Startup Series: Part I — The Founder’s blueprint
It is a quite simple matter these days — almost everyone can now become an entrepreneur, right? with low marginal costs pushing away intermediaries and converging the (digital) economy towards ideas that are heavily reliant on technology and intangible assets — as long as she or he possesses the effective approach to meeting demand with compelling supply of course.
The process of setting up the idea itself on the other hand is quite mechanic and can be formalized in a couple of steps.
This first article, entitled The Founder’s blueprint, explains how.
The hero journey
Our society has always celebrated daring personalities — risk tolerant, fearless and resilient to name some attributes — from early ancient history, from Greece to the far east and around the world to the modern age with individuals from all ranks and belongings — all their stories have one thing in common: the hero journey.
The moment an individual rises to solve a problem (or save the world), travels, gains experience and eventually faces great danger — now why do write all of that? Well, here comes the transition to you…
Entrepreneurship in the context of startups is very similar with regards to the act of bravery and the courage it takes to either solve critical problems or simply innovate existing ideas — just like heroes, we all believe our journey is unique as we travel without a roadmap, believing that no model or existing process could fit our “unique” context.
But why do some startups end up lucky while others simply never take off — is it luck? It isn’t I can tell you. The process to formalizing your idea and kick-starting the business is one of great scientific documentation and standards and quite the opposite of unknown and complicated.
Here comes the very difficult pre-work: get clear on who you are — in the beginning we assume that we have answered the important questions around WHAT, HOW, WHY as defined by the infamous Simon Sinek. Your identity is important — not only that of your product, you may learn plenty about yourself as well during introspection.
Before I dive into the details and individual steps, let’s clarify some basics first and get a common understanding of a startup: by definition this term is defined as
“a temporary entity in search for a repeatable, scalable and profitable business model.”
We may also distinguish between two fundamental types in terms of marketing: those with customer/market risk and those with invention risk.
· Invention risk: here it is questionable whether the technology is feasible, but in case it will, the demand side will react (e.g. breakthrough innovation or life sciences with unique treatments to deadly diseases)
· Customer/market risk: it is unknown whether customers will use the product
Now how do we actually start?
First things first, we are using a business model and an appropriate format (e.g. canvas) to capture all the information. Stay away from business plans as they cannot keep up with the dynamic nature of our VUCA world (volatile, uncertain, complex, ambiguous). Infact, they outdate faster than ripe fruit!
Next, the successful best practice considers a) the iteration and pivot towards business model hypotheses validation, followed by b) the execution mode at which the business will establish required management tools, like a fitting operating plan and financial forecasts among others.
Fundamentally important is the marriage of two aspects:
· Customer development
· Agile product development (iteration & pivot)
For the sake of this article series, we assume scalable startups among other existing types (small business-, buyable- and large enterprise entrepreneurship etc.)
Scalable Startups
It all begins with a mind and a single vision, all down the path to success or shattering disappointment and a serious lesson learned. In any case, the early days are marked by a relentless search for a repeatable and scalable business model and in most cases the external venture-capital investment to fuel a rapid expansion.
Very well until the last quarter in the past century, startup ventures shared the same common definition of a business journey. They adopted best practices from large enterprise processes for everything from product development to life-cycle management and launch. For the most part those included detailed planning with milestones and goals along the journey to make product release a reality — including the following exercises:
· Market sizing
· Sales estimations
· Product feature prioritization
· Marketing requirements
Now the truth is, that even with these lighthouses along the way, most ventures would fail critically — be it well-funded or not, regardless of industry.
Even after decades of similar failures, investors are always surprised when a new venture fails to execute its business “plan”. And still they continue to rely on the same product-introduction processes.
The problem is: startups have been using tools appropriate for executing a known business — but startups are all about unknowns. To find the path of building a winning startup, entrepreneurs must try a new way: the utilization of business models as a crucial component to maximize your win.
Maximum Win
Now what makes an entrepreneurial winner?
