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Which metrics do Valley investors tend to check first?  

When investors see our business for the first time, they need to wrap their head around it. It's like films - they often start with a bit of scene-setting before jumping in with the plot.

Investors also like to hear the main numbers up front. They're pitched all day -- certain numbers tell them if your business matches their selection criteria to avoid wasting time talking about bad fits.

Andreesen Horowitz explains:

When initially evaluating businesses, investors often look at GMV, revenue, and bookings first because they’re an indicator of the size of the business. Once investors have a sense of the the size of the business, they’ll want to understand growth to see how well the company is performing. These basic metrics, if interesting, then compel us to look even further.

They then go on to explain 16 commonly misused metrics.

Disrupt or compete  

Pontus Siren at Innosight illustrates the difference between direct competition and Disruption by looking at one of the most competitive industries - shipping.

The basis of competition in the industry continues to be the efficiency of moving a metal box from harbor to harbor.

In the last 50 years, ships have grown from 500 containers to 24,000, to the point where harbours are unable to cope. Even the sheer volume of ships is straining the world's main canals.

The industry is highly competitive:

Naval engineers are planning and building ever bigger ships. As the ships grow, their engines have become vastly more efficient and sophisticated, the fuel mix has changed, and complex IT infrastructure has been put in place to coordinate the movement of the containers and ships.

But fundamentally the underlying cost structure of the business has not changed from 1950.

Pontus makes a case that in choosing direct competition or Disruption, you need to consider the efficiency of the industry itself:

It’s all part of the relentless drive to reduce the cost of ocean-going freight that has made transportation very cheap indeed. In a private conversation, a shipping executive noted that the cost to ship a pair of sneakers from Vietnam to Europe is two cents. Another executive noted that the container shipping business is a near perfect market with highly standardized products (the ships, the containers, the routes). “It’s an impossible business,” he concluded. Rather ominously, another executive observed that it’s also an impossible business to exit.

With the incumbent players getting ever bigger, the efficiency of their industry drives profits down and ties them to their existing business models. They're handcuffed to a sinking ship!

Which makes a the distinction between competing and Disrupting very clear. When considering how to Disrupt such a competitive industry, you need to look outside it:

There are at least two technologies on the horizon. One is the advances in robotics that could reduce the global wage arbitrage and move some manufacturing closer to the end consumer—from Asia to America, for instance. Likewise,3D printing could have a similar impact if it becomes vastly more sophisticated and accessible. If manufacturing moves closer to the end user, the need to ship goods halfway around the world would be reduced.

The term "disrupt" gets used a lot in the startup world, often incorrectly when you consider the definition coined by Clayton Christensen.

A Disruptive Innovation is an innovation that helps a new market become customers, or separates and focuses specifically on a low-end market which the existing industry doesn't value. It's contrasted with sustaining innovation, which only helps the existing industry improve how they serve their current customers.

If you're truly Disruptive, you'll Disrupt an entire industry, not just the players within it.

Estimating your market size from non-technical sources  

Bart Doorneweert is a Dutch textile and agriculture entrepreneur who's operated in India and East Africa. Looking at situations where market data is unavailable and running experiments is expensive, he shows how it's important to learn from analogs.

Market insights required to develop successful business at scale in emerging markets are already out there. They’re with shopkeepers, merchants, existing service providers, etc, currently running their businesses.

Bart shares a thoughtful analysis on two startups deploying battery charging technology.

ARED is explicitly promoting the advertisement option as a way for additional revenue generation. Assumption: this advertising creates conversion for advertisers, and enables the franchisee to directly earn extra cash.

To back the opportunity of the advertising claim we need to look elsewhere, and move to Monrovia, Liberia, where we will find Alfred Sirleaf. Alfred is a famous figure on the market, because he mans a blackboard newsstand. Alfred scans the newspapers each day for interesting stories, and writes them up on the blackboard for people who can’t afford newspapers.

