Startup Basics for Incubate workshop
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What is a startup and what should you know when you decide to do a startup: the basics. Insights from the likes of Steve Blank, Eric Ries, Steve Blank and others. ...

What is a startup and what should you know when you decide to do a startup: the basics. Insights from the likes of Steve Blank, Eric Ries, Steve Blank and others.

Presented by James Boyden, CEO SnapDisco, for Incubate workshop 2013.

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Startup Basics for Incubate workshop Presentation Transcript

  • 1. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth Summary Startup Basics James Boyden, co-founder of snapDISCO Incubate 2012Startup Basics 1 / 60Incubate 2012 James Boyden, snapDISCO
  • 2. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth Summary What is a startup?Startup Basics 2 / 60Incubate 2012 James Boyden, snapDISCO
  • 3. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth SummaryWhat is a startup? “A startup is a human institution designed to deliver a new product or service under conditions of extreme uncertainty.” — Eric Ries, author of The Lean StartupStartup Basics 3 / 60Incubate 2012 James Boyden, snapDISCO
  • 4. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth SummaryWhat is a startup? “A startup is an organization formed to search for a repeatable and scalable business model.” — Steve Blank, author of The Four Steps to the Epiphany, co-author of The Startup Owner’s ManualStartup Basics 4 / 60Incubate 2012 James Boyden, snapDISCO
  • 5. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth SummaryWhat is a startup? “Startup = Growth” — Paul Graham (PG), co-founder of Y Combinator, co-founder of ViawebStartup Basics 5 / 60Incubate 2012 James Boyden, snapDISCO
  • 6. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth Summary Starting a startupStartup Basics 6 / 60Incubate 2012 James Boyden, snapDISCO
  • 7. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth Summary5 steps to start a startup 1 Identify a real problem (an opportunity) 2 Create a quick solution then quickly go out and talk to customers get feedback change your idea to meet the customer’s need experiment, “fail fast”, iterate 3 Now figure out how to make money a scalable business model 4 Then put it on steroids & grow 5 Execute better than anyone elseStartup Basics 7 / 60Incubate 2012 James Boyden, snapDISCO
  • 8. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth SummaryOpportunity A problem to be solved (that you can solve) with a market need. Ideally, a LARGE market need You should understand the size of the opportunity A startup builds a business by addressing an opportunity. How will you address the opportunity? (i.e., What’s your solution?) How are people currently solving that problem? Is your solution 10x better?Startup Basics 8 / 60Incubate 2012 James Boyden, snapDISCO
  • 9. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth SummaryBusiness model How will your startup (business) make money? Some potential business models: product sale per-seat software license “(Whatever) as a Service” subscription transaction advertising add-on services (e.g., customer support)Startup Basics 9 / 60Incubate 2012 James Boyden, snapDISCO
  • 10. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth SummaryScalable business model A means of making money that can scale easily from the first few customers to many customers. “Can scale easily” means the scale of execution can be increased significantly with only a little (incremental) extra effortStartup Basics 10 / 60Incubate 2012 James Boyden, snapDISCO
  • 11. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth SummaryPaul Graham: How to Start a Startup (2005) You need three things to create a successful startup: 1 Start with good people 2 Make something customers actually want 3 Spend as little money as possible http://www.paulgraham.com/start.htmlStartup Basics 11 / 60Incubate 2012 James Boyden, snapDISCO
  • 12. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth Summary Product / Market / TeamStartup Basics 12 / 60Incubate 2012 James Boyden, snapDISCO
  • 13. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth SummaryWhich would you sacrifice? Great product, large market, great founding team: If you had to sacrifice one, which would it be?Startup Basics 13 / 60Incubate 2012 James Boyden, snapDISCO
  • 14. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth SummaryProduct, market, team Probably Product. Without a market, the product won’t sell. In a large (hungry) market, you can iteratively improve the product while the market accepts the current product. Team is crucial for execution. Investors prefer an A team with a B idea over a B team with an A ideaStartup Basics 14 / 60Incubate 2012 James Boyden, snapDISCO
  • 15. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth SummaryMarc Andreessen: Product-market fit (PMF) Asserts Market is most important, followed by Product. A market with a need will accept the first viable product that meets that need The market doesn’t care how good the team is Without a market, there will be no demand Most important for a startup: Find Product/Market Fit A startup is either Before Product/Market Fit (“BPMF”) or After Product/Market Fit (“APMF”) In BPMF phase, do whatever is required to find PMFStartup Basics 15 / 60Incubate 2012 James Boyden, snapDISCO
