padlock), Information (i).

You can also try Googling: icons for [insert what you’re looking for]. There are websites that will allow you to use their icons for free.

explain where the colour should go and by providing them with the relevant hex numbers. Hex numbers, (short for hexadecimal numbers) are used to represent colours in computers and applications. For example, the shade of green named “Aquamarine 4” has a hex number, #458b74.

Be aware of colour blindness; green and red, green and brown, blue and purple, and green and blue are some of the worst combinations for colour blind people.

Mascots Tunnelbear have their bear, Trello has Taco the dog, and Zendesk has “The Mentor.” These are all relatively young companies with SaaS and mobile apps. Depending on the nature of your business and your preferences, you may wish to hire a designer and front-end developer to design and create a company or product mascot.

Carefully select the words you use on your website and within your app, including; company information, the copy on your app marketplace page or website, error messages, help information, button text, link text, warnings and calls to action. These can be used to communicate whether your company is relaxed, formal, playful, or serious, or any other characteristics that you feel are relevant.

Images liven up apps and bring a human element to them, but they are also a strong non-verbal way of communicating about your app and who it is for.

For example, you would have a mismatch if you selected images appropriate for a relaxed media agency if you wanted to sell your product to corporate finance companies.

For B2C customers, make sure the people in your images match the age range of your target market and focus on men, or women if the app is for a specific gender group, or are socially inclusive to reflect both genders and different races if it is not.

Googling “royalty free stock photos.” RF, or Royalty Free, means that you do not have to pay the person or company who owns the photo for each use of it, however, the images themselves are not necessarily free.

The Adobe and Depositphotos images must be paid for, but the other 2 sites have free images available: https:// stock.adobe.com/uk/ http://depositphotos.com/ https://stocksnap.io https://pixabay.com/

if your app is processing a request, inform the user, and if a customer enters data into your app, confirm that it’s been received with an on-screen message. Don’t keep users in suspense. Always acknowledge your customers’ requests!

(Note that it is possible to code apps in such a way that only the first click is registered. This will stop impatient clickers from slowing down your app!)

Displaying messages such as: “We’re working on it,” “Please wait”, or placing moving images on screen whilst the app is processing tasks serves two purposes: i) they confirm to the user that the system is working and ii) help them lose track of how long they’ve been waiting!

consider your audience and the type of interactions needed for the app, and ask yourself the following questions: How many user journeys are there? How many steps are there in this particular journey? Where does the journey begin? (The answer is often after the user has logged in, or signed up to use the app, but some mobile apps will automatically start up without the user having to log in at all, or needing to repeatedly log in each time the app is used.) What happens next? What triggers that to happen? Then what? What information needs to be provided by the customer at this stage and how will it get into the app? Where will the information be stored once the customer provides it? Do I need to present the customer with any of their own information at any point(s) in the process and if so, when and what will they expect to see? What options will the user have at this stage of the process? Do I need to provide any on-screen messages for the customer, such as errors, warnings, confirmation messages, or thank you messages? How will these messages be presented? If the customer gets stuck or confused at any point, what help, or information will be available? Will I need to rely on external (3rd party) tools and systems? What will they need to do and at which stage(s) of the process are they needed? (This question may take some time to resolve, just keep this in mind for now.) Where does the process end? What happens then? Is this logical? How can I make this journey quicker, easier and more straightforward for users? What colours do I want to have in my app? Do I want a company mascot?

You can see some examples of how others have managed the design of their web and mobile apps here: http:// nectafy.com/saas-website-design-examples/ http://www.webdesignerdepot.com/2013/07/20-beautifully- designed-smartphone-apps/

Here are some varied examples of menu options for tablets: Example 1: https://s3.amazonaws.com/ media.nngroup.com/media/editor/2015/09/22/sephora-swipe.png. Example 2: http://seanrice.net/media/2013/09/ burtonmenuUX.png. Example 3: https://s-media-cache-ak0.pinimg.com/736x/28/83/ e7/2883e72ac3ebc705549eadc00011da04.jpg. Example 4: https://scdn.androidcommunity.com/wp-content/ uploads/2012/04/Screen-Shot-2012-04-18-at-10.36.58-PM-540×448.png.

This video could be hosted in a number of ways, via: YouTube; https://support.google.com/youtube/answer/ 161805?hl=en-GB Wistia; https://wistia.com/pricing Vimeo; https://vimeo.com/join A service like AWS; https:// aws.amazon.com/media-sharing/

[It’s normal to have several ways to perform the same action. The text may be different, but the destination, or end result will be the same – they are just different ways to encourage people to go ahead and click.]

Explainer videos are good ways to showcase what your product can do, to provide help to users or to give a product tour or demonstration.

In fact, the code from prototypes is often thrown away. They are a tool for learning, for both you and your developer. Even if the code is thrown away, the lessons learned during the process will be preserved – your developer should keep these in the front of mind as they build the “real” product.

Set a time limit and stick to it. Explain what you want and ask your developer how long (realistically) it would take for the work to be done. Agree on a fixed price, or hourly fee for the work on top of the main development work that will come later. Once you agree on a time limit, confirm this verbally and in writing.

If you send information by email, consider marking the email private and confidential and emphasising that the content is not to be shared (unless you want it to be.)

PowerPoint or Paint format, or printed, and sketched on. You can find templates on these sites: Interactive logic, http://interactivelogic.net/wp/2009/09/iphone-wireframe-templates/ offers a range of templates that you can use.

The POP (Prototyping On Paper) mobile app. Available from the Google Play, Windows and Apple stores. Take photos of your screens, mark the clickable areas and your prototype is ready! https://popapp.in/. AppyPie provides mobile app building and prototyping software for iPhone and Android, with no coding required, http:// www.appypie.com/app-prototype-builder. Mockup Builder offers prototype creator software, http:// mockupbuilder.com/Gallery. Cacoo’s services include mind maps, process flow charts, and wireframes for web or mobile apps, https://cacoo.com/lang/en/sample. Mockingbird is a tool for creating clickable wireframes that can also be shared, https://gomockingbird.com/. UXPin can help you build wireframes, mockups and interactive prototypes for web or mobile apps, https://www.uxpin.com/examples.html. Balsamiq is a well-known wireframing and mockup tool, which supports prototyping for web and mobile apps, https://balsamiq.com/.

Marvelapp, is a well-established

Freebiesbug, https://freebiesbug.com/psd-freebies/ui-kits/ is a great source of UI templates for web

Reflector 3 will allow you to share a web or mobile app from your iPad, iPhone or Android device wirelessly to other devices,

http://www.airsquirrels.com/reflector/in-action/development/.

The tests, or exercises you ask participants to perform during the session should cover all the major parts of the prototype. It will be important to do this before you pay to have any functionality built, so you can avoid investing your money in the wrong functionality.

Try your best to get answers to fundamental questions, such as: “Do people understand the way this [insert functionality] works?” “Do people like the way [insert functionality] works?” “Are people able to complete this user journey quickly?” “Does this functionality truly make life easier or better for my target market?” “Does the product solve their major problem(s)?”

Make a point of emphasising when each exercise starts and ends – it’s easy to forget to explain things because they are so obvious to you. The

Watch for non-verbal communication. Observe the user’s facial expressions and body language, as well as what they say to get the full picture of what they are thinking and feeling, and what pleases or frustrates them. Actively encourage people to say what they are thinking as they work through an exercise.