The interesting thing about Alfred’s business for our pushcart solar phonecharger case, is that Alfred offers advertising space with his blackboard. Apparently there are advertisers that get some kind of conversion from advertising to people who can’t afford a newspaper!

Back to our discussion on ARED, you can see the similarity in advertising opportunity with Alfred’s newsstand.

Bart covers a lot of other important issues in his analysis: defensibility, assumptions, beachhead markets. A useful read to follow his thought process.

How you grow affects your defensibility  

There's a connection between how you choose to grow, and how defensible your business is from competition. Just like it's easy to throw gasoline on a fire to get it going with a boom, it's stoking the coal that produces all the heat in the long-run.

Paul Bennetts looked at how Etsy grew to draw this distinction:

At the IPO of a company, it’s easy to anchor on just valuation but its more useful to focus how it will throw off cash and how defensible is its earnings stream. In the long run, competition will always drive down returns on equity unless they are defensible.

The majority of Etsy’s GMS (gross market sales) is generated from an organic marketing channel. That is, in CY2014, 93% of site traffic came from direct, organic and email traffic sources (6% from email), with only 7% from paid traffic.

The majority of Etsy’s GMS is generated from repeat purchases. Incredibly, in 2014, 78% of purchases were from repeat customers. If a business is driven by paid marketing - this KPI would typicaly by flipped, in that 78% of customers in a given year would be first time customers.

Both show very high growth but only one is defensible.

Hidden cofounders  

Suranga Chandratillake on partners, friends, etc, as hidden cofounders:

I’ve found that “hidden co-founders” – husbands, wives, girlfriends, boyfriends and even parents – are often a crucial factor in the success of a startup. Why? Because being a founder and entrepreneur is not like a regular job. Startups are under-funded, under-connected and under-resourced compared to their competition. The way you beat these odds often requires super-human effort and commitment. This places you under strain, and the primary nature of this strain is physical. You have to travel, with no notice and at inconvenient times, often around the world. You have to focus entirely on the company and its mission, often pulling all-nighters and usually working through weekends.

...

All of this strain takes its toll. You will extract time and energy from some other part of your life and that probably means your family. Having someone else who can change their schedule at the drop of a hat, keep the trains running at home and go that step further to provide unconditional support, understanding and advice (after all, who better than your life partner or spouse?) is key in allowing you to perform at your best.

To make this relationship work in the long term, however, I believe founders need to be fully aware of the (often quiet) sacrifices these hidden co-founders are making and work to balance the effects of these contributions.

Suranga then proposes five principles to help this type of relationship work, based on respect, openness and balance.

This seems like very good advice, and is to be contrasted with the exceptionally terrible advice coming from a respected figure like Ron Conway, who stated:

Dating someone or married: warn them that they’re not first in line, that you have this vocation, that your duty is to your company. It has to be that fanatical.

Please don't do that. That is execrable advice, guaranteed to torpedo a relationship that you deeply depend on. On the contrary, respectfully start by making it clear to your significant other that they're always first in line, even though in practice it may not seem so at times.

You don't get extraordinary commitment from people without offering them extraordinary commitment on your side. If you tell someone they're second place, don't be surprised to find yourself also at second place (and therefore not worth all the hassle).

True ecosystems  

I somehow missed posting this last year, when it was published. An excellent article by our very own Salim Virani, on the topic of ecosystems.

Sal and the rest of the FounderCentric team spend a lot of time working with incubators, accelerators, governments, outreach teams at large companies, etc, and helping them develop their startup scenes. Their mission comes from the heart (they really care about helping startup founders), and they are, as far as I know, the best at it at this point, in Europe.

So their thoughts on the topic of how European ecosystems should develop are worth paying attention to. Here's one of the points that particularly stood out for me:

He leaves us with the final takeaway “Support only the best people who have set the objective of being the 1 in 50,000”. So, only support the hugest successes - and leave the others stranded?

