The truth is out there but not in your business plan

Make no mistake; start a new adventure in the current situation is scary. As we keep hearing in the news the number of companies closing down or embarking problems. In addition, that feeling drives us to fall back on our lairs, to try to get all the information possible before doing anything … A Good Idea.

The problem with this approach is that we will never be able to reduce uncertainty enough, or, at least, to feel comfortable: Our business plan does not show reality (just a perception), and we will not be able to size with sufficient precision the market nor can we know really how are segmented customers or what they want …. In addition, that will lead us to commit one of the worst sins that can be committed to launching a new business: the dreaded paralysis by analysis.

“Uncertainty will be your companion for a long time… so you better get used to it.”

Why so many business plans is obsessed by research?

The truth, however much we weigh, is that the Internet and the warmth of our office will be able to find few answers, although if a safe environment and that does not produce that feeling of vertigo as usual when launching a new business. I am not saying we launch us into the street the first day … but the second. Why?

“I know of no project, which has succeeded spending a lot of time researching the market and trying to get everything perfect, and yet if I know several who have succeeded despite not do a thorough initial analysis.”

Why however we adopt that attitude? In my experience, there is one main reason, and it is the fear of failure, to be wrong or that our great idea (from which we have fallen in love) is not as big and wonderful. Which makes us delay as much as possible (consciously or unconsciously) contact with reality, that first step that really takes us into an unknown world? In addition, that brings us to what…

  • To assume that the ideas we have gathered in our market research are true (and not only hypotheses).
  • To believe that we really understand what our customers want (after taking a look at a few sites and make some demographic studies).
  • A building product that fits like a glove to what we believe customers need (and try to be perfect before you show them).

The result of this approach is usually 90% of cases, a resounding failure. In addition, the problem is not that it is a failure, a common occurrence because although failure is not a good thing helps us learn. The problem is that there has been an enormously failure expensive, either in the cost of the investment to build something that does not want the client or wasted time. The worst that can happen is to squander our resources in doing something that does not care about the customer.

“Fail fast, fail soon … but above all, fail cheap”

The answers are not in your office

In my experience, the best we can do is identify as soon as possible assumptions on which our business model is based and go out to try them out. To talk to customers really a look into their eyes and understand not only what they say but also, how they say it and why.

As the great Steve Blank says, author of “The Four Steps to Epiphany” and collaborator of adaptation for entrepreneurs “Entrepreneur’s Guide to Customer Development”:

“Get out of your office!”

It is that when launching a new business model must understand that the key is not to improve profitability or make a more scalable model. The key principle is to search for the best business model, a model able to exploit the full value of the product or service we have designed the best possible way. Moreover, it is essential to leave the building, the four walls that provide us security and get in front of real customers, allowing us to understand:

  1. Where “meet” our customers and when
  2. What moves them and what they really need?
  3. In what context consume
  4. Knowing when their eyes shine
  5. … And many other things you will not find in your Business Plan

“We need to change opinions by facts”

The top 10 causes of death of a startup

Although there are dozens of posts about to undertake the most common mistakes, I have decided to share that in my experience are the main causes of death in a startup … because rarely is related to technology and product causes. Most have to do with the business model or strategy to market.

1.     Think like a company

Although it is conceptual, in the long term is one of the leading causes of mortality startups, and has its motive in trying to apply a startup the same management principles, structures, hierarchies and approaches in a company big. Because I do not tire of saying:

“A startup is not a big company or “small”. A startup is a temporary experiment designed to find a business model profitable and repeatable (and ideally scalable).”

We must adopt mentality pirates, using approaches and very agile and flexible structures. Although I am not in favor of reinventing the wheel, it is a good idea to question the established truths and evaluate unconventional approaches … because doing as well or better than the competition does not get too much. The key is that you do so differently.

2.     Enumerate your product

It is very common that after months, creating a wonderful and revolutionary product that will change the world; we end up falling for him. One of the main signs that the end is near, the product you’re building really is just a tool with which to solve a problem, and it is not (usually of your problem, but a problem of your clients … so what you build is right for you or for your customers?)

Moreover, this approach has a conceptual error serious:

“Your product is not “just” your product. Your product is the business model”

That is, you must not only focalize in a product but to design a good business model able to extract all the “juice” of your product … and that is your work unit, not just the tool that you are building.