If you have to intervene to help a user or show them what to do, this is a sign that there is an issue. If your product is easy to use, your help should not be needed.

Watch out for “polite” silences as you speak. Does this mean the person you are speaking to dislikes, or disagrees with your proposal? Or, are they just confused? Pause frequently after discussing functionality to ask: “What do you think?” or “Would that work?”

Ideally, you need a pool of people from whom you can get feedback, ideally quite quickly. If your developer has questions and you’re not sure what the correct answer is, you may find it helpful to speak with individuals from your target market to get answers. Consider setting up a Facebook group as a way to obtain feedback and to remain in contact with people.

Hand over a short questionnaire, which includes questions such as: i) The best and worst things about the app. (Which functionality should you put to one side and not pursue? Which should you focus your energies on? Remember Pareto’s 20%!) ii) Things which they expected to be able to do, but couldn’t. (This will help you to identify gaps in your product, where useful or important functionality is missing.) iii) Parts of the app that were confusing. (This will help you to improve your user interface and user journeys.) iv) Any apps they know of that do something similar. (This will bring you extra market research data.) v) Their recommendation for the number one thing that you could do to make your product idea better. vi) It is also very interesting to ask the question “Which people would this app be most useful for?” Assess how closely your product fits your target group from their perspective. Do they think the product is ideal for them, or do they think it would be better for some other group? Is it time to review your avatars and customer profiles, or have you found the right product – market fit?

Mixing positive and negative statements is a tool used by researchers to make sure that people are not answering questions on “auto-pilot” and are taking the time to consider each question.

Here’s an example of a user testing session to review specific aspects of a social media app. You might ask the people testing it to perform the following tasks: Sign in to your app and create a profile. Upload a profile photo. Post one comment from their profile. Post one video from their profile, along with a comment. Post one image from their profile, along with a comment. Post one link from their profile, along with a comment. Search for an imaginary friend (set this up in the app in advance) and ask them to “like” their friend’s post (prepare the friend’s post in advance.)

Try for a minimum of 5 user tests per avatar to be sure you’ve understood the needs of each target group. In other words, if you have 2 avatars, like Robert and Sam from chapter 10, then you would want to speak to 5 people like Sam who are administrators or office juniors and 5 people like Robert who are HR Managers.

Screen recorder software can be used during user testing. This may record users’ faces and their mouse or cursor activity. Make a note of all the issues you spot during each session and study the video footage later. It’s always an eye-opener to watch playback of users performing activities, you can see them thinking, frowning or looking relaxed, depending on how complex they find your tasks to be!

Adobe Captivate. www.adobe.com/Captivate‎. Camtasia. https://www.techsmith.com/camtasia.html.

The Minimum Lovable Product (MLP) concept has appeared more recently and those who support it say that the first release of a product should delight and excite customers rather than being basic and “just good enough.”

Review the market research, customer interviews and user tests that you have already done, then continue to consult with your target market throughout the build process to make sure that your product remains useful, usable and valuable to them.

MVP is all about making tough decisions

It’s o.k. if your MVP has a few niggles and annoyances initially, however, it should be free of any serious bugs when you present it to customers. I would define niggles as functionality or user journeys that “do the job”, but could be improved, or the absence of useful, but non-critical functionality which has been deferred beyond your initial launch.

Mingle, https://www.thoughtworks.com/mingle/ and JIRA https://jira.atlassian.com/secure/Dashboard.jspa are specialist task management and tracking systems used to store project requirements. They also allow work to be assigned to team members and can be used as issue tracking tools, so that bugs and other product faults can be either assigned to, or “claimed” by members of the team for fixing. Another tool you might consider is Trello https://trello.com/.

MoSCoW is a prioritisation method. It is used widely in Agile software development

MoSCoW consists of four priority categories; Must, Should, Could and Won’t.

Put every task you can think of that needs to be worked on by a developer into one of these 4 categories:

Must. This category is for core work that “must” be done. This list should include:

Your essential functional requirements.

Your essential non-functional requirements – including those related to security, performance, availability and compliance.

Any technical items required for your project, and any tools your developer needs to do their job, including maintaining, and supporting the product

Won’t. These are items you would like to work on, but won’t.

If keeping your “must” list small is a challenge, try and imagine the worst that could happen if you DON’T get certain functionality built. You’ll need to decide if the outcomes you imagine are risks you’re prepared to take

Let’s look at a few common scenarios.

A customer enters the wrong data in the wrong place (or the right data in the wrong place)?

You can have text in your app which is visible in the app all the time, called inline text, to advise users (a pro- active measure), or contextual help, which appears to help users at the relevant point in a process (also pro- active),

Tiobe Index, (Tiobe operate in the software quality arena),

YouTube, Dropbox and Google web apps were written in Python, Shopify, Kickstarter and Airbnb in Ruby, and Facebook, Wikipedia and Yahoo! in PHP.

The Android OS is itself written in Java and if you want to create a mobile app suitable for Android mobile smartphone and tablet devices, then you will need a Java developer. (Note that C and C++ can also be used to build Android apps, but this is not promoted by Google – Java is the recommended language.)

If you wish to create a mobile app for Apple mobile devices (and Macs and wearable devices too), then you will need a C, C++, Swift or Objective-C developer. C and C++ are Microsoft products, whilst Swift and Objective- C are owned and licensed by Apple. If you hire a developer with C or C++ skills, be aware that you’ll be “mixing and matching” to some extent in using tools created by Microsoft to build a product for Apple, instead of using tools designed by Apple for Apple. However, there are no laws against this and C or C++ developers with a good track record in building iOS apps could be considered.

Tools exist which allow developers to create applications for different purposes. These are called SDKs (Software Development Kits.) There are many types of SDK, including ones for Facebook and Spotify, as well as those for specific programming languages. The iOS SDK was created by Apple to build apps specifically for Apple mobile devices. The “kit” comes with a set of tools for developers to use, including an iPhone Simulator, which mimics the look and feel of the iPhone on a laptop or PC.

SDK’s may include an IDE (Integrated Development Environment), additional software which provides extra tools and a more visual environment for a developer to work

The iOS IDE is called Xcode.

Android’s IDE is called Android Studio.

Eclipse is an IDE used for Java development; Eclipse and Java can also be used together to create Android apps.

Areas of expertise – “front-end”, “back-end”, “full-stack”

Front-end (or client-side) skills are used to create the parts of apps that the user can see and interact with. Front end expertise might include controlling the layout, fonts, colours, call to action (CTA) buttons, such as “back”, “next” and “Go” and styling. The positioning and integration of copy, images, video and logos are also “front- end” tasks, as are boxes that “pop-up” on mobile screens and web pages. Interactive elements like social media icons that connect the user to Facebook or Twitter, or show the number of people who have ‘liked’ or ‘tweeted’ a post are also the domain of front end developers. Common examples of front-end skills include: CSS, CSS3 (the most recent version of CSS), JavaScript, jQuery, HTML, (Hyper Text Markup Language) and HTML 5 (the most recent version of HTML).

Back-end (or server-side) skills are used to perform actions which take place at the back-end, (also known as the server.) A back-end developer’s work might include capturing the information entered, or uploaded into an app by a user and storing it in a database, and the retrieval of that data when a customer requests it via the app. Their skills ensure that the database and the app’s front-end can communicate with each other. Back-end developers generally handle configuration tasks and the logic, or business rules coded into the app, which tells the app what it needs to do and what limits or rules apply when it comes across different scenarios.

