Lean Analytics Book Holds Secret To Quickly Building A Better Business

 

Pic of book: Lean Analytics

My Situation

I’m going with a new format for this specific book review. I’m reviewing Lean Analytics through the story of why I read this book and the impact its had on me.

Last year I started this book review site because I devour a ton of books and I really believe that entrepreneurial thinking in life and business is necessary to improve society. So, it dawned on me that I could combine my two passions, reading books and exploring entrepreneurial thinking, into a hobby of reviewing the best books for entrepreneurs and those wanting to be more entrepreneurial. This is a project I work on outside of my professional work as a business consultant.

Barriers To My Success (Why I Read Lean Analytics)

I treat this book review website as a business in order to make it a sustainable project and to deliver the results I hope for it. To improve this website, I use my skills as an Idea Hunter to continually record and develop creative ideas, usually in the Evernote app. The problem is that I have so many ideas that I don’t know which ones to begin taking action on first. For example, should I start giving books away to those who leave the best comments in order to induce more conversation or should I create a free gift to entice more people to subscribe? Time is limited. Resources are scarce. Prioritization is necessary. But, its unclear how to prioritize during the initial stages of this website project. And, even if I were to prioritize my next actions by some framework, I still wouldn’t know how best to measure success or failure. Every startup and every entrepreneur faces a similar situation. Even intrapreneurs (entrepreneurs in large corporations) typically face some of the same constraints. Therefore, my story and this book are relevant to anyone wanting to make their organization more effective. I read this book to help me decide what to do next with my book review site and how to measure my results.

Lean Analytics was written by Alistair Croll and Ben Yoskovitz. Alistair is an entrepreneur, author, and public speaker (over the last 20 years). This is his fourth book on analytics, technology, and entrepreneurship. Ben is a serial web entrepreneur with over 15 years experience. He is the VP of Product at GoInstant, a venture-backed startup.  Both authors have co-founded multiple startups throughout their careers. The authors founded this book upon the principles of Customer Development and Lean Startup. Given the credibility of the authors and my high regard for these principles I knew this book would be worth reading.

What I Learned From The Lean Analytics Book

Lean Analytics

Read more reviews of this book on Amazon.com by clicking on the above pic.

Right away I learned that we’re all liars. Interesting fact. Entrepreneurs are especially known to be liars. Liars to ourselves. Most humans prefer to tell themselves that things aren’t as bad as it seems. However, to make a business successful we must limit this lying to ourselves and use data to succeed. Chapter two taught me what makes for a good metric (there are 4 elements) and which metrics are simply just vanity metrics. Vanity metrics are those that always go up-and-to-the-right, such as page views and visits, etc.

Much of Lean Analytics is about finding a meaningful metric, then running experiments to improve it until that metric is good enough for you to move on to the next problem or the next stage of your business. ~ The Lean Analytics book

The authors soon had me write down the top 3-5 metrics I had been using to-date and examine them to see which ones were “good” and which were “bad”. I listed the following:

  1. Number of views
  2. Number of total email followers
  3. My Alexa Rank
  4. Number of total backlinks
  5. Number of clicks per keyword or referrer per month

4 out of the 5 I had been tracking were “bad” metrics. I wasn’t proud of that. But, from what I learned so far I decided to cross out the bad ones and added 4 new ones I thought were better. Although I do understand a fair amount about web metrics, for some reason I had become lax with monitoring the proper metrics for my own book review website. This wouldn’t happen in my professional work even though I had allowed it to happen for this project. Thankfully, this book inspired me to correct this.

Next, the book suggested I create a Lean Canvas for my business (my book review website) in order to get a snapshot of the business model on one page. This is meant to help one get clarity on the 9 major elements that make up a business model. Luckily, I had already created a business model canvas in the recent past after reading Running Lean by Ash Maurya, the creator of the Lean Canvas. Then, chapter four covered 10 common pitfalls entrepreneurs should avoid as they dig into data for their business.

With an excellent showcasing of analytics fundamentals, the authors next explained 4 popular startup frameworks (Ash Maurya’s Lean Canvas, Eric Ries’ Lean Startup, Dave McClure’s Pirate Metrics, and Sean Ellis’ Growth Pyramid). Then, I was shown how the newest framework, Lean Analytics, lines up next to these. The benefit of the Lean Analytics framework is that it uses the best of the previous frameworks and focuses on metrics at each major stage of a startup.  The benefit is that you can now measure success or failure and know by way of gating metrics that tell you if you’re ready to proceed or not.

