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Lean Startups for Social Change

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For years, the lean startup has been revolutionizing both new and established businesses. In this eye-opening book, serial social entrepreneur Michel Gelobter shows how it can do the same for nonprofits.

Traditionally, whether creating a new business or a new program, entrepreneurs in all sectors develop a plan, find money to fund it, and pursue it to its conclusion. The problem is, over time conditions can change drastically—but you're locked into your plan. The lean startup is all about agility and flexibility. Its mantra is “build, measure, learn”: create small experimental initiatives, quickly get real-world feedback on them, and use that data to expand what works and discard what doesn't.

Using dozens of social sector examples, Gelobter walks you through the process. The standard approach wastes time and money. The lean startup will help your organization vastly increase the good it does.

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1 Making Change the 21st-Century Way

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Making change is hard—even before you start making it.

Whether you’re in a big government agency, you’re confronting a problem in your own community, or you’re just trying to make a difference in a few people’s lives, getting started is a challenge. You convene meetings, make plans, find partners, agonize over the right approach, cajole donors or funding agencies, compromise. You build a model that a lot of people sign on to, you secure funding, and you get started.

The stakes are especially high for making change in the social sector because failure is often not an option. In contrast with the private sector, social innovation requires something harder to get than money—it takes political and social will. If an innovation fails to deliver a vital product or service the momentum required to try again is often dissipated for years.

Aware of these stakes, the team you’ve assembled is working from a playbook you’ve painstakingly built, but you launch into a world that hasn’t seen anything like this before. A new community forms around the idea. There’s an excitement about the change that will come, an anticipation of the start, dreams about the middle and the end, about the time when the world, in some measure, will be a better place. Whether it’s a new childcare center, an advocacy campaign to shut down a polluter, a trade association for dog trainers, or literally a new way of getting trains to run on time, a lot of work goes into gathering the energy and good will to get started.

 

2 Lean Principles and Process

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“Top of the heap … in homelessness!”

That’s what Monica Martinez said to herself after taking the job as CEO of Santa Cruz’s Homelessness Services Center (HSC). Santa Cruz County, her new home turf, held the distinction of having the highest homelessness rate in America. Twenty-five years into the center’s existence, Monica was determined to do something different. She was going to go lean.

For the past twenty-five years, HSC had followed the classic game plan: get an idea, write a plan, raise money (through charitable or governmental sources), and then carry out your plan. If you succeed at getting this far, then you take up what’s next: measure impacts, evaluate, raise more money (see Figure 2.1).

This Plan–Fund–Do approach had served HSC well over the previous two decades. The organization had grown from a scrappy, community-led effort to a well-established provider of up to 145 beds a night for homeless people, with an annual budget of almost $2 million. All that planning and funding and doing had brought immediate relief to some of those suffering on the streets (18 percent of them on any given night), but it had done nothing to solve the problem permanently.

 

3 The Difference a Sector Makes: Lean Startups for Profit versus for Social Change

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I’ll never forget the time that Vince, a chief financial officer I’d recently hired out of the private sector, walked into my office and asked, “So … how do we make money?” He’d gotten on top of spending in record time and had a firm grasp of our burn rate—how much cash we were using each month to pay our bills. He’d reviewed payroll for any discrepancies or inequities. He’d established policies for promotions and new hires. The one thing he couldn’t figure out was how we made money. And, strictly speaking, we didn’t.

An organization’s relationship to revenue is one example of a big difference between business and the social sector. There are others, including mission, hiring, relationships to those we serve, and the risk profile of the organization and its employees. Each of these is relevant to how the lean startup works for nonprofits and government.

The organization I was running at the time was the country’s only sustainability policy institute (called Redefining Progress), and, in a good year, other organizations paid us $250,000 for our work. The rest of our $2.8 million revenue came from foundations and donors as charitable gifts. The fact that we didn’t sell anything—that we couldn’t project revenue from something whose production, marketing, distribution, and sales we could at least somewhat control—freaked Vince out. The dominant metric that Vince was used to driving was revenue, and we had a lot more on our agenda at Redefining Progress than that.

