Startup: What you need to know

What do you think? The text is too long? I imagine you are pretty busy so I can give you the conclusion of what I want to say. If you want to understand a bit more about how I get there you can read the next paragraphs as well. Creating an innovative business is a run against time, it’s a race you need to finish before you burn all your available resources, this happens because you are doing something that no one else did before. To maximize your efficiency you need to learn as fast as possible about the domain of your company, so a Startup needs to focus in creating small experiments to validate its hypothesis. Creating a detailed plan that is going to change the first time you talk to a consumer is just a waste of resources.

A friend sent me a massage asking for my opinion in a document he and his team wrote about their Startup and planning. At first I queried him about why they wrote the text and he gave me the following answer:

1. Organization of thoughts
2. Documentation for reference
3. Attract interested people to the team
4. To show to investors
5. To practice writing

I liked very much of the list, I think it’s also in a good order. The document had the name and hypothesis.

Let’s talk about what you need to know to grow a successful business. Do you know how to IPO your company? Do you know how to scale your business? How to break even your company? How to sell? Create a product? Which problem are you solving? Who are your client? What values are you creating?

You may be thinking “but why do I need to know how to IPO my company now? Actually, what’s IPO?” And this is exactly the point, you don’t need to know it if you just started.

Focus in your phase

If, as my friend, you are starting your startup, you don’t need to know the NPS of your product neither how to perform A/B tests, you don’t even need to know how to do a selling funnel. So what do you need to know? Well, if you haven’t sold your product for the first person, you still have to iterate on the first process, maybe you still have to keep iterating in the process if you have sold for some people, the type of business you are creating will say. Steve Blank, author of “The Startup Owner’s Manual” said a lot of times “Get out of the Building!”, and you can, probably should, do it before having any product. He’s advocating for knowing your customer very well, and you can do it in very different ways, I prefer interviews.

Still according to Steve Blank, Startups were repeating the same mistakes for a long time. Applying large companies’ metrics and methodologies for their own. It’s a mistake to write a Business Plan or to detail too much a plan that is going to change the first time you face a customer, you’ll be losing your time (money), energy and becoming attached to a dead idea.

A Startup is not a small version of a big company.¹

What is a Startup though? A Startup is an organization in search mode. Its main output is knowledge about the domain. The goal is to define its Business Model. Please pay attention in the difference between Business Model and Business Plan. The first one is usually very light, done with post-its most of the time (see Alex Osterwalder “Value Proposition Design”), it’s very easy to adapt and change over time. The second is very verbose and lengthy, it specify in details what and how the business is going to operate.

After you find a Business Model that can sustain your organization, you then can create a company and write a Business Plan to be executed in a very efficient way. But until you find it, you need to keep iterating over the same process to find it.

The Startup Process

The process to find your Business Model is simple, but is not easy. You keep trying until you find it, but applying a methodology very similar to the Scientific Method. You start stating hypothesis of your Business Model, you create an experiment to test them, analyse the data you got from the experiment, conclude something if possible and state new hypotheses to start over. The main hypothesis you can create are about who is your client, what problem see you solving, what values are you creating, also important but essential is how do you get money, what is the relationship with customers, etc.

You must think in the hypothesis in a way that when they are validated you have facts and data to show investors that if they inject money in your Startup, they are going to profit 10, 20, 50 times more. Investors are just interested in how much money they are going to get, and showing them that you already tested a lot of hypothesis shows that you know a bit about the domain, and showing the data decrease a bit the risk in investing in you.

Minimum Viable Product

There are good ways to conduct simple and inexpensive experiments. And you experiment effectively by creating real value for your customers, so an MVP is not a low fidelity prototype and doesn’t need to reach hundreds of people, it needs to validate your hypothesis.

For a good reference about the subject you can check the chapter “Experiment” in “Lean Startup” by Eric Ries. There he gives examples as the first online shoes store that experimented it’s hypothesis by only taking pictures of shoes of a store and posting them in a blog to test of people would buy online. You can also check the winner of 2015 of the International Business Model Competition, Kaitek Labs didn’t have finished their research yet, they didn’t have the special bacteria they are developing, but they showed how everything else is going to work once they have it.

What are your thoughts about it?

Bibliography Reference:

1. “The Startup Owner’s Manual” by Steve Blank
2. “Lean Startup” by Eric Ries
3. “Value Proposition Design” by Alex Osterwalder
4. “Business Model Generation” by Alex Osterwalder