From a broad ecosystem perspective, investors are often stumps we have to ignore and grow around to get to the next level. “Like a rotting treestump in the forest, they've established themselves from a past leadership position, still get all the attention, but get in the way of progress.” They do what works for them, but we have to see the broader picture to grow a successful ecosystem.

Investors aren't bad guys; most work in the best interests of startups from their point-of-view.

The problem is when they perpetuate the idea that the “best” startups for them are the best startups for everyone.

Taking the Silicon Valley definition of a "successful startup" and requiring that everywhere in the world as a bar to entry is short-sighted for people who want to bootstrap a startup ecosystem in a city where there is none. There are many ways to build successful businesses, and the "funded mega-high-growth startup" way, the unicorn chasing approach, is simply not a smart approach for most parts of the world.

If you're interested in startup ecosystems, read the full article here.

The fatal pinch  

Paul Graham explains how startups that are burning through their first round of funding often don't realise they're about to die, and need to either make more money or cut expenses:

There may be nothing founders are so prone to delude themselves about as how interested investors will be in giving them additional funding. It's hard to convince investors the first time too, but founders expect that. What bites them the second time is a confluence of three forces:

  1. The company is spending more now than it did the first time it raised money.

  2. Investors have much higher standards for companies that have already raised money.

  3. The company is now starting to read as a failure. The first time it raised money, it was neither a success nor a failure; it was too early to ask. Now it's possible to ask that question, and the default answer is failure, because that is at this point the default outcome.

What is most interesting to me, though, is this paragraph:

Whereas if you only have a handful of people, it may be better to focus on trying to make more money. It may seem facile to suggest a startup make more money, as if that could be done for the asking. Usually a startup is already trying as hard as it can to sell whatever it sells. What I'm suggesting here is not so much to try harder to make money but to try to make money in a different way. For example, if you have only one person selling while the rest are writing code, consider having everyone work on selling. What good will more code do you when you're out of business? If you have to write code to close a certain deal, go ahead; that follows from everyone working on selling. But only work on whatever will get you the most revenue the soonest.

The bit in bold applies to every startup, funded or not. Which brings me to the obvious conclusion, that won't be very surprising to regular readers of this blog... why not skip the funding and go straight towards having "everyone working on sales"?

The answer is, that's not possible for some businesses. But it is possible for most businesses, despite the apparent, loud popularity of the Valley model of "raise funds first, figure out how to make money later". And, from the above sentence, I deduce that it is also possible for most Valley startups.

So the next question is, which one is better? I guess they both have pros and cons. As I've argued before, investment is a springboard, not a cushion. If you're an experienced entrepreneur, who knows how to build a business, and you want to do it faster, raising investment makes a lot of sense even if you could bootstrap the business. If you're a new entrepreneur, though, I still recommend going without, and learning the basics of how to build and run businesses before hitting the "boost" button.

What's clear is that even amongst the Valley model startups, those companies that can afford to neglect sales and other "proper" business topics are few and far between.

The psychology of a VC, and how to take advantage of it  

Great article by Roberto Bonanzinga looking at investment difficulties from the point of view of how the VC decision processes happen:

The decision struggle has two different dimensions: first, the venture capitalist needs to convince himself/herself about the investment. Second, depending on the partnership decision making process, he/she will also need to convince his/her partners. Different investors approach this problem in different ways. I have noticed that in Europe, a very common way to deal with the decision struggle, is to procrastinate. Some investors never give an answer and keep going asking for additional data points in the hope that the data will make the decision for them. I have never seen data making decisions by themselves and I am pretty sure it will never happen. Still the practice is quite well spread.

And then from the point of view of how the entrepreneur can make use of this:

First, try to understand if you are talking to a decision maker (aka partner). If you are stuck talking to a non-decision maker try to play the venture firm politics until you find a way to engage with a decision maker. It’s also very important to understand how the firm decides and the partner’s role in that decision. Best way to learn this is to ask direct questions and call other entrepreneurs who have already gone through the process with that specific firm/partner.

Well worth a bookmark.