For one, you will swap the outdated processes for product introduction and -management for a winning combination of agile engineering and customer development (more deeply in Part II — Customer Discovery). In doing so, you trust to build iteratively, test and search for a functioning business model and transition the unknowns of hypotheses into knowns.
More importantly, the successful entrepreneur will unravel the vision behind the venture as an array of untested hypotheses — ones that require rapid validation (insight extraction) to course-correct and maneuver the “ship” quickly in order to save towards the bottom line, manifesting in saved budget by eliminating wasted time that accumulates otherwise from useless features and products that nobody needs.
There is no best practice in finding a proven and functioning business model, however the exposure to people (your customers) will increase the odds of success before dealing with specific paths and precise product specifications.
“One of the things startups have lacked is a definition of who they were. For years we’ve treated startups like they are just smaller versions of a large company.”
Until this point, the entrepreneur will have turned the viable business model (Customers, Market, Functionality, Channels, Price, Growth Strategy, etc.) into a known set of first variables in order to qualify it for execution.
The emphasis again is on a startup as a temporary organization — one that demands a scalable and repeatable business model.
FVG-Framework
The FVG-Framework is a best practice I can recommend from my personal experience as a founder and advisor. It is concise and provides you with the most essential steps and information needed to follow your journey.
Level One — Problem & Solution
In the very beginning, there is passion and vision — roughly sketched, popping into your mind during a shower, at night or at any other unexpected time in life. What follows are key words and a mind map that qualify for the outline of a business model.
The following are some aspects that require attention when defining the product from the beginning:
· General Feasibility
· Product or service concept
· Features and benefits
· Level of required technical research
· Customer identification and localization
These questions will provide first indications how to find and address the customer: of course, the implications from this exercise are cost estimations, distribution channels and general competitive differences.
Tipp: a useful tool that may prove handy is the visualization within a positioning chart as it can point unique benefits to venture capitalists or corporate higher-ups easily.
The business model itself should be drafted as soon as possible — you can gradually enrich it further over time. The reference model of Alexander Osterwalder should be mentioned as it is easy and useful for a quick start. The next pieces of required information consider market-size, competitive and financial requirements, ideally with an Excel containing spreadsheets forecasting revenue and expenses.
Until this point, the entrepreneur will have turned the viable business model (Customers, Market, Functionality, Channels, Price, Growth Strategy, etc.) into a known set of first variables in order to qualify it for execution.
This phase (see FVG-Framework) starts with Ideation and ends with Approaching and paves the path for Committing to the idea and product.
Level Two — Vision / Mission & Strategy
At this point everyone stops talking and starts working — we enter development mode and each member now specializes and focuses on her or his task.
The marketing department keeps a close eye on market conditions (size, short-term changes) and will start to target the first customers. If the startup holds high-levels of organization (good enough structure), the colleagues from marketing will start collaborating more intensively with product management in order to jot down the specifications for the product’s final features and functions.
The marketing department is set to build a demo for the purpose of sales, further it will write material to sell the product (be it online presence, conventional presentations and data sheets). It will then hire a PR agency and involve a VP of sales.
The engineering department is now in preparation to build the product — this involves especially the specification and architectural shell including first functions. The founder’s vision plays a crucial role in this process as it provides the blueprint for the product baseline (the output may materialize in a MRD or product requirements document) and then into engineering specifications of detail.
Tireless nights and pizza card box will dominate the days and nights after to draft and design, to model and code, to compile, build and eventually conduct bug fixing and finally deployment.
Much passion, resilience and persistence combined are the fuel for the first two phases and enable the entrepreneur to convince investors to pour in money to fund the venture or an entirely new division.
Level Three — Product & Market
We are now talking validation and scaling — the engineering team continues to build along the agile development model in parallel iterations and now towards the first customer ship date.
The agile development model ensures frequent increments according to the involvement of small user test groups that ensures quick reactions (pivots).
