PDF Summary:The Lean Product Playbook, by Dan Olsen

Creating a successful product can feel like a risky gamble, but what if it doesn’t have to be? In The Lean Product Playbook, entrepreneur Dan Olsen argues that you can feel confident in your product’s success by making sure it has product-market fit—that it satisfies customer needs better than other available options. Olsen provides a practical guide to finding product-market fit using the lean startup approach, presenting repeatable and systematic steps for identifying target customers, understanding their needs, and creating a winning product strategy. By following Olsen’s Lean Product Process, you can craft winning products with minimum time, effort, and costs.

In this guide, we’ll discuss how to find product-market fit, validate your product idea with a minimum viable product, and build and optimize your complete product using key metrics. Along the way, we’ll supplement Olsen’s strategies with insights and advice from other product experts and entrepreneurs.

(continued)...

Next, create three more columns—one for your product and two for competing products. Score how well the two competing products currently satisfy each need and how well you plan to meet each need. Fill out the rows for essential needs and bonus needs with either a “yes” or “no,” and rate each performance feature as low, medium, or high in terms of satisfaction. For example, you might rate the rendering speed as low for Competitor A, medium for Competitor B, and high for your product if you intend to deliver this benefit well.

Identify Your Competitors

To score the performance of your competitors’ products, you’ll first need to determine who your competitors are. According to other experts, there are three types of competitors you should be aware of:

• Primary competitors: Businesses that sell similar products or services as you do to the same target audience.

• Secondary competitors: Businesses that provide similar products and services but to a different audience.

• Tertiary competitors: Businesses that are only tangentially related to your business but could pose a threat if they pivot.

While you’ll want to focus on primary competitors in your competitor scoring columns, analyzing the products of secondary and tertiary competitors—and how well they satisfy customer needs—can help identify areas of potential advantage for your own product.

You’ll also need to understand your competitors to rate their features. You can do so by pretending to be a customer: Visiting their shops or websites, using their products, and even inquiring through their customer service can offer valuable insight into the strengths and weaknesses of their products.

Stage 2: Validate Your Product Idea With a Minimum Viable Product (MVP)

At this point, you’ve created your product’s value proposition and have a clear idea of the needs you want your product to address. Now, it’s time to determine how your product will address those needs and then verify whether your product design actually resonates with your target market. You can do this by building and testing a minimum viable product (MVP).

Creating a fully functional product is time-consuming and risky since you haven’t yet validated whether customers would want to buy it. An MVP is a simplified, bare-bones version of your product. It consists of only the most critical features and functions needed to validate assumptions about your product. Olsen argues that building an MVP is the fastest and cheapest way to test your hypotheses and gather feedback on your product design. In this section, we’ll go through the steps to do so.

(Shortform note: Some experts argue that the business world has gotten more competitive, and creating an MVP—a bare-bones solution with a narrow set of features—might not be enough anymore. Instead, they suggest you create a Minimum Lovable Product (MLP). An MLP goes a step further than an MVP, not only meeting customer needs but instilling a sense of delight by incorporating aspects that customers love—such as appealing visuals or a creative user onboarding experience. Thus, to meet rising user expectations, it may be worthwhile to consider including lovable features when applying Olsen’s MVP validation approach.)

Choose Features for Your MVP

The first step in creating an MVP is to choose which features to include.

First, brainstorm all possible features that could satisfy each need your product will address. Then, select three to five of the best features and write user stories for them. A user story is a brief explanation of a feature from the user’s perspective. They typically follow this format: “As a [type of user], I want to [perform this action] so that I can [desired result].”

For example, “As a music enthusiast, I want to create and share playlists on a music streaming device so that I can share and discover new music with my friends.”

How to Come Up With Innovative Ideas

In 101 Design Methods, Vijay Kumar says that to generate many feature ideas to fulfill customer needs, you and your team shouldn’t evaluate or criticize any ideas during the brainstorming phase—simply focus on coming up with ideas and playing off of one another’s ideas. Kumar suggests you identify and reexamine assumptions about your field to prevent industry conventions and traditional approaches from narrowing your thinking.

