PDF Summary:Running Lean, by Ash Maurya

Why do so many business models fail? According to entrepreneur, Lean Canvas creator, and best-selling author Ash Maurya, it’s because entrepreneurs assume they already know what customers want and finalize their plans before testing their ideas. As a result, they create rigid plans that they can’t easily adapt to customers' actual preferences.

In Running Lean, Maurya suggests that you can avoid this pitfall by adopting continuous validation and iteration. This approach helps build and sustain a flexible business model that evolves alongside customer preferences.

This guide explores Maurya’s thoughts on creating successful business models. You'll come away with a plan to capture the core elements of your idea in a concise, agile business model; a methodology that allows you to refine and align your offer with your customers' true needs; and a testing strategy to optimize your business for sustainable long-term growth. Additionally, we’ll complement Maurya’s ideas with research from business experts, and we’ll suggest actionable strategies to help you apply his concepts to your own business.

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• Fixed costs: salaries, rents

• Variable costs: costs that vary in proportion to the volume of goods or services produced

• Economies of Scale: cost-per-unit rates decrease according to bulk-purchasing advantages

• Economies of Scope: a single resource or activity that supports multiple operations or services

Additionally, all of your costs will fall into two categories: Direct costs—specific expenses related to your offer, such as paying to manufacture your product—and indirect costs—general costs that keep your business operating such as paying rent, utilities, and salaries. Understanding these cost categories helps you identify and break down your expenses, which, in turn, aids in precise financial planning and management.

Element 8: Key Performance Indicators

Hypothesize three to five key metrics that will help you measure the progress and success of your business model. Maurya suggests that you prioritize outcome metrics over output metrics for a more accurate evaluation. Outcome metrics gauge the results you achieve, measuring the actual outcomes of your efforts. In contrast, output metrics focus on the actions you take without capturing the tangible results of those actions.

Example: Instead of focusing on output metrics like the number of emails sent or features developed, you intend to track outcome metrics that measure the results you achieve from your efforts. These metrics include your customer acquisition rate, conversion rate from free to premium accounts, average revenue per user, and customer lifetime value.

Use the OKR System to Identify and Track Your Metrics

In Measure What Matters, John Doerr argues that the key to identifying useful outcome metrics is to identify your OKRs—objectives and key results. Follow this four-step process to implement the OKR system:

1) Define your company’s overall goal: This is your vision of where you want to be in the next five years. It needs to be clearly defined and action-oriented. For example, generate annual revenue of $500,000.

2) Identify individual objectives: Every individual within your various departments and teams needs to identify their objectives. The objectives they define for themselves must align with the company’s main objective. For example, your sales colleague might set an objective to acquire X number of customers by the end of the year.

3) Define your key results: Your key results must be measurable sub-goals towards achieving each objective. They need to include specific results and deadlines. To identify your key results, ask yourself, “What steps do I need to complete to reach my objective?” For example, your sales colleague’s key results might be to increase online sales by 5% every month, increase offline sales by 10% every month, and so on.

4) Regularly check progress: Checking the progress of each key result provides valuable insights that will help you to stay on track—it helps you assess the effectiveness of your current strategy and provides an opportunity to revise or update your key results. The frequency of your check-ins depends on the length of time needed to achieve each key result.

Element 9: Competitive Edge

Hypothesize the features and benefits that will set your offer apart from the competition. Maurya suggests that you focus on why your offer is difficult for competitors to replicate. He explains that while competitors will always attempt to mimic successful products or services, you can gain a competitive edge by leveraging the power of intangible factors. These factors, such as a specialized team's expertise or a customer-focused approach, contribute to your offer's unique appeal, making it challenging for competitors to imitate.

Example: Your app’s competitive edge lies in its seamless integration of multiple productivity tools, eliminating the need for users to switch between different tools or platforms. Additionally, your continuous updates, responsive customer support, and user-centric approach will provide a superior user experience that competitors won’t be able to replicate.

(Shortform note: William M. Luther (The Marketing Plan), expands on how to leverage intangible factors, explaining that what your business does better than your competitors helps differentiate both your product and your business in a way that appeals to customers. To achieve this, consider how you want customers to perceive your business and what will influence them to choose you over competitors. For example, brands that target eco-conscious customers emphasize how much they donate to environmental programs. This implies that they’re more environmentally friendly than other businesses and care more about what matters to customers.)