3.     Swings too

One of the most difficult questions to answer is “When is the best time to swing?” Recall that swing, buzzword, refers to make a substantial change in the strategy of our startup using the basis of what we have learned from our customers.

The problem is that many companies, the first of change and when a problem or question about something that we considered true (one arises hypothesis of the business model), decide that the model is not viable and must swing. What in practice implies that its management strategy is the headless chicken and has not had time actual to learn the customer? The key really is to analyze in detail the root reasons, and then only if we are sure, swing.

4.     Not have clear if you aspirin or vitamin

There are really only two types of products / services in the world: Those who solve a definite problem for your customers (aspirin) and those without solving a pressing problem, get the customer is happier or better (find vitamins).

It is essential to know what kind of solution we, as completely will color the business model from the channels and formulas income to the communication strategy. For example, a product aspirin should go to a segment of customers whose basic needs are well covered, thinking of their self-satisfaction and usually have a certain browser character.

5.     What to do if you say, customers

One of the most controversial issues is to decide whether to ignore the customers or not. Many people, under the banner of Steve Jobs or Henry Ford, argue that customers have no idea, and, therefore, do not have to listen …, which from my point of view is a fatal error. In fact, the S.Jobs himself said:

“The client does not know what they need”

Does this mean we should not listen? Absolutely! Customers know perfectly well, what problems and needs are, so that is the key on which we must build. What is not good is to translate those needs into concrete product requirements … but that is your job, right? Must you not only listen and understand their problems but the work they need to solve (i.e. context, frustration, frequency …)

6.     Obsess the business plan

Now it seems that we are in a kind of war between the side Business plan YES and the side Business Plan NO. What is clear is that spend weeks or even months of effort, at first, to make a fraught hypothesis document invalidated and numbers coming out of the hat is a tremendous waste and would almost say criminal …. Also misleads you the most important: validate if your business model is correct.

Does this mean that there is to do a business plan? In my opinion if you have to do, but once designed and validated business model and a formula with which crystallize the acquired knowledge and expand the level of detail in our next steps … and above all, understand that it is the tool for getting investment in a startup (or, at least, a good pitch deck ).

7.     Trying to build a product for all

Possibly one of the leading causes of death (at least in my experience) is that the money is gone too soon and the startup becomes a zombie company. In addition, the main reason is that not strive to build such a large and complex product that just consuming all resources before fully validate.

I think the right approach is not to use an approach blunderbuss (build many features to see if any is needed or many lines of income without actually predominant) but laser beam … for what we must first know and understand very well what really needs our client. If not, the end ends up looking for an imaginary client products rather than products for our client.

8.     Too soon climb

According to the known Startup Genome Report, the No. 1 killer of startups is trying to climb too early business model … and in my experience, it is certainly one of the most important. To understand the problem is key to recognize that there are 2 completely different phases in any startup: before having reached the product-market fit and then to have come shortly.

In the 1st phase, the key is to validate the business model, and, therefore, the focus should be to verify that we are solving an important problem for the customer and who is willing to pay … that is the important thing is to explore. In the 2nd phase is the key to optimizing and scale the business model, improving profitability, margins … etc. However, if we become obsessed in the 1st phase with improved efficiency (e.g. refining costs, deploy servers with tremendous performance, or search the purest product) lose many resources and time on something that is not important at this point.

9.     Measuring your ego

It is sadly common in startups that suddenly find they are dead or dying … because according to metrics everything was brilliant until the day before. The root of this situation is that have dedicated themselves to use metrics ego, i.e. precious numbers but really not say anything or have the direct ability to act on them (e.g. visits, billing …).

The key is to understand perfectly how the customer relates to us (through a funnel), how it will evolve that relationship over time, and above all, what model of recurrence, margin, working capital, acquisition cost and value of customer life cycle have ….

10.  Validate with no sales

I leave for the final one of the most obvious but no less common. It is sadly common startups find that, after a brilliant period of free beta, with surprising growth rates and user adoption, become a model of payment (premium), freemium or the like and plummeting numbers (and, therefore, forecasts).

In addition, it is that free almost everyone is able to sell, but when there is a cost (under that is) actual feedback on the usefulness of the product is obtained, and it is only from that point where we can learn and draw conclusions. Alternatively, put another way: “There is only one way to validate a business model: with sales (profitable)”

Related posts