Entrepreneurial Passion: Good Servant, Poor Master

Written by Sean Murphy. Posted in 1 Idea Stage, 2 Open for Business Stage, Rules of Thumb, skmurphy

Entrepreneurial passion has to be based on a desire to create value, to be of service to a set of target customers. There may be many things you are interested in learning and room enough in your life for several hobbies, but pursuing a passion without regard to your ability to provide value in a way that is competitively differentiated is to pursue a hobby.

Entrepreneurship As A Calling

Written by Sean Murphy. Posted in 1 Idea Stage, skmurphy, Startups, Video

A documentary on entrepreneurship as a calling that I found very compelling was “The Call of the Entrepreneur” produced by the Acton Institute. It addresses both practical and spiritual aspects of entrepreneurship from the point of view of three very different entrepreneurs:

  • Brad Morgan, a dairy farmer in Evart, Michigan who transforms a failing farm into a successful dairy and compost company.
  • Frank Hanna, a merchant banker in New York City who explains how entrepreneurship transforms the economy into a positive sum game.
  • Jimmy Lai who grew up in Communist China and then Hong Kong, emigrating to New York to found retail and media companies.

Why You Need A Logo

Written by Sean Murphy. Posted in 1 Idea Stage, 2 Open for Business Stage, skmurphy

Q: What are logos good for?

An image is processed by a different part of the brain than a word or phrase, making it both memorable and evocative in ways that are distinct from the name of your company. Having a logo for your company or product makes it more memorable and allows you to suggest connotations that can be put into words.

I have put together a table of a couple of icons or logos that we used and the word or phrase that the replaced. The first version of the SKMurphy logo was just a text treatment as was the first version of the Bootstrapper Breakfast. You can judge for yourself if adding some simple artwork changed your opinion of what each represents.

Tristan Kromer on Testing Customer and Value Hypotheses

Written by Sean Murphy. Posted in 1 Idea Stage, 2 Open for Business Stage, 3 Early Customer Stage, Customer Development, skmurphy

These are excerpts from  Episode 9 of Outlier on Air: Tristan Kromer, A Lean Approach to Business.  They are in the same sequence the took place in the interview but a number of stories and asides have been omitted to focus on what I felt were some extremely valuable insights from Tristan Kromer on clarifying and testing customer and value hypotheses.

Map Customer Buying Process Before Sending a Proposal

Written by Sean Murphy. Posted in 3 Early Customer Stage, checklist, Sales, skmurphy

Map the customer buying process, needs, and situation before you invest time sending a detailed proposal. A quick request can mean you are column fodder.

Q: We are still trying to close our first paying customer. We have a website up and have talked to a number of people. More or less out of the blue we got a call from someone in a large firm who had looked at our website. They asked a few questions about our product and then said “Great! Send me a detailed proposal including pricing!”

At last a stranger recognizes the brilliance of your solution in just a few minutes of conversation! How often I tell myself that. How rarely it’s true, especially when you are just starting out with a new product or in a new market. You have to ask yourself:

  • Do they really know enough about what   we do to be able to start a purchase order?
  • Do I know enough about their situation to be able to calculate our likely impact on their business and their return on investment?
  • How can I justify the price to value in the proposal?
  • Have I addressed the critical implementation and proliferation roadblocks we will face from pilot to production use?

You May Be Column Fodder

More often than not you are actually “column fodder” or a makeweight needed so that they can prove to their boss or the purchasing/finance team that they did a thorough job and solicited three bids. Especially if you don’t know much about their situation and they have not asked for a detailed demo you need to proceed a little more slowly.

Map The Customer Buying Process

Before you submit a proposal I would ask your contact these questions to get a better sense of the situation, in particular you need to learn as much as possible about who will make the decision and how they will make it (the customer buying process).

  1. Can you describe the process for making a decision after we submit this powerpoint proposal, who else is in involved, what questions are they likely to have?
  2. Who has to make the final decision to actually sign a contract?
  3. Can you provide an example of a standard contract so we can understand your  typical deal structure and terms and conditions.
  4. Can you give some examples of other deals that your company has done in the last three years that might serve as a model for how our business relationship would work?

Understand Their Needs and Situation

You want to be easy to do business with but that requires that you have a thorough understanding of their needs. I would not send a powerpoint presentation, but ask for time to present it (if only via Webex/GoToMeeting) so that you can answer any questions that they have in the moment. I would also dry run this presentation with your contact if they are open to it. If they just default to “send me a detailed proposal” it’s probably not a real opportunity.

Entrepreneurs Blend Passion and Prudent Risk Taking

Written by Sean Murphy. Posted in 1 Idea Stage, 2 Open for Business Stage, Design of Experiments, skmurphy

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 Asterbo’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.

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Customer Interviews: Spend an Hour to Save a Minute

Written by Sean Murphy. Posted in 1 Idea Stage, 2 Open for Business Stage, 3 Early Customer Stage, Customer Development, Lean Startup, Rules of Thumb

For customer interviews we have a rule of thumb that if an hour or research saves a minute early in the conversation it’s a good investment.  When you look at the list of questions you have prepared to learn about the prospect’s business and their needs, it’s easy to say to yourself, “I am really busy I can just ask these at the start to ‘set the table.'” But there are significant risks with this approach.

Preparations Cuts Risk Of Customer Interviews Ending Prematurely

While the interview may be nominally scheduled for 15 minutes or a half-hour and may run an hour if it goes well the first six minute or so  are critical to communicating that you have done your homework on their situation and their needs. If you start to ask questions that are already published on-line you can appear lazy or unprepared. If you can do research on a prospect in advance, it’s worth spending an hour to save a minute in the conversation. You can even start the conversation by saying “when I prepared for this conversation here is what I learned about your firm” and give a brief summary of what you know about their situation.