Similarly, in Tools of Titans, Tim Ferriss suggests you welcome all ideas—both good and bad. To do this, explore even the silliest-seeming ideas, ask dumb questions, and immerse yourself in rich environments that expose you to new ideas, problems, and people. Once you’ve amassed a lot of ideas, you can then stress-test each idea by having everyone challenge it. If an idea still feels worthwhile after heavy criticism, you can consider it a promising idea.

Once you’ve written user stories for your top feature ideas, calculate the ROI (return on investment) for each feature to determine which are worth pursuing. To do so, subtract the cost of building the feature from the revenue you’d expect to earn by including it, and then divide by the cost to get a percentage.

How to Estimate Cost and Revenue

If you’re not sure how to estimate the cost of developing a feature, consider the advice of Alexander Osterwalder and Yves Pigneur from Business Model Generation:

To estimate the revenue you expect to earn, first determine how you’ll generate profits. Olsen doesn’t suggest profit methods, but common methods include: selling physical products, charging a usage fee for a product or service, offering subscription-based services, renting out products and assets, licensing intellectual property, and providing an intermediation or brokerage service.

To estimate the cost of developing a feature, assess all of the resources you need for it—consider whether you want to purchase, lease, or borrow them. Osterwalder and Pigneur suggest you consider four categories of resources:

• Material—such as raw materials, buildings, factories, vehicles, and machinery

• Monetary—such as cash, credit, and stock options

• Intellectual—such as brand equity, copyrights, patents, and knowledge databases

• Human—such as experienced staff members and specialists

Once you’ve identified all of the necessary resources, estimate your expenses. Osterwalder and Pigneur state that your expenses will include at least one of the following characteristics:

• Fixed costs—costs that don’t change regardless of the production volume (such as rent or salaries)

• Variable costs—expenses that change depending on your level of production (such as raw materials, packaging, direct labor, and distribution costs)

• Economies of scale—reductions in the cost per units of a product as your production volume increases

• Economies of scope—reductions in the cost of a single resource or activity when you use it for multiple operations or services

Olsen writes that you should greenlight features with high ROI for your MVP: ones that satisfy all essential needs, the top performance need, and the top bonus need from your value proposition. Including a bonus feature helps your product stand out from competitors.

(Shortform note: There are many prioritization frameworks for product managers you can consider alongside Olsen’s, each with their own pros and cons. The RICE scoring system, for instance, ranks features based on reach, impact, confidence, and effort. Another more interactive method is “Buy a Feature,” where you assign a monetary value to each proposed feature and ask customers to “buy” the features they want, demonstrating which features they view as most valuable. Considering these frameworks in conjunction with Olsen's can guide you in making effective prioritization decisions.)

Validate Your Product Idea

Once you’ve identified the features for your MVP, validate your product idea either by directly interacting with customers or by conducting tests. Olsen suggests you validate three things: the value of your product itself, your user experience (UX) design, and your product marketing.

(Shortform note: In Inspired, Marty Cagan also suggests you evaluate product value and user experience when testing product ideas, but he adds that you should also assess feasibility and business viability—whether your company can reasonably build the product and whether the product makes sense for your company’s larger business strategy.)

Method 1: Conduct Customer Interviews

Olsen writes that conducting in-person interviews with target customers is one of the most effective ways to validate your product idea and UX design. Getting feedback from real prospective customers allows you to understand whether customers find your product valuable and why.

(Shortform note: In The Mom Test, Rob Fitzpatrick agrees on the importance of getting quality feedback from customers but cautions that most feedback does more harm than good by convincing you that bad ideas are good. He contends that the only way to objectively verify the worth of your product is by getting customers to commit to your product. This means trying to convince them to sacrifice something for it, such as their money, time, or reputation. For example, you may try to get them to post about your product on social media.)

To validate your product idea, you’ll need to show customers some version of your product. Olsen recommends that you present a range of product design prototypes that allow you to test your hypotheses without having a completed product. The closer the prototype behaves and appears to the final product, the better and more accurate feedback you’ll get.

