As I work in Product, I have familiarized and constantly been fascinated by the Lean principles and methodology—whether it is Lean Startups or Lean UX. How this book makes it to my reading shelf however was more than its title. In fact, it’s the “how-to achieve Product-market fit” subtext that I discovered through reading articles and videos from Dan Olsen, the author himself. Of course, I also need to mention all the Google search images that result in his Product-Market fit pyramid. Dan Olsen is a very accomplished product manager having worked and consulted at Quicken, Intuit, Friendster, Box, and many more.
Image source: Amazon
My impression of the book
As I was transitioning into a product management role from UX design, I found this playbook to be a useful step-by-step guide to product development and management—from determining the target customers and their unmet needs to building and growing your product. The book really helps to solidify my understanding and practice of the Lean Startup principles. To do so, the author provides specific case studies on how to build and articulate hypotheses, form experiments, execute the tests, and use metrics and analytics to inform product decisions. Build, Measure, Learn, but to Dan’s point, you can learn a lot without having to build.
Dan also provides a lot of different ways to do tests. While I am more familiar with qualitative testings, the play book is equipped with a good list of qualitative research examples such as Fake Door/404 Page and A/B testings, and how I can measure the KPI to determine whether the hypothesis is correct or I should pivot. What I am really grateful for as well are the case studies which I can use to justify why I am running the tests.
Below are some of the learning and key ideas I got from reading Dan Olsen’s The Lean Product Playbook.
Why Product-Market Fit?
The author describes a product that achieves product-market fit as “a product that creates significant customer value”. In other words, the product really answers customers’ needs and “does so in a way that is better than alternatives.” Without reaching this point, companies may spend a lot of time and money investing in building, marketing, and selling a product that is not needed in the first place. Not reaching product-market fit is also the main reason why many startups fail.
Product-Market Fit Pyramid
This is an actionable model on how to build the product that customers love. To achieve the product-market fit, you make informed hypotheses at each of these layers.
Dan, the author, broke the 5 components of the pyramid into 2 parts, that I found very resonating: Problem Space—the market, and solution space —the product.
The Market—problem space includes
Target customers
Unmet needs
The product—solution space includes
Value Proposition
Feature set
UX
One of my important take-away here is that it is crucial to distinguish between the problem space and the solution space. And you should start first with the problem space—determining who are you serving and what problems are they having, before determining the solution. Case in point, the Space Pen.
The Space Pen
Image Source
NASA was trying to build a pen that allows astronauts to write in zero gravity. And normal bullet point pens wouldn’t work because the ink needs gravity to flow. So, one of NASA’s contractors, Fisher Pen Company invested $1M to research and design the amazing technology, Space Pen, which of course allows astronauts to write with ink in space. In contrast, the Russian space agency looked at the same problem and decided to instead equip their astronauts with pencils, and we all know leads work fine without gravity. This example, of course, is not the whole story but it goes to show the importance of properly defining the problem before jumping to solutions.
Instead of “ a pen that works in zero gravity”, if the problem was defined as
A writing instrument that works in zero gravity, or
A way to record notes in zero gravity that is easy to use
Then it really opens up the solution space. It can be a pencil or maybe even a voice recorder because why Iimit to papers?
The Lean Product Process
The lean product process is an iterative framework and is broken down into 6 steps.
Determine your target customers
Identify underserved customer needs
Define your value proposition
Specify your minimum viable product (MVP) feature set
Create your MVP prototype
Test your MVP with customers
These steps are iterative because we will be learning new things each step of the way, which would lead us to challenge our previous step. For example, as Dan points out there is no way we can strongly determine who our early customers are (step 1) until we have a workable prototype (step 5) out there showing these people and see how are actually benefitting from the product and the value it provides.
Prioritizing Needs: Importance vs Satisfaction
When looking at the problem space, it is very crucial to determine what pain point we should go after and where the Importance vs Satisfaction comes in handy. While I am used to prioritizing the unmet needs based on impact and effort, I think this model is a more effective way to determine which of the unmet needs give more customer value.
Copyright: Dan Olsen
Importance means how important the particular needs are to a customer. It exists in the problem space, separate from the solution. For example, in the case of Uber, the customers have an important need to be driven from one pace to another. Noted that any unmet needs that are of lower importance are not worth solving.
