Read This Before Even Thinking About Starting a Business

Read This Before Even Thinking About Starting a Business

Starting a business is very different to running an established business, in that with a startup almost everything is uncertain. Established organisations know who their customers are, how much stuff they can sell and for roughly what price. A startup with even a miniscule amount of innovation will know none of these with any certainty. Therefore starting a business requires a vastly different approach than creating a new product for an exiting business.

The product development process traditionally used by established organisations is not bad for their predicament (this process is to develop product requirements, design, invest in tooling/production, manufacture then sell). If this process is followed by a startup it will inevitably lead to immense wealth destruction. Applying project management techniques is equally destructive, as their ingoing assumption is that better planning will lead to a better outcome. With a startup there is too much uncertainty to plan with even the smallest whiff of accuracy. Therefore both of these techniques are pretty much useless for a startup, and will lead you astray by giving a false sense of confidence.

When conceiving an idea for a startup, everything is by definition an assumption – and remember that assumptions are the mother of all fuckups. Therefore you have to work first and foremost to lay out your assumptions and remove the uncertainty by rigorously validating them all. The business model canvas is a great framework for laying out the assumptions inherent in a startup.

The approach should be:

  1. State your assumptions on the business model canvas.
  2. Go and talk to as many of your target customers as possible to validate the contents of the business model canvas.. I cannot stress the importance of this enough: just because you think the product/service is a good idea doesn’t mean that others will want to pay for it. You need to figure out if this is the case before you spend money on your idea. This guy is an example of how it should be done.
  3. Build the quickest, cheapest rough cut of your idea possible – a minimum viable product (MVP). Aim for speed and cheapness over perfection. Take this to your target customer and be a feedback sponge. There are many ways to do this: a basic physical prototype for a product, use POP to prototype an app using hand drawings, a landing page etc. The ways are limitless and there are plenty of free/cheap tools available, so get creative! When Zappos started, they weren’t sure if people would buy shoes online, so took photos of shoes in a shop, built a basic eCommerce website and when people bought the shoes they bought them from the shop and shipped them to the customer at a loss. The cost of this validation was trivial compared to the potential loss of creating a complete website only to find that people were not willing to buy shoes online. They could have also used this technique to determine what discount to retail stores needed to entice people to purchase online (by varying the prices over time and observing the number of sales).
  4. Use the feedback from step 3 to build a slightly better MVP and test it again. Keep repeating this feedback loop.

The goal of this process is to fail fast, thereby removing as much uncertainty as possible before investing heavily in the business.

In summary, project management and business planning will do more harm than good in a startup. Rather than assuming, perfecting and doing a big launch, instead, assume, quickly validate the assumptions and iterate. In the long run this will dramatically improve your chances of success and reduce the risk of blowing your precious cash.

This post is largely based on The Lean Startup by Eric Ries. If you are thinking of starting a business you MUST read this book.

Leave a Reply