Olsen describes several design prototypes you can consider:

• Wireframes: A simple, sketch-like diagram showing the basic layout and functionality of your product.
• Mockups: A more detailed visual representation of what your final product will look like, including color, font, and images.
• Manual MVPs: Interactive versions of your product that require human involvement to simulate the experience of using the final product. One example is what’s known as a Wizard of Oz MVP, which has a human operator perform the tasks that would typically be automated in the final product, giving the illusion of a functioning system. This allows you to gather valuable insights before investing in further development.

The Four Types of Design Prototypes

Design prototypes can serve other purposes beyond getting feedback from customers. In Inspired, Marty Cagan describes four types of prototypes and explains why and when you should use them:

1. Feasibility Prototypes: This type of prototype is used mainly for engineers who aren’t sure whether they can build a tech product. Engineers create a feasibility prototype by writing just enough code to know they can complete the project. Since this prototype is made solely for engineers, you won’t be showing it during customer interviews.

2. User Prototypes: These prototypes are merely simulations of the final product and include the wireframes and mockups that Olsen discusses. Cagan suggests you use simple user prototypes mainly for your team to visualize the product. However, more complex versions can be used both internally and shown for customer tests.

3. Live-Data Prototypes: A functional prototype that can get real data on whether a product will sell. These are not scalable, can’t handle much traffic, and don’t have any SEO or analytics, but they allow customers to use and test the product. Cagan says that these prototypes are good for testing high-risk ideas.

4. Hybrid Prototypes: This prototype is a combination of the other three and includes the manual MVPs that Olsen discusses. According to Cagan, these prototypes are the least scalable of the four types and serve mainly as a means to get customer feedback while reducing unnecessary engineering work.

Olsen suggests you also get feedback on your product’s user experience (UX) design. UX is how a user interacts with your product or service and makes use of its features. Olsen writes that a product with good UX is both intuitive and enjoyable to use. When you interview customers, get feedback on UX design by evaluating how easy it is for customers to complete certain tasks. The more effort required, the more difficult your product is to use and the less valuable it becomes to users.

(Shortform note: In User-Friendly, Cliff Kuang and Robert Fabricant define four components of good user experience design: It makes the user’s life easier, is based on an effective mental model (a metaphor or framework that helps people conceptualize how a product should work), provides feedback to the user, and mirrors qualities appreciated in humans—such as transparency and learning our needs over time.)

Now that you know what elements of your product to test, how do you get quality feedback from customers? To conduct effective interviews, Olsen suggests you:

1. Recruit target customers. Advertise on odd job platforms like TaskRabbit, approach people in-person, or work with customer research companies. Aim to get five to eight customers per round of testing. To ensure you get customers in your target market, use screening questions that qualify or disqualify respondents. For example, if your product is for athletes, you might ask survey participants about their weekly exercise hours and exclude those who exercise less than 10 hours a week.

(Shortform note: When recruiting target customers to test your product, try to capture the diversity and complexity of your target audience to get the most helpful feedback. Consider various demographic factors such as age, gender, ethnicity, culture, language, disability, education, income, location, and lifestyle. Make sure your tests are inclusive and accessible, covering different formats and including accommodations like subtitles or interpreters.)

2. Conduct in-person interviews with one participant at a time. In-person interviews help you develop rapport with the participant and pick up on nonverbal cues. Additionally, people express themselves more truthfully when you interview them alone, leading to more accurate results. Olsen explains that people often hesitate to openly share their thoughts in front of others, and they may also change their beliefs after hearing other people’s opinions.

(Shortform note: Group interviews may generate less accurate feedback because of our tendency to conform—to change our beliefs to fit in with others. In The Psychology Book, the authors share how psychologist Solomon Asch shed light on this tendency: He placed participants in groups and asked them to identify which of three lines on a card matched the length of a line on another card. Unbeknownst to the participants, the other members had been instructed to give incorrect answers. Asch found that 75% of participants agreed with the group’s incorrect answers at least once. Thus, even if people intend to give truthful answers, their opinions can be skewed upon hearing those of others.)