Early stage capital in EU vs US  

I've covered this topic before, obviously, but this seemed like an excellent article, worth linking to.

In short, things haven't changed much since I posted those articles 4 years ago: European VCs are still slow to respond, slow to make decisions, risk-averse, overly focused on formalities like business plans, etc.

But that doesn’t deter European investors from requesting a full deck, including a three-year business plan as a prerequisite to any form of conversation. If your path to profitability is not already proven, you will have a hard time getting as much as a phone call. From what I saw, in the US, the focus is on the potential market, the team, and the product. The rest will be sorted out at the series A/B stage. I tried the European way before getting into Y Combinator, with the business plans and absurd forecasts.

What I can tell you is this: when you have no idea whether you’re building something people want yet, trying to paint your startup as a Fortune 500 company feels very wrong.

Perhaps the most telling part of the article is implicit, though: the article talks about early-stage capital, and throws around the figure of $3.1m. By UK standards, certainly, that's a Series A, not early stage capital. Early is up to maybe £500k (that'd be a large seed round).

The UK has largely solved it's early seed stage funding gap, thanks to SEIS, an incredible investor tax break that has basically flushed the UK early seed market with money (my thoughts on it, as an investor, are here.

However, later stage funding is still a problem. Personally, when considering whether to invest in a business, part of my decision process is to think whether this startup would really be better off being in the US. This is not true for every business. Investing in a competitor to, say, tomorrow's Dropbox, based in the UK, seems like a losing proposition to me: in that space, there will already be half a dozen competing companies based in Silicon Valley, and all of them will have the significant advantage of much better access to funding, in a business which is likely to swallow mountains of cash because it has strong network effects and so rapid growth is favoured.

I don't know  

Mark Suster:

She reminded us that in the world we live in we are often expected to be experts. We are expected to know everything and many people rush to conclusions given a limited set of information.

(...)

Learning comes from starting with a point-of-view that says, “I don’t know.” I said I learned this 15 years ago because that is when I stopped being a consultant.

Mark explains how the "here's an answer/solution" posture can hurt your business and your investments. This is an essential lesson for all founders, particularly since we are frequently thrown into situations where posturing seems to be the right choice (even if it's not), so it's easy to fall into the trap of thinking that it's always the right choice!

Worth reading if only for the Jewish story at the beginning.

Advice for ambitious 19-year olds  

Great read from Sam Altman, well rounded and sensible advice, providing enough context to help someone make a good decision:

No matter what you choose, build stuff and be around smart people. “Stuff” can be a lot of different things—open source projects outside of class, a startup, a new sales process at a company you work at—but, obviously, sitting around talking with your friends about how you guys really should build a website together does not count.

Can't disagree with that or, indeed, anything else in this article. If you're an ambitious 15-19 year old, have a read.

The idea funnel  

Great, solid post by Stef Lewandowski explaining in some details how he goes about how to create lots of projects and then filter them down to a few working projects (an idea which I explored in this post, but which he seems to have taken to the next level!):

This last eighteen months, I’ve deliberately tried to go for a strong idea, loosely held approach — to allow myself to be open to lots of things, and to not be too convinced that they will definitely be right. The strategy was to try out many tiny ideas at an early stage, do a series of quick prototypes, play with them, often in public, and then invest in the ones that looked the most promising as the beginnings of digital businesses.

We’re at something of an inflection point in the process now, where three “winners” have emerged from the cohort and have the potential to turn into fully-fledged “startups” in their own right. That’s Attending, Wrangler and Hire My Friend. We also have made a few lovely little things that have a fair degree of usage but aren’t clearly startup material — Linkydink, for example.

Read more here.

Antilogs: How To Draw The Right Lesson Learned

Bill Barnett at Stanford comments how so many startup pundits fail to learn when observing failures. Indeed, not only are the lessons learned often lost, but also the opportunity to use others' failures as one of the fastest sources of actionable information.

