as we start this series on startups one
of the important things that we have to
figure out is really what is a start-up
well for that we're gonna refer to Eric
Ries who's a the writer of the popular
book lean startup and this is a book
that I absolutely recommend because it
provides a lot of the foundational
framework for how we approach new
ventures and the philosophy has really
made its way through Silicon Valley and
changed ultimately how we approached
identifying assumptions and testing
ideas in ultimately this concept of
iteration now the Lean Startup according
to Eric Ries the definition of a startup
really is any organization that is
searching for a sustainable business
model now there are a couple of key
components to this definition notice
that it refers to any organization
meaning that we often think about
startups and the for-profit sense and
companies going through IPOs and getting
purchased and technology and those sorts
of things but really a start-up could be
any organization it could be a
non-profit it could be an organization
within government and while that may be
a little counterintuitive any
organization operating under some kind
of condition of uncertainty really meets
the definition of a startup and you can
make the argument that those
organizations inherently do operate
under conditions of uncertainty but back
to kind of the focus and purpose of a
startup we're trying to search for a
sustainable business model now this
search component is extremely important
because it is sort of flies in the face
of what we commonly view as the purpose
of startup businesses when we think
about the purpose of startup businesses
we're often thinking about sales right
our the reason that they exist is so we
can earn revenue and achieve
profitability and then scale and
potentially go public or acquire someone
and sell for millions of dollars we
think about things about operations
right we think about what we're gonna do
and what we're gonna sell and how we're
gonna sell and those sorts of things and
when we think about startups we start
with a kind of misguided framework
really because there are
two distinct areas of the business one
of which we largely ignore for the most
part the first part is what we call
search the second part which is what
we're commonly kind of familiar with is
what we refer to as execution now in the
search stage we're trying to find
customers who will pay for our solution
we know that there are many assumptions
that we make in business and why our
goal here is really try to find out if
the assumptions that we have are
accurate and if we need to make any
changes to our previous idea of what the
product or service was meant to be now
the second stage is execution this is
where we're largely implementing our
various business strategies so commonly
a common output really of execution is
creating a business plan and this was
something that we taught for many years
in higher ed I myself taught the
business plan as kind of the on-ramp
into startup but while the practice in
itself was was good to an extent I think
it sends the wrong signal about startups
and it sends the message that startups
are fairly predictable and that if I
just did a bunch of research and if I
wrote this long document that I would be
able to address all of the possible
varieties and all of the possible things
that could happen to my business I can
address writing this business plan and
that's unfortunately untrue and I wish
that it were and over the past 10 to 15
years we begin to realize that business
plans while important weren't
necessarily relevant for startup
ventures because the whole point of the
business plan is telling us how I'm
going to execute this business how I'm
gonna market I'm going to price how I'm
gonna distribute my product how I'm
gonna acquire customers what my
financials might look like and these are
all things that we have no idea at the
very early on the very early stages of
the venture because we don't know if
people even buy this thing so it's a
little bit kind of far-fetched to start
thinking through how I'm going to
acquire customers for this thing that
one I haven't created but two I don't
know if people really want
so as a result wow business plans are
important they really don't have a place
in the startup arena so we're not gonna
really talk through business plans we're
gonna focus on other things that we can
do to ultimately find out if we have a
sustainable business model here or if
this is really just a good idea so this
search piece is really important now
you're probably asking well we're
searching for a sustainable business
model with which means customers are
continuing to pay and we're solving a
legitimate problem but how do we know
when we have a sustainable business
model
well that'm goes into what we call
product market fit now product market
fit is a concept that is used to kind of
communicate when the product that we
offer matches the problems and these
pain points of the customer the way that
I want you to think about product market
fit is I want to think about two
independent interdependent circles so on
the first one we have the market now
markets as you know are a collection of
buyers so anytime we talk about markets
we're referring to a collection of
people who are going to buy something so
the smartphone market comprises a
collection of people who want to
purchase a smartphone and have a need
for a smartphone a collection of car
buyers is people who are in the market
to purchase a vehicle of some kind so on
and so forth markets are comprised of
people of course and people have
problems people have pain points and
people want to solve these problems and
this is really where the opportunity is
for entrepreneurs because we know that
if we create something that other people
