One documentary worth watching to get some context on the history of entrepreneurship and venture capital is “Something Ventured.” It’s a series of interviews with venture capitalists talking about their investments and their risk mitigation strategies in the 1950’s through 1970’s. It’s clear that they paid a lot of attention to “minimum viable products” and pivoting based on new information and asked for business plans. The question is how to have enough of a plan to proceed that includes what experiments you will run to refine your understanding of the product and the market.
Many entrepreneurs who are naturally optimistic make a serious mistake in discouraging pessimistic thinking instead of putting it to good use. The clever utilization of constructive pessimism is one of the keys to success.
Some models I like for change management in organizations. Startup entrepreneurs frequently have to navigate the challenges managing change as a part of the sales process. Intrapreneurs should find this list useful as well. I welcome any suggestions for additions, refinements, or improvements.
The targets that founders set for a startup, and the metrics they choose to measure their progress toward these targets, are key decisions in the definition of the business. The wrong targets–in particular selecting only targets that are easily achievable–will not only postpone difficult choices that will bring clarity but may doom a team from the beginning if they don’t adjust and aim for outcomes that create a sustainable and growing business.
Some excerpts from insightful remarks by Dr. Jessica Richman in “Citizen Science and Mapping the Microbiome” that I use as points of departure for additional commentary on open source models for collaboration.
An interview with Jerry Weinberg where we explore the applicability of his Fieldstone Method for entrepreneurs and intrapreneurs, the implications of Stewart Brand’s “How Buildings Learn” for Weinberg’s dry stone fence metaphor for creation, and managing a crisis as marker for an end of an illusion.
Timothy Gallwey’s “Inner Game of Tennis” came out in 1974 and sparked a revolution in coaching and how athletes should approach improving their performance. There are several lessons that entrepreneurs can use in improving their personal performance and coaching others.
You may have been the smartest person in the room for a long time, but getting into a room with a customer changes that because a key knowledge domain of interest is the customer’s situation and needs. Here are some suggestions for how to keep learning instead of acting like the smartest person in the room.
I recently did an in depth interview with Jen Berkley Jackson of The Insight Advantage on primary research tools. Jen works with companies to help them make sure that they understand their customers better than any competitor or potential competitor. Her firm performs primary research for clients, using a variety of tools to gather information from customers, prospective customers, and the general market. Because of her considerable experience with a range of primary research tools I took this as an opportunity to explore the spectrum approaches that are available.
Ash Maurya rebooted his blog as “The Space Between“–experimental format where he is exploring the space between ideas–and has offered a number of short reflective posts. Here are excerpts from three where he explores the value of planning and reflection, and the need to prioritize learning over the illusion of progress.
Larry Smith is an Economics Professor of Economics at the University of Waterloo who writes and lectures on Entrepreneurship, innovation, and Technology markets. What follows is part of a conversation he had with Alan Quarry in the AQ’s Blog & Grill series of interviews with entrepreneurs. His key point, that he makes in a somewhat cranky fashion, is that technology entrepreneurship is a complex undertaking that requires patience, careful analysis, and planning.
What seems natural, artificial, or supernatural is a function of familiarity. Nature is the background or context for innovation. The challenge is that we live in a world and culture formed by millennia of innovation so that some incredibly advanced technologies seem natural. The difference between technology and magic is not that one works more reliably than the other but that technology is part of the adjacent possible–seemingly impossible but comprehensible. Magic breaks our existing paradigm and is initially incomprehensible. As entrepreneurs we need to present our innovations as technology not magic.
I got to know Edith Harbaugh (@edith_h) when she was moderating the Lean Startup Circle Group and published two guest blog posts by her: “It’s Your Execution, Not Your Idea” and “Managing Email Conversations With Customers.” I also invited her to take part in a webinar on Innovator’s DNA: Experimenting Skill. During the roundtable conversation she mentioned some lessons learned from a bicycle trip across the United States–I thought to myself, anyone willing to bike across the country is ready to become a technology entrepreneur. So when she emailed me that she had co-founded LaunchDarkly I reached out to interview her. What follows is an edited transcript.
