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Sub-chapter from
Designing a startup for rapid growth

The Business Design Process

Doing a real business design is significant amount of work, but not compared to the resources that will likely be invested in any business during its first year.  Even one senior person working alone for a year means you are taking about a six-figure commitment.  And if it is not done right then it is almost certain the amount of capital and time needed to get to profitability will be driven up dramatically, greatly raising the risk of launching the business.  In fact, I would bet that 99 times out of 100 the total launch cost of a business will be driven down enormously when the proper thought on the business design is done right up-front.

Well, I am sure there are many, many ways to approach this, but here is what I have evolved over two decades of launching eight start-ups and dozens of products and more than 15 years as a CEO.  The first four steps (of 12 in the entire framework) of the business design process I have developed over the last fifteen years, which is called “Rapid Growth By Design TM, looks like this:

Business Design Process Diagram

Input: An Idea, Technology or Core Value As a Starting Point

Text Box:

 

 

 

 

 

 

 

 

 

 

 

 

Output:  An INITIAL Business model

Lather, rinse, repeat, repeat, repeat, repeat . . . . until you know (by selling actual products and/or services to actual customers) that your business model is working.

The Steps to Designing a Business

So, here are the steps I use and would recommend to almost anyone starting a new venture or optimizing any existing business too.  The one caveat is you should never, ever attempt to do this whole cycle at home alone (enforced by step #3).

1.  Come Up With Your Initial “Core Value”

What can you do better than someone else that will solve a big problem for lots of people who will either save money or time by using your product, service or idea.  And I don’t mean a ten-percent improvement I mean a 50%, 100% or more improvement on what ever else is available today to solve that problem.  I am not going to spend much time here, as this is an entire book in itself on innovation and idea generation, but most entrepreneurs starting a business for the first time, know this already. So let’s get to the good stuff that most entrepreneurs seem not to really know as well.

 2. Research the Market. 

I do not mean a major market research study here.  For the first iteration I mean spending a few days or a week, yes, you the founder personally, researching the market, competitors, alternative solutions and technologies and many other things.  Find and read everything you can on the area.  The idea is just to establish a starting point.  Merely being able to say that “maybe” there is a market for “X”, which leverages your core proposed value in the marketplace.  You will do some competitive intelligence (CI above) calling competitors, customers, going to trade shows etc.  And you should be filling in the top level of the marketing and messaging pyramid (see other chapter or article on this framework), so you can begin to frame the business model a bit and talk to people about it.  This means you have a company name, tag-line, an elevator pitch, and maybe some sort of an idea what a brochure for the product should look like.  But remember you are NOT supposed to do a very good or deep job on this at this point, because you will be coming back to this later (again and again) after doing a first pass on other things in the business design cycle.

3. Develop a Proposed Market Positioning Using Some Competitive Landscape Maps. 

These were invented, as far as I know, by Michael Porter of Harvard Business School, and are discussed in great detail in his classic book “Competitive Advantage”.  It is a must read for any CEO or entrepreneur.  Basically, this process breaks down the problem into several two to three dimensional problems, instead of one ten dimensional problem.  Human beings can actually only think in four dimensions, including time, except by using math equations. Yet a market position, business model or any complex business decision may have hundreds of significant variables or dimensions.  So, we need to break the problem down into component parts that we can think more easily about.  Basic elements we can put on paper to a) Communicate to others and b) See and play with all these variables (that a customer might recognize) that make up your product or service.  This exercise always opens up people’s eyes to new possibilities, and I guarantee you I could put five teams of people in separate rooms with the same core business idea and get pretty much different business models almost every time if they did this process right.  Each would come out with a different product definition or market position because with six variables and a spectrum of values for each there are literally MILLIONS of possible product positions in that market.  For example: If there are seven variables, or attributes, that the customer recognizes about the product, there will be many possible values of each variable (likely an entire spectrum).  So, let’s say these are the only product attributes: 1) price, 2) size, 3) value, 4) color, 5) flavor, 6) packaging and 7) distribution (how they buy it).  And let’s assume only five distinct values for each variable.  Then there are mathematically 35 to the power of 7 possible product positions.  I believe that means there are about 64 billion distinct product positions in this market!  So, typically there are no limits on what we can invent, or the positions available in the market so much as what people can remember, care about and, often most importantly today, if we can find people economically who need that product variation (niche marketing).