Unfortunately, most observers skip the logic part. It is mentally easier to jump to the “obvious” conclusion: If the business failed, the business model must be wrong. Full stop. You can easily tell when this skip happens. The person will name an example as if it were a reason. Is online grocery delivery a viable model? No: Webvan. Is internet search a viable business? No: Alta Vista.

These examples are data, not logical reasoning.

Wannabe investors and startup advisors are particularly villainous here, often heard retorting loudly against future billionaires in this way.

John Mullins has a more constructive approach to analyzing these failures. He separates them into analogs and antilogs:

There are companies before you who have done something like you want to do that you can copy from, and others who have also done something similar, but that you choose not to copy from. These are your analogs and antilogs respectively. The process of going from Plan A to a plan that will work is to begin with these.

For instance, when Steve Jobs of Apple decided to get into the music business that eventually completely changed Apple as a company, he had a whole range of analogs and antilogs he could refer to. Sony Walkman had sold over 300 million portable music players, so he knew there was a demand for portable music. Also, people were (illegally) downloading music from Napster, so he knew that they were open to downloading music online (as opposed to buying CDs). Jobs also had a key antilog, which was Rio, the first mp3 player that had a terrible interface and was rather clunky.

Not only does this mean you have a plethora of data available to analyse and learn from, but it also points you to better sources and advisors.

You'd be surprised how many of these founders are happy to share lessons learned from their failures with you, and how much faster this can be than talking to customers or running your own experiments at first.

Talk to 10 customers and run a few experiments, and you could still be barking up the wrong tree in the wrong forest. Talk to a founder who's been-there-done-that, and you'll be more like a bloodhound on the scent.


Non-violent communication  

First Round Capital's written a thought-provoking guide to internal startup communication:

When startups experience conflict — particularly between leaders — efforts quickly become uncoordinated, motivations get misunderstood, and results fall short of expectations. You simply can’t produce an incredible product if the team building it won’t agree on fundamentals.

Avoiding problems only allows them to fester and impact more people, while hasty, non-strategic communication can turn a small fire into a blaze.

It centralises around a commmon mistake:

Watch out, because the jump from observation to judgment happens almost immediately,

Which is often surfaced in unhelpful questions:

A. Will you get your work done this week?

rather than

B. What do you need to hit your deadline this week?

Open-ended questions ... acknowledge the level of effort you’re already putting in and offers to help. It asks for more than a one-word reply — it seeks valuable input.

While a lot of startups aim for modern team structures, they're still riddled with old-fashioned communication norms. A common one is assuming your perspective is complete enough that your assessment is accurate. Then, you start asking for things without communicating the context; you remove the others' ability to assess for themselves. The conflicting assessments are the root of more visible conflict, but those remain unaddressed.

A lesson can be drawn from large design firms that have become effective with functional silos - they make sure they communicate the options they're considering and the trade-offs between them, so others throughout the company can share relevant factors.

Mehl advises preparing constructive statements ahead of time before heading into any confrontational discussion. Doing this will help you stay focused and minimize incoherent or incomplete explanations. Preparing also sends the signal that you're invested in doing the right thing. It demonstrates good will.

Separate the person you’re in conflict with from that problem.

The post shares a few in-depth explanations of how to do this well, but it basically means assuming positive intent from the other person, respecting their time and sovereignty, sharing your feelings and needs, separating those from the outcome you'd like - and offering constructive suggestions.

They also share techniques for when team communication breaks down.

“It’s incredibly helpful to talk about the early days — the inside jokes, the long nights, what brought everyone together in the first place.”

“It's like a game of tennis — the longer you keep the ball in play, the more you learn from each other.” And, just as tennis players are happy winning best out of three or five sets, colleagues may need to go multiple rounds before a solution is reached.

If you're a startup founder, you probably have a big ego and a strong sense of direction. If you're co-founders, its' communication skills and empathy with your partners that'll manifest the multipliers between you.

Coding isn’t easy, but it is learnable  

Pamela Fox, from Khan Academy:

These campaigns are telling students that “coding is easy,” and then they’re trying it, and now not only are they struggling to learn something new, but they’re feeling bad about themselves because hey, “coding is easy”, they shouldn’t be struggling.

