Startup Pitfalls

For the last fifteen years I have been involved in differentcapacity with startups. In one case I was the founder; in other cases I was a co-founder,advisor or just an executive manager. I learned valuable lessons through these engagements that I want to share with you.

Let's start:

1. Roles and Responsibilities

Usually startups are created by a few partners with equal vote. Thus, when they have to make a decision, they vote on the issue. This is a quite democraticapproach and it is OK when there are big company decisions to be made, but whenthey are operational decision, then it is not quite a good approach. Everypartner, at the same time, should have a specific role and responsibility insidethe organisation in order to be able to make decisions according tothat.  I have seen organizations where operational decisions were madecollectively and there was no one at the end to take responsibility. It iskind of paralysis approach.

2. Accountability

This is still related to the same topic of rolesand responsibility but also accountability and expertise. If you are the founder and CEO of the organisation, it doesn't mean that you are expert inall the domains (technology, strategy, business or creative). Yes, youare perhaps expert in one of these areas and please stick to it. Donot intend to make decisions in the area that you do not haveexpertise. Leave your ego on the side for your own good.

3. Minimum viable product

In the early stage of startup, it is important no to go with grandiose ambitions in building your product. Simply, you do not know how yourproduct is going to be accepted and which features will your potential users like to use. The best approach is to start small and then to grow step by step, and measure each step in order to find out if that is what users want.

6. Clear Vision

In order for your people to deliver best results everyone in yourorganization needs to share the same vision of the company that you as a CEOsets. There can not be confusion in your team as it will result in wasted energy.

7. 10 seconds elevator pitch (clear vision)

In order to have a clear vision for the company, you need to beable to explain your solution and value in just 10 seconds. As it is calledelevator pitch, it needs to be clear to anyone without background of yourcompany and what you are doing. If you fail in this, you definitely are failingin having clarity for your team which is a big problem.

Agree or disagree with my observations? Please shareyour thoughts with me.

The Lean Startup: How Today's Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses  Eric Ries $14.32

The Startup Owner's Manual: The Step-By-Step Guide for Building a Great Company  Steve Blank $23.50

Lean Canvas in Action - Part II

Moving on with our example, the next step is to define the channels.

Channels
This section defines how we are going to reach our customer segment, attract them to come and use our site. In the early stages of our product, we are looking to learn from our early adopters, what is working or not to perform A/B testing and to feed that learning back into our site. Channels can be grouped into three categories: Owned, Payed and Earned. Here are some examples of these categories:

Owned:

1. Company's Web sites (our product)
2. Company's Blog
3. Company's Facebook Page
4. YouTube Channel 
5. Company's Twitter account
6. E-mail newsletter

Payed:

1. Pay-Per-Click campaigns (AdWords)
2. Display ads such as banners

Earned:

1. Facebook fans, likes and shares
2. Tweeter followers and RT (retweets)
3. RSS feed subscribers

Some channels that we are going to use for our site are listed below.

1. Our Web Site
2. iStore for distribution of our mobile app
3. We are going to use this blog to generate awareness
4. Google is our best friend - invest in key word research
5. Benefit from you social network
6. YouTube is for free
7. Facebook and Twitter to communicate with your followers
8. Word of mouth
9. Limited investment in AdWords

In the early stages of the project, during the product testing, it is hard to spend marketing dollars and efforts on SEM or any other marketing program (TV, prints, or trade shows).

Great. The next step is to figure out how we are going to monetize our property? It is time to identify revenue streams.

Revenue Streams
The time came to proof our business' viability. Even with a minimum viable product, we still need to proof that the problem trying to be solved is worth solving. If the customer is willing to pay for the service or product, it proofs that it gives him value. On the other hand, there is a strong argument to defer pricing in order to accelerate the initial learning.

In our case, we are going to provide free membership to the groom, bride, family members and friends. Also, we are providing a free limited membership to all service providers. Where is the revenue coming from then? Here are channels that will bring us revenue:

1. Advertising space
2. Extended functionality for service providers, for example:
1. Functionality to upload marketing material (movies, images)
2. Functionality to upload and maintain catalogues
3. Functionality to participate in bidding offers
3. E-commerce (affiliate programs)

And the next question is how much is this going to cost us? We need to identify all our expenses in this block.

Cost Structure
Here we need to list all cost; so lets do it.

1. Cost for initial interview sessions (~50 customers - from different segments)
2. Cost of building MVP
3. Initial cost of production hosting (cloud solution)
4. Ongoing cost for marketing team
5. Ongoing cost for development team

Now we can use our revenue stream and cost structure to calculate a break-even point and estimate how much time, effort and funding we need to get there.

Key Metrics

Yes, it came time to measure how our business is doing. We need to identify key metrics that will provide us real time update. It is important for us to identify actionable metrics; here we go:

1. How many sign-ups - end users
2. How many wedding planners created
3. How many friends/family members invited
4. How many mobile apps downloaded and actively used (actively needs to be define as well)

I am going to stop here with my metrics as this is enough for the initial release. It provides an indication if my end user likes my product and is willing to use it or not.

And the last step is to identify its Unfair Advantage.

Unfair Advantage

Something that others cannot copy so easily. Here are few examples:

1. Brand recognition
2. Existing customer base
3. Personal authority in the space
4. Know how - patent holding

This is very difficult to identify and that is why it has been left for the end. In my case, I am going to leave it blank - let's keep it as my little secret).