3. Ask open-ended questions. Some participants may be less expressive than others. As participants interact with your product prototype, encourage them to share their thoughts by asking open-ended questions—those that start with “why,” “what,” or how.”

(Shortform note: In You’re Not Listening, Kate Murphy agrees on the benefits of open-ended questions and adds that you can also encourage sharing by giving off inviting nonverbal cues: Maintain strong eye contact and a relaxed posture, and pause to allow people to express their thoughts completely.)

4. Avoid intervening. Olsen suggests you avoid the temptation to step in when the participant has difficulty using your product. If customers ask for your input, shift the focus back to them with another question. For example, if a participant says they can’t find a search function, you could ask: “Where would you expect to find the search function on this page?” This method helps you to collect unbiased feedback.

When to Intervene During a Product Test

According to other experts, there are times when you should intervene during a customer test:

• When the participant is having so much trouble that they can’t progress any further

• When the participant is taking so long on one task that they won’t get to other parts of the test

• When the participant’s actions can potentially cause problems—such as accidentally deleting data or charging a credit card

• When the participant thinks they’ve finished a task but there are more steps to be taken

However, like Olsen, they suggest you avoid intervening as much as possible, and when you do, record how many times and for what reason you intervened. This can help you recognize problems with your product as well as your test itself.

Method 2: Conduct Tests to Measure Marketing Effectiveness

Another way to validate your product is to test the effectiveness of your marketing—whether prospective customers find your product offer enticing. They allow you to get feedback on your product messaging so you can measure interest and alter your marketing approach if needed. Olsen suggests several tests to validate marketing:

1) Landing Page Test: Create a landing page for your product and include a call-to-action visitors can click. This can include a video explaining your product’s features and why customers should purchase it. You can gauge demand and assess the effectiveness of your product messaging based on how many visitors click on your call-to-action.

2) Advertising Test: Construct ad campaigns that direct traffic to your landing page. Experiment with different messaging and designs and compare clickthrough rates to test your hypotheses about your target market.

3) A/B Testing: Create two versions of your web page (A and B), differing in design, content, or layout, and then introduce your visitors randomly to either version. You can then track which version leads to more buttons clicked or forms filled, for instance, to determine which version stimulates higher engagement. By comparing user responses to the two versions, you can refine and optimize your landing page using real user behavior as a guide.

4) Crowdfunding: Initiate a crowdfunding campaign for your project and include a compelling pitch with a detailed description of your product’s features and unique selling points. You can determine the appeal of your product by how many backers pledge their support.

Finding Language-Market Fit

The tests that Olsen discusses can all aid you in achieving language-market fit—the most appealing way to describe your product that convinces your target market to buy. Other experts explain why language-market fit is as important as finding product-market fit:

People typically skim content instead of reading it fully—a tendency known as “attentional control”—in hopes of accomplishing a goal. In other words, people scan your messaging quickly to decide whether it's worth spending more time on your site. Because of this, language used in marketing, and particularly in online advertisements and landing pages, has to practically replicate the thought process of your target market. Mirroring what they’re thinking and feeling is the only way you can capture and hold the attention of prospective customers.

Landing page designs, advertisement messaging, A/B testing, and even crowdfunding pitches can all test how well you can capture and maintain the attention of visitors.

Make Adjustments and Repeat

After each round of testing, use the feedback you received to revise your hypotheses and change your MVP to improve product-market fit. To determine what changes to prioritize, figure out the percentage of users who shared similar comments or issues. Continue to cycle between testing your MVP and refining it according to the feedback you receive until you feel confident that the product will satisfy your target customer’s needs.

(Shortform note: If you don’t feel confident in your product after multiple rounds of testing, how do you know whether to pivot or to keep testing? In The Lean Startup, Eric Ries says most startups pivot too late, and he suggests you clearly define what failure looks like for your product to avoid this pitfall. Establish clear hypotheses about what metrics you need to hit. Then, if you fail to meet these metrics or if your tests are leading to less progress, you may decide that it’s best to change directions. Ries also suggests you hold “pivot or persevere” meetings with your team to help make these decisions.)