It’s OK to say “I see on your website that you have hired four people in the last three months, how has that impacted …” or “I read a profile of your firm in the San Jose Business Journal Book of Lists, have you grown beyond the 12 people listed in February?” This shows that you have done your homework and don’t want to waste their time but need to confirm some of the key facts that may bear on their needs.

Information Sources To Consult Prior To Customer Interviews

  • Do a thorough review of the prospect’s website.
  • Search for any articles in the last two years at least to see what kind of press coverage they have received.
  • Review the Linkedin profiles for the firm, the person you are talking to, and anyone with similar titles or in the same department.
  • Review on-line postings in relevant forums for the industry.
  • See if they have a blog, a twitter account, a YouTube account, and similar social media sits that are often used for business purposes.

Six Questions That You Normally Have to Ask In The Conversation

  1. Prospect’s description of the problem in their own words. This is rarely more than a sentence or two and capturing the essence in their own words is key.
  2. High level description of current work process or work flow in their own words. This forms the basis for any delta comparison or differentiation of your solution.
  3. Any constraints they mention: if you hear the same ones multiple times you will more than likely have to satisfy them.
  4. How they will tell that a new solution will leave them better off: this is different from asking them to specify the solution, it’s asking for “future state” or the end result they would like to achieve.
  5. What else they have tried to do to solve the problem: probe for why they were not satisfactory.
  6. Key metrics or figures of merit they would use to evaluate a new outcome.

Closing Thoughts

“A month in the laboratory can often save an hour in the library.”
F. H. Westheimer

Entrepreneurs seem to divide into two camps:

  • those who want to have a conversation immediately, and
  • those who are quite content to research for months as long as they don’t have to talk to strangers.

Striking a balance is the key to maximizing your learning from a customer interview. Effective research prior to the customer interview allows you to

  • Ask better questions
  • Provide evidence of your commitment to developing a mutually satisfactory business relationship
  • Detect when your prospect is leaving something out or perhaps coloring the situation too much. You are not a stenographer there to capture whatever they say without reflection, but if your only source of information is what they tell you then you risk “garbage in, garbage out” in your product plans and MVP.

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Minimum Viable Product: Enthusiastically Proceed Skeptically

Written by Sean Murphy. Posted in 1 Idea Stage, 2 Open for Business Stage, 3 Early Customer Stage, Customer Development, skmurphy

In a candid discussion about the challenges of managing your own expectations for a minimum viable product (MVP), Tristan Kromer observed, “It’s psychologically hard to enthusiastically proceed with skepticism.” And that is the challenge, we have to be enthusiastic about our product ideas to persevere to complete them and tell others about them, but we have to be skeptical enough to accept criticism and open to prospect perspectives on needs and constraints on solutions.

Strong Opinions Weakly Held

Bob Sutton blogged about this in 2006 as “Strong Opinions Weakly Held” as one of the differentiators between smart people and wise people. Both have strong opinions, but the wise can more easily allow revisions to theirs:

Perhaps the best description I’ve ever seen of how wise people act comes from the amazing folks at the Institute for the Future. A couple years ago, I was talking the Institute’s Bob Johansen about wisdom, and he explained that – to deal with an uncertain future and still move forward – they advise people to have “strong opinions, which are weakly held.”  They’ve been giving this advice for years, and I understand that it was first developed by Institute Director Paul Saffo.  Bob explained that weak opinions are problematic because people aren’t inspired to develop the best arguments possible for them, or to put forth the energy required to test them. Bob explained that it was just as important, however, to not be too attached to what you believe because, otherwise, it undermines your ability to “see” and “hear” evidence that clashes with your opinions. This is what psychologists sometimes call the problem of “confirmation bias.”

Early Adopters For Your MVP Are Often Very Normal

I think too many entrepreneurs conflate “early adopter” with “technically sophisticated’ or ‘geek hipster.’ Normal people are early adopters when they have a strong need for your product. The first two people to tell me about E-Bay, and who were genuinely excited about it, were two mothers who didn’t know each other but were collectors of different specialty handicraft items (teddy bears and glass angels) and they were shopping regularly there because they were not available in stores.

They were early adopters. I ignored their advice, of course, when I should have realized that neither used a computer for any other purpose than visiting E-Bay. They were early adopters. I should have realized that if E-Bay could create markets for these highly specialized products they could create and serve a lot of niche/specialty markets in a way that was winner take all.

Another example:  I think Pinterest looks a lot like the way that someone who creates scrapbooks or manages a physical bulletin board would want to author a website.

Q: How Do I Calculate Business Model Parameters For A Novel Product

Written by Sean Murphy. Posted in 1 Idea Stage, 2 Open for Business Stage, 3 Early Customer Stage, skmurphy

Q: How can I go about calculating  Customer Acquisition Cost (CAC),  Customer Lifetime Value (LTV), and other business model parameters for a technology that I will use to attack an entirely new market with no historical data?

While there may be “new markets with no historical data” there are no new markets that cannot be benchmarked against existing markets by asking these two questions:

  • What do people stop paying for to pay for you offering?
  • What do people stop spending time on to spend time on your offering?

What do the Customer Acquisition Cost (CAC) Customer Lifetime Value (LTV) look like for these substitutes?

Elicit Symptoms From Prospects

Alternatively what symptoms will prospects admit to having? They won’t read articles or click on adwords or watch videos about problems that they don’t know they have or believe they may be affected by.  An effective approach in the early market  is to interview prospects to find unmet needs, persistent problems, and goals at risk.