  • 16. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth SummaryBefore PMF Until you reach PMF... 1 Keep your cash burn low 2 Focus all resources on increasing the percentage of users that strongly want your product. How many users would say they would be “very disappointed” without your product? 3 Avoid bringing in VPs of Marketing and Sales Instead, founders must target, talk to, and engage potential users directlyStartup Basics 16 / 60Incubate 2012 James Boyden, snapDISCO
  • 17. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth SummaryGabriel Weinberg: Traction trumps everything What angel investors say they look for: huge market great team sustainable competitive advantage, etc. There is a shortcut: traction If you demonstrate traction, investors will overlook many other problems. Traction is real customers. If you charge for your product, it’s paying customers If your product is free, it’s active user base Once you have traction, you may not need investors at all...Startup Basics 17 / 60Incubate 2012 James Boyden, snapDISCO
  • 18. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth Summary Questions to ask yourself to validate your startup ideaStartup Basics 18 / 60Incubate 2012 James Boyden, snapDISCO
  • 19. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth SummaryParas Chopra: Validate your startup idea 1 Is what you are providing creating significant value for anyone? People should rely on your product so much that they’d curse you if you took it away from them. Do you think this would happen for your product? 2 Is there is big enough market for the service? Is the market easy to reach (without spending boatloads of money)? 3 Are you enjoying doing this? Do you see yourself doing this for several next years?Startup Basics 19 / 60Incubate 2012 James Boyden, snapDISCO
  • 20. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth SummaryMatt Barrie: Validate your sales assumptions 1 Can you actually make any money from this? Who will pay for this? Will they really pay?... 2 Who specifically will be your first sale?Startup Basics 20 / 60Incubate 2012 James Boyden, snapDISCO
  • 21. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth SummaryMatt Barrie: Validate your sales assumptions 3 How much revenue do you make from each sale? How much does it cost to make that sale? 4 Is revenue > cost? (i.e., what’s your profit per sale?)Startup Basics 21 / 60Incubate 2012 James Boyden, snapDISCO
  • 22. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth SummaryMatt Barrie: Validate your sales assumptions 5 How will you get to a million dollars in profit? How many sales do you need to make? Actually do the maths: $1M / $X per sale = N sales. 6 Is that number (N) of sales realistic? Are there that many customers available? Will you be able to sell to that many customers?Startup Basics 22 / 60Incubate 2012 James Boyden, snapDISCO
  • 23. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth Summary Customer Development (Steve Blank)Startup Basics 23 / 60Incubate 2012 James Boyden, snapDISCO
  • 24. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth SummaryThe Four Steps to the Epiphany (2005)Startup Basics 24 / 60Incubate 2012 James Boyden, snapDISCO
  • 25. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth SummaryThe Startup Owner’s Manual (2012)Startup Basics 25 / 60Incubate 2012 James Boyden, snapDISCO
  • 26. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth SummaryProduct-centric ignores the customer Product-centric development never leaves the company’s own building. Customer input is merely a checkpoint, not a constant compass. After Requirements, the customer is ignored until Release.Startup Basics 26 / 60Incubate 2012 James Boyden, snapDISCO
  • 27. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth SummaryThe Product Development modelStartup Basics 27 / 60Incubate 2012 James Boyden, snapDISCO
  • 28. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth SummaryThe Product Development modelStartup Basics 28 / 60Incubate 2012 James Boyden, snapDISCO
  • 29. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth SummaryProduct-centric doesn’t fit startups Product Development is a good fit for: an existing class of product in an established, well-defined market Unfortunately, few startups fit these criteria. Greatest risk in a startup is not in product creation, but in creation of customers & markets. Startups don’t fail because they lack a product, they fail because the product doesn’t sell.Startup Basics 29 / 60Incubate 2012 James Boyden, snapDISCO
  • 30. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth SummaryQuestions to answer about your customers Before we can sell a product, we need to understand the customers & market: 1 What are the problems our product solves? 2 Do customers perceive these problems as “MUST solve” or just “would be nice to solve”? (Are we selling a painkiller or a vitamin?) 3 Do our product features solve these problems? 4 Who would we make the first sales call to? You can’t answer these questions inside your building! Inside, there are no facts about your customers, only opinions. “Get out of the building!”Startup Basics 30 / 60Incubate 2012 James Boyden, snapDISCO
  • 31. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth SummaryEarly startups need to focus on learning Focusing on “execution” will put an early startup out of business. You need a “learning and discovery” process to find and learn about your initial customers.Startup Basics 31 / 60Incubate 2012 James Boyden, snapDISCO
