This is the second post, following an introduction post, of a series that will try to show how Lean Startup can be useful at various stages of an organisation’s life. The inspiration comes from entrepreneurs and intrapreneurs I have worked with throughout my career, including myself, who wasted way too much of their time on projects that never reached the market.
The very first stage of any start-up is the ideation stage. This is the stage when you will come up with, what you think, is a solution to answer a need you perceive to be present in the market.
Should I embark on a start-up project?
Just before your ideation stage, or during, you will have reflected on whether or not to embark on a start-up project.
The context you are in at the time will vary but it is important as it most often will be a defining factor of your motivation.
Given this isn’t a post on entrepreneurial psychology; I won’t delve too much into motivation. I can however tell you that insufficient or wrong type of motivation is, by far, the most important reason for failure of a start-up in my observations.
Very few types of businesses can be developed or managed part-time. A start-up is rarely a part-time job. The only stages at which you can get away with doing it part time are the ideation and early customer discovery phase. After, it’s a round the clock activity where you only get a few hours of sleep and have no life outside of your project for a long while. If you are at a very busy time of your life for years to come, you may want to reconsider the timing for starting a new venture.
A factor that is rarely a reason for a startup failure is that the project owner didn’t have the right entrepreneurial profile. [1]
I do believe that anyone can be an entrepreneur but not everyone is born one. I would make the analogy to a concert pianist. Some may be born great pianists but a majority of them become great only after tens of thousands of hours of practice, coaching and basically dedicating the majority of their life to it.
Of course, if you are tone deaf, don’t know how to read music and don’t have any of the discipline required to practice long hours daily, the road ahead may be a very long and hard one for you.
It should also be noted that there is a strong correlation between knowledge of the field your start-up is in and success in launching a company.
Hence, the more you know about your field and the more of the entrepreneurial aptitudes you possess, the ‘’easier’’ and faster your start-up journey will be. Otherwise, you simply need to accept that you will need a co-founder’s help and/or be working harder and longer at it.
The Lean Startup approach
The ideation stage or concept stage is when you start thinking about not only your product/service idea but also the entire business model.
Even before you have anything other than you want to start a business figured out, you should talk about your idea with people around you.
You really need not worry your idea will get stolen (unless you are in an industrial environment and competitors are listening). I have often seen multiple entrepreneurs or teams work on very similar projects simultaneously. All of the times, they took very different paths along the way that resulted in very distinct businesses, when they persisted.
When talking to people you know about your business idea, listen to their impressions and feedback. Some of it will be helpful later on. It will also get you used to handling the various reactions you can get when discussing your project. Don’t worry about not always sounding coherent. It’s normal. Your mind is still not set at this point and it shouldn’t be.
First Lean Startup tools
The very first work tool I recommend to lean startup students will vary according to their type of project and their experience answering the needs of their target market.
If your project is heavily IT based or it’s a first one for you in a fast moving market[2] you are unfamiliar with, I recommend using the Lean Canvas. The Lean Canvas will help you focus on what is the problem you are trying to solve and notions such as metrics. It will force you to explain what makes you better than the, likely, dozen or more competitors out there. A second step would then be to work on the business model canvas. It is important that you follow the recommended path to fill out the canvases. You first start with your customer segments and follow with either the problem you are trying to solve or the value proposition. Notice that the solution is NOT the starting point.
If you already have a few years experience answering the needs of the market you are aiming for, or your project is not addressing a fast moving market, I suggest going directly to the business model canvas.
The business model canvas will allow you a deeper dive into your value proposition as well as the elements that will impact your cost and revenue structures.
The following resources to help you fill out both the lean and business model canvas.
- Lean Canvas tutorial – From the author himself, Ash Maurya
- National Bank’s My Business Model – Click on whatever part of the canvas at the end of the video to see the other ones
- Strategyzer’s Business Model tutorial – To be followed with the Value Proposition canvas tutorial
There are literally thousands of texts and videos available on the web to help you fill your canvases. A simple Google search will lead you to them.
Do your math
Although it is still too early for you to have a good idea of all of your costs and revenues, create a rough version of your income statement either in an Excel spreadsheet or with the help of an application such as Budgeto.
The purpose of this exercise is in no way shape or form to get to reliable net revenue projections. Any numbers you will produce at this point in time for your project are not worth the paper they are written on.
The objective of doing this rough draft of your financials is to get an idea of what parts of your business generate the larger costs and how exactly the money flows in. You can do some sensitivity analysis with fictional numbers and understand how various choices of business model components (like suppliers, distributors, pricing strategies, etc.) will impact your profitability.
The more you play with your financial model, the better the understanding you will get of what business model scenarios make financial sense and the ones that don’t.
Our next post in this series will look at the customer discovery phase of your project. It will take for granted that you have mulled your idea over thoroughly, have gotten some informal outside feedback, and are now confident about a first version of your business model.
[1] Some accelerator programs, owned by venture capital firms, will request a personality test before accepting you. That is because they are not willing to wait for anyone to develop those traits. Doing so would entail higher risks and longer return periods for them. Failing their entrance test doesn’t mean that you cannot be an entrepreneur.
[2] By fast I mean having significant market shifts happen within 6-9 months.
