Every start-up is A Business
The Succsessful product
in The successful business
What makes a successful start-up? Usually, this question raises responses about start-up unicorns that gain meteoric success. Some say it was about the superior technology, some say it was due to great insight into the market and user needs, or maybe securing high investments. Others dismiss it as pure luck or other irrelevant factors.
As usual, the reality of things is a bit more complex and success relies on more than factor, and these factors are often intertwined and require coordination. The question I ask teams I work with is:
How do you intend to create a successful product
in a successful business?
A research published by CB Insights last year, showed that the most common failures of start-ups are: 42% fail due to missing market need, and another 42% fail on combined reasons of going over budget or over time. Most striking, is that I’ve been putting a quiz in my workshops to start-ups, for over a year now, asking the audience what they think about failure reasons, and over 70% of them guess the right answers above. However, still over 90% of start-ups fail in their first two years! And I’ll get back to this later in this article.
But let us start with the obvious two factors that any start-up will begin with, or at least with one of them: the market and the technology.
MArket Success
When considering the market aspects, you need to consider with priority at least the following:
Take a so-called User Centric approach, and using technique such as Jobs to Be Done and mapping User Journeys, to understand your Value Proposition to the market.
However, while doing so, one needs to be careful and map the different customers of their products. One distinction I like to make is between consumers who are the paying ones, vs. audiences who are the direct users. In many cases these are very different groups, and without understanding the market and its dynamics, it is very difficult to make the distinction and understand who your main target is, or how to be “user” centric.
For example, an aged care monitoring device could be used by an elderly person or their carers - they are the audience. However, the consumer could be the users themselves, or the age care procurement officer, or even a supplier of other age-care equipment that may provide this product within a bundle of other products and services.
The story behind Apple’s first iPhone falls into this category. Steve Jobs declined to enter the smart phones business for years, mainly from the realisation that the market is dominated by the data carriers who provide the phone as part of the connection plans bundles. The carriers dictated for years what features they would allow or not allow into a new smartphone model. Only after Apple got an opportunity from Cingular (later acquired by AT&T) to have complete freedom over the design in exchange for exclusivity over selling iPhone 1, that Jobs took the opportunity seriously to create the first iPhone.
Technology success
When considering the technical aspects, you need to consider with priority at least the following:
What is your IP, and is your idea IP-based, (e.g., patentable)? Or it is about integrating existing ideas into a new use or service?
Is the technology you are using dated or soon to become outdated? Which will require expensive iterations of redesign, or disruptions in the production line.
On the other extreme, is your technology cutting edge and needs research to prove its maturity? One common tool here is that of TRL (Technology Readiness Level) - see my blog Realistic Time to Market using TRL (episode 1)
Ongoing and in depth risks analysis to anticipate major blockers don the road.
And, you certainly need a strong team, that can design and implement high quality outcomes, and impress investors as well.
Last, not not least, is understanding the business needs and what features and technologies are needed to support it. For example, Google’s superior search engines became popular due to an innovative business model to rely on “long-tail economy” model, where many, many customers, make small amounts (cents) of transaction every time.
Another story, from Apple again, is it’s iPod product which relied on the strategic business approach to develop a marketplace for songs, and allow consumers to purchase songs online, which also laid the foundation to the AppStore adopted in its iPhone later on.
Business Success
If you read so far, I hope you started to realise how important and intertwined the business needs are into the product design, features, and technology, as well as to understanding the market and its needs.
When talking to entrepreneurs and small business, I often find that they consider the business model and revenue models as a documentation exercise they must do for others (such as investors), and not something as essential as understanding the market, or as crucial as the innovation at the heart of the company.
Creating a successful business goes without saying for any start-up, to the point that it becomes a default many ignore to address properly and consciously, as they do when it comes to user research and product development.
Indeed, 90% of start-ups fail, but it is not a start-up problem per-se, as also 70% of IT projects in all company sizes, and consistently over the decades, have failed or went horribly over budget or were late. Yet, one of the most terrifying statistics is that one in six failing projects, go so wrong, that they threaten the existence of their business! (PMI Pulse 2018)
That is, while teams are buying more time to complete tasks, or improving features for users, or arguing whether they should use this technology or that, the whole structure is about to collapse, go bankrupt, and the project will not see even one day in the market.
The missing factor here is that these aspects are not in silo. The market, the technology, and the business are interconnected and affect each other. That is why even when innovators understand the importance of market research, or novel innovation, they mostly fail.
My approach when helping start-ups and small businesses achieve success and growth, is too integrate the business vision with the innovation and the market needs. Teams I’ve been engaged with could generate revenue and at least cover their MVP expenses, allowing them to scale in the market unburdened with funds depletion issues.