A back-end developer will be skilled in a programming language; PHP, Python, Ruby or Java for example, and have experience with databases (nicknamed DBs). Oracle, Microsoft SQL Server (usually referred to as SQL Server), MySQL, MongoDB and Postgres (also known as PostgreSQL) are some of the most common databases that developers may have on their CVs.

Experience of using frameworks is a positive thing – they have common pre-packaged elements that can make development quicker and more straightforward.

Frameworks also introduce and maintain consistency and continuity, both in the way that your developer works, but also between developers – you could decide that each developer you hire must have experience of the same framework(s) as their predecessor.

Frameworks exist for both front end and back end programming languages.

GitHub, one of the largest developer networks on the web, name frameworks such as Bootstrap, Foundation and Semantic UI as some of the most popular front-end frameworks. When considering back-end frameworks – Laravel, Cake, Symfony and Zend for PHP, Django, Pyramid and Flask for Python and Sinatra and Rails for Ruby are all well-known.

The source code for your app needs to “live” somewhere and that place is called a source code repository or a Revision Control System. Often described in the development community as a repo, this holds all the files that your app needs in order to run and may be used for version control too, which involves storing, retrieving and merging changes to code. Popular repos include GitHub and BitBucket (owned by the company that created JIRA).

Revision control also makes it easier for multiple developers to work on your product at the same time and to add or check-in their code without affecting the work of other developers on the team. Repos may also help to get you and your developer out of crisis situations, by helping them “undo” mistakes (by rolling back to a previous version of your product) or possibly to recover deleted files.

If you have multiple developers, then Continuous Integration (CI) experience may be useful too. Popular CI tools include Travis https://travis-ci.org/, Jenkins https://jenkins.io/, Codeship, https://codeship.com/ and Bamboo, https://www.atlassian.com/software/bamboo. CI is the practice of integrating and merging code from different developers into a shared repository (such as Git or Bitbucket). Automated testing is done before the code is merged, to confirm that the code to be added to the shared repository has not broken any functionality or caused any issues.

Full project life cycle experience It will be advantageous if you can find developers who have experience of working on projects from beginning to end. This is called full project life cycle experience. Many developers will have this experience, but it is not a given. You’ll need someone who knows how to set up a development project from scratch, build the app and release it into the public domain successfully, so look for evidence of this.

If they have the know-how, developers can make use of 3rd party tools including APIs, code libraries and open source software and adapt or integrate with them for your benefit. These 3rd party tools can be used to enhance your product, or to speed up delivery of your project.

As an example, Google Maps, Facebook and Twitter all have their own APIs, which allow other companies to use elements of these apps alongside their own functionality.

Familiarity with code libraries can save developers time and make the development process more efficient.

Standards and protocols Focus on the skills you need the most as the priority, however, it may be useful if your developer has experience with the following: XML (Extensible Markup Language), pronounced ex-m-el, is a simple way of storing or transferring data between systems. JSON (JavaScript Object Notation), pronounced jay-sun, is a format for sending or receiving data that can be read and understood by humans or machines. RESTful Services (Representational State Transfer), or SOAP (Simple Object Access Protocol.) REST is not a tool, or software, but an approach used to help computers to communicate with each other. Some APIs are RESTful because they conform to REST standards. An alternative to REST is SOAP, which has a different set of communication standards. You can certainly look out for these on profiles and CVs. They suggest, (but do not guarantee) that the developer has a good range of experience and is probably not a junior.

Who should I hire? Here’s a summary of the technical skills discussed in Chapter 15: For Apple / iOS mobile app development, hire C, C++ or Objective C and / or Swift skills. Look out for use of the iOS SDK, Xamarin studio or other SDKs. For the Google Play store / Android, hire Java developers, (possibly with additional C++ and XML skills). Look out for Android SDK, Android Studio or Eclipse IDE experience. For back-end development, consider Ruby, PHP or Python developers with knowledge of frameworks (e.g. Laravel, Cake, Symfony and Zend for PHP, Django, Pyramid and Flask for Python and Sinatra and Rails for Ruby) and solid database experience with DBs such as Oracle, SQL Server, MySQL, MongoDB and Postgres. For front-end developers, core skills will be CSS / CSS3, JavaScript, jQuery, HTML / HTML 5 and knowledge of front end

frameworks such as Bootstrap, Foundation and Semantic UI. “Full-stack” developers should have a mix of both front and back-end skills. Look out for REST or RESTful services (or SOAP), APIs, JSON and / or XML, open source development and use of code libraries.

You can also run Google searches or visit the developer communities listed below using keywords like: “best programming languages for [insert type of product, industry sector or task]” or “top programming languages for [insert type of product, industry sector or task].”

developers does not mean 2x the output. It’s a common misconception that doubling the number of developers will double the amount of code that can be produced. This is not always the case, because some work can only be done in sequence. Where a relationship exists between tasks, and one must be completed before another can begin, this is called a dependency. At certain points in the project, tasks which have dependencies will result in one (or many) developers needing to wait for that task to be completed before they can begin a new one. In other words, this work must be done in sequence. Tasks that can be done in parallel are more flexible.

Free / low-cost job sites such as Workinstartups.com, will allow you to post ads for full and part-time workers, freelancers, interns or co-founders:

Co-founder websites and meetup groups.

Meetup.com can connect you with local groups. Try searching on the keywords “developers and entrepreneurs”, “co-founders”, “entrepreneurs”, or “startups,” http://www.meetup.com Founders nation, http://www.founders- nation.com Founder2be, https://www.founder2be.com/index.php/ideas CoFoundersLab, https:// www.cofounderslab.com/

Popular communities for developers include: GitHub, https://github.com Stack Overflow, http:// stackoverflow.com/ Google+ communities, https://plus.google.com/ (then search for the individual community by name e.g. Android, PHP, Python etc.) Dzone, https://dzone.com/ CodeProject, http://www.codeproject.com/ Codingforums.com, http://www.codingforums.com/ Programmer’s stack exchange, http:// programmers.stackexchange.com/ Facebook groups. There are also lots of Facebook groups for developers, named according to the relevant development language, and sometimes by location, e.g. The PHP developers’ group, or PHP developers in the Philippines. Here’s a guide which explains how to locate talented developers using GitHub: http://www.socialtalent.co/blog/how-to-use-github-to-find-super-talented-developers

freelancers online, https://www.upwork.com.

Freelancer.com

Guru.com.

Toptal.com.

Peopleperhour.com. This is another community of freelancers / remote workers. Web and mobile designers appear on the site in high numbers. These designers generally focus on the “look and feel” of the app and not the building of the app itself,

99designs.com

https://www.designcrowd.com/

If you hire a lone developer, there won’t be anyone else to check the quality of the code they produce, for example via a code review. This is not guaranteed at an agency, but you could try asking for it.

Writing and posting a job description Here’s a sample job description in blue text, with annotations and tips in italics. Experienced PHP or Ruby developer required to build a photo sharing web app. [Write a title for your job description. List the main skills you require and describe the project in a few words.] Hi, I’m looking for a reliable [PHP]/[Ruby]/[Python] / [Java] / [Swift]/[Objective-C] delete as appropriate developer with 3 – 5 years’ full project lifecycle experience to build a [insert type of app] from scratch. [Elaborate on the essential skills you require and the number of years of experience you want. Note that Swift has only been available since the Summer of 2014, so it’s still relatively new. Briefly discuss the project and the type of app you want built.]