Patrick Brady writes at “Red Kite Prayer” on cycling and related topics. His blog took a very personal turn in February of 2013 with a post entitled “Any Normal Person.” In reading the series I was reminded of a remark Irwin Federman made to MMI employees when were using four day work weeks (actually five days work for four days pay): “We trust you to do the right thing. God has given you so much more responsibility as parents how can we not trust you.
Michael Fern, Edith Harbaugh, Steve Hogan, and Sean Murphy discuss the Innovator’s DNA experimenting skill.
Successful entrepreneurs are fueled by a passion to change the world tempered by prudent risk taking. Many risks have to be managed on an ongoing basis cannot be eliminated once and for by careful planning or the achievement of a particular milestone:
- managing cash flow and the risk of a downturn,
- meeting your obligations to your family as well as your business,
- continually developing new skills and connections to cope with evolving customer needs and new competitive threats.
Noam Wasserman had an article yesterday’s Wall Street Journal on “How an Entrepreneur’s Passion Can Destroy a Startup” that focused on entrepreneurial passion and prudent risk taking. He has some excellent advice with regards to a shared risk analysis with your spouse (and a plan how to decided when to quit before you are in the middle of the roller coaster ride) and identifying potential risks and problems with you plan (what Gary Klein has called a “pre-mortem” in other contexts is incredibly useful for a startup team to do periodically, not as a way of hanging crepe but of anticipating and preventing or mitigating foreseeable problems).
Here is a list of risks he identified
Wasserman Tests: Excess Entrepreneurial Passion
|Wasserman Test: Do You …||SKMurphy Commentary|
|Feel like you are on mission to change the world?||This is a good thing.
I think this is probably a good thing. Doesn’t mean you should prepare to run your business. But if align your business with a higher purpose I think you are more likely to persevere.
|Get insulted when someone points out legitimate flaws in your idea or product?||This is a red flag, but it may be as much about personal maturity as anything else.|
|Find it hard to come up with pitfalls you might face or to detail a worst case scenario for your venture?||This is a red flag, but it may be less about passion and more a lack of knowledge about business or your industry. You need to do premortem’s periodically to prepare for problems and mitigate those you can.|
|Raise money from professional investors when your #1 goal is to “work for myself” or “to control my own destiny”?||I think this is a low probability situation.
This can happen but normally entrepreneurs motivated by a desire for autonomy don’t seek professional investment and those that do are typically screened out as part of due diligence.
|Hire friends and family whom you may not be able to fire if they underperform or circumstances change, because you are confident you won’t face those issues?||I think this is a low probability situation.
If the business is not doing well typically friends and family want out, if it’s doing well you can often find people role that fits their talents if they worked with you in the beginning.
|Neglect to run careful tests to assess consumer demand?||This is an ongoing challenge not something you can ever fix or satisfy.
Large business fail at new product launches quite frequently as well, I think this is less a passion problem and more something that is very hard to do.
|Assume you won’t need a financial cushion in case the venture takes longer than anticipated to generate income?||This is an ongoing challenge not something you can ever fix or satisfy.
Sometimes it’s the fact that a team is almost broke that forces them to make the necessary changes to succeed.
|Resist talking honestly with your significant other about the money and the time you expect to commit to your venture, and about the potential pitfalls you face?||This is a real risk. This is a hard conversation but one that has to happen frequently. You have to treat you spouse or significant other as a member of the board of directors. I don’t think this is a passion problem per se, but failure to make a joint decision and keep them informed is a real risk.|
|Figure you don’t need to address the holes in your skills or networks in advance of founding?||This is an ongoing challenge not something you can ever fix or satisfy.