While an MVP aims to validate an idea in the market, and/or validate a technology, it also must validate the business validity. I encounter many entrepreneurs who rush to develop a prototype without understanding the sales strategy and the market dynamics, or spend all their money on development tools and quality systems hoping an investor will come along and provide more funds to continue the journey. In many other cases, I encounter entrepreneurs that could generate revenue almost immediately, or can certainly build their MVP such that is generates income, but chose spending budgets on more features or market validation.
When considering the business aspects, you need to consider with priority at least the following:
Have clear business model, and commercialisation strategy that correspond to the business goals.
Translate business goals into the development design, features, and plans!
Prioritise development designs and plans to fit budgets and timelines, or at least map out clear trade-offs between different development approaches and the business goals.
Perform periodic risk analysis to the business aspects in relation to meeting market needs and adoption of technology.
Guard your “down-stream”! you probably are investing your own money, or money from close friends and family. Spending your savings for a dream to come true could be a most rewarding journey but also ensure that you are not putting your everything with a risk of ending up with nothing - such as taking a loan against your house, for example.
To summarise, a successful business must sustain its validity, obviously through quality products that attract customers, but also such that serve the strategic goals of the business, and its growth roadmap.
Case Study - failure
Target’s expansion to Canada
In 2014 Target in the US decided to expand to Canada. This was a business strategic decision to go beyond the US boundaries. They conducted their market research and surveys showed huge anticipation (over 80%) to visiting the stores when they open. However, the story ended a couple of years later with Target closing the operation in Canada with loses of over $2b USD!
The crucial factor that was overlooked is the business expectation: the management team leased from the Canadian chain store Zellers 124 stores for $1.8b – this imposed a 2 years hard-timeline to make revenue as they were already paying for empty stores. The technical teams, however, did not consider this as a hard timeline – a life or death one. The Canadian system is metric not imperial, and the Canadian dollar has a different exchange rate to that in the US, and so the developers adopted a decision to build a start-of-the-art database from scratch rather than integrate with the US older system.
This ended up with databases containing huge amounts of data that have errors, thus imposing unrealistic impact on logistics: sizes of packages, sizes of shelves, pricing, location in the store, marketing insights, and more. All this resulted in stores with half empty shelves, misallocated merchandise, delays in shipments, and eventually frustrated customers who abandoned the stores.
CASE STUDY - Success
Revenue-generating MVP
A typical story when engaging with innovators is their focus on long term vision, the usual worries are about developing a prototype or MVP as soon as possible for market validation or attracting investors. This is usually the wrong focus.
A more solid approach that actually validates the market and attracts investors, is to generate income and create revenue for the business. It’s the best certificate to the validity of the product in the market and for the business. See the Zappos story in the reference provided at the end of this article.
In a B2B (business to business) scenario it’s about finding the ideal customer and tailor a solution to them. For example, engaging with a key player in the market, say a big retailer, or a major seller in the market, and tailor an MVP for them - while taking caution not to over fit it to their needs only, and allow room to scale in future versions. More than often such companies are willing to subsidise the R&D, or alternatively purchase or lease the outcome as it will introduce a competitive edge into their portfolio - for them, it would be cheaper than to conduct the technical and market research internally. Therefore, it would be important to understand their world, their pain points and offer a solid solution to a problem they have. consider in this scenario securing your IP, e.g. filing a patent, as it could be important for your negotiations.
In a direct customers engagement scenario, it’s about locating the first dozen consumers, who need the service that the product provide (and not necessarily the product itself). Such a group could be ideal for a first round of market research and gathering inputs to define or finetune the feature of the product to develop. However, with the service providing attitude, it is desirable and valid to charge for the outcomes provided. This requires building the right business model upfront, and be clear about the fees and the outcomes involved.
In either of the above scenarios, or others, the MVPs towards a full market launch, are not about a technical progress only, or a achieving wider and wider market validation, but about building a scalable journey of milestones, and in each one you make progress on all aspects: on the technical front, the market acceptance, and scaling up the revenue towards the desired full launch.
NEXT steps
Observe:
In your startup, what service or outcomes could you charge fees for? immediately, or very soon? and what would it cost you to offer this outcome to customers?
Don’t:
Assume that if you have a product or prototype, investors will come rushing.
Do:
Define your business model for your business needs, and estimate revenues that you can generate as soon as possible, and not in the distant future.
Read:
Zappos MVP Journey: ZAPPOS: 20 Years, 20 Milestones
Apple’s success story of the iPhone: The secret origin story of the iPhone