value not only could we provide value to
someone and make someone's life better
but we also have the ability to extract
value for ourselves which is not only
monetarily but also as many other means
in terms of fulfillment and providing
for somebody else so we also have the
product section and in this section here
we're referring specifically to our
solution and to the features that allow
us to provide certain benefits to people
now where these two interdependent
circles intersect is where we call
product market fit and what that means
is that the solution that we create
meaning the features we put into our
product or service that provide certain
benefits that hopefully our customers
care about address the problems and the
pain points of our market of our
customer so that is essentially the area
to which we found a sustainable model
now like most things that sounds really
really simple and I'm sure you're
nodding along at this point thinking
yeah
I get it that makes sense but when we
start talking about entrepreneurship and
practice and startups in practice it
becomes a little bit more fuzzy because
the road is very uncertain and there
isn't this very linear path that we can
follow from point A to point B to get to
where we want to go there are literally
thousands of different paths many of
which were not even aware of so there's
a couple of things that we can do to
really try to figure out if this path
that were on is eventually going to lead
us to a sustainable business model or if
we should make changes to our product or
service or maybe move on to something
else that has a bigger upside so the
first thing that we let typically do
with startups is we engage in this
process called customer discovery now
customer discovery is simply learning
about our customers it's a very
counterintuitive approach because many
people think about well I want to try to
sell my product to customers but we want
to start by first practicing empathy by
really understanding our customers which
can be a launching point for opportunity
creation and so we do this in a variety
of different settings but these are
typically interviews that we conduct
with customers to learn more about them
these are not opportunities for us to
pitch our product and convince our
customer how great it is but really it's
an opportunity to learn these are often
done over a cup of coffee which makes
things a little bit more agreeable but
ultimately we're trying to learn about
our customer about their needs about
problems they have and we don't actually
come out and ask them hey what are your
problems because if you have a problem
I'll make a solution for it because
customers don't know their problems but
they know the things that they like and
the things that they don't so we're
gonna be talking a lot more about this
process and it really is an art form and
frankly it's a little bit uncomfortable
to talk with customers at any great
length and try to learn more about them
without Anna
and other than learning more about them
in trying to uncover and trying to
uncover solutions now once we've learned
about our customers and identified
potential problems that gets us into
what we call Minimum Viable products now
an MVP or Minimum Viable Product is
essentially something that we create
that allows us to achieve the maximum
amount of learning from our customer
with the least amount of effort these
are commonly referred to as prototypes
although prototypes are generally used
to refer to physical products that are
created but the basic concept of an MVP
is I don't know if somebody likes my
product or service I can tell them about
it and I can ask them and they might say
yeah that sounds great but that
truthfully doesn't give me any valuable
information simply because of the fact
that I don't really know if they're
gonna like it because they haven't used
it they haven't experienced it just yet
so as a result I want to create
something that allows customers to have
the experience of using the product
without spending all of the time energy
and money into creating the final
version so we'll talk a lot more about
MVPs and the different types of MVPs but
just know that these are smaller
versions of our final product that allow
us to get feedback from our customers so
we can see if we're on the right track
and if we need to make any changes
before we've invested too much money
ultimately this entire process is rooted
in the idea that businesses are riddled
with assumptions they're riddled with
unknowns there are things that we simply
don't know about our customer because
oftentimes we build products for
ourselves but the problem is is we can't
be the seller and the buyer that's not a
mutually beneficial relationship and
it's frankly not one that's sustainable
so by taking the approach to business
and to startups in general that
everything that we create everything
that we think is essentially assumptions
it changes the narrative a little bit so
that now instead of trying to create
something now we're trying to solve
problems we're trying to test our
assumptions to see if they're valid and
ultimately if we're able to do this and
we're able to achieve some level of
product market fit
well then we can move on to the
execution stage then we can look at
developing strategies for acquiring
customers and developing sales funnels
and all these other different things
that business students are really really
good at but we've got to get the search
piece down first because it doesn't make
sense to invest all the time and energy
in a product or service that is an
unknown we're not sure if people are
going to purchase it just yet and so we
want to spend enough time and energy
into making sure that we're on the right
track
before we start investing a lot of time
money and resources into our ventures