Part 2: Test Your Hypotheses and Refine Your Business Model

Now that you've created one—or several—Lean Canvases, let's focus on testing your hypotheses to validate their viability and ensure a solid foundation for your business.

In this part of the guide, we’ll explore Maurya’s four testing stages for validating and refining your hypotheses, along with specific objectives to focus on during each stage:

1. Investigate the problems.
2. Validate the solution.
3. Run pilot tests.
4. Launch and optimize.

Let’s explore each of these stages in detail.

Test Stage #1: Investigate the Problems

During the first stage of testing, your objective is to thoroughly understand your target customer group’s problems to determine whether you're developing an offer that addresses their genuine needs.

(Shortform note: While Maurya’s testing process has you investigating customer problems after drafting your business model, Osterwalder and Pigneur (Business Model Generation) suggest that you investigate customer problems before drafting your business model. They argue that this approach allows you to more intentionally design a business model that caters to a specific customer need. Further, because you’ll be clear from the outset about the need you’ll target, you can devise marketing and sales strategies during the business model’s initial developmental phase—thus accelerating your offer’s launch into the market.)

Maurya suggests that you complete this testing stage by conducting customer interviews, focusing on the following four areas:

1) What Specific Problems They Encounter

According to Maurya, researching what specific problems customers encounter helps clarify whether your initial hypothesis regarding customer problems was correct, or if there are more promising problems to address. It prevents you from investing resources in a solution that's ultimately not what customers need.

(Shortform note: In addition to interviewing customers to identify problems, interview professionals who frequently interact with your target customers, such as sales associates or customer service representatives. These professionals have a deep understanding of their customers’ challenges because their jobs depend on this knowledge.)

2) Who Is Experiencing the Problems

Maurya suggests that identifying who experiences the problems will provide valuable insights into the demographics of your early adopters. This, in turn, helps you refine your target market and tailor a solution that aligns with their needs.

(Shortform note: An additional way to pinpoint early adopter demographics is to consider where they might go looking for a solution to their problem, such as industry-specific forums or product review websites. These platforms often host discussions where users actively seek tried-and-true solutions for specific problems. Next, sign up for social listening tools that track online conversations and use analytical reports to segment these customers into relevant groups. For example, listen in on forums like Quora, identify threads where people seek solutions to the problem you've identified, and use analytical reports to extract demographic information, such as common age ranges, geographic locations, or shared interests.)

3) How They’re Currently Addressing Their Problems

According to Maurya, investigating how customers currently address their problems increases your awareness of existing alternatives in the market (potential competition), and helps you identify opportunities for differentiation.

(Shortform note: In your investigation, remember to expand your awareness of potential competition beyond your market. Michael Porter (Competitive Strategy), explains that your potential competition encompasses competitors from any market with an offer that serves the same purpose as your product or service. For example, in the automobile market, the potential for alternative offers exists when customers find it more convenient or cost-effective to switch from owning a car to using public transport or ride-sharing services.)

4) Their Level of Satisfaction With These Existing Alternatives

Maurya explains that exploring customer satisfaction levels with existing alternatives helps you assess the pros and cons of competitive products. This, in turn, opens up opportunities for developing a more effective solution.

(Shortform note: Business experts suggest that, in addition to asking customers what they think of existing alternatives, you should specifically seek out potential competitors’ strengths and weaknesses to assess the pros and cons of these alternatives. Some ways to learn more about your competitors include attending professional conferences and trade shows to see what they offer and how they interact with customers, analyzing their website and SEO strategy, examining their social media presence and how responsive they are to customer queries and concerns, and signing up for their newsletter to assess what kind of content they send and how often.)

Update Your Lean Canvas

Once you’ve completed your interviews and gained a comprehensive understanding of your target customer group’s problems, update all relevant elements on your Lean Canvas. Note that, due to their interdependent nature, changes to one element will inevitably influence the others. For example, changing the problem you’ll address will likely impact your solution, your offer, your competitive edge, and your expenses. Therefore, remember to update all elements of your Lean Canvas throughout the four testing stages.