Stage 3: Build and Optimize Your Product

After you’ve tested your product and validated its product-market fit, the next step is to build and launch your product. Olsen suggests you use an “Agile” product development methodology. With an Agile approach, you’ll break projects into small cycles of work—as opposed to following a traditional “waterfall” or sequential approach of crafting a detailed plan at the beginning of a project and working continuously and consistently until every step of the plan is completed in its predetermined order.

Segmenting a project into smaller pieces increases flexibility, collaboration, and customer-centric thinking, allowing you and your team to respond quickly and adapt to changes. It also reduces the margin for errors seen in larger projects and allows you to put deliverables in front of customers sooner.

According to Olsen, the two most popular Agile methodologies are Scrum and Kanban. Scrum divides work into small manageable parts called “sprints,” typically lasting one to four weeks. Kanban involves visualizing tasks by putting cards featuring user stories on a board, allowing teams to see the workflow and manage it effectively. Olsen suggests experimenting with one for a few months to figure out which works best for your purpose.

The Best of Both Worlds: Use Hybrid Approaches

Instead of choosing between Agile and traditional “waterfall” methodologies, some experts recommend you take a hybrid approach to compensate for the weaknesses of each methodology. While Agile methods promote flexibility, speedy delivery, and customer-oriented thinking, they can fall short in providing proper documentation and predicting precise timelines and costs. Conversely, while the waterfall model provides predictability, detailed documentation, and a structured approach, its rigidity can lead to late discovery of issues and difficulty adapting to evolving needs. By blending the two, as some companies have done, you can strike a balance between structure and adaptability and achieve greater project success.

Similarly, you can also consider an approach that combines Scrum and Kanban—a hybrid methodology aptly named Scrumban. It brings together the structured nature of Scrum and the visual, tracking capabilities of Kanban for improved project management. Scrumban provides increased flexibility, continuous delivery, and faster issue resolution. Experts recommend using this hybrid methodology for software development projects with evolving requirements, teams working on simultaneous projects, and for startups.

Optimize Your Product With Analytics

Once you’ve built and launched your product, continue to optimize your business by monitoring and improving key metrics. Olsen recommends the following steps:

1) Define the key metrics for your business. These are performance indicators for your product—for example, conversion rates, retention, and sales volume. Your choice of metrics depends on your product and your business’s overall objective.

2) Record your baseline metrics. Knowing where you currently stand is crucial to making improvements to your product. Olsen recommends you create a dashboard that allows you to easily see each metric and track its performance.

3) Select the most valuable metric to improve. Identify which metric would provide the biggest ROI if improved. For example, Olsen writes that for newly launched products, it’s typically more valuable to improve retention first instead of other metrics like acquisition of new customers.

4) Implement the best idea for improvement. Estimate the ROI of each strategy you come up with for improving the metric, and then implement the best. Afterward, record any changes to assess whether you need to continue optimizing or if you should switch to improving another metric.

Create a Metrics Scorecard

In Traction, Gino Wickman discusses a “scorecard”—a similar concept to Olsen’s dashboard—that can provide an immediate overview of how your business is performing each week. This scorecard can help you shape Olsen’s recommendations into an organized, tangible tool. Let’s look at the steps for creating one:

First, to define key metrics, Wickman suggests you brainstorm with your leadership team about which numbers best reflect how your business is doing on a weekly basis. Once you’ve identified 12 metrics, create a spreadsheet: List each category in the far left column, followed by a goal column and then columns for adding numbers under dates running across the top. Wickman recommends your spreadsheet cover 13 weeks.

Second, while Olsen recommends recording baseline metrics, he doesn’t specify how often you should review them. Wickman says you should review your scorecard every week with your leadership team to spot potential problems early and adjust your course to ensure you’re on track to meet goals.

Third, instead of choosing one metric to improve at a time, Wickman suggests you create weekly goals for all of them. Take every metric and make one person responsible for it—write their name down alongside it. This assigns clear accountability and produces results.