We Measure the New By the Familiar

The reason why light bulbs were measured in candlepower and steam engines (and later internal combustion engines and then electric motors) were expressed as horsepower. Henry Ford observed in “My Life and Work“ that, “A horseless carriage was a common idea…ever since the steam engine was invented…” We call a horseless carriage a car.

Things that are genuinely new are mysteries and don’t become news until they can be expressed as part of a familiar context or by analogy to a familiar example. Alan Kay gave a great talk on this last point that was recently highlighted by Jim McGee, “Alan Kay on Invention vs. Innovation.

What Job Will Your Prospect Hire Your Product For?

What is the job that prospects will hire your app to do? The phonograph was probably one of the most discontinuous innovations of the last few centuries. Here are some examples that Thomas Edison offered for the phonograph to North American Review in June 1878:
  1. Letter writing and all kinds of dictation without the aid of a stenographer.
  2. Phonographic books, which will speak to blind people without effort on their part.
  3. The teaching of elocution.
  4. Reproduction of music.
  5. The “Family Record”–a registry of sayings, reminiscences, etc., by members of a family in their own voices, and of the last words of dying persons.
  6. Music-boxes and toys.
  7. Clocks that should announce in articulate speech the time for going home, going to meals, etc.
  8. The preservation of languages by exact reproduction of the manner of pronouncing.
  9. Educational purposes; such as preserving the explanations made by a teacher, so that the pupil can refer to them at any moment, and spelling or other lessons placed upon the phonograph for convenience in committing to memory.
  10. Connection with the telephone, so as to make that instrument an auxiliary in the transmission of permanent and invaluable records, instead of being the recipient of momentary and fleeting communication.

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An Entrepreneur Is A Change Agent

Written by Sean Murphy. Posted in 1 Idea Stage, 2 Open for Business Stage, skmurphy, Video

I like this 2009 video by Grasshopper “Entrepreneurs Can Change The World” that portrays the entrepreneur as a change agent and celebrates the freedom and economic opportunities that America has traditionally offered immigrants.

Here is the transcript from the Grasshopper site with some observations interspersed

Do you remember when you were a kid and you thought you could do anything? You still can. Because a lot of what we consider impossible is easy to overcome. Because in case you haven’t noticed, we live in a place where one individual can make a difference.

Want proof? Just look at the people who built our country: our parents, grandparents, our aunts, uncles. They were immigrants, newcomers ready to make their mark. Maybe they came with very little, or perhaps they didn’t own anything except for a single brilliant idea.

These people were thinkers, doers, innovators until they came up with the name entrepreneurs. They change the way we think about what is possible. They have a clear vision of how life can be better for all of us, even when times are tough.

The ability to look at a situation with “newcomer’s eyes” is a key element to unlocking creativity. So is time pressure and limited resources.

Right now, it’s hard to see when our view is cluttered with obstacles, but turbulence creates opportunities for success, achievement and pushes us to discover new ways of doing things.

So what opportunities will you go after and why?

If you’re an entrepreneur, you know that risk isn’t the reward. No. The rewards are driving innovation, changing people’s lives, creating jobs, fueling growth, and making a better world.

Entrepreneurs are everywhere. They run small businesses that support our economy, design tools to help you stay connected with friends, family, and colleagues around the world, and they’re finding new ways of helping to solve society’s oldest problems.

Successful innovation results when entrepreneurs manage their own shortcomings,  find a  problem they care about, and approach it from different angles with small safe-to-fail experiments.

Do you know an entrepreneur?

Entrepreneurs can be anyone, even you. So seize the opportunity to create the job you always wanted. Help heal the economy. Make a difference. Take your business to new heights.

But most importantly, remember when you were a kid, when everything was within your reach, and then say to yourself quietly, but with determination: It still is.

I have come to the conclusion that most entrepreneurial careers are involuntary, undertaken by “mavericks, iconoclasts, dropouts, and misfits” to quote Sramana Mitra. The trick is to minimize the amount of wasted effort by doing less with less in a way that builds on existing relationships, knowledge, and successes.

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The soundtrack to the video is “Chain Reaction” by Carly Comando; she also composed  “Everyday” for Noah Kalina’s “Noah takes a photo of himself every day for 6 years.

Few Against Many Requires Focus and Perseverance

Written by Sean Murphy. Posted in 1 Idea Stage, 2 Open for Business Stage, skmurphy

We Happy Few

The fewer men, the greater share of honour. [...]
We few, we happy few, we band of brothers;
Henry V in Act IV Scene iii 18–67. “St. Crispin’s Day speech”

A college kid in a dorm room starts assembling and selling person computers.. Two college dropouts–or recent graduates–start building hardware in a garage. A woman starts a software consulting business in her second bedroom, then creates a software product. Four men in a pie shop sketch a design for a personal computer. All startups by definition start small and attract founders who welcome the independence. Perhaps they have failed in a larger  firm or they have become disillusioned working in one, perhaps they have never worked a large company and have no idea what’s really involved.

These startups often face competition from established incumbents who have more people, better financial resources, and relationships with customers. Their success in a niche can attract the attention of larger players either intentionally through their messaging or when prospects they have approached turn to existing vendors to provide similar functionality.

Marathon Not a Sprint

First time entrepreneurs often romanticize the speed and power of working in a small team, but experienced entrepreneurs understand that established firms often fight back very effectively: no market of with any value is uncontested and it’s going to be a marathon not a sprint.