We have arrived at the end of our first canvas. What is left now is to experiment with all our assumptions (or how they call them these days: hypotheses).

The Lean Startup: How Today's Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses  Eric Ries $14.32

Running Lean: Iterate from Plan A to a Plan That Works (Lean (O'Reilly))  Ash Maurya $16.49

Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers  Alexander Osterwalder $20.21

The Startup Owner's Manual: The Step-By-Step Guide for Building a Great Company  Steve Blank $23.50

Lean Canvas in Action - Part I

Let's continue with our discussion on Lean Canvas. This time I'd like to pass through the process of actually using the template. For a long time I've wanted to create a wedding event community site and now is a good time to explore that opportunity and build a business model.

The Problem
As I described in my previous post, the first step is to identify the problem that we as entrepreneurs are trying to resolve. After doing a competitive analysis I have identified the following problems:

1. Planning a wedding event is a complicated task
2. It requires knowledge and tools
3. Unified offline, online and mobile solution needs to be available

Thus, the question is how are couples doing this today? That's when alternative solutions get identified. Today couples are using one or more of the following solutions:

1. Couples rely on family and friends to help them plan the event
2. Use professional services of wedding planners (very costly)
3. There are some tools that are available for planning purposes 
4. Attend bridal shows as a source of information

With the problem and alternatives identified, the next step is to define the Customer Segment.

Customer Segment
The customer segment is the heart of any business. We can identify one or more customer groups that our business is going to address. To identify these groups we need to answer the question: for whom are we creating value?

In our example, there are few groups of users who will benefit from our site, such as:

1. Bride and groom 
2. Photographers
3. Wedding music bands
4. Flower shop owners
5. Catering services
6. Event venues 
7. Jewellery stores 

From all identified customer groups our primary group is the bride and the groom. Our focus is to satisfy their needs and enable other groups to participate in that effort. To be more specific at this point, I'm looking for early adopters; by saying that I'm looking for people who consider the internet part of their DNA.

The Unique Value Proposition

The next step is also the most important and the toughest to get right. It's developing a statement of the Unique Value Proposition that our site will offer. What's the definition of Unique Value Proposition? It's why we are different and worth getting attention from our primary customer segment. A Unique value proposition could be:

1.     Improved product or service performance

2.     Develop a customizable product to fit users needs

3.     Great user experience

4.     Addressing user needs

5.     New functionality

6.     Price

So, let's try to develop a Unique Value Proposition (UVP)  for our site: For our site the UVP is to provide a one stop shop experience with accessibility any time and any place. This means that we want to provide:

1. Unique user experience to our clients 
2. Rich functional experience such as: 
1. wedding planner
2. registry
3. tools for searching service providers
4. tools for providing reviews and feedback on purchased services  
5. rich online and rich mobile experience
3. Search tools for service providers based on geo-location

With these three steps we have specified the problem that we are trying to resolve, defined our target customer segment and the unique value proposition that our offering is going to have.

Our next step is to talk about the proposed solution.

Solution
In this section our goal is to identify an initial high level list of functionalities that the system needs to support. Because it's still early in the product development cycle do not get carried away and go too deep into the description - additional research may be conducted through interviews that may pivot the feature set. For now, here is the initial list of features that I want the site to support:

1. Each user is able to create its own profile under which planning information and details are going to be stored
2. The site is going to provide wedding planning tools
3. The system is going to provide park/scene spot search tool
4. The system is going to provide search tools for service providers per category based on geo information (categories: photographer, flower shop, wedding gown shops, event venues, restaurants)
5. User is going to be able to provide feedback on services (review and rating)
6. Share with you social network feature
7. Mobile access to your planner
8. Enable service providers to build up their profile page.

In my next blog entry I will continue with this example.

(to be continued...)

Lean Canvas Introduction

In the last few months I got involved with Lean methodology. After doing some research, I really got excited with a ground-breaking approach for building your future products. This approach helps any company to define a business proposition without writing long, time consuming documents.

In this article I am going to focus on the Lean Canvas tool. Originally presented in Business Model Generation by Alexander Osterwalder & Yves Pigneur and further developed and adjusted in Running Lean by Ash Maurya.

The following image presents the Lean Canvas template. The numbers will help you follow the methodology step by step. I have included a brief description of each step below but for more details you should definitely read Running Lean.

1.       Write down the top 3 problems that your product is going to resolve
2.       Customer segment are you targeting
3.       Unique Value Proposition that is created for targeted customer segment
4.       List solution possibilities
5.       Specify which channel are you going to use to reach you customer segment
6.       Identify different revenue sources
7.       Put all your development cost and ongoing operational cost
8.       Specify what are the key numbers that tells you how your business is doing
9.       Specify the unfair advantage that you have that is going to make your competition harder to build a similar offer. This is usually the hardest section to fill.

References:

Books:

•       Business Model Generation by Alexander Osterwalder and Yves Pigneur, Published by John Wiley & Sons
•       Running Lean by Ash Maurya, Published by o’Reilly
•       The Startup Owner’s Manual by Steve Blank and Bob Dorf, Published by K&S Ranch, Inc.

Web Sites:

•        http://leancanvas.com/
•       http://canvanizer.com/new/lean-canvas
•       http://leanspirit.com/leancanvas
•       http://www.netprofess.com/canvas.php
•       http://www.startupkitchen.ca/home/2012/2/1/our-lean-canvas.html
•       http://www.steveblank.com/