How to startup….blog 4 of 11 – Identify the riskiest parts of your plan

by Adrian Lloyd

How to build a successful start-up

I started this series a few months ago with the 1st blog on Generate an idea (but remember that it’s worthless) followed by In-depth observe (not interview) 5-10 potential customers, including 2-3 “extreme users” and then Document your Plan A. I have copied the intro to the series directly below and you will then find part 4: “Identify the riskiest parts of your plan” – the subject of this post

Original intro to the series:

The goal of a founder who wants to create a big company is to find product/market fit in a large market – one that is at least £0.5B/$0.75B in size. Much smaller than that and a venture investors won’t be confident that he or she will get 10x on their investment (and note that it doesn’t matter at which stage you’re working, as if an early stage investor like us, we need to believe that we will be able to sell you onto a Series A/B investor who also has to believe he or she can get 10x and so on). It’s not right all the time, but it’s a rule of thumb.

The Lean methodology, thought up by Eric Ries and then evolved by many others, is the best way to work through the early stages to product/market fit.

We like Running Lean by Ash Maurya for a clear outline of what this entails.

What Ash excludes from his thinking is in-depth customer observations, as developed by IDEO, the design firm founded by David Kelley in Palo Alto, right next door to Stanford University, my alma mater, and a clear definition of “strategy” for the start-up.

 

(Overly) Simply put, we think a founder needs to take the following steps:

  1. Generate an idea (but remember that it’s worthless)
  2. In-depth observe (not interview) 5-10 potential customers, including 2-3 “extreme users”
  3. Document your Plan A
  4. Identify the riskiest parts of your plan – the subject of this post
  5. Systematically test your plan
  6. Get to Release 1.0
  7. Reach product/market fit
  8. Define your strategy (Goals, Scope, Competitive Advantage, Logic)
  9. Scale

I will write a bare-bones explanation for each of these 9 steps with as many links and references as I can so you can read better writers’ thoughts on the subject.

And please note that at some point on this journey you need to find a co-founder. It’s pretty rare for a solo founder to manage it all on his or her own. It happens, but it’s rare. I’ll write about that as an additional point 10:

10. How to do the co-founder thing

And the last thing that you absolutely need is a great culture.

11. What is a great culture?

 

Here we go:

1. Generate an idea (but remember that it’s worthless)

2. In-depth observe customers, including “extreme” users

3. Document your plan A

4. Identify the riskiest parts of your plan:

Product risk – do you have the product right?

Customer risk – are you building the right path to the right customers?

Market risk – are you addressing a market which will allow you to build a viable business?

 

Quoting Ash:

Tackling all these risks at once can be overwhelming, which is why you need to prioritize them based on the stage of your product, and tackle them systematically…lay your lean canvases side by side and prioritise which models to start with….Your objective is to find a model with 1. a big enough market that 2. you can reach with 3. customers who need your product that 4. you can build a business around.”

 

He then ranks the most important segments of the Lean Canvas to help you decide which canvas to start with. We, as a VC, don’t agree with his order. So, with our Episode 1 hat on, our order is (with Ash’s order in brackets after ours):

  • (Ash #4) Market size (Customer Segments) – we need a large market of at least £0.5B in the UK or otherwise immediately addressable
  • (Ash #5) Technical feasibility (Solution) – if you can’t build the solution, don’t waste your time
  • (Ash #1) Customer pain level (Problem) – if the customer pain isn’t really high, they won’t pay for it. Your solution has to be significantly better than the current offer in the market
  • (Ash #2) Ease of reach (Channels) – if you can’t reach your customers at the right price, then you won’t make money
  • (Ash #3) Price/gross margin (Revenue Streams/Cost Structure) – if the business can’t develop high margins, you/we won’t make money
  • Now you get ready to test your selected plan. It’s crucial to know what you’re testing, so identify a single key metric or goal to test and then turn it into a falsifiable hypothesis:

 

Falsifiable hypothesis = [specific repeatable action] will [expected measurable outcome]

The “expected measurable outcome” is the metric you are testing

 

For example: A blog post will drive 100 signups.

A start-up can focus on only one metric. So you have to decide what that is and ignore everything else. (Noah Kagan)

 

Obviously it’s up to you to measure more than a single metric, but there is great power in focus, for you and your team, so it’s worth finding that crucial metric and pursuing it with a singular focus. It’s much easier for the team to row in one single direction towards that one metric.

N.B. at this stage you don’t need to have automated sales. You can take your customer through the process manually and work on automation later. Something Eric Reis calls “Concierge MVP”.

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