“History seems to indicate that breakthroughs are usually the result of a small group of capable people fending off a larger group of equally capable people with a stake in the status quo.”
George Heilmeier in “A Moveable Feast” [PDF] 2005 Kyoto Prize Lecture

The team has to set a sustainable pace from the beginning. This often means not only work/life balance–keeping all of the critical commitments you have made to friends and family in addition to your co-founders–but work/work balance: finding a way to generate revenue, to bootstrap, while you are exploring the market and building the first and sometimes subsequent version of your product. Not every new product is an immediate success.

Startups are incredibly hard work. They require that you maintain good relationships with your family and friends and continue to participate in the communities you are a member of so that you can get support and useful perspective when you need it. Very few real products are built in a (long) weekend or a week or even a month or two. Plan for at least nine to 18 months of hard work where there are a number of “sprints” that are a few days to a week of concentrated work. But the team has to be able to sustain creative problem solving for a period of probably two years before it’s clear you have traction, at which point the game gets much harder as your competitors start to go to school on your success.

Cameron Moll explores the challenges of a team of two or three competing with a team of twenty in “Things Take Time

The team of twenty has quantity on its side — more hands and specialists to execute the work. With that, of course, comes all the red tape, political baggage, and countless meetings that accompany such teams and the organizations that employ them. Quantity suffers at the hand of seemingly endless structure.

The team of two or three has independence on its side — they call the shots, whenever and however they choose. With that, of course, comes all the requisite components for supporting and maintaining the thing they’re creating. Customer support, billing, advertising, blogging, tweeting, client and customer acquisition, and the like. Time suffers at the hand of a seemingly endless to-do list.

The independent team soon realizes that speed isn’t a luxury; its currency is late nights and long weekends. For those who prefer to keep a semi-regular schedule and who have other things to care for outside of work, we eventually learn to accept that things just take longer than we hope they’d take. Problem solving takes time. Details take time. [...]

I’m learning, rather forcibly I suppose, to be okay with things taking time. I’m also learning that often you end up with a better product when you take your time to get all the big and small details just right. It’s time well-spent.

It’s OK to take this time if you are in direct communication with customers who are willing to pay for the product. It’s a mistake to spend all of your time in the workshop if you have not had a number of conversations with prospects and closed some opportunities.

Avoid The Strong Points Of Established Firms

A larger company can work a startup into the ground unless you are careful in your choice of product and niche market: a frontal assault is typically beaten back. Startups have to choose how they will compete very carefully. In the “Bootstraper Manifesto” Seth Godin lists five key leverage points that many established companies enjoy: distribution, access to capital, brand equity, customer relationships, and great employees. Here is a brief explanation of each and some approaches that a startup can use to counter these advantages.

  1. Distribution: they are able to get the product in front of the customer.
    Counter: Sell directly, or find partners unwilling to work with larger firms
  2. Access to Capital: they can borrow a lot of money.
    Counter: Frugality, be smart about which problems you tackle, leverage existing team expertise.
  3. Brand Equity: if the prospect already knows about the company and the product it substantially reduces their perception of risk in making a purchase.
    Counter: go to firms who are unattractive to larger firms or not well served by them.
  4. Customer Relationships: especially in B2B with approved vendor lists and existing contracts.
    Counter: chase smaller deals, chase deals where you bring enough advantage someone will fight to put you on the list.
  5. Great Employees: talented people with low tolerance for risk are delighted to work in established firms. Entrepreneurs greatly overestimate most people’s appetite for risk, especially as passengers in their race car.
    Counter: provide opportunities for folks with appropriate experience who may be less desirable to larger firms. Examples of this might be older engineers, women who want to work part time because they have small children, people with less experience but more enthusiasm for learning.

More generally you need to configure your business model so that you are either pursuing opportunities that are less attractive to larger firms or your product violates one or more key requirements for their business. This may mean:

  • Chasing smaller deals to get traction and establish your brand.
  • Not implementing some functionality that your competitors have that your prospect don’t find valuable, enabling you to get to market faster and at a lower price.
  • Providing additional services that a larger firm either doe not have the expertise for.
  • Providing additional services that won’t necessarily work at scale but allows you to further differentiate your offering for your target nice.
  • Configuring or customizing a version of your product more rapidly or more completely than your competition.

Focus and Perseverance Means Saying No

Fast Company called work/life balance “bunk” a decade ago because “hungry” labor was going to work us into the ground. If you are able to substitute working smarter or working more intimately with customers for working more cheaply you can likely avoid this fate. Successful bootstrappers remain open to possibilities–especially the possibility that they are mistaken in one or more of their business hypotheses–but maintain focus: they explore many options but say yes to only a few.

One of the reasons I am excited about Discovery Kanban as a model for not only larger firms but startups is that entrepreneurs, especially bootstrapping entrepreneurs, have to husband their resources but find a way to explore the market. This means being explicit about the amount of effort that will be invested in developing and exploring options, and being very crisp on commitments. Discovery Kanban offers a framework for managing risks, options, probes, and committed projects from a consistent  perspective: we can only focus on a few things at a time, what are they?

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Don’t Get Distracted Raising Venture Capital

Written by Sean Murphy. Posted in 1 Idea Stage, skmurphy

It’s not a mistake to accept venture capital if your business merits and requires it for growth. Don’t get distracted seeking it until then.

“The seductive narrative of Silicon Valley stars a genius-hero who goes on a journey, overcomes myriad obstacles, has a flash of insight and is rewarded by wise and benevolent investors with Series A funding. This narrative is bullshit, but it’s everywhere.