  • 32. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth SummaryThe Customer Development model Note the circles around each of the stages Also, the loop back from Validation to Discovery Keep your cash “burn rate” low until you reach the third stageStartup Basics 32 / 60Incubate 2012 James Boyden, snapDISCO
  • 33. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth SummaryCustomer Discovery Find out: who the customers for your product are whether the problem is important to them whether your product will solve their problem Leave your guesswork behind and “get out of the building” Note: This is not about running focus groups: The initial product specification must come from the founders. Product Feature Set Hypothesis: The smallest set of features that customers will pay for (in the first release).Startup Basics 33 / 60Incubate 2012 James Boyden, snapDISCO
  • 34. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth SummaryCustomer Validation The most reliable method of validating that your customers are serious: Get them to buy. more concrete than polite words tests the “perceived value” of the product establishes your pricing Only advance beyond this stage when you have found: a group of repeatable customers with a repeatable sales processStartup Basics 34 / 60Incubate 2012 James Boyden, snapDISCO
  • 35. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth SummaryCustomer Creation & Company Building Customer creation: Begin marketing, to scale demand in the validated market Company building: Create and scale the company (hiring, etc.)Startup Basics 35 / 60Incubate 2012 James Boyden, snapDISCO
  • 36. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth Summary The Lean Startup methodology (Eric Ries)Startup Basics 36 / 60Incubate 2012 James Boyden, snapDISCO
  • 37. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth SummaryThe Lean Startup (2011)Startup Basics 37 / 60Incubate 2012 James Boyden, snapDISCO
  • 38. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth SummaryThe Lean Startup idea Apply experiment-driven hypothesis testing and data-driven decision-making to the Customer Development model. Verify, modify & evolve your customer assumptions (i.e., your Customer Discovery and Validation) in terms of Validated Learning: quantifiable results yielded by experiments that are measured in terms of quantitative metrics Any development (whether Customer or Product) that is not directly for Validated Learning is WASTE — a waste of time, money and runway.Startup Basics 38 / 60Incubate 2012 James Boyden, snapDISCO
  • 39. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth SummaryIt’s NOT about being frugal The Lean Startup method is NOT about building as cheaply (or frugally) as possible. It is about minimising waste.Startup Basics 39 / 60Incubate 2012 James Boyden, snapDISCO
  • 40. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth SummaryLean Startup principles Minimise the amount of wasted effort: 1 Launch / get to market as quickly as possible, so you can start getting customer feedback 2 Measure your Customer Discovery and Validation progress against a set of quantitative metrics You want to improve over time, thereby demonstrating that you’re getting closer to what your customers want. 3 All customer hypotheses and new product features should: be implemented as scientific experiments be measured in terms of these quantitative metrics attempt to improve your performance against these metricsStartup Basics 40 / 60Incubate 2012 James Boyden, snapDISCO
  • 41. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth SummaryLean Startup principles 4 Do not build anything unless it helps you learn... So you only ever build: experiments analytics infrastructure to measure those experimentsStartup Basics 41 / 60Incubate 2012 James Boyden, snapDISCO
  • 42. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth SummaryAn equation Lean Startup = Customer Development + Agile Development + Experimental Hypothesis Testing + Analytics To Measure + Continuous Iteration + Zero Unnecessary WorkStartup Basics 42 / 60Incubate 2012 James Boyden, snapDISCO
  • 43. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth SummaryMinimum Viable Product (MVP) The Lean Startup definition of MVP: “the smallest amount of work you can possibly do in order to get sufficient data about whether customers will buy it” Note: Not a minimal product, but rather a minimal amount of work per learning iteration Entrepreneurship in a Lean Startup is a series of MVPs, each designed to answer a specific question. Customer Development & Product Development processes cycle continuously, in parallel, performing the smallest possible amount of work in each iteration.Startup Basics 43 / 60Incubate 2012 James Boyden, snapDISCO
  • 44. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth SummaryIn combination with Product Development Problem Customer Product Solution Feedback Problem/Solution Validation Customer Product Development DevelopmentStartup Basics 44 / 60Incubate 2012 James Boyden, snapDISCO
  • 45. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth SummaryPivot Based upon some result just learned, change one element of your startup approach (problem, customer, solution, product, business model, etc.) to correct the startup into a more favourable direction.Startup Basics 45 / 60Incubate 2012 James Boyden, snapDISCO
  • 46. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth SummaryUpdated Customer Development modelStartup Basics 46 / 60Incubate 2012 James Boyden, snapDISCO