 

4 Discovery I: The Nine Guesses

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Discovery is the beginning of the journey to make the change you want to see. It’s where you hone your vision and start testing it against reality.

The big difference between lean startup and everything else you’ve ever done is that you start with hypotheses—educated guesses about what you are seeking to change informed by your innovative idea. In discovery you will detail and deepen your initial vision and, most important, test it against the real world. You will “discover” how real people understand the problem and respond to your solution.

There are four steps that immediately get you out in the world and testing your vision:

1. Write down your best guesses for the critical elements of your innovation.

2. Test the problem.

3. Test the solution.

4. Verify or pivot.

Let’s get started with the guesses!

The first step in discovery is to get all the hypotheses you have about your innovation written down in one place. The Lean Change Canvas in Figure 4.1, adapted from Alex Osterwalder’s book Business Model Generation, is a good tool for putting all your best guesses on one page. The nine boxes of the canvas represent the key elements of almost any kind of business or operating model. The outcome, a one-page summary of all the hypotheses to be tested, becomes a scorecard you’ll use until your innovation is proven and scaled. It is also an explicit, nine-part model of how your innovation will run.

 

5 Discovery II: Get Ready, Get Set …

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We’re done with paperwork for a while now. The second part of discovery involves what lean practitioners call “getting out of the building,” which means breaking the Plan–Fund–Do cycle by going directly to your targets (or customers, clients, funders …). The core of discovery is testing your guesses with real people. In the next chapter, you’ll test the “problem” hypotheses in your value proposition to make sure you understand what it is you’re trying to change and how your targets themselves see the problem. Then you’ll test your vision and the solutions you are proposing. But before you actually “get out of the building,” you’ll need to take some key preparatory steps to make sure you effectively encounter the people you hope will join you in making change happen.

The process of discovery is one of radical doubt—you don’t believe your guesses until you have validated them with customers. The lean startup is about a decade old as a practice in business, and in that time a few truisms have emerged that help practitioners be both visionary and grounded.

 

6 Discovery III: Get Out of the Building!

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You don’t start by testing whether people love your ideas. You start by testing to find out whether you understand their problems. Think about why you are innovating. What thing in the world are you trying to fix, and for whom? Stop right there and start testing your guesses about that. You are done with this step when:

1. You know who your targets are, and

2. You understand the problem from your targets’ point of view.

“Get Out of the Building” means that you will achieve this understanding through direct contact with people. Chapter 5 discussed how to reach a large number of people for interviews, and even if you do a lot of your problem testing online with an MVP, you must have some face-to-face contacts to be sure you understand, at a human level, what’s really going on with your targets.

In the problem interviews or MVP, present your problem hypothesis. Ideally, you do so as part of your interview sequence or your discussion. If it’s a direct problem for your target, more often than not you won’t need to say much or show much. They will be directly engaged with it already. Table 6.1 provides examples of statements from “engaged” customers.

 

7 Discovery IV: Pivot, Proceed, or Quit

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When is solution testing over? The end of solution testing and of the entire discovery phase comes when one of three things happens:

Congratulations, you’ve failed fast! Undoubtedly you were trying to solve a difficult social problem, and, as we’ve discussed, that problem may be so serious that it has to be solved sooner or later. (Failure may not, in fact, be an option.) The lean startup process helped you figure out faster than ever before that your approach wouldn’t work, preserving human and financial capital for the next run at the problem. You’ve tried and you’ve learned, and, most important, you have not wasted resources that are still vitally needed in the search for solutions.

Sometimes you run out of critical resources before you’ve given your solution a fair shake. You run out of money because funders don’t see the value of your innovation yet. Key people (your partners, even you) burn out or have a hard time accepting interim failures that crop up (like first contact with customers). Partners that are core to your plan pull back for their own reasons.

 

8 Validation I: Get Ready to Get Big

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Thanks to the discovery phase, you’ve gotten this far because you understand a problem in the world and you have a solution (a value hypothesis) that works for a handful of people or cases. Validation is about using lean methodology to understand how your innovation spreads and is adopted in the field. It takes full advantage of one of the pillars of the lean startup success—the ability to measure the impact of your actions faster than ever before. Measurable, replicable results will be your watchword in this phase.