Venture capital is not a rags to riches story. It’s the inspiring tale of redeploying resources from a lower- to a higher-performing asset class. There’s nothing wrong with that – I find it kind of magical – but let’s not pretend we’re doing something else. In particular, let’s not pretend that this is an engine for social justice. You need a separate corporate philanthropy branch for that.”

Rachel Chalmers “Five Reasons Not To Raise Venture Capital

Here are her five reasons

  1. You probably won’t get a fair hearing.
  2. Raising venture capital doesn’t make you a good person.
  3. Most companies won’t ever generate venture outcomes.
  4. When you raise venture, you narrow your options.
  5. Venture math is a harsh mistress.

I think she misses the real top five:

  1. It’s not saying no to a real term sheet that is a mistake, it’s wasting time seeking investment instead of learning about the market.
  2. Writing a business plan or business model canvas is not nearly as useful as writing your customer interview questions or a one page sales pitch. Getting feedback on either  from customers will tell you more than feedback from a VC on a business plan.
  3. Asking prospect for money for an MVP tells you much much more about the market than any feedback from a VC.
  4. What can sound like advice on direction from a VC is actually a no. For example:  “this is interesting but we think addressing problem X or Market Y is more promising, think about it and come back and talk to us again.”)
  5. If you think money will solve your problems, you don’t have a good handle on your problems.

Affluenza victims, regardless of their socioeconomic level, falsely believe that money can solve all their problems.
Jon Winokur

Related Posts

 

 

Start With a List of Customers and Problems That Build on Your Experience and Relationships

Written by Sean Murphy. Posted in 1 Idea Stage, Community of Practice

“Start building network, blog, educating 1 year before you make the leap.
Build community.
The first sales will always be to friends. Make those friends.”
Conor Neill in “Entrepreneur: Start a year before you Start

I think Conor Neill offers this is a great framing for the need to identify the things about your plan that are not likely to change–a problem area, a category of customer–and join communities that are already focused on these. Build on experience and relationships.

He advises “build community” and not “build new community” and I agree, I would build new only where you cannot find existing communities.  If it’s a real customer category or a real problem there is almost always one or more communities formed that are addressing it at least partially. There may be several each using different terminology and focused on a different aspect of the same set of problems, but this is a search you can start well advance in crafting a product.

I don’t know if your first sales come from “friends” but certainly from people that trust you, if you can start the trust building process in advance of the sales process by becoming a member in good standing of communities they are already a member of or by writing or speaking about topics that they are interested in, then you effectively start in advance of the direct sales process.

Build on Experience

Another way to look at this is to “always start in phase two of a five phase plan.” Look into your past experiences and projects for examples of problems solved and relationships that you can build on as you start your new venture. If you are going in to a new area and cannot identify aspects of prior experience or expertise that will have an impact then be careful: you may be attracted to the new new thing without a way to differentiate your offering.

It’s OK to start over from scratch but if you are effectively setting fire to ten or twenty years of experience you may want to look instead at problems and fields that are adjacent or can take advantage of your experience in preference to one where you don’t bring relevant experience. Green fields are seductive because you know the problems of the areas you are more familiar with and can fall victim to the “grass is greener” when speculating about how easy a new field may be.

“An early start beats fast running.”
Michael Bowen (@mdcbowen) “Cobb’s Rules

Related Posts

Michael Ellsberg: Four Reasons Why Passive Income Is a Destructive Fantasy

Written by Sean Murphy. Posted in 1 Idea Stage, 2 Open for Business Stage, skmurphy

I make a distinction between wanting to move beyond running a services business where you bill by the hour to either selling results or selling a product and entrepreneurs attracted to the passive income fantasies of the “Four Hour Work Week.” When an entrepreneur tells me that the “Four Hour Work Week” has been a strong influence on their thinking I worry that they are unfamiliar with what’s required to build a successful business.

You Can’t Stay Ahead of Competition Passively

I found Michael Ellsberg‘s critique “Four Reasons Why Passive Income is a Dangerous Fantasy” to be on point.

1. You Can’t Stay Ahead of Competition Passively: If your research really does determine that there is some amazing market niche that until now has miraculously gone unnoticed and unserved—dog owners who wish to help their dogs lose weight naturally, for example—sooner or later, word is going to get out that there’s money to be made there, and someone is going to create a better ebook or info course or product that serves that market’s needs better than yours does, and who markets it better to them than you do. You can’t manage this competition while sipping margaritas all day from your paradise restaurant on Fiji. You’ll soon see your market share go down the drain—just like all those Açai cleanses…

I had a conversation with an entrepreneur who had been bootstrapping for three years successfully who said, “I keep waiting for it to get easier. When in your experience does it get easier?” I said that I don’t think it ever does. We brainstormed two lists:

  • Why it stays hard
  • Why it gets easier  (at least in some ways)

Why It Stays Hard

  • Established technical expertise has to be renewed, this takes time away from sales/marketing, product development,
  • Competitors react to your success, either copying it or acting to nullify it if you have been winning business from them.
  • Customer needs change over time, in response to changes in environment and earlier success in satisfying them.
  • Growth requires you to place larger bets; not growing or staying small for the sake of staying small risks stagnation in other ways.
  • The business environment can change rapidly and unpredictably
    • New technologies can obsolete existing products and services, and put categories of expertise at risk
    • New competitors and new business models emerge
    • Markets you operate in become commoditized, sometimes without warning.

Why It Gets Easier (At Least In Some Ways)

  • Soft skills accumulate
  • Paying customers come back and buy again — assuming you have happy customers
    • There is also an opportunity or referrals from happy customers.
  • Partner relationships that are well established allow you take action more quickly
  • Reputation accumulates (this can also work against you).