Chapter six provides the secret to a successful startup or business project: measuring the One Metric That Matters (OMTM) at your current stage. The authors give you four reasons why you should use the One Metric That Matters that will surely convince you of its necessity. There are many metrics you could measure, but there’s only one that matters for your particular business model and the particular stage your business is at. Your business likely falls into one of the six business models that the authors explain in full detail throughout six following chapters each devoted to one of the models. Then, the authors lay out in 5 subsequent chapters each of the 5 stages of the Lean Analytics framework (1. Empathy, 2. Stickiness, 3. Virality, 4. Revenue, and 5. Scale). Upon honing in on which business model you have and which stage you’re at, you’ll have discovered which is the One Metric That Matters to you right now.

The 5 stages of the Lean Analytics framework can be illustrated by a restaurant business. The book gives the following example (abbreviated here):

Pic of a restaurant

© Joe Stadele Photography 2013 (website)

  1. Empathy stage: The owner first learns about her likely customers and their food preferences before opening a restaurant.
  2. Stickiness stage: After opening, she then creates a menu that she tests out on customers. She makes iterations to the menu as she experiments with different meals and receives feedback on which items to keep.
  3. Virality stage: She later starts a measurable loyalty program to promote engagement among customers and to drive repeat business.
  4. Revenue stage: With customer traffic now up, she focuses on profit margins through cost controls.
  5. Scale stage: With a profitable business now developed, the owner has the opportunity to launch a second restaurant or create a franchise.

After reading the previous chapters, I concluded that my book review website is a “media site” business model, and that I’m currently at the “Stickiness” stage. The book helped me realize I’m at the “Stickiness” stage because:

  • I passed the exit criteria for the “Empathy” stage (from my research I know that people want book reviews of the best books for entrepreneurs)
  • I’m now looking to build a core set of features that get used regularly and successfully by my website email subscribers
  • I’m not ready to go “viral” yet, because I haven’t confirmed through any metrics that my existing users are sufficiently engaged and sticking around

The book provides an extremely useful table on page 267 that lists all the most relevant metrics for each business model for each stage. From my reading so far, I concluded that the One Metric That Matters to me is “click-to-open rate” (CTOR) of my book review emails. This metric is all about measuring what % of subscribers are returning to visit the site after they receive an email informing them of my latest book review. It’s important for a media site such as mine at this stage to make sure it has created a product that engages customers in a meaningful, valuable way. It makes no sense for me to spend all my time and money to attract 1 million unique visitors each month to subscribe to my website email list if I can’t get a sufficient portion of existing subscribers to click through my emails to read my latest book review. Once I know I’m successfully engaging the eyeballs of my existing subscribers, I can afterward focus on going viral to get thousands of new subscribers.

The core idea behind Lean Analytics is this: by knowing the kind of business you are, and the stage you’re at, you can track and optimize the One Metric That Matters to your startup right now. ~ The Lean Analytics book

The book nicely wraps up with a detailed discussion on which benchmarks you should be using to know what is normal and whether you’re successful or not. These are the “lines in the sand” you should be using to know when you’ve completed your current goal and can move on to the next stage of your startup. This section on benchmarks alone is so valuable that you get more than your money’s worth from this.

Conclusion

In the end, I’ve benefited greatly from this book. I now know that I currently need to focus on measuring the level of engagement my audience has with my book review website. My stress level has decreased because I’m no longer worrying about which aspect of my business to work on next. Although the book won’t tell me how I should increase customer engagement, it has shown me that this is what I need to measure at this time and it has given me the tools to know when I’ve succeeded. It’s up to me now to begin experimenting with tactics for engagement. It’s time to Build→Measure→Learn.

Overall, I’m feeling peace of mind. For all this book has provided me with, I sincerely believe this might be the best book for entrepreneurs in 2013. I think you ought to read this book at least once and probably should have a copy handy for when you change your OMTM as you successfully move along in your startup or new business project.

Click the link below to read more about the book on Amazon.com. This is one book you should absolutely own.