Satisfaction measures how satisfied a customer is with the existing or particular solution. Again in the case of Uber, customers are not satisfied with the customer experience of the existing solution. They would complain about rude drivers, dirty cars, unsafe environment, and whatnot.
So, Uber is solving the need that is of high importance and low satisfaction, which would fall into the Opportunity space and is probably the best place to be at.
Differentiated Value Proposition — the Kano Model
I have never really quite understood the application of the Kano Model until I read this book. The model allows us to look at product features from a value angle and really help shape the MVP (which will be discussed next).
Copyright: Dan Olsen
Basically, the Kano Model breaks down the features into 3 types:
Must-Have is the must have, meaning if a product or solution meets all the Must-Have, it doesn’t make anyone happy, because customer expect the Must-Have. However, without them, customer will be furious. For example, in purchasing a car, no customer will be looking for a seatbelt, but without it, the customer may sue the company. However, having more than required seatbelts wouldn’t do any good as well.
Performance refers to the features that are the more the merrier. In the case of car, fuel efficiency would be considered as a Performance. And the more your car can save up fuel the better.
Delighter delights the customers. The customers do not generally expect them. For example, cars used to never have the cup holders, but now every car do. Back then cup holders were the delighter, a strong differentiator that increase customer satisfaction.
Your MVP Value Proposition
When building the MVP, we don’t need the product to have everything. So, using the framework below, it is easier to decide what are the necessary elements the MVP should have, compared to the existing solutions or competitors.
Based on the Kano model as well, The MVP should have
One key Performance benefit that performs significantly much better than competitors
A Delighter that the competitors don’t have
Other Performances don’t have to rank high for an MVP
Also, remember to have your MUST HAVEs but just enough of them.
These value propositions will help determine the MVP features.
Testing the MVP
The core element of this book and also the Lean Principles is testing. My biggest takeaway here is how Dan categorizes the tests:
Product versus Marketing tests:
Generally, when one thinks about tests, the idea of a landing page comes into mind. However, this is a marketing test rather than a product test. On the landing page, we are simply describing the functionality of the product and now showing the actual features to the customers.
A product test instead would mean showing prospective customers the actual prototype of the beta version of the product and getting customers’ feedback.
Quantitative versus Qualitative tests Depend on the stage of the product is in, and what you want to learn, you may use either of them and constantly alternate between the two. When you are at the early stage though, it is ideal to start with qualitative, to know the why, so you can learn and iterate quickly, rather than the what and how many.
To be lean, these tests can be done with the design deliverables before the actual development take place. This allows product people to iterate faster, or maybe pivot in a more informed way, and hopefully achieving the higher and higher levels of product-market fit.
The truth and the number
Once the product is launched, that is when we can really determine the truth by deploying analytics to really understand how the customers behave. But How to measure the success of your startup or your product? Dan introduces, the Startup Metrics by Dave McClure: AARRR— Acquisition, Activation, Retention, Referral, and Revenue.
Among the five metrics, retention rate gives a quantitative measure of product-market fit, and hence you should always optimize for retention first. The reason is simple, if customers find value in your product, they will continue using it. It doesn’t make sense to focus on spending money on conversion or acquisition if the product is not desirable to the customers.
After retention, you can then focus on conversion, making sure that the customers who are coming in are converting. And then Acquisition. In each of the metrics, Dan has detailed how you can build an equation depending on the type of your business.
Optimize with Analytics
I must say those analytics both scare and excite me but the author did an amazing job articulating the impact and importance of each number. His “Lean Product Analytics” reminds me a lot about growth hacking. In his case study of Friendster, he articulates what metrics he chose to optimize and why. Basically, you should be looking at which one has the highest potential ROI so that even with the minimum effort put in you can have the highest return.
Conclusion
This book is really a manual that consolidates years and years of product management experience from Dan. It is definitely a book I would revisit as I grow more mature into my product management role. While can be very technical for non-product people, I think anyone who have entrepreneurial mindsets and want to build products that people love should read this playbook as well as “Inspired” by Marty Cagan. Dan Olsen also has a website which I frequent: leanproductplaybook.com