If there’s one thing I’ve learned, it’s this: a startup is not simply a scaled-down version of a large corporation. If you attempt to operate like a big business, you’re bound to stumble. A startup is not a business; let me iterate that. A startup is not a business. Just as an empty plot of land is not yet a house. It needs surveying, grading, the installation of wet and dry utilities, road improvements, and excavation before it’s ready to be built upon. A startup is a value proposition in search of proof. A startup is a hypothesis in search of a business model.
It might seem clear-cut that a startup isn’t a business, yet it’s far from self-evident. If you’re a startup drafting business plans, it’s a clear indicator that you’re likely misguided. Business plans are for established businesses. As you’re not a business yet, a plan is useless. A startup is a hypothesis in search of a business model. A successful startup is one that can transform a product or service into a scale-able and repeatable business. This transformation requires a specific set of skills. Founders are paid more than any other profession on earth. There is a valid reason for that. A startup is a value proposition in search of proof. A startup is a hypothesis in search of a business model. Launching a startup is just the beginning of that process; the upward trajectory follows. Therefore, any business plan at this stage is essentially pure fantasy. Successful investors understand this, while those who don’t are more likely to fail. Venture Capital is a financial profession, not a game of darts. It’s not an accident that some firms win consistently. Therefore, the idea that a startup isn’t a business isn’t as obvious as it seems.
A startup begins with a thesis. A good place to start is with a lean canvas. Ash Maurya, who adopted lean canvas from Alex Osterwalder’s Business Model Canvas is a single-page framework that focuses on problem-solution fit.
A more effective strategy for achieving success in life is to think within the constraints of frameworks rather than letting your emotions rule your decisions solely. Emotions are transient, and their energy eventually dissipates. Employing a framework like a recipe, something you can adhere to even when you’re not particularly enthusiastic, is a superior way to work. The Lean Canvas, or any variant of the Business Model Generator, will assist you in formulating a fully fledged hypothesis. Consider it an introspective interview where you answer a few fundamental questions.
You want to start with a comprehensive problem statement. If there’s no problem, then there’s no product. If there is no problem, there is no solution, and therefore no value can be created. You want to do your research and thoroughly understand the problem. Questions drive cognition, so start by asking questions: What is the problem the start-up is trying to solve? Why is this a problem? Is there an alternative solution that is viable? What are the measurable consequences of inaction? Is there a consequence to not solving the problem? Who is the customer? Do they need a solution? How many customers do you think there are? Analyze the responses and restate them using the Four U’s framework: Is the problem
Unworkable,
Urgent,
Unavoidable,
Underserved
Now that you have an understanding of the problem, the question is: customer segment? Who are you solving this for? The second question is: Who are you creating this for? Specifically, who are the early adopters? This refers to the Customer Segment. If you attempt to build something for everyone, you’ll likely sell it to no one. The idea of catering to everyone is akin to boiling the ocean — it’s simply not realistic. The more specific and narrow you make your segment, the higher your chances of success.
I’ve discovered the most effective approach is to focus on a real individual. Visualize a specific person in your mind, and then seek out and converse with that person. If you genuinely ask for assistance, you’ll find that most people are willing to share their insights.
The best research method is shoe leather. That involves hitting the pavement — going out and interacting with people. Remember, the internet, with its 70% bot population, is not representative of the real world. Go out into the real world and speak with actual people. You need a clear understanding of who exactly you’re creating this product for. Who is going to exchange their hard-earned money for it?
Once you can answer what problem you are solving and for whom specifically, you are ready to think about a solution. While people often think about the solution first, it’s important to describe the needs and problems really well. If you do, you will find that you come up with a more compelling solution. The solution needs to be SMART: Simple, measurably achievable, realistic, and Tangible. In other words, it needs to be focused on the minimum viable customer segment.
Problem, Solution, Customer segment — with all those in hand, you are now ready for the big lift: The Value Proposition. As a startup founder, your job is to create value. As a client of the Unicorn Factory, your job is to do that in a way that is repeatable and scaleable. You want to answer the question of why customers come to you. This is your thesis statement. This is the reason you get money from an investor. Investors don’t invest in ideas. Investors invest in a team or an individual with a value proposition. If your VC is spending too much time on numbers or minute details, then they are not a VC; walk away. You are not a business. You are a startup. A startup is not a business. A startup is a value proposition in search of proof. A startup is a hypothesis in search of a business model. Therefore, the value proposition is your job. It flows from having insight into the problem. Here is a framework that can help.
For (target customer segment )
dissatisfied with (existing solution)
due to (key unmet needs)
(venture name) offers a (product category)
that provides (key benefits)
Now that you have a decent knowledge base around your venture, you want to fill out the rest of the Lean Canvas Framework.
You want to think now about channels. How will your product reach those customers? How and where will customers interact with your solution? This involves channels. How will you get, keep, and grow your customer base? What is your Unfair Advantage? This concerns Relationships. How will you generate revenue? That’s your Revenue Model. What’s the infrastructure you need to deliver? What resources are essential? If you can’t measure something, you can manage it. How will the customer know you are adding value? These are your Key Resources or Metrics. Then comes the big one. What is this going to cost?
The correct answer to cost is you don’t know. You have some ideas, and that is mostly what a true investor wants to know. That is all you could know. You have a budget until you have experience, and only then can you make a statement about finances. Anyone who wants financial statements for a startup is wasting their time. All you can do with those is waste time indulging in spreadsheet masturbation. Don’t waste your time guessing and running scenarios. You do not know, and no plan survives first contact. The cost is something you have to accept as a variable. Whether you are an investor or an entrepreneur, You don’t know, and you can’t know. In fact, that is the entire point of the whole exercise of being a startup: to find out what it costs to deliver the value proposition.
With the framework now in place and a bird’s-eye view of your direction, you are ready to pitch a venture to stakeholders, vendors, employees, customers, and investors. Until then, you don’t know what you are selling, and that puts people in an awkward position when being polite. Most people will just be polite. They can’t explain it because you can’t explain it. They can’t understand because you don’t understand. They are in a position where if they suspect there is something there, they literally cannot say yes because they don’t know what they are saying yes to. Anyone who asks you for more than a lean canvas, either in deck form or how we do it here is in a 2 pager, they are not going to invest because they are looking for a business, not a startup.
Job number one: the very first thing you must do is get a two-pager together. A value proposition and a lean canvas. There are lots and lots of resources online on Lean Canvas. Ask for help this is why your team is here. Forget everything else. This is the homework. A startup is a value proposition in search of proof. A startup is a hypothesis in search of a business model. The Lean Canvas is how you define that hypothesis.
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