(Shortform note: Business experts suggest that effective communication and documentation are crucial during this stage, especially when working in teams. To foster a shared understanding and alignment among team members, ensure that your team is well-informed about the canvas's evolution and the reasons behind specific modifications. Additionally, maintain a record of the changes made and the rationale behind them. This documentation not only serves as a historical reference but also helps in tracking the progression of your business model, allowing you to make informed decisions as you refine your strategy.)

Before moving on to the next test stage, Maurya suggests that you determine whether the identified problems can be solved—consider the feasibility of potential solutions to ensure that pursuing them is viable for your business.

(Shortform note: Even if your solution does feasibly solve the problem at hand, stay aware of many other ways that it may fail or lack feasibility. To pinpoint these potential failure points, disaster avoidance experts suggest imagining that your solution has already failed and that you’re thinking about it retrospectively. Write out all of the plausible reasons for this failure. For example, the product was defective, or the marketing campaign failed to attract attention. Then, brainstorm ways to avoid these failure points and integrate your ideas into your solution.)

Test Stage #2: Validate the Solution

Once you've identified the problem to address and have updated your potential solution, your next objective is to validate this solution with your early adopters. Maurya explains that this validation process ensures that your offer effectively solves your customer group’s problems while aligning with their preferences—which, in turn, guarantees demand for your product or service.

He suggests the following four-step process for validating your solution:

1) Create a Prototype

Maurya suggests that you create a prototype that showcases your solution’s features to help early adopters visualize its functionality. For example, to help early adopters grasp how your productivity app would work, create an interactive video or wireframes to demonstrate its user interface.

(Shortform note: While various prototype tools are available to generate interest and demonstrate functionality, Maurya recommends designing a minimum viable product (MVP). Eric Ries (The Lean Startup) explains that MVPs are not fully functional offers, but rather simplified versions intended to elicit feedback from potential customers. While they can help validate solutions, one potential disadvantage of MVPs is that their streamlined and feature-limited nature may not provide a comprehensive user experience or fully represent your idea. This limitation could lead early adopters to form judgments based on an incomplete or potentially underwhelming representation of your final product, undermining their perception of your brand.)

2) Present Your Prototype to Early Adopters

Next, Maurya recommends that you present your prototype to early adopters and gather feedback. This feedback should include their overall impression of your solution, its effectiveness in addressing their problems, and their willingness to pay the price you set for it.

(Shortform note: It’s important that the feedback you gather from your interviewees is honest and speaks candidly about your products’ flaws. To achieve an environment of comfort and trust that prompts interviewee candor, try using active listening techniques. In your conversation, repeat your interviewee’s responses back to them to demonstrate that you care about what they’re saying—this helps earn their trust and respect. Additionally, repetition helps you clarify their intended meaning and stimulates further discussion: If your restatement accurately reflects their perspective, it can encourage customers to expand on their answers. Alternatively, if your reiteration is off the mark, it can prompt them to provide more insight.)

3) Refine Your Solution and Pricing Model

Refine your solution and pricing model to accommodate the feedback you receive. Maurya advises that you repeat the first two steps until you feel confident that your solution includes the essential features your early adopters want, and that your pricing aligns with their expectations and willingness to pay.

(Shortform note: In their feedback, customers will suggest multiple features. It will be tempting to meet every demand and capture every potential sale, but you can’t please everyone without losing revenue or ending up with a generic offer. To avoid making unnecessary refinements and changes, Seth Godin (Purple Cow) suggests you keep the specific problem you intend to solve in mind and aim just to serve your smallest viable audience. This will help you focus on the refinements that add value to your offer and accelerate the process of arriving at the final solution.)

4) Obtain Commitments From Your Early Adopters

Maurya suggests that you obtain commitments from your early adopters to confirm market demand for your offer. These commitments can take the form of pre-orders, signed letters of intent, or agreements to participate in beta testing.

Practical Strategies for Securing Early Adopters’ Commitments

Experts suggest several practical strategies for securing commitments for your offer:

• Ensure clear terms and expectations: This will provide early adopters with a clear understanding of their commitment and the benefits they'll gain. For example, outline exactly what they'll receive upon commitment and how the process will unfold.