Ideally, you should be able to start work within the next [4] weeks. [State how soon you need someone to start.] You will have used frameworks such as [Laravel, Cake, Symfony or Zend for PHP], [Django, Pyramid or Flask for Python], [Sinatra or Rails for Ruby.] [Leave in the frameworks related to the correct programming language and delete the rest.] You should have a minimum of 2 years’ experience using any of the following databases: MySQL, MongoDB, Postgres, Microsoft SQL Server or Oracle. You should have solid experience of CSS / CSS3, HTML / HTML 5, JavaScript (jQuery or Backbone.js), ideally used with a front-end framework such as Bootstrap, Foundation or Semantic UI. [Add these front-end skills if you’re looking for a front-end developer or a full-stack developer.] Experience of leading a small team would be useful, but not essential. [Earlier in the chapter, I explained why this skill may be useful. Leave this line in, or remove it as you see fit.] You should be experienced with Agile ways of working and test driven development (TDD) / automated testing. You will also have experience of version control / revision control systems such as Git, Bitbucket, Travis or Jenkins. [Add any other requirements here. List any desirable skills and any non-technical skills that are also important.] You should also have experience of developing responsive web apps. [Leave this line in if you want to build a web app, because your app must work on smaller devices like smartphones and tablets, but it is not relevant if you’re building a desktop app or a native mobile app.] Please include any available links to your portfolio. Many thanks, [Your name] Important: Please quote reference XYZ. [Create a reference here. This is a small test to see if a developer has taken the time to read your entire advert and if they are thorough and pay attention to detail.]

If you want to advertise for a front-end developer, then put the focus on the front-end skills and frameworks and request 3 – 5 years’ experience with those and remove the database skills. If you have multiple developers or believe you are going to need to hire more in future, then Continuous Integration, CI experience will be useful, so ask for that too.

Guru, Freelancer.com and Upwork allow you to “hide” your advert so that only those you invite can see your advert and contact you.

The downside to the invite-only approach is having to run keyword searches to find developers with the right skills that you can invite. Once you find some, check their profiles and decide whether they are a i) “yes”, ii) “maybe,” or iii) “no” by:

When reviewing profiles, consider: Feedback ratings. Consider the number, and quality of ratings. How recently the ratings were given. Prioritise those in the last three months vs. older ones. The type of work that has been done for previous clients. How complex does the work appear? Was it a very large project or did the job just involve writing a small amount of code? Do they look like they have solid and relevant experience in the areas you require? Written communication skills. Would you be happy to read emails or other messages from this person on a regular basis?

The evidence of the skills you require. Look for the skills that have been mentioned in the last two chapters and look across the projects the developer has listed on their profile. When, and how were the technologies used? How often have they used the skills you are looking for over the last few projects? Which versions of the technologies have they used?

Pay attention to the version(s) of a programming language that a developer has used. The “current” versions of some of the languages we’ve discussed are: HTML5, CSS3, PHP 5.6, Ruby 2.3.1 and Python 3.5.2, but this will change over time. Googling “latest version of [insert programming language of interest]” will give you the latest information about software versions.

Compare each developers’ relevance based on their skills “on paper,” previous projects and your initial impression.

If you want to go into detail about your project during an interview, or share user journeys, process flows and other information, then it may be best to get an NDA signed before the interview takes place.

The interview questions

Beginning the Interview Provide relevant information about yourself and explain the format of the interview, for example, a basic question and answer format with some scenario based questioning. Explain what the project is, what stage you are at and the information you have gathered so far. This could include prototypes, process flows or requirements. Remember that the developer has to choose you too, so demonstrate that you are organised and collaborative! If you have any important deadlines to meet, say so up-front. You’ll want to confirm whether any dates or timescales you have in mind are realistic. Request a summary of all the information you have just given them. This is a test. You can say something like, “I’d like to confirm that you got all that, and everything was clear. Could you please summarise my requirements?” Note how they handle this. If you get the right information back, or if they got most of it, but ask you to clarify a few points, this is all positive. You’ve got someone who pays attention, listens well and knows when to ask for clarification. If they start trying to pick up on details, and repeating your information back to you before you ask, even better, they’re pro-active too! Mid- Interview Questions What challenges do you foresee on a project like this? This is a great question to see what kind of insights and knowledge the developer has and whether they have the right personality, experience and skills to be able to help and advise you, or if they will just follow your instructions and write code. These are

two very different types of developer and the former will be great for your project: they are confident, will share their knowledge and are not shy about speaking up and giving their opinion. Do you have any experience working with apps (or on projects) of a similar type to this one? If so, ask them to tell you as much about the project and products as possible. The project’s duration, team size, their role and the part they played in the project and the key skills they used. This will give you a sense of whether the part they played was major or minor. Ask for website addresses or the names of any mobile app(s) they have worked on. Next, select some other projects from their profile or CV and ask them to talk you through them using the same questions (the project, the product, its duration, their role and the skills used, etc.). If they don’t have experience of working on a similar app, ask them to run through at least 3 projects they have worked on. Ask the same questions about each one. As they run through them, listen for evidence that they played a significant part in each project and note the key skills involved in each project. Do they match the skills you requested in your job description? Does their use of the skills you need seem comprehensive, or light? I’d like to ask you a few more questions about your technical skills… Ask your questions in priority order, starting with the most important skills in the job description you posted, and ask how long they have been using each one. Next, ask them to name their top 3 strongest technical skills, along with a rating out of ten for each. (Scoring is subjective, but it is a good indicator of the developer’s confidence and where they feel their strengths lie. If the top 3 skills mentioned were not skills that are essential for the role, this should be a red flag that the developer may not be a good match.) Ask about any other skills that you think may be relevant to the job, (see Chapter 15) and seek examples of when these skills were used, how they were used, and how long for. I’m very keen on having monitoring and analytics in place for my app… (See the NFRs in Chapter 6.) Ask: Are there any products you can recommend? What types of monitoring do you think are most important, and why? I want to make sure that my app performs quickly when people are using it, and that it will cope if many customers are using it at the same time… Ask: How would you help me achieve this? What types of performance testing, and performance tuning (identifying and completing tasks which increase the speed and efficiency of an app) have you done in the past? If you can’t find developers with strong performance testing and tuning skills, you may need to hire a tester with specialist experience in this area. (Refer to Chapter 6, and Chapter 23 before you do your interviews, so you’re aware of some of the terminology that you might hear about.) Maintaining a secure app is important, can you tell me which sort of hacks my app may be most vulnerable to, and why? How would you prevent, or minimise the risk of security problems occurring? Ask about their experience with creating secure apps and what role they specifically played in any security work. Find out what security measures they recommend when building apps like yours. Please provide some examples of challenges you have faced whilst building apps. How did you deal with them? In asking this question, you are trying to get a feel for whether you think the developer is proactive or not. Did they solve the problems they mention, was it a team effort, or did someone else in the team resolve the issues? Listen for any other indications they give about what kind of worker they are. Do you have any automated testing experience? If you would like to have automated testing in place to test your product, ask which tools they have used, how long for and how they used them. Who set up the tools? Was it them, or someone else? Ask their opinion about automated testing and its pros and cons. Can they provide a detailed explanation? What do you do when you encounter a challenging technical problem? How would the developer try to solve it? Here you are looking for evidence of any networks, forums, or communities that the developer uses to solve issues quickly and accurately, their thought processes, and how proactive they might be in seeking the right answers. This is very important as technical issues can become roadblocks that burn time and money: development work may slow or even stop completely if a problem is large or serious, and a problem which is not solved in the most effective way may reoccur. Have you ever worked on an Agile project? (See Chapter 4 to recap.) If they say yes, ask which framework(s) they have experience with. Ask how long they have been