Marketing and PR have teamed up to provide the positioning and messaging to the outside of the organization — complete marketing communications plans, including branding activities, corporate platform and social media presence. Sales guides in complement of support materials, contacts high-range blogs and long-lead time press.
The sales department will pick up the initial round of beta customers (by volunteering or explicit early access payment among other models, e.g. also “Freemium” or “Early Access Beta” as nice new trends) to test the product. They now establish the selected distribution channel and pay careful attention to staffing and scaling of the sales organization outside HQ.
The responsible sales VP now follows toward revenue goal achievement as planned and investors along with members of the board measure progress by the number of orders in place by first customer ship.
The CEO is now running in with full force operating mode to secure more funding.
Level Four — Business Model & Growth
The product is now in operating mode (more or less) so your venture will decide to increase spendings and scale massively (big bang). The venture and product are officially launched and there is a lot of buzz from PR and Marketing with programs to create the essential end-user demand.
The sales channel generates quotas and sales goals with necessary lead output — in anticipation of that, your venture will hire a national sales organization. The company performance is then measured based on sales execution against the forecasts and estimates. The establishment of sales channels burn a lot of cash so be mindful about it and choose tactical moments for execution.
Fund-raising becomes habit now and develops into a constant and natural procedure. The CEO will now take time to observe the product-launch and the scale-up of the sales and marketing team and will regularly engage in meetings with the investor community.
This operational procedure may sound familiar and no different to others by the countless ventures out there in the quest for market-entry but it indeed one of the most difficult und tireless moments along the journey.
Early Phase Best Practices
Customer development is the bread and butter of business model success. The following non-exhaustive list captures 14 best practices of lessons learned from years and decades of failed ventures, condensed to short rules:
1. Fail intelligently (not only fast) and extract lessons learned
2. Act and learn fast, embrace low cycle time
3. Iterations and Pivots are to Happen Continuously
4. The truth about your business is out in the fields, become an explorer!
5. Agile Development and Customer Development together are key
6. Forget everything about large enterprise conventions, standards and governance
7. Show your passion and celebrate success continually
8. Active and Passive Learning — mentor and be mentored
9. Buy-In lays the foundation for Customer Development Success
10. Honor the coin and be mindful. Then concentrate spending.
11. Business Plans Outdate Faster than ripe fruit — go and get a business model. Now.
12. Dare to innovate. Experiment and test to validate your hypotheses
13. Get clarity on your market type.
14. Metrics have to be simple and rather to focus on cash burn rates
In the quest for customer discovery and insights the essential foundation for success is marked by abandoning the old model that considers a business plan. The search must focus on discovery and learning. It changes the entire construct from each side; be it in performance, behaviorally, measurable metrics and consequently will affect the potential for success.
Nothing in the world could explicitly pronounce the value of customer development’s value to the business model — while counting on the strong support and commitment of the team and board (be prepared!)
Conclusion
Winning startups are those that put emphasis on Customer Development. Certainly, it is the only approach for web-based businesses that definitely leads to failure in the search for the desired target audience if leaving out customer feedback and product iteration.
The advantages are at hand and lets entrepreneurs benefit by the following:
· Fast cycle times
· Inherent cash conservation
· More opportunities for iteration and pivot
· Achieve ultimate success before the bank account runs dry
Differing in nature, each step along FVG-Framework serves the greater purpose of a repeatable, scalable and the transition towards a profitable business.
The hero has come a long way from a narrow and blurry vision to a set of hypotheses and finally to the state of accomplishment - a money making endeavor but be aware: the journey is not over…
Short remains the mood in calm, restless is the need for change and improvement.
Part II of The Startup Series will focus more deeply on Customer Discovery.
About: Alex Michael Pawlowski is a consultant and author who writes about topics around International Business.
For contact, collaboration or business inquiries please get in touch via lxpwsk1@gmail.com.
For more information please visit www.lxpawlowski.com.