• Create urgency with time-limited incentives: This can encourage early adopters to take action sooner rather than later. For example, offer an early-bird discount or exclusive bonus for commitments made within a specified time frame.

• Cater to various commitment preferences: This involves accommodating their individual comfort and inclinations. For example, some may feel at ease with pre-orders, while others may lean towards participation in beta testing.

• Cultivate relationships: This will help build trust and rapport, making early adopters more willing to commit to your offer. For example, establish regular personalized interactions and seek their feedback to create a sense of partnership.

• Showcase benefits: This can highlight the unique advantages early adopters will enjoy through their commitment, providing additional motivation for them to commit. For example, emphasize exclusive features or early access to new updates.

• Offer a cancellation policy: This will help reassure early adopters that their commitment is reversible, alleviating any concerns they may have. For example, offer a flexible 30-day cancellation policy within which they can back out of the agreement.

Test Stage #3: Run Pilot Tests

By this point, you’ve determined the essential features to include in an initial version of your offer, set the price, and generated demand among your early adopters. Now, your objective is to run pilot tests for your offer. This involves building and releasing the first version of your offer and making iterative improvements based on feedback loops with your early adopters. Maurya explains that this approach ensures that your offer aligns with the expectations of your early adopters, setting the stage for a successful launch to a larger customer base.

(Shortform note: If you're wondering about the distinction between this testing stage and the previous one, let's clarify. In the prototype stage, your objective is to create a representation of your offer for initial validation. During the pilot stage, your aim shifts to building and releasing a fully functional product or service that meets the expectations of your early adopters. This step is crucial as it precedes the launch to a larger customer base.)

He suggests the following five-step process for running pilot tests and improving your offer:

1) Develop a version of your offer that includes the essential features identified during the solution validation stage. (Shortform note: Be cautious about introducing unnecessary features at this stage, as it may deter customers. Loading your offer with excess features can result in a steep—and perplexing—learning curve that makes it difficult for users to smoothly navigate each feature. On the other hand, including only essential features ensures a clear and intuitive user experience that fosters engagement and satisfaction.)

2) Release the offer to your early adopters and gather their feedback. Additionally, identify any limitations in your business model that might hinder customer adoption, such as limited payment options or other usability issues. (Shortform note: W. Chan Kim and Renée Mauborgne (Blue Ocean Strategy) offer practical advice for gathering feedback and identifying limitations: Ask users to fill out a scorecard. This method provides a structured approach to assess various aspects of your product’s life cycle and customer experience dimensions. By customizing the scorecard to prioritize attributes most relevant to your business, you can gain insights into how well your product aligns with customer expectations and pinpoint areas for improvement.)

3) Analyze the feedback received and identify ways to improve the overall viability of your offer. This may involve incorporating sought-after features, resolving usability issues, refining your sales process, or addressing specific concerns raised by your early adopters. (Shortform note: You may receive a diverse range of feedback, suggesting the need for many improvements. However, Hans Rosling (Factfulness) explains that in most datasets, 80% of the results come from 20% of the causes—meaning that a few key factors drive the majority of effects. So, it's likely that implementing just a few strategic changes will address numerous areas of feedback and enhance your offer's viability. For example, ten different criticisms about your offer may come from one underlying issue.)

4) Improve your offer based on the feedback and insights gathered. Repeat steps two and three, releasing updated versions of your offer and gathering feedback iteratively until you believe your offer is ready to market to a larger customer base. (Shortform note: If you get inundated with feedback and feel uncertain about what to address, use a prioritization matrix to assess and rank potential improvements. This business analysis tool helps you objectively rate and compare your options according to the criteria you choose, such as how easy they’ll be to implement, how many other processes they’ll affect, or which ones have the best chances of success.)

5) Request testimonials from satisfied early adopters to help build credibility and trust with potential customers. (Shortform note: Business experts echo this advice, explaining that the credibility and trust generated by testimonials can make it possible for you to charge higher prices for your offer. In one study, 71% of participants said they would prioritize buying from businesses they trusted, even if other businesses offered them cheaper deals.)