 

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Click here to check out Lean Analytics on Amazon.com

 

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  • Tim Sandford

    Thanks Kevin. Good review. Having read both books and liked their approaches to a more flexible way of thinking about business, the one thing I thought was missing and remains missing in most business books is a decent guide to markets and the general mechanics of markets. When I started out in business the first and probably the lesson that has really stuck with me, is how completely irrational and apparently insane market behaviour can be, which makes it extremely difficult for new businesses to get any kind of handle on framing the market’s perceptions of its need and therefore how to address them.

    • http://kevinkauzlaric.com/ Kevin Kauzlaric

      Tim, I would agree that we would benefit from more discussion about consumer behavior in specific markets. I think that the economics profession has unfortunately convinced us all to assume that people are completely rational buyers. I think this is a harmful assumption.

      • Tim Sandford

        Thanks Kevin and agreed. The challenge for economists I think is being able to cope with markets and economic models that are changing so rapidly and so dramatically that none of the frameworks they have developed are applicable anymore. I was at a workshop yesterday with some very clever people specifically to start building a model to help companies understand how much it has changed and enable them to start reading their markets better. What came out of it is something I’ll blog, but bottom line – everything we used to give away free, is where the value is now and vice versa.

        • http://kevinkauzlaric.com/ Kevin Kauzlaric

          I know that economists have begun exploring more relevant frameworks through the fields of behavioral economics and neuroeconomics, so hopefully these advances benefit the business world.

          I look forward to your blog post about the workshop you participated in. Keep us informed.

  • http://twitter.com/veronicatorras Veronica Torras

    Fantastic post! However, some blurring of tools and terms which may be confusing for newer founders.

    The business model canvas is a tool for designing the business model. The Lean Canvas zooms in the right side (customer-facing) of the business model. The Lean Canvas is product focused and it can be a usefull tool to define the UVP based on the top 3 problems, and from there starting to validate whether the features solve the problem, but is NOT describing the business model. I’ve been trained by the creators the Business Model Canvas (Alex Osterwalder) and have been to Ash’s workshops on the Lean Canvas too. And I’ve used both tools a lot.

    I’ve seen many times the confusion that mixing up the two tools can do to people. That is a pity, since they’re both good for differents things. For example, I have seen people stucked with the Lean Canvas in a B2B software business, and when they switched to the Business Model Canvas, they started to see more about their “picture” and going ahead with important decissions. They were at a very early stage, at one of the most famous accelerators in Amsterdam. They weren’t using a bad tool, they were thinking the Lean Canvas was mapping their business model.

    The Lean Canvas isn’t a business model (and isn’t the way to map out a startup business model either)– it’s just a good way to track early product and value proposition hypotheses.

    The origin of every tool is also different and I think it explains a lot of every tool and their awesome benefits :-) For those who are interested:
    http://www.ashmaurya.com/2010/08/businessmodelcanvas/
    http://www.hec.unil.ch/aosterwa/phd/osterwalder_phd_bm_ontology.pdf

    • http://kevinkauzlaric.com/ Kevin Kauzlaric

      Veronica, thank you for alerting me to some of the important nuances between the Lean Canvas and the Business Model Canvas. I had assumed that the Lean Canvas was an improved version of the Business Model Canvas. I’ve only recently begun using these so I’m glad to know more about the different contexts in which you suggest each can be used most effectively.

      • http://www.ashmaurya.com/ Ash Maurya

        I don’t agree that Lean Canvas fails to capture a business model. It’s a problem-focused view by design but I haven’t found it limiting in my experience working with companies ranging from 1-person startups to multi-national enterprises. Maybe specific examples from Veronica would help.

        I also don’t agree that one is better than the other. At the end of the day, I encourage entrepreneurs to try both if they aren’t sure which to use and keep the one they find most intuitive. They each take 20-30 mins to create.

        The enemy here isn’t Lean Canvas vs BMC but a canvas vs a 60 page business plan, or worse, no-plan.

        • http://twitter.com/TriKro Tristan Kromer

          I disagree…the enemy is in a static document vs. a dynamic, living document. A one page business model canvas or lean canvas is still bullshit if it doesn’t change and adapt to new information.

          Sadly, many entrepreneurs don’t adapt either the lean canvas or BMC. So neither serve to do much more that make the person feel that they are being lean when the opposite is true.

          • http://kevinkauzlaric.com/ Kevin Kauzlaric

            However, it’s nearly impossible to have a dynamic 60-page business plan, whereas the one-page business model canvas easily allows for revision. But yes, it’s still the responsibility of the entrepreneur to track changes.

