We are now two chapters deep intoThe Startup Owner’s Manual – a recently published book by Steve Blank and Bob Dorf[iii]. You can get caught up by reading Chapter 1, in which the authors point out the problems that arise when startup founders approach the task ahead of them as if their startup is merely a small version of a big company, and Chapter 2 in which theyintroduce the idea of a Customer Development model for startups.
At the end of my article two weeks ago, I said, “Before you run off to engage in your own Customer Development, consider that this concept may not work in the same way for every type of startup”[iv]. I now think that is not a concern. Why? As a strategy Customer Development remains essentially the same, no matter what kind of product or service a startup is trying to bring to market. That said, the tactics by which one actually executes the startup’s Customer Development strategy will be substantively different if one is developing a robotic horticultural machine as opposed to a mobile SMS chat client, for example. Why? The business models are different.
These are the rules that comprise the Customer Development Manifesto. I have added some comments for clarity, but we will dig deeper into each of these points as time progresses.
- There are no facts inside your building, so get outside.
- The assumptions in your head do not represent the facts in the world outside your startup.
- Pair Customer Development with Agile Development.
- Information from your customers is useless if you cannot act on it iteratively and quickly.
- Failure is an integral part of the search.
- Remember that a startup is a temporary organization that is engaged in an ongoing search for a scalable, repeatable and profitable business model. There would be no need to search if failure were not part of the reality of every startup’s existence.
- Make continuous iterations and pivots.
- An iteration is a minor modification of one or more components of the business model. A pivot is a substantive change to the business model. It should be clear why iterations and pivots are necessary if a startup is to survive.
- No business plan survives first contact with customers so use a business model canvas.
- Design experiments and tests to validate your hypotheses.
- Your guesses will remain guesses unless you can prove otherwise. Expecting to make money based on a guess is like expecting to come into wealth by winning the lottery – not outside the realm of possibility, but highly unlikely nonetheless.
- Agree on market type. It changes everything.
- The market type affects everything a startup does now or will do in the future. A market that already exists is dramatically different from one that does not yet exist.
- Startup metrics differ from those in existing companies.
- Ehem, before you lose your mind trying to populate income statement, balance sheet and cash flow statement templates with data – figure out how to keep your startup sufficiently well funded till you have discovered a scalable, repeatable and profitable business model. I don’t mean to suggest you should not measure your startup’s performance, I just don’t think these financial statements will help you measure the right things. They are absolutely necessary once your business model has reached a steady state, not before then.
- Fast decision-making, cycle time, speed and tempo.
- You had better hurry and find your startup’s scalable, repeatable and profitable business model before its bank balance goes to zero or investors refrain from giving it more money, or both. Remember to take decisions quickly based on facts, not guesses or “hypotheses.”
- It’s all about passion.
- Every aspect about a startup is fraught with uncertainty, and risk to a lesser extent[vi]. It’s impossible to keep going in the face of failure without passion. A startup needs people with fervent belief in its founder’s vision if it is to survive and grow into a company that is executing a scalable, repeatable and profitable business model.
- Startup job titles are very different from a large company’s.
- Don’t let job titles corral people into the “execution silos” that come with the certainty of an established company executing an established business model. Startups are characterized by chaos, uncertainty and change and the people that work at startups must be individuals that thrive in that kind of setting.
- Preserve all cash until needed. Then spend.
- The number 1 reason startups go out of business is that they run out of money before they find a scalable, repeatable and profitable business model.
- Communicate and share learning.
- Everything a startup learns during Customer Development must be shared with employees, investors and co-founders etc, etc.
- Customer Development success begins with buy-in.
- Without buy-in by employees, investors, founders and co-founders Customer Development will not work. It will simply be a different path to disaster.
Let’s talk again in two weeks. On deck? Customer Discovery, Chapter 3 of the book.
[i] Any mistakes in quoting from my sources are entirely mine.
[ii] This article is based on Chapter 2 of The Startup Owner’s Manual Vol. 1: The Step –by-step Guide for Building a Great Company, Steve Blank and Bob Dorf, Pub. March 2012 by K and S Ranch Publishing Division.
[iii] I have no relationship to the authors, besides the fact that I bought one of the earliest available copies of their book. I do not benefit from sales of the book.
[v] I do not know if Kevin Systrom is an advocate of Customer Development, nor do I know if he has ever heard of the business model canvas.
[vi] Uncertainty cannot be measured. Risk can be measured with statistical tools.
image credit/Thomas Hessler