Lean Logic Extends To All Functions, Not Just Product Development

by Private

Our class discussion around Foursquare highlighted a strange paradox that I’ve been trying to articulate for a while now. We all agreed that Foursquare follows and is one of the best instances of a lean startup method we’ve seen. They launched with a buggy product, initially did not have too many features, collected consumer feedback on the product and constantly improved. However, the discussion broke down when we turned to their monetization strategy. Yes, Foursquare does have data about location and users that can be broken down in several ways to add value to advertisers, but then all the methods that we discussed involved high touch activities. At first sight there also seems to be a lack of metrics around how the success of advertising campaigns can be made measurable to add value to advertisers. 

The discussion highlighted that the lean methodology may not be consistent with all divisions at a startup. Some startups have done a great job implementing the lean method in their product development, but not necessarily followed the same principles while looking at their business development or monetization strategy. Let me illustrate: 

• First, the lean startup method as I understand it involves starting with a hypothesis and collecting data to validate that hypothesis. That necessarily means that you need to collect data and metrics not only around your customers and what they prefer but also around the advertisers whose needs you are trying to address. A startup’s business development activities will truly be lean when they can start with definite metrics around what they are trying to achieve from each advertising or monetization campaign and provide advertisers or entities on the other side very definite metrics by which to assess success. 
• Second, in a product context while you need to launch fast and get feedback, in a business development context you need to be scalable. A key problem we discussed with Foursquare is the scalability of a model that involves outreach to several local businesses to illustrate the value of the service and get them to sign up for deals. On the other side, I see a lack of metrics in the branded campaigns that the company is working on. Yes, their partnerships with Zagat, Bravo TV etc. definitely create engagement with the brand but what are the metrics that these advertisers can go back with when judging the impact of the campaign?

This discussion around scalability revolves not just around Foursquare but quite a few of the cases we have discussed such as Rentjuice. How scalable is it to reach out to brokers and real estate agencies on an individual basis for example to get them to sign up for the service? I would like to propose that the lean startup methodology be applied not just to product development to ensure that the startup perfects its product but also to other aspects that make sure it functions cohesively and scales fast. This requires applying the same rigor to business development as you would to product development to start with, introduce monetization strategies whose impact is very directly measurable for the advertiser and the company. Start with a target and then ascertain whether the monetization strategy can move the needle on that target instead of starting with a monetization strategy without a specific target in mind. On the costs side, running a program involves a cost, when we talk about product development we bring in metrics around CAC and LTV, similarly these methods should be applied to the business development process to ascertain whether this can really scale. 

I feel a lot of startups have mastered the lean startup methodology and have come up with great products that have viral features and thus drive user adoption but the same virality doesn’t apply to their monetization strategy, the approach to business development and monetization is still one off deals without a hypothesis behind it and high touch advertiser or brand acquisition as opposed to product features that encourage adoption by advertisers- a push versus a feature based pull strategy. As startups following the lean methodology grow up what I remain most interested in seeing is whether they can successfully apply the same lean methodology to their monetization practises as well.