There are always holes in your skills, consumer demand changes require new skills, competitors attack you in unanticipated ways that require new expertise, your network is never broad enough. I don’t think you are ever prepared enough and you have to be learning and connecting on an ongoing basis
I was struck by one paragraph:
For instance, almost 800 founders took a predictive test that evaluated their startup ideas, and then received recommendations about the next steps they ought to take. Thomas Astebro and his colleagues found that a sizable percentage of founders who received a recommendation to halt progress on their startups because the idea wasn’t commercially viable kept going anyway—29% of this group kept spending money, and 51% kept spending time, developing their idea. On average, they doubled their losses before giving up on pursuing their idea.
It Does Not Help To Tell An Entrepreneur Their Idea is Not Viable
It’s not helpful to tell entrepreneurs that their idea is not commercially viable. All new ideas are not commercially viable when judged by “conventional wisdom” until conventional wisdom changes. Entrepreneurs are probably even less inclined to take advice from college professors who have never started a company. If you could reliably predict the economic viability of new idea you would not be selling analytics you would be making investments. Here is Thomas Astebro’s bio from Genesis Analytics
Tom Astebro is currently Associate Professor in Management Sciences at the University of Waterloo. He has seven years of experience in scorecard development. Tom developed the Genesis algorithms and technology as part of research at the University of Waterloo that was sponsored by CIBC and Nortel and earned the distinction as the creator of one of the three “Most Promising Technologies” in a recent Canadian competition.
Tom has published 29 articles, made 49 presentations at conferences, obtained research funding from NSERC, SSHRC, MMO, Carnegie Mellon, Telia, Volvo, Handelsbanken, and the Sweden-America Foundation and won ten international/national research awards. His research has been mentioned in Business Week, the Financial Post, the Globe and Mail and the Ottawa Citizen. He has worked as a management consultant for banks, insurance and manufacturing companies in Canada, Sweden and the Netherlands and has taught at Universities in Canada, the U.S., Sweden and Australia. Tom holds a Ph.D. in Engineering from Carnegie Mellon University and an M.B.A and a M.Sc. from Chalmers University of Technology, Sweden.
Encourage Prudent Risk Taking But Don’t Try To Blunt Passion
What is very helpful is to get entrepreneurs to test their key assumptions–“what else would have to be true for your business to work”–and get them to start testing critical aspects of a plan. When a peer entrepreneur is working on a idea that you don’t think is viable, it doesn’t help to tell them “I don’t think it will work” or even “Here is why I don’t think it would work.”
Instead, think about framing it as
- What risks are you worried about?
- Here are three challenges I think you business has to overcome to be viable. Do you have evidence or results that indicate that this won’t be a problem?
- What could you do to test or explore how to work around these problems before investing time and money in other activities that don’t attack the riskiest areas first.”
What Would Have To Be True For For Startup to Thrive?
This approach to helping an entrepreneur think through their risks and challenges is something we try and do at a Bootstrapper Breakfast when someone says what they are working on and another attendees says something like “that’s a crappy idea or that will never work.”
We try and get them to think through “what would have to be true for it to work? What are the key challenges they have to manage to make it work?” Because entrepreneurs can always tell their friends with “real jobs” about what they are working on and either be told, “that’s not viable” or “that’s great” (meaning please stop talking about this) and not get useful feedback or critique.
Related Blog Posts
- Entrepreneurial Motivation
Tim O’Reilly offers three guidelines on how to work on stuff that matters: work on something that matters to you more than money, create more value than you capture, and take the long view.
- Ben Kaufman on “What Raising Money Means”
- David Foster Wallace: The Only Choice We Get is What to Worship
- Drucker on Profit and Business Purpose
A selection of quotes from Chapter 6 “What is a Business” in “Management: Tasks, Responsibilities, and Practices” by Peter Drucker.
- The Startup Mythology of Silicon Valley
“We are experiencing a generation of entrepreneurs who prioritize the phenomenon of entrepreneurship over its justification; we ought to be concerning ourselves as a community with teaching folks not only how to get into the entrepreneurship game but how to find their purpose as well.” Matt Hendrickson
- Build on Your Passion With a Basic Model and Numbers
- Ben Yoskovitz: Start With a Passion For Solving a Problem
- What’s Your Passion?