4. Develop a List of The Professional Skill Sets You Will Need To Build The Company Across All Disciplines.

 This is far easier said than done, because you, by definition, do not know all these skills yourself and so cannot expect to even interview these people well enough to be sure they have them!  I have developed a tool called the Skill-Set MatrixTM that helps flush this out and forces people to consider as much as possible.  However, the idea is that you do a rough job of this, without hiring anyone first, so you can iterate after you have gotten some input from people with these skills.  You see by definition you cannot really have a business model yet because you do not have the people who could begin to say it could work.

5. Analyse The Risks In The Business

So, now that you have some people on your virtual team, you can begin to look at the business risks and what you do to manage or overcome these with additional confidence.  This first pass is also fairly rough, but will get you to the point where you can repeat the entire four steps all over again.  Odds are that by adjusting the business model (easy to do without employees) you can actually eliminate, or greatly reduce many risks. This iterative process alone can increase any company’s chances of success by 100% or more!

Now Repeat This Cycle Until You Get It Right

You may need to repeat this cycle anywhere from three to a hundred times, but I guarantee each time you do, your business model and design will keep getting better and better.  You could take two steps forward and one step back, but generally you will make lots of progress with each iteration.  As you get good experience with the process you will go through the cycle faster and faster.  Also, the more mature the business becomes the less needs to be changed.  This also speeds up the process considerably.

A key thing to remember is

“Putting a hammer in your hand does not make you a fine carpenter”.

This process can be a powerful tool, though much detail is missing here due to space limits, but without the right team of people, and with the exact right experience working on this process with you, even this process is doomed to failure.  After almost 16 years as a CEO now I would still not expect to cover even half of the skills needed to design virtually any business worth launching.  Even the Lone Ranger had his trusted sidekick, Tonto, and he was not doing anything so complicated as launching a new business venture.

Verifying Your Business Design

Unfortunately, there are no “business design simulation tools, like there are for verifying the design of complex computer chips.  Frankly, I think there are too many variables for there ever to be good tools for this.  So the only practical way to simulate a business must be to “run it” in the mind of the CEO and other senior executives with lots of experience.  Each expert must verify that their portion of the business will work in their own head based on their own past experiences and by using their personal and subjective judgement.  So this process clearly has lots of risk because people can be wrong or have the wrong experience.  This risk must be addressed in several ways by testing in the real world, all those assumptions that are risky and critical to success. 

You may use tools to verify “pieces” of the design that will work.  For example, a spreadsheet model of the financials will verify that the business could actually produce a profit long before a product is actually produced.  This is actually one of the easier things to verify because it is mostly math; however, it is only as good as the assumptions put into it.  “Garbage in, garbage out” as they say about any computer operation.  Verifying that sales, marketing and operations processes will work is a different matter entirely.  The key is to break out and prove that key higher risk pieces, or assumptions will pan out.

The Greatest Market Research Tool Ever Developed

There is one remarkable tool available today, which was not available a few years ago to test the market demand for a new product.  It is the Internet.  The Internet can be used to promote and measure interest and exactly measure how many people searched on specific words related to a product need.  You can see who came to read a pitch for a product and actually hit the “BUY NOW” button too.   Getting both readership and conversion to buyer ratios.  More specifically there is an Internet tool that can do this for you in twenty-four hours for most product ideas.  It is called “Google Adwords”.  With a credit card and less than a one hundred dollar budget you can instantly set up a small ad to pop up in front of people searching on specific key words.  All you have to do is figure out what words people will be search on when they have a need for your new product.  There are probably many, but some can be so specific that you can be pretty certain most would want to know about your offering.  You will also be able to track how many of those people click on your ad and send them to a simple web “brochure page”.  This is also easy to set up.  This is actually the biggest market research development in the history of mankind.  And I do not say this lightly. 