You Cannot Maintain Customer Relationships Passively

2. You Can’t Maintain a Loyal Tribe of Customers Passively: As soon as your customers realize that you don’t care about them (which you don’t, if you’re trying to get away from them as fast as possible), they will eventually go elsewhere, to someone else who actually does care about them and their needs.

If you don’t engage with your customers, if you want to little to no contact with them, then it’s unlikely you are gong to be able to detect and anticipate emerging requirements, rectify shortcomings with your current offering, or respond to what competitors are telling them.

You Cannot Lead a Great Team Passively

3. You Can’t Lead Great Teams Passively: If you’re going to be building a large, scalable business, sooner or later you’re going to need employees and/or freelancers. You’re not going to attract great talent for the long run by indicating to them that you have no interest in being involved in the business whatsoever. Some people obsessed with “passive income” say, in response, “No problem, I’ll just hire a leader to do all that managing, motivating, and creating stuff!” What you’re essentially saying, then, is that you’re adding zero value to the equation. You’re not coming up with the ideas, you’re not implementing/executing the ideas, and your not leading anyone to implement or execute them.

Buying stock in a company is a great way to create passive income, but that cannot be confused with entrepreneurship.  If you are not going to be able to contribute to one or more of technical insights, product leadership, customer intimacy, operational excellence,  or revenue generation then you are not really adding value to the business. You should be a passive investor.

You Cannot Discover or Pursue Your Life Purpose  Purpose Passively

4. You Can’t Create Meaning, Passion, or Purpose in Your Life Passively: I’ve had several conversations recently with people in their twenties who have built up some semblance of moderate passive income.  These people are (for now) living the dream–they get to travel to Fiji or some other exotic location on a shoestring and hang out on the beach, funded by their little niche ebook or whatever.  Yet none of these people I’ve talked to who have this temporarily successful lifestyle seem very happy. They actually seem kind of restless and lost. I’ve had conversations with several of them to help them determine “what the purpose of their life is” now that they have some amount of money coming in from some little passive venture they don’t even care about that much. It all feels empty to them.

This lines up with Arthur Brooks’ “A Formula for Happiness” where he recounts research that identifies the key drivers for happiness

  1. Genetics
  2. Big life events
  3. Choices

The bad news is that first two account for about 88% of baseline happiness and are not under your control. So, what choices can you make that influence the remaining 12%? Brooks suggests:

  • Faith: thinking about the transcendental, the things that are not of this world, and incorporating them into your life.
  • Family: having solid family relationships; the things that cannot and should not go away.
  • Community: cultivating important friendships and being charitable toward others in your community.
  • Work: marrying our passions to our skills, empowering us to create value in our lives and in the lives of others.

Rewarding Work is Essential

Brooks’ key take-away is that rewarding work is essential:

“I learned that rewarding work is unbelievably important, and this is emphatically not about money. That’s what research suggests as well. Economists find that money makes truly poor people happier insofar as it relieves pressure from everyday life — getting enough to eat, having a place to live, taking your kid to the doctor. But scholars like the Nobel Prize winner Daniel Kahneman have found that once people reach a little beyond the average middle-class income level, even big financial gains don’t yield much, if any, increases in happiness.

So relieving poverty brings big happiness, but income, per se, does not. Even after accounting for government transfers that support personal finances, unemployment proves catastrophic for happiness. Abstracted from money, joblessness seems to increase the rates of divorce and suicide, and the severity of disease.”
Arthur Brooks in  “A Formula for Happiness

Ellsberg concludes with an interview with Bryan Franklin who recommends a focus on leverage in a business you care about:

“Every time I’ve seen someone create a business, with the ultimate intention of getting away from that business and its customers as quickly as possible, instead of moving towards that business and its customers, it fails.”

“What makes business work is creating value. If you’re going into the business with the intention of not creating value, but of having it magically provide money for you, then you often make really bad choices. The business that you’re investing in or creating doesn’t tend to be creating value for its customers or for anyone. So it doesn’t tend to spit off the cash you’re hoping it will.

“If you make your choices based on, not ‘how can I get money for free?’ but on, ‘What challenge can I put in front of my face that’s going to have me step up to be the kind of person I’d rather be?’ you’re going to start to forget about wanting passive income, and you’re going to start to focus on what purpose you truly want to create the world.”
Bryan Franklin

See also


Update Aug 2-2-14: When I selected my “Ten Quotes for Bootstrappers from July 2014” I added this postscript to the Bryan Franklin quote that I thought I would append here as well:

I think the Four Hour Work Week has offered a mirage that has lured more bootstrappers onto the rocks than “build a better mousetrap and the world will beat a path to your door.” The belief that you don’t need to care about your customers and manage your business to succeed is at least as productive as “my product is so good I don’t need to learn how to market and sell it.”

Ten Mistakes Early Stage Bootstrappers Often Make

Written by Sean Murphy. Posted in 2 Open for Business Stage, 3 Early Customer Stage, Rules of Thumb, Silicon Valley, skmurphy

Over the years I have moderated several hundred Bootstrapper Breakfasts (since starting them in Silicon Valley in 2006). After doing a hundred or so and working with many clients who were bootstrapping I came up with a checklist for common mistakes bootstrappers and bootstrapping teams make in their first year or so.