- Entrepreneurial Passion and the Science of Startups
I found Janet Iwasa‘s Ted Talk on “how animations can help scientists test a hypothesis” to be extremely thought provoking. It’s worth considering how to animate your hypothesis to explore it’s viability and implications.
Survive first. Explore second. Build third.
- Survive: It’s good to fail small and fail fast. But also make sure to survive the failure. It’s no good to fail if you can’t get up again.
- Explore: True exploration feels like zero progress. Everyone around you will tell you to focus. To stop messing around. To get on with it. The problem is, you need to find it first. This takes time and mistakes. In theory, this is all about fail fast, fail small. In reality, this is slow and painful.
- Build: Find a great solution to a small pain point. Then use that to grow bigger.
Tyler Michalski in “The Basic Basics“
This reminds me of Rob Saric’s “Solvency First, Consistency Second, Growth Third”
“2. Solvency First, Consistency Second, Growth Third
If you don’t have enough money to survive you die. […] focus on ‘Minimum Viable Cash flow (MVC)’. Once you determine what the MVC is for both you and your team, work towards achieving that by whatever means you can. Consistency allows for predictability and the more predictable your business (‘X inputs results in Y outputs’) the faster you’ll grow.
Rob Saric in “Startups Are Hard“
I think they are both right, I have tried to put integrate these two insights into our startup stages mode:
- Survive / Stay Solvent: This can involve the work/work balance of services and product development, the important thing is to generate enough cash flow to give your team the time to explore the market to find the right opportunity. This spans the “open for business” and “early customers” stages.
- Explore: I think you are looking for a fit with your talents, interest, and experience. Any opportunity has to pass the “why you, why now?” test. What is it that your team brings to the problem that will allow you to differentiate your offering? The fastest iteration cycle is to build as little as possible and simply measure (observe) and learn. Always start from measurement and observation so that you understand the problem and the customer before you worry about your solution. This also involves asking the right questions, talking with many people, and taking time to integrate all that you have learned. This spans the “idea and team formation” and early customer stages.
- Focus: This is the first part of the “finding your niche” stage; selecting a candidate niche to focus on.
- Refine (Make Consistent and Predictable): This is the critical step in finding your niche that allows you to leave exploration mode, or at least substantially reduce your exploration efforts. You have enough knowledge of your teams capabilities to build predictable processes and of the customer’s needs to predict their reactions and identify prospects you should focus sales efforts on early in the engagement process.
- Grow: now you enter the scaling up stage because you have useful diagnostics and predictable processes.
Distilling Rules of Thumb From Entrepreneurial Experience
Here are some additional blog posts on distilling rules of thumb from entrepreneurial experience:
- Six From Buster Benson’s “A Few Rules That I Try To Live By”
- Tony Schwartz’s Principles For Fiercely Complex Times
- You are a Doctor Not a Salesperson
- Bob “GoDaddy” Parson’s Rules for Business Success
More From Rob Saric
- Do great things even with smallest opportunities
- Never take anything for granted
- Surround yourself with genuinely good people
- Help others succeed (success does reciprocate)
- Build businesses that make meaning
- Relationship building and networking never ends
- Never ever quit! Persevere. If failure is imminent, don’t lose slowly
Q: We have already implemented the first prototype of our product, but we need to know that we are either on a good course or need to change.
A: If you long for certainty you should not be doing a startup, pick a regulated utility or government bureaucracy as a career. Lean Startup and Customer Development techniques can help you to reduce risks by identifying them and developing mitigation strategies but it’s not a guarantee. Any real market attracts competitors and you don’t get to write their plans so it’s not just a question of understanding the prospect’s status quo but being able to identify and react to competitive threats. The view that product-market fit is a ratchet that you cannot fall back from neglects the impact of competitive response, new entrants, and continued changes in technology and customer preference.
Q: Perhaps I overemphasized our desire for certainty; we understand a startup is uncertain. Should we use our current prototype as an MVP?
Yes. I would start with what you have and use it as a probe to refine your understanding of the market and customer needs.