The reason that it is the greatest is that it is:

1.      Exactly measurable

2.      Cheap to implement

3.      Easy to change in real-time without mailing, surveys, telemarketing

4.      Can be used before the product is available

5.      Samples a huge amount of the population, with only a slight skew to Internet users

6.      Provides a wealth of data on actual historical keyword search volume to help you know which keywords to use even before you launch your research campaign

7.      Is real-time

I do not believe you can say all these things, not even close actually, about any other market research vehicle available today.  It is actual an almost perfect tool to figure out if there is a need for what you are thinking of creating before you invest one red cent in product development, hiring, sales or even marketing.  And not only this but you can actually roll this into a real sales campaign and begin selling almost instantly.

Most products fail because people build products that other people actually don’t want, are too expensive, or the company cannot economically find good prospects or buyers.  This tool actually solves all three problems, on a small scale, and allows you to know:  A) There is demand for product, even before you create the product, B) Test any number of prices and other variable quickly, and C) Identify actual buyers, and the number of them available on a monthly (through the Internet channel anyway).  You can then even have a good chance of interviewing both those people who bought, and those who did not, if you can simply capture their email addresses or other contact information in exchange for some small bribe of a free something or other.  The economics of this, as compared to doing traditional, formal market research are literally 100 times better or more!!

Writing a Business Plan

I recommend using only PowerPoint slides for the first few iterations of the business design, rather than writing a significant business plan document.  The reason is that the rate of change of information is so fast that you waste an enormous amount of time writing text that needs to get change dramatically.  If you just have bullet points for the key design elements they are very easy to change, reorder, delete and expand on.  When the design begins to solidify and change less rapidly you can write a paragraph of text for each bullet point and expand as needed.  I do recommend writing a full business plan; you really cannot have a complete business design without one, it is just that you need to have a very mature design before you begin putting in this kind of effort into writing.  The business plan is absolutely necessary and you should run, not walk, from any consultant or advisor who tells you otherwise.  Even if you throw it in the trash when it is done the planning process is the value, not the resulting document.  You will have a different, and much better, business design as a result of the discipline enforced by writing a business plan and it will pay huge dividends.  Far more than the cost of doing it, because you will clearly avoid many expensive mistakes as a result.  That said this is a big job and generally requires a few weeks of full-time effort. So ideally you want to write it before you have full-time employees on your payroll and have ratcheted up your burn rate.  This can be done using a virtual team as discussed for the business design process.  You should spread the writing effort around and get the expertise and thinking of lots of good people.  Although the best people will not do this for stock, they don’t have too and the success rate is too low for this to make sense for all but the most desperate consultants.

Conclusion

Each time you go through this cycle your business will improve significantly.  Each time you do it early on it will probably take longer because you are going deeper and deeper into each step and more things are starting to harden up.  Later, as less information changes, you can actually repeat the cycle faster and faster.

I would venture to say most of the best entrepreneurs do much of this business design process at some point intuitively along the way; they are forced to by circumstances.  The problem is most often they do it way too late and long after resources and people have been committed, based on earlier faulty assumptions.  It gets harder and harder to change these major variables as time goes on, and as people are hired based on assumptions of distribution, market position (pricing, volume, quality) and many other factors.

So the key could be stated as “Understand you do not understand anything at the start.” or in other words go into the business design and market research process with very few, if any, preconceived notions.  I know it sounds like a line to grasshopper from his Shaolin monk Master Po in Kung Fu, but you must empty yourself and be aware of everything you assume, but do not know for certain.  You must be aware of what you do not know.  You must bend like a tree in the wind and yield like water, yet flow back again and again with the raw determination to find the right way to leverage your core value.  These are great metaphors for the business design process. 

The way the human mind works if you do not do these things then you will work hard to prove your preconceived assumptions and ignore much data that says they are wrong (“Cognitative Dissonance”).  This results in proving a market you set out to prove existed, instead of being open to all possible uses for your core value and letting the market tell you where the most valuable, “lowest fruit” market opportunity really exists.  You must also start out understanding you will need to draw on the experience of several other high-quality, highly experienced people who have experience in areas where you do not.

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