  • 47. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth Summary “Focus, focus, focus” (Mick Liubinskas)Startup Basics 47 / 60Incubate 2012 James Boyden, snapDISCO
  • 48. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth SummaryKey principles Customer Development with smallest (Leanest) learning cycles Focus users/market (deep, narrow niches) Focus product features (as few as possible) Always “test” customers before buildingStartup Basics 48 / 60Incubate 2012 James Boyden, snapDISCO
  • 49. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth SummaryFocus user/market Find a niche. Don’t try to compete head-to-head with the big guys. Instead, focus on a niche, and be the fastest in that niche. ... a deep niche. Go for “depth” of market (deep penetration of a narrow vertical niche) rather than “breadth” of market. Mick recommends targetting markets in which you can realistically get at least 20% depth.Startup Basics 49 / 60Incubate 2012 James Boyden, snapDISCO
  • 50. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth SummaryFocus product features Determine the fewest possible product features. Focus on the one key feature that will make your business succeed. A lot of startup success is saying “No” to the appropriate feature requests.Startup Basics 50 / 60Incubate 2012 James Boyden, snapDISCO
  • 51. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth SummaryFind the shortest path Follow the shortest, cheapest, quickest path to a paying customer (or at least, to putting a product in front of a customer). Spend at most 5% of your total budget on each iteration.Startup Basics 51 / 60Incubate 2012 James Boyden, snapDISCO
  • 52. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth Summary“Test” customers before building Always test customer interest before building What’s the shortest path (the cheapest/quickest test)? When you test customers, test: value creation (Is it useful to them?) value strength (would they pay a certain price for it?)Startup Basics 52 / 60Incubate 2012 James Boyden, snapDISCO
  • 53. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth Summary “Startup = Growth” (Paul Graham, 2012) http://www.paulgraham.com/growth.htmlStartup Basics 53 / 60Incubate 2012 James Boyden, snapDISCO
  • 54. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth SummaryA startup is a company that grows fast This is the only criterion. Criteria that are not necessary to be a startup: being newly-founded work on technology take VC funding have an “exit” To be able to grow fast, a startup needs: the ability to grow fast (scalability) a large market to grow intoStartup Basics 54 / 60Incubate 2012 James Boyden, snapDISCO
  • 55. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth SummaryScalability You need scalability: of ability to reach your market with your product of ability to execute/deliver to meet market demand scalable production scalable business model Example of non-scalability: a barbershop Everyone needs haircuts but a single barbershop can’t reach everyone who needs haircuts nor service all those peopleStartup Basics 55 / 60Incubate 2012 James Boyden, snapDISCO
  • 56. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth SummaryWider access means more competitors Downside: Ability to reach a large market means that you probably have more competitors (competitors can access the market just like you can) Local barbershop: only competitors are other barbershops in the same local area. You can’t access customers in other areas ⇒ Barbershops in other areas can’t access your customers ⇒ This limitation is also protection But if you can access the whole world (e.g. via the web), so can all your competitors.Startup Basics 56 / 60Incubate 2012 James Boyden, snapDISCO
  • 57. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth SummaryHow will you compete? So, how will you compete (or escape competition)? Startups need a few of these key differentiators: you’re working on something novel you have some competitive “secret sauce” you target an overlooked niche there’s some other barrier to competitor entryStartup Basics 57 / 60Incubate 2012 James Boyden, snapDISCO
  • 58. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth SummaryMeasuring growth Measuring the growth rate of a startup: Best: growth rate of revenue Next best: growth rate of active users This is NOT a rate: “Our number of customers goes up by a hundred per month.” You need to know the ratio of new customers to existing customers. Recommends week-on-week growth rate of 5–7% during the YC incubation phase. You hit 10% per week ⇒ You’re doing great. You only manage 1% per week ⇒ You haven’t found Product-Market Fit yet.Startup Basics 58 / 60Incubate 2012 James Boyden, snapDISCO
  • 59. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth Summary In summaryStartup Basics 59 / 60Incubate 2012 James Boyden, snapDISCO
  • 60. Definition Starting P/M/T Think Customer Development Lean Startup Focus Growth SummaryPaul Graham: Startups in 13 Sentences (2009) 1. Pick good cofounders. 2. Launch fast. 3. Let your idea evolve. 4. Understand your users. 5. Better to make a few users love you than a lot ambivalent. 6. Offer surprisingly good customer service. 7. You make what you measure. 8. Spend little. 9. Get ramen profitable. 10. Avoid distractions. 11. Don’t get demoralized. 12. Don’t give up. 13. Deals fall through.Startup Basics 60 / 60Incubate 2012 James Boyden, snapDISCO