One Million by One Million
Twenty-first century entrepreneurs start and run businesses from everywhere. Apartments, garages, basements, kitchen tables, college dormitories, and on the job. However, it is not feasible for every entrepreneur to join a physical accelerator. Silicon Valley entrepreneur and strategy consultant Sramana Mitra founded One Million X One Million (1M/1M) which is a global virtual incubator/accelerator that aims to nurture a million entrepreneurs to reach a million dollars each in annual revenue and beyond. If these goals are achieved, a trillion dollars in global GDP and ten million jobs will be created by 2020. These goals make it clearly visible that the future of the global economy could be influenced in a great way through the perseverance and commitments of entrepreneurs around the world.
Substantial goals indeed.
The hard-core, no-nonsense Premium Programme costs $1000 which, though it appears to be high for South African startups that have to purchase the programme using the mighty Rand, certainly adds value to any startup. The programme’s self-assessment tool uses various criteria that the startup should use to establish the company’s current life stage. These include:
- Has the startup established whether there is indeed a market for the product or service?
- Is the startup able to accurately articulate the solution the product will provide?
- Freemium is NOT a sustainable business model so how to convert a great product into cold, hard cash?
TAM (Total Available Market)
- What is the size of the market opportunity as this will significantly impact on the financing and go-to-market strategies
- Has enough bootstrapping been done before approaching investors? Is the company fundable, or is it one that needs to be bootstrapped all the way?
- As many as 99% of those entrepreneurs that seek to raise capital get rejected. Understand therefore, the accurate valuation of the company and the various types of financing options available.
- What is the customer acquisition strategy, cost, conversion rate, channels and channel costs?
- A fully functioning team needs to be built to get things done and to present to potential investors, all balanced against managing costs
Channels (Web, Mobile, Social channels)
- In an extremely crowded market is there a differentiated strategy that will pick out the trends and gaps?
All startups should have a fairly good idea of each of these criteria, however, there is far too much information across these nine criteria to be imparted in this forum so these will be expanded upon in a series format using the weekly Thinkroom newsletter, kicking off with the first, namely the issue of customer validation.
According to Eric Ries (The Lean Startup), validated learning is not after-the-fact rationalisation or a good story designed to hide failure. It is a rigorous method for demonstrating progress when one is embedded in the soil of extreme uncertainty in which startups grow. Validated learning is the process of demonstrating empirically that a team has discovered valuable truths about a startups’ present and future business prospects. It is more concrete, more accurate, and faster than market forecasting or classical business planning.
Learning is the essential unit of progress for startups. The effort that is not absolutely necessary for learning what customers want can be eliminated. This is validated learning, because it is always demonstrated by positive improvements in the startups’ core metrics. Validated learning is backed up by empirical data collected from real customers.
Building the Question Set
The most important part of the market validation are the questions to ask and how to ask them. Unlike a scientific survey, the emotions of the target market need to be understood. Open-ended questions that get them to talking about how and why they do things and what will make them buy the product. Whether trying to validate the target market or positioning, a fundamental question should always be, "What keeps you up at night?" This one question will inform where the priorities are for this person at this point in time. The answer may have nothing to do with the product, but it will give direction as to what gets prioritised when purchasing this product line.
The way forward is to learn to see every startup in any industry as a grand experiment. The question is not “can this product be built?” but “can we build a sustainable business around this set of products and services?”
The issue is to find a synthesis between the company vision and what customers would accept; it isn’t to capitulate to what customers thought they wanted or to tell customers what they ought to want.
True startup productivity is about systematically figuring out the right things to build. In the lean startup, every product, every feature, every marketing campaign – everything a startup does – is understood to be an experiment designed to achieve validated learning.
Validation defines value as providing benefit to the customer, anything else is waste. In a manufacturing business, customers don’t care how the product is assembled, only that it works correctly. However, in a startup, who the customer is and what the customer might find valuable are unknown, part of the very uncertainty that is an essential part of the definition of a startup.
The value of the MVP:
Before new products can be sold successfully to the mass market, they have to be sold to early adopters. These people are a special breed of customer. They accept, in fact prefer, an 80 percent solution; they don’t need a perfect solution to capture their interest. Early adopters use their imagination to fill in what a product is missing. They prefer that state of affairs, because what they care about above all is being the first to use or adopt a new product or technology. Early adopters are suspicious of something that is too polished; if it’s ready for everyone to adopt, how much advantage can one get by being early? Early adopters also often are not primarily concerned with the price of the product or service, but rather about the thrill of adopting and trying first, with the hope of providing feedback that could essentially improve the solution overall.
A Minimum Viable Product helps entrepreneurs start the process of learning as quickly as possible. It is not necessarily the smallest product imaginable, though; it is simply the fastest way to get through the build-measure-learn feedback loop with the minimum amount of effort. MVP is designed not just to answer product design or technical questions. Its goal is to test fundamental business hypotheses. The MVP is only the first step on a journey of learning. Down that road and after many iterations some flawed element of the product or strategy may emerge and could inform the business to make a change (pivot) to a different method for achieving the company’s vision.
To Pivot or preserve?
If the drivers of the business model are not being moved forward, this is a sure indicator progress is stalling. That becomes a certain sign that it is time to pivot. When a company pivots, it starts the process all over again, re-establishing a new baseline and then tuning the engine from there. The sign of a successful pivot is that these engine-tuning activities are more productive after the pivot than before.
The sign of a successful pivot are that the new experiments are overall more productive than the experiments that were being conducted before the pivot.
The pattern for making a pivot or preserve starts with poor quantitative results forcing an acceptance to declare failure and create the motivation, context, and space for more qualitative research. These investigations produce new ideas and new hypotheses to be tested, leading to a possible pivot. Each pivot unlocks new opportunities for further experimentation, and the cycle repeats. Each time this simple rhythm needs to be repeated: establish the baseline, tune the engine, and make a decision to pivot or preserve. Failure should be seen as the ignition for change, rather than the beginning of the end.