Nobody should feel bad for struggling to learn something new. They should be commended for trying to learn something new at all.

It's interesting that most founders are brazen and keen to tackle a load of business challenges, figuring things out and learning new skills - but we often put "the technical stuff" in another category. Then, the only solution seems to be finding a tech cofounder.

I was introducing JavaScript to a few Roma kids the other day, and they asked “will this be easy or hard?” I had to fight my first instinct to make say easy, but I still wanted it to feel achievable. ” My answer: “It’s gonna be hard, but you’re smart.” They got mentally prepared — one step closer to being self-educating hackers, rather than “learning to code.”

Coding is getting easier to teach and learn, due to recent pedagogical advances. It's still not easy though - the question is, why is this stopping you?

More about NDAs  

Stef Lewandowski takes a slightly different angle about NDAs. Whereas I previously explored why I wouldn't sign NDAs in initial conversations as a recipient of those documents, Stef looks at why he used to ask for NDAs and how he's changed his mind about it:

Non-disclosure-by-default introduces the risk that your company culture could be poisoned by secrecy at an early stage. I distinctly remember moments in a previous “stealth startup” company where I and those around me were so tied down with non-disclosure that we didn’t tell our own families what we were working on.

The effect of this after we launched was that nobody was sure when or if they were allowed to talk about what we were working on. As we all know, regularly communicating about what your company is working on is a big part of a good marketing plan.

Stealth can be poison to company culture. Through secrecy, you accidentally push your company into a closed, rather than open, mode. And that can be hard to cure.

Stef also covers a number of other angles.

If the fact that other people won't sign your NDAs didn't convince you not to ask for them, perhaps this article will...

Building international relationships  

Irina Dzhambazova shares how Bulgarian startups deal with obscurity, and succeed building international relationships:

Serendipity and true partnerships

"Investing time in getting to know an organisation or a person, without looking for the immediate quid pro quo is the way to go. Just get to know people, interact with them in the manner you do with friends and leave the rest to chance." - Vesselina Tasheva

Good partners understand each others goals and can act proactively on each other's behalf. This type of relationship is much easier when you can relate this way at a personal level. Vesselina's advice is to start here - the deal's come more easily later.

She's the former partnerships manager for a large, multi-national IT company, and now runs community for the largest accelerator in Southeast Europe, so has seen this work in both contexts.

Getting in the door, with research

Max Gurvits, an internationally-connected investor, emphasises the value of a little research. He encourages startups to invest a few hours in a list of 100 desired connections.

He wants them to do the mental exercise and leap to realize just how many people are hidden in Linkedin, Crunchbase, or alumni groups. All they have to do is look rather than rely on the obvious choices. Probabilistically, this larger amount of people also increases the chances of a connection actually happening and being helpful.

A list of 100 might seem daunting at first, but it's easier if you break it down into categories:

  • ideal customers
  • distribution partners
  • investors
  • analogs (companies who've done something similiar and can share benchmarks and advice)
  • compeititors
  • antilogs (comppanies who've tried something similar and failed)
  • domain experts, including press

Aim for a minimum of 10 per category, and you'll probably start finding a lot more low-hanging fruit.

Being equal

Boyan Benev, learned the importance of equal terms early on in his real estate career. He now has a few startups behind him and is a national TV personality. "If you put yourself as an inferior, you effectively are saying ‘Hey I am different from you.’ People are very good at sensing that and, with the neediness that you exude, they would subconsciously judge you more harshly. We are in fact all the same, entrepreneurs, investors and venture capitalists and we should feel equal with each other all the time.”

Lino Velev, director of Obecto, a software development company, starts on the outskirts of a certain social groups. For him, getting to the core through the weaker connections is more practical than going straight for the big fish.

Lino relies on story-telling to be memorable. I also happen to know he parties a lot too!