  1. Leaving Your Assumptions Implicit: Not Writing a Customer Development Plan
  2. Believing that Anyone Will Want Your Product: Not Targeting a Specific Buyer
  3. Confusing the User (or the Audience) with the Buyer/Customer
  4. Believing Your Product Will Sell Itself (Looking for Smarter Prospects)
  5. Developing the Full Product: Not Selling the Smallest Piece Possible at First
  6. Not Focusing on Break-even and Profit
  7. Expecting Too Much Too Soon: Not Planning for “Target Practice”, Iteration, and Improvement
  8. Confusing VC with Customer: Going for (2% of) a Really Big Market
  9. Expecting the Same Control Over Prospects and Team Members as Your Code Base (Single Founder “No Compromise” Mindset)
  10. Treating the Business Like a Hobby (Thank God for Significant Others, Recently Deceased Relatives, and Crappy Day Jobs)

Five additional challenges that also need to be navigated

  1. Managing different aspects of your identity at personal, family, and business level.
  2. Understanding the emotional connection required for a successful business transaction: mission, brand promise, and  logo.
  3. The networking etiquette in Silicon Valley: cards, introductions, how to get acquainted.
  4. Making the transition from selling to friends to selling to a strange
  5. Making the commitment to a business footing: licenses, structure, tracking expenses (and acknowledging that now you can fail).

Adapted from a talk I gave in August 2009 at the San Francisco Bootstrapper Breakfast.

Cultivating Mindfulness

Written by Sean Murphy. Posted in 4 Finding your Niche, skmurphy

Cultivating mindfulness requires you to maintain situational awareness and realize when your reflexes may trigger a reaction that is not as thoughtful as the situation requires.

“Between stimulus and response there is a space. In that space is our power to choose our response. In our response lies our growth and our freedom.”
Viktor E. Frankl

Bud Caddell has developed a nice diagram for Frankl’s insight:

mindfulness_explanation
Fight, flight, or freeze are reactions we see in both people and organizations. In short, reaction is action without meditation (cognition and awareness).
Bud Caddel in “The Mindful Org

I think this definition of mindfulness, and Caddel’s diagram explaining it, are a very useful way to conceptualize how you start to engage in real learning. If you cannot interrupt your unconscious reaction you have no way to put new approaches into action. It’s inserting the “Orient and Decide” between Observe and Act in the OODA Loop.

Like a mindful person, a Responsive Organization is constantly sensing its environment and itself, yet relying on awareness of both to form a response rather than mindlessly react. In an organization, this is a process that involves both systems thinking and sensemaking – to understand the organization’s environment, to understand the forces behind those conditions, and to estimate the outcome of a response.
Bud Caddel in “The Mindful Org

Extending this to an organization level is key to a startup’s ability to not only take effective action but learn at a team and business level, hopefully faster than competition that may be locked into “autopilot” responses. If you focus on the fastest action possible then you are relying on reflex and reaction, bypassing orientation and conscious deliberation. This does not lead to superior performance but “extinction by instinct.”

It’s not the fastest reaction, it’s the decision that leads to the first effective response.

Related

Startup Stages: Survive, Explore, Focus, Refine, Grow

Written by Sean Murphy. Posted in Customer Development, Design of Experiments, skmurphy, Startup Stages

Survive first. Explore second. Build third.

  1. 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.
  2. 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.
  3. 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:

  1. 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.
  2. 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.
  3. Focus:  This is the first part of the “finding your niche” stage; selecting a candidate niche to focus on.
  4. 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.
  5. 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:

More From Rob Saric

More from Rob Saric’s (@RobSaric) blog, his core beliefs linked to relevant articles on his site:

Tools for Buzzword Compliant Business Models

Written by Sean Murphy. Posted in 1 Idea Stage, skmurphy, Tools for Startups

A collection of humorous tools that generate buzzword compliant business models.

Web Economy Bullshit Generators

First there was Dack Ragus‘ (@dack)Web Economy Bullshit Generator.” He started with sketches (“Kinda like Da Vinci’s sketchbook, except for bullshit”): “I made this massive list of potential bullshit terms while sitting on Miami Beach in January, 2000. Add a little JavaScript and it turned into the Bullshit Generator.” The archives of dack.com are also worth a peek.

At about the same time 37Signals launched with a manifesto and the e-NORMICOM parody site of the dotcom branding process for naming, logos, and taglines.

Then Stavros the WonderChicken (@wonderchicken)–no I cannot find his real name–did the “Web 2.0 Bullshit Generator™” noting that “Profits for your Web 2.0 company are not guaranteed.” It’s funny how that has not changed with firms like Box and Dropbox competing in some oddly configured on-line potlatch designed to provided services at a loss in exchange for new investment at ever increasing valuations.

Andrew Wooldridge launched Web Two Point Oh! to help with naming as well.

Parodies of Web 2.0 Business Models

Stavros later lamented in “Lomans not Shamans” at what the Web had become: “My god, it’s full of ads!” Here I think his anxiety was misplaced: most new media is advertising supported; the original newspapers were simply classified ads that gradually added news items to differentiate themselves.  Stavros references “What Puts the ‘2’ in Web 2.0” by Brandon Schauer who was inspired by “Design Patterns and Business Models for the Next Generation of Software(2005)” by Tim O’Reilly and John Batelle. They followed up in 2009 at the Web 2.0 Summit with  “Web Squared: Web 2.0 Five Years On” (see also the white paper: “Web Squared: Web 2.0 Five Years On” [PDF]).

Cloud Models

Next in 2010 the Lunatech Ventures team launches  PlanCruncher as an attempt to compress a business plan into a single page using a couple icons. From their About Page:

“Plan Cruncher creates a standard one-page summary of a business plan for a start-up company that is looking for external investment. You do this by choosing icons that represent some of the standard answers that a business plan must provide.

Why investors want entrepreneurs to use Plan Cruncher:  Plan Cruncher saves investors’ time. To investors, business plans all look more or less the same, which is not necessarily a bad thing, and they are always too long, which is. Before an investor decides to wade into your ten or twenty-page document, he wants straight answers to a few basic questions about your plan.