following Agile development principles, whether they like them and any advantages and disadvantages of following Agile practices. Try asking for examples of how tasks were managed on Agile projects that they have worked on previously. You know some of the basic principles now, do they mention these? Did they seem confident and knowledgeable when discussing Agile, or vague and uncertain? You’ll be given a framework you can follow to manage your project using Agile philosophies in Chapter 22. What is your current employment situation? Why are they leaving their current project? How many projects are they working on at the moment, and when will they be available to start yours? Find out how many hours per day and days per week they can dedicate to your project. You may want a developer full-time and exclusively, or just part time, so decide whether their answer is positive or not based on what you need. If a developer is running between two or more clients, bear in mind that it might be difficult for them to focus!

What tools will you need in order to start building the app? Ask why each item is needed and note these down any product names, so you can research these later. Before the project starts, you may need to sign up, or pay for tools and services that will support your project. These are potential sources of expenditure, so keep track of them in your finance app (Chapter 1) or expense log, noting how much they cost and whether the expenses are one-offs, or will recur monthly, quarterly, or annually. We’ll talk about preparing a “technical shopping list” and taking stock of all the purchases you need to make in Chapter 21. If you were to get the job, what are the first tasks you would want to do? This question is to help you get a feel for how organised the developer is. Do they have a process in mind for how to start the project? Do they name a standard sequence of tasks? The range of answers you get to this question should tell you a lot about how organised (and experienced) each developer is. I’ll explain how you can proactively kick-off your project in Chapters 21 and 22. Finishing the interview Do you have any questions for me? Are you asked intelligent, insightful questions about the project? Note down all the questions raised. They may give you an insight into points you hadn’t yet considered, or where you need to do more research, or to gather more data before development work can start. If you got the job, how would you prefer to communicate with me? Find out which tools they like to use for communication and note these down. Are you happy with these? Tell them you would like a daily update (see Chapter 22) which will cover what they did “yesterday”, what they will do “today” and any issues they are facing that are “blocking” progress. Check that the developer is happy to do this. Mention that you would like to use Trello (or whatever task management tool you’ve chosen) to store the project requirements and ask if they have any concerns or questions about that. (I’ll show you how to use Trello to manage day-to-day activities in Chapter 22.) Just to confirm, your rate is $, isn’t it? Sometimes this can change, so check just to be sure! Ask how they normally track the hours they work on a project and any software they recommend. Some of the freelancer sites have tracking built into them and the details for a few time tracking tools were provided in Chapter 16.

Technical tests Technical tests may comprise of: A programming aptitude test. These can be used for developers of any level of seniority. They assess logical reasoning skills and the ability solve numerical problems. Written technical tests, which assess the developer’s grasp of the fundamentals of programming and their understanding of good coding or database practices, or tests with questions about specific programming languages or databases. A practical test which involves writing code to solve a specific problem assigned by the interviewer. A verbal technical interview, used to assess understanding of specific topics in the form of a “technical chat.” If you

know anyone with the same skills as the developers that you are interviewing, ask if they could do a technical interview on your behalf. There are technical tests available online for most languages. Technical tests can be obtained via: https://tests4geeks.com, https://www.interviewmocha.com/pre-employment-testing/software- development, https://mettl.com and http://www.w3schools.com/php/php_quiz.asp.

Mettl will email test results directly to you when a test has been taken: https://mettl.com/en/pre-built-tests/.

If you know anyone who can look at the quality of each developer’s code, even better as this will identify any bad habits and show whether a logical approach was taken in terms of the way the code was written.

Discuss some simple tasks that the developers could do from the MVP “Must” list

that could be prototyped quickly. Agree on exactly what you are expecting to see. Give all the developers in the work trial the same piece of work to do so you can compare one result directly with the other.

To manage your costs during the trial, agree on a strict time-limit with your developer – anything from a few days up to a week, and agree on a fixed price, since this is a short-term agreement.

Check if there is anything else the developers need from you before the work trials can start. You will also need a way to test the work done during the trial, so ask each developer how they intend to give you access to it.

Once the trial period comes to an end, test the work you’ve been given, asking the following questions: Have the task(s) been completed correctly? Does the work done match what you both agreed would be done? How were your requirements interpreted (or misinterpreted)? Was the work done within the agreed time-frame? Did each developer check-in with you during the trial period as you requested? Were you happy with the way they communicated? Did they ask any questions to check they were following the instructions you provided correctly? Did they contact you to seek confirmation if in doubt? A good sign. Or, did they just go ahead and guess what was needed without checking in with you? A bad sign! What were your impressions? What was it like working with each of the developers? Were they resourceful, with a can-do attitude, or difficult to communicate with? Did they seem professional and organised? Did they seem to know what they were doing? There

Qualities to look out for If you find a developer with these qualities, keep hold of them! Knowledgeable / skilled. The developer is aware of a range of technologies and tools relevant to your project and your requirements. They can explain the advantages and disadvantages of them in the context of your project. Their past projects are relevant to the type of app you wish to build, and the developer appears to have played a significant role in these projects. Consultative and communicative. Communicating with the developer is easy. They listen carefully and address your concerns, and can explain concepts to you in layman’s terms. Friendly. You feel at ease with them. Working together is a positive experience. Flexible, and a good problem solver. They make suggestions which are helpful or relevant. When issues arise, they are able to work through, and resolve them. Direct. Getting a “yes” to every question isn’t always a good sign. Software development isn’t simple, so if someone says yes to every question without providing much background information, I would be a little concerned!

Reliable and competent. The developer does what they say they will do, acts on your requests, and puts in the agreed hours. They provide regular progress reports and deliver quality work.

Consultative developers will come to you with this information without you having to ask, but if the information isn’t offered, here’s an example of a professional explanation: “Unfortunately, there is a problem delivering item A for reasons ————- and ————-. We could do item A if we had ——- and —— but you need to be aware of possible issues such as ————-if we go ahead. What we could do is try alternative B, or alternative C. The pros, cons and costs of doing B, are ————-. The pros, cons and costs of doing C, are ————- and in order to do B or C we will need ——-.”

You can also use this process to investigate project delays: “We have a delay for reasons — and —-. If we try doing —-, and —–, we might be able to speed things up… The pros, cons and costs of doing—– are ——, and —–.”

freely discuss topics via whichever communication channels you like, but to ensure that the final outcome or agreement is always logged in your task management tool, along with all the relevant information and details needed by your developer to complete the task at hand. Agreements should always be put in writing. Agile teams use the phrase “card, conversation, confirmation”, which means that before a new task is started by a developer, the requirements for the task should first be logged on a card, then discussed, and confirmed.