Test Stage #4: Launch and Optimize

Up until now, we’ve focused on aligning your product or service with what customers want. Now that you’re ready to launch your product to a larger customer base, your next objective is to make constant improvements to the way you operate so that you can optimize your business model for growth. Maurya emphasizes the importance of conducting regular short-term tests to achieve this optimization. These tests serve as checkpoints to efficiently identify and address weaknesses, allowing you to continually refine your strategies for long-term sustainability and profitability.

He suggests the following five-step process for conducting short-term tests:

1) Launch your product and monitor your key performance indicators to identify areas of weakness that hinder your growth. Pinpoint one specific weakness that significantly impacts your growth trajectory. For example, you may discover that your payment system is the weakest area, leading to a high percentage of customer abandonment during check-out. (Shortform note: Sean Ellis and Morgan Brown (Hacking Growth) suggest you can identify weaknesses by using data analysis tools to track everything users do throughout the entire product experience. Start tracking users from initial contact with your marketing and throughout the sales funnel. Extend this tracking to encompass product usage patterns, preferred features, and usage frequency.)

2) Identify the factors that might contribute to this weakness. For example, for your productivity app, potential factors could include a complicated user interface, limited payment options, or slow transaction processing. (Shortform note: It can be challenging to pinpoint why a weakness is happening. Try looking at it from a different angle—asking solution-oriented questions is an effective way to reframe your thoughts and surface blind spots. For example, instead of asking, “Why are so many customers abandoning their carts during check-out?” ask, “What three improvements might motivate customers to finalize their purchases?”)

3) Generate multiple solutions to address the weakness. Explore various approaches and focus on finding the simplest yet most effective solution. For example, you might implement a more intuitive user interface, integrate additional payment gateways, or optimize the transaction processing speed. (Shortform note: Boost your ability to generate numerous, diverse solutions by setting a daily goal for the number of ideas you’d like to come up with. Track your progress using a spreadsheet or similar tool and regularly measure your achievements. This approach will force you to continuously come up with ideas rather than waiting for inspiration to strike.)

4) Implement a single solution for a defined period of time and test its effectiveness in addressing the weakness. Focus on obtaining quick feedback and insights. For example, you could conduct A/B tests by offering different versions of the payment system to different segments of your user base. (Shortform note: Many experts believe random control trials (RCTs) offer more accurate results than A/B tests. According to Matthew Syed (Black Box Thinking), an RCT involves establishing a control and introducing a variable to measure its impact against the control. For example, to test a new landing page, compare the performance of your current page, the control, with the new experimental design.)

5) Review the outcomes of the test and evaluate whether the implemented solution successfully resolves the weakness or if further refinement is required. Use the insights gained to iterate and improve your approach, ensuring continuous progress toward optimization. (Shortform note: You’ll find it easier to complete this evaluation process if you create a comprehensive record of your testing process. This involves systematically recording your insights throughout the testing process, capturing both successful outcomes and unexpected results. You'll then be able to analyze patterns and make informed decisions about whether the solution requires adjustments or a different approach.)

Advice on Optimizing Your Business Model

While Maurya’s approach to growth optimization is to focus on testing and iterating your business model, Josh Kaufman (The Personal MBA) suggests that the best way to optimize for growth is to make sure your business operations are as efficient as possible. According to him, you first need to understand all of the tasks that your business relies on. Consider your product or service and write down all of the steps it takes to:

• Create it: This includes designing, manufacturing, and ensuring quality control.

• Market it: This includes your branding and media campaigns.

• Process orders: This varies depending on whether you deal directly with your customers or use intermediaries to handle your orders.

• Deliver it: This depends on the nature of your product or service and whether you’re reliant on distribution channels to fulfill your orders.

• Follow up on it: This includes providing customer support and troubleshooting problems.

Once you’ve outlined all of the tasks involved in running your business, consider how you can make incremental improvements to save time, effort, and money. Kaufman suggests considering ways to:

• Streamline tasks: This might include automating some of the tasks or eliminating unnecessary tasks.

• Cut costs while maintaining quality: This might include cutting intermediaries out or changing suppliers.

• Improve processes: This might include investing in resources such as equipment or more employees.

Finally, Kaufman suggests prioritizing the improvements that will make the biggest difference to your efficiency and profits.