Plan Cruncher generates a standard one-page summary that investors can use to screen business plans and compare them to each other.”

I don’t believe Plan Cruncher is a parody site, I listed in in my roundup of Business Model Canvas tools.

And in 2012 Norman Clarke (@compay) has launched Bullshit 3.0: Bleeding Edge Bullshit Generation in the Cloud which embeds the ability to launch a Google search for your tagline to see if it’s already real.

Strategy Statement MadLibs

Alexander Fiore offers what may be either high value strategic consulting or unintentional parody in his HBR blog post “How To Execute a 15 Word Strategy” [Registration Required]

Once upon a time there was (insert a name who exemplifies your target customer/consumer) …. . Every day he/she (insert here his/her frustration or job to be done) …. . One day we developed (insert here the product/solution and what are actually the 2-3 things we offer or not) … . Until finally (insert here the end result for the customer/consumer compared to competition) … .

The most recent example is Simon Wardley’s “A Quick Route to Building a Strategy” which is purely a parody.

Our strategy is [..]. We will lead a [..] effort of the market through our use of [..] and [..]  to build a [..]. By being both [..] and [..], our [..] approach will drive [..] throughout the organisation. Synergies between our [..] and [..] will enable us to capture the upside by becoming [..] in a [..] world. These transformations combined with [..] due to our [..] will create a [..] through [..] and [..].

Wardley’s template has been implemented by Bill West as a web tool at http://strategy-madlibs.herokuapp.com/ Reload the page to get a new strategy. West  might be able to charge for a version of Fiore’s.

Clue Train is Not Bullshit

I still find the 1999 Clue Train Manifesto a useful guide to marketing: it’s argument for real conversation between individuals is as compelling now as it was 15 years ago. Business models have changed with the advent of new technologies and many of these sites are parodying two real needs that every entrepreneur must satisfy: a succinct and comprehensible explanation of their product benefits to customers and a compelling description of their business model to investors.

 

 

 

Q: We Already Have a Prototype, Can We Still Do Customer Development?

Written by Sean Murphy. Posted in 3 Early Customer Stage, 4 Finding your Niche, Design of Experiments, skmurphy

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:

linear
Standard sequential pivot approach:
pivot
His recommended approach:
recommended

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.

John Gardner: Leaders Detect and Act on the Weak Signals of the Future

Written by Sean Murphy. Posted in 1 Idea Stage, 5 Scaling Up Stage, checklist, skmurphy

Some excerpts with commentary from “On Leadership”  by John W. Gardner.  Gardner outlines how leaders detect and act on weak signals of the future by looking beyond the horizon and planing for renewal.

There is such a thing as the “visible future.” The seedlings of [future] life are sprouting all around us if we have the wit to identify them. Most significant changes are preceded by a long train of premonitory events. Sometimes the events are readily observable.”
John W. Gardner “On Leadership”

Marcelo Rinesi advised “the future is an illusion, all change is happening now” and Peter Drucker told us to “systematically identify changes that have already occurred.” From an entrepreneurial perspective you can often transplant a solution from one industry to attack a similar problem in another: as William Gibson suggests, “the future is already here, it’s just unevenly distributed.” This model for innovation brokerage requires that you be open to new solutions to old but pressing problems and that you scan more broadly to find them. Gardner offers his own explanation for why opportunities are overlooked:

“…the future announces itself from afar. But most people are not listening. The noisy clatter of the present drowns out the tentative sound of things to come. The sound of the new does not fit old perceptual patterns and goes unnoticed by most people. And of the few who do perceive something coming, most lack the energy, initiative, courage or will to do anything about it. Leaders who have the wit to perceive and the courage to act will be credited with a gift of prophecy that they do not necessarily have.”
John W. Gardner “On Leadership”

There is always a value in closing the deals that are in front of you and making this month’s payroll. But there is a risk in getting caught in the treadmill of the urgent. Gardner offers a prescription for leaders and leader/managers to differentiate themselves from managers trapped in the immediate crisis.

  1. They think longer term—beyond the day’s crises, beyond the quarterly report, beyond the horizon.
  2. In thinking about the unit they are heading, they grasp its relationship to larger realities—the larger organization of which they are a part, conditions external to the organization, global trends.
  3. They reach and influence constituents beyond their jurisdictions, beyond boundaries. In an organization, leaders extend their reach across bureaucratic boundaries—often a distinct advantage in a world too complex and tumultuous to be handled “through channels.” Leaders’ capacity to rise above jurisdictions may enable them to bind together the fragmented constituencies that must work together to solve a problem
  4. They put heavy emphasis on the intangibles of vision, values, and motivation and understand intuitively the non-rational and unconscious elements in leader-constituent interaction.
  5. They have the political skill to cope with the conflicting requirements of multiple constituencies.
  6. They think in terms of renewal.

John W. Gardner “On Leadership”

I think this is a good list, even for bootstrappers who are worried about keeping the lights on this month. You have to devote 10-20% of your time to problems in the longer term, and connections and initiatives that may not bear fruit next week but perhaps in three months or a year or two. The last suggestion, to consider how to renew skills, relationships, and shared values, is also a critical one for the long term.


More on Drucker’s suggestion for sources for innovation:

“Innovation requires us to systematically identify changes that have already occurred in a business — in demographics, in values, in technology or science — and then to look at them as opportunities. It also requires something that is most difficult for existing companies to do: to abandon rather than defend yesterday. ”
Peter Drucker in “Flashes of Genius

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