Entrepreneurship

Jul 03 2013

Lean Startup for Nonprofits

Last October, I had the privilege to go back to Wesleyan University as a speaker. I gave a one-hour talk on how lean startup principles can be applied to nonprofits and social ventures. My talk was part of the inaugural speaker series of the Patricelli Center for Social Entrepreneurship.

Wesleyan has recently made the video publicly available, so I wanted to share it with anyone who is interested in the intersection between nonprofits and lean.

[iframe width=”560″ height=”315″ src=”//www.youtube.com/embed/bJphXf3j8JY” frameborder=”0″ allowfullscreen]

Thanks again to the PCSE for hosting me. It’s always nice to be asked to speak at my alma mater, and I look forward to coming back in the future.

May 30 2013

How to Pick a Customer Segment

Customer Service Desk — Photo Credit: nffcnnr

In a lean startup, we like to say that it is better to pick the customer you want to serve and figure out what problems they have than to come up with a solution and then figure out who needs it. Entrepreneurs following this advice often ask me how they should decide which customer to choose and whether they should worry about targeting something too narrow. Specificity is good. Picking a small segment (e.g., parents of grade school aged children in the Washington, DC area) so that you can get enough penetration to start seeing network effects is usually better than biting off a segment that is too large for you to have any real impact (e.g., parents). With regard to what segment to choose, there are a few different approaches:

market sizing,
customer development, and
passion.

I’m going to lay them out from most to least traditional, ending with my favorite method.

Market Sizing

This is your traditional business school approach. Find some research on the sizes of various markets, maybe take a look at which ones already have similar offerings floating around, and pick whichever market has the best combination of size and untapped potential. As a baseline, this is not a bad way to go, but I prefer focusing on either customer development or passion as a way to pick your market.

Customer Development

Form a hypothesis about which market has the biggest problem doing whatever you’re good at doing. For instance, if you’re offering an online service to help customer find places to buy widgets, ask yourself who has trouble finding information about local stores, catalogs, and places to shop. Then, before building anything, go talk to some customers in that segment and ask them about how they currently find the information that you hope to offer, and whether that method satisfies them. Don’t tell them about your solution; just see if they actually have a problem with their current solution. If they don’t, you’re going to have a hard time getting them to use your option. If your first hunch about a market doesn’t pan out, try a few more and see which one yields the most frustrated customers. Start with that market, because it will be easier to attract your early adopters if they are actively looking for a solution.

Passion

The third school of thought, and the one I most often favor, is a variant of following your passion. Let’s take as a given that, barring lottery-like success, you will be working hard on this startup for 5-10 years before you see real returns. If that’s the case, who do you want to spend that time with? Which customer segment is the one you want to spend 5-10 years talking to, learning about, and empathizing with? When you pick a customer whom you like, you’re much more likely to stick with the startup long enough to find the right formula. If, for example, you hate sculptors but love musicians, you probably already know who you want your customers to be.

This post was adapted from an answer I wrote to a user’s question on Quora.

Feb 21 2013

The Three Biggest Risks to Your Startup

Starting any new venture is risky. Before we can limit or manage the risk, we have to understand it.

Most startup (or new product) risk can be divided into three buckets:

Tech Risk
Market Risk
Ego Risk

Tech Risk

Tech risk is what entrepreneurs (or intrapreneurs, for those starting something within an existing structure) most often think about when starting a new venture. Can I build this thing? Is it scalable? Do I have enough servers? The irony is that, especially for consumer web startups, this risk is usually negligible. Most web startups aren’t doing anything that hasn’t been done before, unless it involves patentable algorithms. It may not be easy, but there’s high certainty that it can be done, given sufficient resources.

Market Risk

Market risk is the antithesis of the idea that “if you build it, they will come.” Do people have this problem? If we can deliver the solution, will people even want it? Can we reach the people who will buy this product? Do people believe that our solution is credible? Entrepreneurs should be thinking carefully about market risk.

Ego Risk

The final type of risk facing any new venture is ego risk – and it’s probably the most important and the least discussed type of risk. Ego risk is the chance that an entrepreneur can’t get out of her or his own way, pay attention to the data, overcome cognitive biases, and avoid falling prey to a reality distortion field.

With so much risk, it’s a wonder any new venture survives (many of them don’t). But researchers and entrepreneurs have worked hard on each of these types of risks, and there are strategies for ameliorating each one.

Tech Risk + Agile

Tech risk is often mitigated with some implementation of Agile methodologies. I sat down with Agile expert Elliot Susel to ask him how entrepreneurs can get started with Agile. Listen to that interview here: See the Full Transcript.

Market Risk + Lean Startup

Minimizing market risk is the driving force behind much of the lean startup movement. By making a set of small bets in the form of lightweight experiments, entrepreneurs can validate market demand before investing in building a system to deliver a solution or product. Plus, talking to customers often helps entrepreneurs identify problems they had not originally imagined. Sometimes those new problems are more pressing for the customer, and lead to a new product with less market risk.

Ego Risk + ?

