Sub-chapter from
Designing a startup for rapid growth
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:
Input: An Idea, Technology or Core Value As
a Starting Point
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).
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.
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.
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!!
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.
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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Designing A Startup For Rapid
Growth
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