All of these are viable, authentic, and easy approaches to building your international network. Sofia, Bulgaria now has a growing startup scene, but it happened because of founders like these, hustling their way up from the remote, Southeast corner of Europe.

You have to be prepared; it takes a while for your network to build. But it usually pays off faster than you expected. No reason to let your current obscurity stop you.

Take pleasure in the journey  

Jason Cohen:

Rather, you must understand that it is the building, not the result of that building, that matters.

(...)

Keep score, so long as you can distinguish between the game and life. Keep score, while also basking in the thrill of generating happy customers and launching unique products and gathering the energy and brainpower of brilliant humans tackling interesting problems.

Or, to put it in the poetic words of Constantine P. Cavafy:

When you set out for Ithaka
ask that your way be long,
full of adventure, full of instruction.
The Laistrygonians and the Cyclops,
angry Poseidon - do not fear them:
such as these you will never find
as long as your thought is lofty, as long as a rare
emotion touch your spirit and your body.
The Laistrygonians and the Cyclops,
angry Poseidon - you will not meet them
unless you carry them in your soul,
unless your soul raise them up before you.

Ask that your way be long.
At many a Summer dawn to enter
with what gratitude, what joy -
ports seen for the first time;
to stop at Phoenician trading centres,
and to buy good merchandise,
mother of pearl and coral, amber and ebony,
and sensuous perfumes of every kind,
sensuous perfumes as lavishly as you can;
to visit many Egyptian cities,
to gather stores of knowledge from the learned.

Have Ithaka always in your mind.
Your arrival there is what you are destined for.
But don't in the least hurry the journey.
Better it last for years,
so that when you reach the island you are old,
rich with all you have gained on the way,
not expecting Ithaka to give you wealth.
Ithaka gave you a splendid journey.
Without her you would not have set out.
She hasn't anything else to give you.

And if you find her poor, Ithaka hasn't deceived you.
So wise you have become, of such experience,
that already you'll have understood what these Ithakas mean.

The more I progress in my journey as an entrepreneur (and generally as a human being), the more I learn to enjoy the journey rather than live for the destination.

The Lean Canvas - wrong tool for the job?

Benjamin Kampmann, a reputable hacker and product manager, relays his experience with the Lean Canvas over the past few years, in particular how it removed his attention from the customers that actually wanted his product:

The likelihood of the end technology still being a great fit for the market you decided on at the beginning is rather small.

Lean Thinking emphasises the principle of minimizing waste. The common interpretation of Lean Startup assumes that the lead cause of waste is always a lack of commercially-viable demand. But research shows there's a wider range of causes of startup failure. In addition to customer demand, early-stage startups often die from team problems and a lack of connections. Later-stage startups from weak industry positions.

Benjamin goes further, explaining that even with a market-first, rather than product-first approach, assuming he knew his first customer segments, rather than researching them broadly, slowed him down.

Even worse, overly focussing on a [single] market creates a harmful narrowing of your focus: Deciding on how and to whom to sell a technology that hasn’t even been developed yet, leads to focusing on building something sellable rather than exploring the actual impact your technology could have.

Indeed, the Lean Startup approach is often misinterpreted as talk-to-customers-first, rather than find-the-right-market-first, and the way the Lean Canvas is taught re-inforces that.

It's worth looking at Lean's origins in Toyota. Their approach to early-stage product design is much closer to how Benjamin describes exploring needs and possibilities. Rather than picking a single market and determining their needs, there is a wide exploration phase, narrowing down on actual opportunities from multiple angles.

Customer conversations vs product experiments

Even though I’ve been in favour of taking potential markets into account from early on, the reality is that there is little point in doing that when you just started coding: This is an experimental stage, there is nothing to see, test or prove for weeks or months after you started your project.

This is true, but not in every case, which makes it dangerous advice to apply without consideration.

Depending on what you need to learn, another Lean Startup principle - iterating the product quickly - might give you regular and actionable learning faster. But if you start with tech, your experiments and releases need be fast enough. That's hard at first.