Make a distinction between the product, your message, and your target customer. You can talk about your product in different ways, adjusting your message to highlight and test key hypotheses. You do not have to make any changes to your product to this. Any product by definition–or at least any short enough for a prospect for prospect to listen to willingly–of necessity highlights some aspects omits others. You can also use different messages on different target customers or present different message to different prospects of the same type as a way of refining your understanding of what they view as important.
It’s critical that you have conversations with prospects and not simply present messages and see what they react to. It’s only in conversation that you can truly be surprised (you have to be listening, it’s not a monolog) and often the most surprising and useful thing a prospect can do in a conversation is to ask you a question you have not considered before (that’s why it’s called a conversation not an interrogation). When you are looking for early customers the value hypothesis is critical. You may reach them using non-scalable methods that don’t address your first real growth hypothesis.
My take on the distinction between hypothesis and assumption, your mileage may vary: A hypothesis is what is being tested explicitly by an experiment. An assumption is tested implicitly. By making your assumptions as well as your hypotheses explicit you increase the clarity of your approach and the chance for learning. The two things that can trip you up most often is an unconscious assumption that masks a problem with your hypothesis or an unconscious bias in whom you are testing the value hypothesis on. In particular you may have defined your target customer by certain selection criteria but your actual choices for whom to speak to (or who will speak with you) are not sampling from the full spectrum of possibilities.
Q: Or should we build another or several other smaller MVPs to test only the most important assumptions? Should we build various tests in parallel to test the needs of different types of customers?
I have come around to the approach of testing several hypotheses in parallel, I think you learn faster and are more likely to identify a good opportunity more quickly. After you take your current prototype and use it to have conversations, I would explore a few different potential customer types in parallel. One good article on this is by David Aycan, “Don’t Let the Minimum Win Over the Viable,” where he offers a comparison between three approaches:
Traditional linear approach:
I am also a huge fan of Discovery Kanban as a way to manage a set of options and experiments in parallel with managing commitments to customers and other execution targets. It actually gets harder as you start to gain some early customers and need to continue to explore the market and refine your understanding in parallel with keeping your current customers satisfied.
I believe that Patrick Steyaert’s Discovery Kanban offers a critical perspective on how large organizations can foster the proliferation of lean innovation methods beyond isolated spike efforts or innovation colonies.
I think Patrick Steyaert has come up with an approach that builds on what we have learned from customer development and Lean Startup and offers an orchestration mechanism for fostering innovation and operational excellence. I think this will prove to be a dynamic approach to managing innovation that will be as significant as:
- Saras Sarasvathy’s Effectual Entrepreneurship Model
- Clayton Christensen Innovator’s Dilemma and Innovator’s DNA
- Ron Adner’s Wide Lens
I believe it’s going to become part of the canon of accepted principles of innovation because it offers not only a way to frame the challenge of balancing discovery and delivery, but a mechanism for planning and managing them in parallel.
Discovery Kanban is a synthesis of a number of distinct threads of entrepreneurial thinking–Lean Startup, Kanban, OODA, PCDA, and Optionality–into an approach that helps firms address the challenge of executing and refining proven business models in parallel with exploring options for novel business opportunities. The reality is that you have to manage both current execution and the exploration of future options whether you are in a startup that is gaining traction and needs to develop operational excellence (or an innovation colony that now wants to influence the existing enterprise) or and enterprise that needs to avoid the “Monkey Trap” of escalating investment in a business model that is reaching the end of life instead of parallel exploration of a number of options for new business units.
At the extremes startups are viewed as scout vehicles–suitable for exploration to find sustainable business models–and established enterprises are viewed railroads, very good at moving a lot of cargo or passengers along predetermined paths. The reality is that almost all businesses need to manage both excellence in execution while not only keeping a weather eye on new entrants fueled by emerging technologies and disruptive business models but also exploring for adjacent markets that can leverage their established competencies and new competencies required by current customers.The Lean Startup and Customer Development models have fostered a broad understanding of the need for iteration and hypothesis driven product probes. Kanban models have shown the value of making work visible to enable the shared understanding that makes cultural change possible.