Validation is the search for a growth hypothesis with real legs. You will be running tests on most if not all of the Lean Change Canvas with the goal of testing and evolving a core growth hypothesis. The goal is a full, tested model, not of the value your innovation delivers but of how the innovation is adopted and spreads. You don’t need to pioneer new ways to reach people (although in this process you might!). To innovate for growth, you need to take an experimental route (principle 2) to testing and documenting those ways.

 

9 Validation II: Priming the Pump

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In the discovery phase, you found that your solution was important to a fairly large number of people, and in learning that you started the process of validating the first part of your growth hypothesis. Simply put, there’s a series of steps that “got” your initial targets (whether direct or indirect targets or funders) to adopt and/or to fund your solution. The first Build–Measure–Learn loop in validation is devoted to refining your minimum viable product so that you can get adoption by your targets over and over again.

This first loop focuses on an adoption funnel, which is wide at the beginning of engagement to represent all the people you will be reaching out to, and narrower at the end to represent all those who actually did engage with your innovation.

The work of the first loop is all about the interaction between the innovation itself and how you plan to drive its adoption. There are two components to this interaction: the marketing infrastructure for the solution (positioning, marketing materials, people, budgets, media, and other factors), and the solution itself.

 

10 Validation III: Keep + Grow = Scale

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The Get phase of validation is where you learn how to reliably turn prospective users of your innovation into actual users. When you’ve got that down in the form of roadmaps, you can start running a Build–Measure–Learn loop around the things they do as users that keep them using the innovation and generate growth by spreading the innovation to other users. Keeping and growing are the key lessons of the second loop (see Figure 10.1).

You’ve already engaged some people using your product or service. Now is the time to find out what’s keeping them there and how you can make that even better. There are a number of strategies for doing this that you can put through your BML loop:

1. Call on your users. You’ve already interacted with them significantly as part of discovery. Call these early users regularly (alternatively, be in close contact with them via email), and you can even go so far as to form an advisory group of these early users to keep your finger on the pulse of your “customers.” These calls should come from the founding team, the people with the original vision who are able to hear directly how it needs to evolve.

 

11 Creation: Scaling Impact

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Congratulations! Now it’s time to create something! You and your colleagues have worked hard to get to this point. You know that your innovation works for real people in the real world, and you have a decent idea of how to get, keep, and grow those you most clearly want to target. Now’s the time to make big impact by building the right organization to scale your innovation or by changing the organization that’s incubated your innovation to make an even bigger impact.

Steve Blank, the father of the lean startup movement, argues that startup companies aren’t really businesses, they’re organizations in search of a profit model. (You are, after all, not really a business unless you’re making a profit.) And he recommends delaying any decisions about how to scale and/or institutionalize delivery of your innovation until you’re pretty sure about your profit model.

This means, first and foremost, that you keep the innovators/inventors themselves as close to customers as possible, getting firsthand data from them. You also delay any hiring that assumes a particular delivery model until you’ve reached product/market fit and your innovation starts flying off the shelves. In business, this translates as the fewest sales and marketing people possible until you know exactly how you’re going to sell and market your innovation based on the validation phase.

 

12 Institutionalization: Building the Lean Organization

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The fastest-growing nonprofit I ever served actually grew too fast. Big Think started with a small fellowship to Bill, its founder and one of the greatest social innovators I have ever known.1 His idea was to change the way Americans thought about the future, to redirect our national energy toward more positive outcomes. Within a year, he had written a concept paper, recruited some incredible senior researchers, raised several hundred thousand dollars from a handful of individual donors, and scored the cover article of a national magazine.

The one metric that mattered was common for think-tanks—getting mentioned in the press. And by any measure, Big Think was swinging way above its weight class.

Within two years its budget had grown to over $2 million a year, collected from a small group of very big donors and a growing set of national foundations. Big Think had some of the country’s most innovative thinkers and a superb writer/director of publications who regularly landed major articles in national magazines.

 

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