          • http://www.ashmaurya.com/ Ash Maurya

            I agree in theory but lets take this in stages…

            Given the behemoth that is the business plan, most entrepreneurs don’t do any planning and build a fairly incomplete and distorted model of their business in their minds.

            A 1 page canvas (from my experience) is always better than no-plan. Just the exercise of writing it down and more importantly attempting to communicate it to another person almost always uncovers interesting insights.

            As for keeping the model updated, I find most of the thrashing on the model happens early and then the model stays pretty stable. I haven’t updated my business model for Spark59 in over a year. All the thrashing shifts to experimentation which is a whole other story.

            That said I agree that both model and experiments need to be kept updated for maximum effect. I have lots of evidence that given the right tools and incentives, entrepreneurs do keep these models updated.

          • http://twitter.com/TriKro Tristan Kromer

            It seems like continued engagement is key. Those entrepreneurs that have their feet held to the fire by an accelerator, investors, or a peer to peer group.

      • http://twitter.com/TriKro Tristan Kromer

        From what I have seen, the BMC gives a great overview of a complete business model (hence the name). The lean canvas omits several key elements of a business model such as customer relationship, key partners, key activities, and key resources, but adds some more product boxes elements.

        Both are useful, but like any paradigms, both have biases. Osterwalder’s bias is as a business man, Ash’s is as an engineer.

        Ash will correct me if I’m misremembering, but the reason for this in Ash’s first blog posts was that since he always did a web startup his key partners were always Google, Facebook etc. Key activities were coding, QA, etc. And so forth, so he didn’t feel the need to list these as they were very well known from his perspective.

        This may be true for Ash, but I don’t believe this is true for most entrepreneurs. These things are *not* always well known or obvious and it behooves the new business to consider whether or not the Twitter API is a key resource with any risks associated with it, before they change their terms of service and eliminate the possibility of scaling past 200k users. :)

        Generally I favor the BMC for it’s breadth in thinking about the big picture before drilling down to an MVP. The Lean Canvas is a bit better at focusing in on the product and value proposition.

        I sometimes recommend the Lean Canvas, particularly if entrepreneurs are not iterating on their BMC or can’t break out of a thinking rut.

        When stuck, switch paradigms.

        • http://kevinkauzlaric.com/ Kevin Kauzlaric

          I believe that Ash revised the BMC because he felt some areas of a business model that are more risky were left out of the BMC. For example, I believe he thought that not identifying the appropriate “key metrics” was more risky than “key resources”. From his writing in the link below it seems he thought resources were becoming more abundant and therefore less of a risk not being available to startups. However, getting the key metrics right seems to be much more of a risk to a startup because it might be tracking the wrong numbers and leading it to waste its time and money performing the wrong activities at a point when time and money are most scarce.

          http://leancanvas.com/blog/why-lean-canvas-vs-business-model-canvas

        • http://www.ashmaurya.com/ Ash Maurya

          In my view, neither can serve as a complete stand-alone document and thats okay. But both cover enough of a business model ontology to get you to any aspect of the business with a few levels of indirection and conversation (the key).

          For instance, key activity from BMC and unfair advantage from LC.

          I’ve written about the differences previously here: http://www.ashmaurya.com/2012/02/why-lean-canvas/

          But the biggest issue I often hear (mostly from consultants) is my removal of key partnerships so let me briefly address.

          First, unless you already have working partnerships, prioritizing partnerships while you yet have an untested business model is a form of waste. Not just my opinion. Mark Suster, Jason Cohen, and others have shared similar views.

          Second, with one level of indirection, you can still address partnerships on LC – by asking what benefit the partnership provides. If it’s distribution, list them under channels. If it’s volume discounts, list them under cost structure. etc.

          Yes both canvases come from different paradigms but I wouldn’t characterize them as BMC – “business man” vs LC – “engineer”. From my observation, I find BMC resonates more with consultants, while LC resonates more with entrepreneurs.

          • http://twitter.com/TriKro Tristan Kromer

            I agree on most of those points. I find the partner box also visually oversized on the BMC which leads to an overemphasis of thinking about it, particularly in left hand quadrant which is the first to be read in left-right languages.

            I have not found a consultant BMC focus. I have found academics tend of favor BMC by a huge margin. I have found that most of the people who adopt lean canvas have not considered both options and many assume that the lean canvas must be more lean focused…likely because it has the word lean in the title.

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