Technical documentation Whilst technical documentation can be extremely useful (especially during handovers), producing it can be expensive. Time spent preparing documentation must be paid for – either directly, or in terms of time taken away from building your software. Documentation can also become outdated as your app is built, which means an ongoing commitment to keeping it up-to-date, or taking some time after your MVP is built to do a full write-up. If you would like documentation to be provided, create a card for it in your task management system, (because it’s still a piece of work that you’d like your developer to do). Here are some fundamentals you might ask to have delivered to you in a document: The architecture of the entire system, including a high-level overview, and the details of the smaller, interconnecting components, including databases, servers, 3rd party software, hardware and any other critical parts. Request diagrams as well as a written description wherever possible. Any APIs, plug-ins or other 3rd party tools and services your app relies on (monitoring tools, performance management tools, web hosting services, analytics tools etc.) Your developer should explain what each service does, and how it is being used in the context of your app. Any important technical information and any configuration settings (system settings) that have been put in place and what they are for. All account information, logins and passwords related to your product. (You may wish to use password management software to keep your passwords safe, such as KeePass, LastPass, and others: http:// www.techradar.com/news/software/applications/the-best-password-manager-1325845. Any important, or useful

Develop your product idea, carry out customer interviews and do competitor research Create prototypes, prepare user journeys, run user testing sessions Decide on a visual design Gather and prioritise requirements for MVP Hire your developer Estimate MVP Build and test MVP User test MVP Launch MVP and run beta test Reflect, review and decide on next steps Post-launch bug fixes and adjustments. These usually take place between 0-4 weeks after launch, depending on customer feedback, and the severity of any issues found.

Shield your project from risks. Have back-up plans in place to keep your project afloat.

the management of risks can be put into one of 4 categories and you can choose to avoid, mitigate, transfer or accept risks:

Because situations and circumstances change during projects, it’s worth repeating the risk assessment process at least every few weeks.

If you needed to add 35% to your current project budget, could you do it?

If you don’t have the scope to add an extra 35% as a buffer, this means that there isn’t much tolerance within your project for things which might go wrong. As a result, it will be even more important to cut your MVP down to the absolute bare minimum and to minimise project risks and delays.

Know your monthly burn rate.

Plan for future expenditure. If you’d like to enhance your product further in the months after your launch, then you’ll need a budget for that too.

Monitor progress and take action if necessary. A key element of project management is monitoring whether things are going according to plan, and swiftly taking the right action if they’re not.

Tasks or cards (in other words, your requirements) constantly take longer to build than expected and run beyond their due date.

A build-up of untested tasks / cards.

Testing cards completed by your developer Your approach to testing your app can have an impact on your budget and increase the level of risk in your project.

Let’s imagine you score 1 point for every card from your MVP “must” list, which is completed. There is no other way to score points – cards must be completed first.

a card is ONLY completed when: Your developer has performed all the technical tasks and built all the required functionality connected with the card to your specifications, has checked it over, and sent it to whoever is taking on the QA or tester role, to be manually checked AND The QA / tester has checked all the requirements relating

to the card and confirmed that they are all present and working correctly, and that there are no bugs or issues that need fixing, and agrees to sign-off the work.

In Agile terms this is known as our DoD, or Definition of Done, and defines when a piece of work is finished. If you have 20 cards waiting to be manually tested, and none have been completed according to our definition of done, that’s 20 cards’ worth of uncertainty and 0 points. There could be bugs, issues, errors, unfinished work and all manner of problems lurking within those 20 cards.

The main point here is that even if you have 100 cards that have been worked on by your developer, if they are not fully completed, then you are not in a good position. Keep this in mind and convert your cards from sources of uncertainty to point-scoring positives every few days if possible, and on a weekly basis as a worst-case scenario.

Death by 1000 cuts The impact of these won’t be felt initially, but over time they can be fatal to a project.

Spending too much time building functionality for one part of your product can cause you to run out of money, or to overspend… and other parts of your app will suffer as a result. Once you have estimates, don’t spend more than the allocated time on each card and avoid going on the equivalent of a “spending spree” trying to perfect parts of the product until all the “musts” from your MVP have been completed.

Procrastination / Over-optimism. “It’ll work itself out” is not a business strategy! Try to squash problems when they arise rather than waiting,

Suddenly squeezing in more functionality or changes shortly before going live. This is when mistakes often happen because “last minute” tasks are performed at the worst time – when people are already busy, or under pressure. Before a deadline, you should be focusing on testing and ensuring that what you want to release works well. It is not the time to try and add in more work!

Ideally, you should stop adding new functionality to the version of the product you intend to release 3 to 5 days in advance.

If you find multiple issues, or 1 serious one that greatly reduces the quality of your product, then you should postpone your release. (Issues like these are sometimes known as “show stoppers.”)

It’s a common misconception that you can accelerate progress by adding more developers into the mix in an emergency.

Don’t forget that even with an army of coders you won’t make much progress if you have lots of work which can only be done in sequence.

Think about security. Data Protection laws must be considered. Could your 3rd party relationship result in any of your customer data being exposed to the 3rd party? If so, what does this mean from a legal standpoint when you are responsible for how you protect and store your customers’ data?

Terms and conditions and legal agreements. Do you need to sign any legal agreements or be granted a license to use the service? Ask to see the SLA (Service Level Agreement) and Terms of Business for the service that you’re going

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Estimation creates accountability

The impact of Parkinson’s Law. This law states that: “Work expands to fill the time available for its completion.” If there are no time limits or deadlines assigned to tasks, then there will be less urgency to complete them.

The process of estimation aids understanding. Because the estimation process requires you and your developer to review and discuss the work to be done, your developer will naturally start to get a better sense of what you are trying to achieve in terms of both the building blocks (the cards) and the big picture vision!

If feature (or task) A is estimated to take 4 times longer to code than B, would you still want to do it? Is it really worth the cost if it will take that long to build? The answers to these questions may still be yes, but this is an important evaluation process.

Before you begin estimating your MVP… Make sure you have ALL the essential items in your “must” queue. This should include all your functional requirements (covering the activities your target customers will want and need to be able to perform), non-functional requirements (performance, security, database storage, monitoring, legal requirements etc.), any customer care and administration functionality that you need to build, and any technical tasks you

Ask your developer to estimate each card in your “must” queue. There are many ways to estimate tasks, but a quick way to do this is to use t-shirt sizing. This is a popular estimation technique used by Agile teams. Estimates come in sizes XS, S, M, L, XL and XXL

Have you come across Hofstadter’s law? It states that things always take longer than you expect,

To begin estimating, take the first card and ask your developer whether it is an XS, S, M, L, XL, XXL*. Don’t debate about the first card too much. This is a relative scale, so the task will get easier as more cards are estimated. They just need to go with their gut as to its size. Note the estimate given and move to the next card and the next until all the cards have been assigned to a T-shirt group. Keep a note against each card of which T- shirt group they belong to. Now ask your developer whether they want to make any changes and if they are sure each card is in the right T-shirt group. Give them some time to review the cards and categories again. You can facilitate the process by asking questions such as: “Is this task definitely bigger than that one?”, “Are you sure that all the cards in this group are of approximately the same size? Make any adjustments needed. Next, we need to link the T-shirt sizes to time. This could be time blocks such as 1/2 a day, 1 day, 2 days, 3 days, 4 days and 5 days. Let your developer decide the number of days that should be associated with each T-shirt size: XS, S, M, L, XL and XXL. (Estimating work is a subjective exercise and as they are doing the work, this is their own personal estimation scale.) Now you can note down the T-shirt size on the front of each Trello card and calculate the number of days, weeks or months’ worth of work ahead.