There are further issues. When building smaller products as experiments, there's more than the build time to take into account; you need a reasonable amount of time for the market to respond. You can fall prey to the Immediate Response Fallacy, where you don't leave the right amount of time for the market to respond, and incorrectly conclude the experiment failed.

Business model problems

Benjamin also considers his experience with multi-sided models, not just SaaS.

By narrowing your focus to build something you can sell, you can easily forget to make it attractive to the people actually using it – which aren’t your customers per se. This doesn’t only apply to ad-driven social networks, it is equally true for building a platform for fund-raising or petitions: if you don’t have active users, why would any “customer” ever want to run a campaign on your platform?

And lastly, he warns how using the Lean Canvas as his main de-risking tool led him away from noticing some fatal assumptions:

Ergo, instead of thinking of the “market” when building a tech venture, you should think about those who’ll ultimately benefit from the technology first.

Though the initial build is a vital part of a tech venture cycle, you have to hide it to make the Lean Startup Canvas work. Awkward.

Building a functional prototype gives you real data. You can actually observe user behaviour, rather than rely on people's descriptions of their behaviour. If you have an open mind, rather than a narrow focus on your idea of their stated "top 3" problems, that data can lead you in the right direction. In Benjamin's case, it's led him to completely new customers.

Choosing the right tool for the job

The key lesson I get from Benjamin that he chose the tool he liked better, but wasn't the right tool for the job. It's possible he didn't make himself aware enough of his options.

Often, the Lean Canvas is chosen because it covers keywords that people think are important at first, like "Problem" and "Metrics," or simply because it's called the Lean Canvas.

This reasoning doesn't answer: is this the right tool for the job I have?

My experience with a large number of startups in accelerators is that the Lean Canvas and Business Model Canvas are helpful in seeing key assumptions as a whole, and to spot gaps in thinking.

One problem is that both give the impression of being thorough and complete, but aren't. Other equally-important assumptions are covered in The Assumptions Exercise, Business Model Environment, and Seven Domains Framework.

In practice, canvases are also awful dashboards - you'll notice they're commonly abandoned when used that way - old post-its gathering dust on the wall.

For early-stage and market driven assumption spotting, I've found Giff Constable's Assumptions Exercise to be much faster and more effective.

The original Business Model Canvas is particularly useful in prototyping and exploring a range of options quickly. It's stood the test of time, for companies that have started and expanded in a range of directions. I've noticed more coherent and innovative business models from startups who use the BMC this way.

When considering the impact of trends, competition, and other aspects that investors scrutinise, the business model environment is effective.

A good tech creation canvas has to assists developers in thinking about their benefactors and user base early, without narrowing the focus of the technology to what can be sold only.

Alex Osterwalder, the creator of the Business Model Canvas, has also recognized the need for finding product / market fit - and from both directions. His new Value Proposition Canvas is actually designed to be split in two, product ideas and customer segments explored more independently of each-other, with customer problems and their jobs-to-be-done as the glue to finding the right match.

There are other great tools out there too, but as always, you need to look at your options.


How to ask for introductions  

Elad Gil on how to ask for intros:

One of the key things you learn when building a consumer product is to make things as easy, streamlined, and friction free as possible for your users. When asking an angel, advisor, or other person to make an introduction for you, the same rule applies. The structure below saves a lot of pain & back and forth for you, as well as for the person being asked to make an introduction on your behalf.

(...)

By spending a little bit of time up front you can make life dramatically easier for the person doing you a favor / offering an introduction. It also increases the likelihood dramatically that an introduction will actually occur and yield a follow-on conversation.

Elad rips into a couple of templates (good and bad intros) to show how it should be done. As someone who has frequently both been asked to make intros, and asked others for intros, I can only agree with his approach.

Make it easy for people to help you, and they're much more likely to do so! Worth also consulting this article, this presentation from Founder-Centric, and the "Reaching Out" section of this article for additional perspective (thanks Sal for the suggestions!).

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