Ego risk is the final and most difficult hurdle. There’s no clear-cut answer to this challenge. Religions and philosophers have been focused on ego for millennia. But a meditation or mindfulness practice can be particularly useful in helping us step back from our impulsive reactions to external stimuli (e.g. data that challenges our preconceived notions, particularly if our self-worth is invested in being right, or in one particular self-image.)

Of course, even a zen-master-like separation from the ego doesn’t completely protect us from cognitive biases, nor does a higher IQ or more awareness of these effects. In fact, there is some evidence to suggest a correlation between higher IQ and higher susceptibility to cognitive biases. We don’t yet have any proven methods for overcoming biases, but the Wikipedia page on mitigation is very interesting reading, and a good starting point for learning more.

Nov 02 2012

The Founding Trio

Dave McClure of 500 Startups calls it the holy trinity of startup founders. The frequent mantra in the startup space is that there are three primary types of founders: hackers, hustlers, and designers. The prevailing wisdom is that you should have one of each of these on your founding team. But we don’t often talk about what constitutes each of these archetypes.

Hackers

Hackers are not simply code monkeys. They need to be able to do more than just code well. Comfort with ambiguity and an understanding for coding in that context is invaluable for the hacker-founder. Many programmers are happier simply building what they’ve been told to build, but the good entrepreneurs are those who think about what happens when the requirements change – and code as if they will. This means building some things quick and dirty, and accepting that there will be some technical debt incurred in favor of rapid iteration.

Communication skills are also critical for hacker-founders. To achieve company success beyond personal success, you need to be able to communicate a vision to other technical team members and to translate for your non-technical co-founders. Likewise, some comfort with project management is valuable. Finally, any good programmer should understand how their outcomes tie to the success of the business. For programmers working for others, this is the way you communicate your worth; for hacker-founders, this is how you prioritize, test, and iterate for your startup.

Hacker-founders are not the only ones who need these skills, but the reality that there is far less supply than demand for excellent technical co-founders may tempt many non-technical folks to overlook these gaps in their search for a technical co-founder. If all you’re looking for is a code monkey, don’t make them a co-founder; just hire them on a contract basis until you can attract someone who has the complete package.

Hustlers

Hustlers are usually the business development specialists in a startup. It is important to note that this is not the same as an “ideas person.” Ideas people are thinkers; hustler-founders are doers. In a startup, anyone who fails to contribute anything beyond ideas is dead weight and should be cut loose at the earliest opportunity. Hustlers are the ones making deals happen, talking to customers or partners, raising funding to extend the runway, and generally removing obstacles for the rest of the team. Hustler-founders need to be resilient in the face of an endless stream of “no” and tireless in their pursuit of opportunities to promote the company.

Designers

When we talk about designer-founders, most people think about web design or mobile app design, but these are not the most important skills. What startups really need is UX designers, not graphic designers. This point gets lost because many designer-founders have both sets of skills. But make no mistake: this role is not about making your product pretty. It’s about making your product enjoyable and effective. Designer-founders should have extensive experience with problem solving and a disciplined approach to understanding the customer’s problem and designing for the customer’s interactions and experiences with the solution.. Designer-founders might approach this task from perspectives including design thinking, lean startup, user experience design, ethnographic research, or some other school of thought. The important part is that the designer-founder focuses on creating an complete end-to-end experience for the customer, not just the gloss that covers it.

A little of column A, a little of column B…

Few roles fit squarely into one of these categories without overlapping with the others, and any early startup employee needs to be prepared to tackle any challenges that arise. However, if your founding team has the right mix of skills to cover each of these three areas, it will give you a better chance of overcoming challenges and ultimately building a sustainable company.

Apr 10 2012

Lean is not Skeletal

Lean does not mean bare bones. It does not mean minimize expenses at any cost. It does not prohibit raising money.

In biology, lean refers to the proportion of muscle to excess fat. In business, lean means getting more value for fewer resources.

Reduce waste. Be lean, not skeletal. Don’t cut the muscle.

It’s about efficiency. And sometimes being efficient actually means scaling up and using more resources. Elite athletes eat more than the rest of us. Michael Phelps needed to consume 12,000 calories a day during the Beijing Olympics.

Too often, I hear people talking about how they are being lean by limiting their resource consumption, instead of putting those resources behind the right purpose.
It can be tempting to focus on the resources part of the equation, and eliminate all sorts of things just because we can. The problem lies in forgoing activities that actually create value. Just because something is expensive, doesn’t mean it’s wrong. Don’t stop doing things, just stop doing the wrong things.

What are the wrong things? Anything that doesn’t contribute to creating incremental value. Value should not be confused with cash, unless the sole purpose of your organization is to produce cash. Most organizations define value differently depending on their industry.

Industry	Increments of Value
Manufacturing	high-quality physical goods
Software development	working code in the final product
Startup	validated learning
Nonprofit	social or environmental change

Lean startups don’t have to be bootstrapped. They can raise funding. They just need to be deliberate and focused about how they spend the money they raise.