*If any of the cards are bigger than XL, then the card is way too large and needs to be broken down into smaller more manageable pieces of work. Small, well-defined tasks are easier to define, estimate, build and test and there will be less chance of your developer getting stuck or lost whilst working on “smaller” cards.

Note down the cost estimate for each “must” card, add them up and then add your project management contingency value of 35% (see chapter 19): For example, if you have 7 cards each taking three days to build, that would be 21 days, plus 35% extra added as contingency, gives us a total of 29 days. 21 days x 35% = 7.35.

up to the nearest whole number. Given there are approximately 22 working days in a month, then the project will take just under 6 weeks to complete. Assuming you have one developer that costs $30 US dollars per hour: If they work 7 hours per day, they would cost you $210 per day to employ. 7 hours x $30 per hour = $210 per day.

Apply the worst-case time limit of 29 days. A 29-day project x $210 per day = $6,090. You could also use these figures to calculate that you will spend $4200 every 4 weeks (20 days x $210 = $4200), or approximately $4620 every calendar month (22 days x $210 = $4620).

Sprint 0 is actually a small, self-contained project, which allows the team to lay its foundations ready for build work to start.

Developers will use a lot of tools and software in the process of building your product and there are hardware and networking considerations to be factored in too. As a result, there will be some essential tasks to complete before they begin writing code for you.

arrange a pre-build planning meeting. The objective will be to find out about anything and everything that needs to be set-up, ordered, paid for, or arranged to support your project. The issue we are trying to avoid is having a developer start work, and in 3 days’ time, you are told that some software is needed, then 4 days after that, you find out about an account that needs to be opened with a service provider, then in 2 weeks, there is something else that urgently needs to be set up, and paid for, and so on.

At your planning meeting, ask your developer the following questions: “What technical tasks need to be completed before development work can start?” Find out what needs to be done, the duration of the tasks, and any associated costs. “Before you can write and deploy any code, what software, tools, or services need to be in place?” Find out about each task, and the time required to complete them, and ask about the related costs. “Will we be running unit and automated tests? If so, which tools will you use?” Find out about the set-up details, the time needed to set up an automated testing environment and the cost of the product(s). “Are there any tasks it would be better for us to deal with now, so that they don’t disrupt the development process?” Again, get a sense of what will be required, in terms of activities, time, and expense. Finally, wrap-up with the safeguard questions

from chapter 18: Is there anything missing? What issues do you foresee? Is there anything else I/we need to know, or consider?

Setting up developer accounts for the app marketplaces can take around 3 days, so if you want to build a mobile app, set up the account right at the start of Sprint 0 and then move on to other tasks whilst you wait for your confirmation to come through.

Sprint 0 should be timeboxed to ensure that it runs on for no longer than necessary. Agree what your timebox will be for completing the “musts”.

You’ll need access to a source code repository / revision control system Source code repositories, (or repos) can be used to “house” the code for your product. These repositories may offer additional services such as: Version control management (also called revision control) used to manage and merge changes to code The tracking of changes made within the repo (known as history tracking) Bug and issue tracking, and Release management, to assist your developer when they need to “release” code to the outside world, or to you for testing A number of these tools exist, including GitLab, SourceForge, Redmine, GitHub and BitBucket. GitHub and BitBucket are very user-friendly and reasonably priced. GitHub’s prices currently start from $7 USD per month for private projects for teams of five or less, and is free for public and open source projects. BitBucket has private repos and is free for up to 5 users. https://bitbucket.org/ https://help.github.com/articles/signing-up-for-a-new-github- account/ Speak to your developer and decide which repo you will use.

Be sure to retain access to your source code. Set up the account in your name and share the password with your developer. If new developers join, then they will need the repo password too. By setting things up this way, the code “lives” within your own repo account, which your developer(s) have access to. If a developer leaves, you should change any shared passwords.

If you do not want your project to be visible to other repo users, then be sure to set up a private repo account.

Once you grant someone access to a repo, they will be able to clone the project to their computer. If you have access to the repo, you may revoke other users’ access to it at any time. This will block access from that point, but will have no effect on any copies a person might have on their own computer. A degree of trust must be involved in the process – developers must have access in order to do their work. Seek legal advice if you’re concerned.

Amazon Simple Storage Service (Amazon S3), allows you to store data / content, including videos, audio files, documents and images for your website, web app or mobile app, which can be retrieved by you or your customers as needed;

AWS Mobile Services offers a selection of tools that you can use if you wish to build a mobile app. The services offered for mobile app development, include analytics, Amazon SDKs for mobile app development (see chapter 15 for a refresher), app testing (find out how to use Amazon to test your app in chapter 23), sign-in services that let users sign into your app via Google+ or Facebook, storage of your users’ data and management of push notifications that we discussed

Amazon Elastic Compute Cloud (Amazon EC2) is a web service akin to a cloud-based supercomputer that will allow your developer to install and run software applications on it. https://aws.amazon.com/ec2/.

Amazon Relational Database Service (Amazon RDS), offers what it describes as a “managed relational database in the cloud that you can launch in minutes https://aws.amazon.com/products/databases/. Amazon RDS can be used to store, manage and retrieve your customer data. Confirm that there are no legal restrictions that would prevent you from keeping customer data stored on the servers of any cloud database that you plan to use.

AWS Security will help you to enhance the security of your application.

AWS Elastic Beanstalk is a free service for web apps. It includes release management tools, statistics and alerting tools to help your developer monitor and manage various aspects of your product’s “health.”

Your developer will create multiple environments for your app.

Development environment. This is the environment where developers write their code.

QA environment (or test environment).

In this environment, you, (or a manual tester, if you have one) will be looking for bugs and issues with the released code, trying to “break” and strain the product to see if it can cope.

Demonstration / presentation environment. This environment may not be needed; however, it can be useful if you wish to allow customers to review and comment on new functionality that has already been tested by a manual tester in “QA”, but has not yet gone public.

Staging environment. If provided, this environment should be an exact copy of your “live” environment and is there to protect it.

Live environment (also known as the production environment). A live environment must be set up. This is the version of your app that your customers will interact with.

In some cases, your developer may not even be sure how to approach building the item.

Agile developers will undertake a technical investigation, (known as a development spike or spike for short), in order to delve more deeply into the issue. The investigation might involve Internet research, searching or consulting development forums, or speaking to the suppliers of 3rd party services to assess whether their tools could be used to bridge a gap. It

“My Mobile App” product backlog, and Development board. The “My Mobile App” board contains the following queues, or columns: TBC Must Should Could Won’t The Development Board has 5 queues, or columns: Blocked Ready for build (the developer’s inbox) Doing Released for testing (QA) Done

The build cycle Step 1

Make sure all your essential functional, non-functional and other technical tasks are in the Must queue, with the most important and urgent tasks at the top.

The most difficult and complex items should be tackled as soon as possible to reduce project risk.

Step 2 Prepare the cards in your “Must” queue, so they are ready to be assigned to your developer. To avoid misunderstandings and the likelihood of having to re-do work, the prioritised cards should be prepared for build before handing them over to your developer to work on.

To make the list of requirements in Trello easier to read, you can click on the “checklist” button to turn the requirements into an itemised list that your developer can tick off as each item is completed. Fig 80. Inside a Trello card with the checklist option activated and 50% of tasks completed. Note that some tasks may take longer than others, so the card may be more, or less than 50% complete in terms of the time remaining.

Step 3 Planning Take the top 10 cards from your prioritised product backlog and discuss each one with your developer: Check to see whether they have any outstanding questions that need to be answered and that they understand what they need to do. Check the time estimate (see Chapter 20) on each card. Has it risen? If so, and your budget is tight, discuss how the card might be simplified to reduce its complexity, and therefore its “cost.”

Step 4 Assign tasks from your product backlog board to your Development board. Create a second Trello board to manage your development tasks. I’ve called my board the Development board. Move the Must cards from your backlog board to the Ready for build queue on the Development board and arrange them in priority order, with the most important, urgent and technically complex tasks at the top of the list. (Chapter 19.) Ask your developer to always work on the cards at the top of the list first. You should discuss the order of tasks with your developer, but make sure they stick to working on tasks in the agreed order. If there is an issue with this, they should let you know. Monitor the Ready for build queue, and keep it filled with enough tasks to keep your developer busy without them having to wait for you to top up the queue again. To avoid project delays, you should have at least 5 cards in the queue at any time, more if you think the cards won’t supply them with enough work for a week, or more. When the cards in the Ready for build queue run low, repeat step 3 to top up the queue with new work that has been discussed and estimated.

If your developer cannot work on a card assigned to their Ready for build queue, then they (or you) should move it to the Blocked queue. This queue exists to highlight important items that require your attention.

These items will slow down development if they are not resolved swiftly – ideally, this queue should always be empty!

Release notes are simple documents written by developers to accompany an internal, or external “public” software release, and to outline the contents of that release. Public release notes are sometimes made available to customers via email, or posted online as a way of updating them about new functionality, changes, bug fixes and work done in response to customer feedback. Some of the repos discussed previously can be used to store your release notes. Make sure you know how to access the notes, so you can refer to them at any time. In the future, they will provide a useful summary of all the work ever done on your app!

Step 6 Test Once the code has been released into the QA / test environment, it’s time to start your manual tests to check if the work done matches the details on the card.

The tester then either approves the card, and moves it to the Done queue, or creates a bug card for each issue found, including a screenshot of the issue, (where this is useful), explaining the problem(s) found and what you were expecting to see, which of the cards the bug originated from, and how to reproduce the bug and make it happen again. This is important – bugs can’t be fixed if your developer cannot identify the cause of the issue. Observing bugs is a key part of understanding them. The bug card is then put into the Ready for build queue in order of importance.

Plug the gap between what was received and what you actually wanted. Create a new card, or cards covering the missing items and if they are essential, put them in your “Must” queue so they can be worked on by your developer. Keep moving. If you have a very tight budget, then if you’ve forgotten some of your requirements, unless the app is useless or severely compromised without them, don’t go back and add the missing items, just press on.

tools like TestFlight that will allow you to test your mobile app on smartphones and tablets.

Agile teams sometimes avoid running sprints from Monday to Friday for productivity reasons. This is about maintaining a consistent level of effort throughout the sprint and avoiding a double psychological dip on Fridays because it is the end of the week and the end of the sprint on the same day!

Confusion can be avoided when pages, functionality or parts of the app are described by the same names by all team members. Agree on common terminology for your app and stick to it. These names can also be useful when creating FAQs or product training materials for customers. Try simple names like the “options page” or the “send email screen” – something easy to remember that describes the purpose of the functionality.

If you and your developer have worked together to estimate your cards, ask them to add a due date to one card on the day the card moves into the Doing queue, based on the T-shirt estimate they provided for it. For example, if a card is started today and is estimated to require 3 days to build, then the due date should be set 3 days from now. In Trello, a yellow badge means that a task is within 24 hours of being due, a red one means it’s due

and a pink one means it is past due. Take note of how many cards are overdue in each development cycle. It’s important to stay on top of due dates, and to deal with issues and delays as quickly as possible. Every task that runs beyond its due date delays your project.

Agile teams usually have a short daily “stand-up” meeting every morning (a micro-meeting), which lasts for only a few minutes and focuses on 3 specific questions: What happened yesterday? What do you intend to do today? Any issues which are “blocking” and impeding development progress. (This portion of the meeting should also be used to discuss any cards in your blocked queue)

Weekly (or fortnightly) review meetings

“What has gone well this [week / fortnight / month]?” Identify positive habits, activities and ways of working that should be continued. “What hasn’t gone well?” / “Where have we struggled this [week / fortnight / month]?” This is your chance to get any issues that you’ve noticed out in the open and to discuss what isn’t working and what needs to change.

Apply the simple principles of keep doing, start doing, or stop doing,

Bitrix24 includes a social network, video and chat, task and calendar management and a CRM (Customer Relationship Management system), https://www.bitrix24.com/.

If you use Google Calendar, then a quick and easy way to access all your tasks and appointments is to Google the words “calendar today”, “calendar this week”, “calendar this month” or “calendar [insert the month you want]” to see your events appear in your search results. You can also search for “calendar last month” to view a summary of your past activities. Using the word “agenda,” plus the month you want also works.

You may wish to document how to use any tools or software relevant to your app, or how to release new functionality to your live environment.

Google Keep can be used to store notes or checklists. Make a copy of your original list and then you can strike through the tasks in the copy without affecting the master version: https://keep.google.com/

Process Street provides checklist software for businesses. There’s a free plan that provides a maximum of 5 active templates and 5 checklists, https://www.process.st/.

Wunderlist, allows you to create lists, assign tasks, attach documents.

Evernote is free for up to 60 MB of storage. You can create and share notes and checklists, which can be synced across 2 devices.

Another important habit that should become “the norm” during your project and afterwards, is user (usability) testing.

you may find later that your initial guess wasn’t right and functionality that you believed would be popular with customers isn’t.

Your product should be robust, and able to handle whatever is thrown at it “out in the wild.” Do some exploratory and destructive software testing and actively try to break your app. Be rough with it, and deliberately misuse it, so you know where it’s vulnerable.

Some common reasons for apps being rejected by Apple can be found here: https://developer.apple.com/app- store/review/rejections/ Here’s an App Store submission checklist https://developer.apple.com/app-store/review/ guidelines/#before-you-submit, Apple’s terms and conditions are here: https://developer.apple.com/terms/ How to submit your app for review to the App Store: https://developer.apple.com/library/content/documentation/ LanguagesUtilities/Conceptual/iTunesConnect_Guide/Chapters/SubmittingTheApp.html#//apple_ref/doc/uid/ TP40011225-CH33 Google Play Store Google Play / Android’s terms and conditions are here: https:// play.google.com/about/developer-distribution-agreement.html Here’s a submission checklist for the Google Play store: https://developer.android.com/distribute/tools/launch-checklist.html

network of networks

Pay It Forward

Hooked

Zero to One

Blue Ocean Strategy

Billion Dollar App

Running Lean

Lean Start Up

Exponential Organizations

The Inevitable

Innovator's DNA

Lessons from Private Equity Any Company Can Use

Platform Scale

10 Product Validation Experiments

Don't Make Me Think, Revisited

Platform Revolution: How Networked Markets Are Transforming the Economy

Blitzscaling

The Science of Managing Our Digital Stuff

Don't Hire a Software Developer Until You Read this Book