In the past five years, the cloud management company I founded has grown from a one-person business into a global employer of over 300 people. Recently, VMware, the most important provider of infrastructure and technology in our industry, purchased us – an exciting milestone as we look to the future and continue to execute on our vision.
In spite of all the twists and turns I’ve experienced, there’s been one thing I did right in the early phases of building this business: Committing to continuous experimentation.
When I left my previous company, I had an idea of where I could bring the most value in the market, based on my previous experiences in cloud computing. But I’d also been inspired by Stephen Blank’s The Four Steps to the Epiphany and indirectly by the Lean Startup movement. As a result, I knew I would start my business from the top down: By devoting myself to a market (cloud management) and to the scientific method for entrepreneurship – dispassionately testing all assumptions and hypotheses, and following where they led.
So, where did I begin? And where do you begin? Here are the steps.
Develop your initial hypotheses
The process of entrepreneurship starts with a set of hypotheses to identify the product or service you will bring to your customers. A good hypothesis is that it answers critical questions regarding your initial business concept that can be proven only through experimentation.
I started my own journey by putting a poster on the wall and using sticky notes to capture the critical hypotheses I needed to test. Every two weeks, I selected a set of hypotheses and designed experiments to prove or disprove them.
En route, I thought about the ecommerce company Zappos – a supporter of the Lean Startup movement – and its initial hypothesis that people would buy shoes online. For the file-sharing company Dropbox, the hypothesis was that users needed a radically simplified way to share files. For the coffee retailer Starbucks, it was that Americans would embrace the Italian coffee culture.
Design an experiment
Next, choose a set of hypotheses to test, and design an experiment to test them. A good experiment should eliminate all ambiguity from the hypothesis to the answer. It should also prove or disprove the hypotheses with the least possible investment.
I was inspired at this stage by stories from entrepreneurs like Dropbox’s Drew Houston, Zappos founder Nick Swinmurn and Starbucks’s Howard Schultz. To prove his hypothesis, Houston didn’t invest in building yet another file-sharing app; he instead created a video that demonstrated the ease of use of his idea for Dropbox and how it could be a differentiator.
Similarly, Swinmurn didn’t choose to buy inventory for his new online shoe store, instead, he took pictures of shoes. He posted them on a website and purchased the shoes from the store only after receiving a customer order.
Schultz, meanwhile, chose to cram his early concept for delivering Italian coffee culture to American consumers into 300 square feet, inside another retail store.
Experiment and observe
My experiments ranged far and wide – from driving an advertising campaign, to creating an A/B test website, to performing customer interviews with large financial institutions, to delivering professional services.
For example, one of my sticky notes asserted simply that, “Cloud cost management is a feature and not a market.” The experiment I designed to prove or disprove this statement was built around helping five local businesses optimise their cloud costs.
As an early-stage entrepreneur, you have to be willing to conduct these sorts of tests to determine what works, what doesn’t and how you can identify real and durable problems in a market. You need to to take risks, to be willing to fail and understand that you’re always learning.
Dropbox’s own critical video experiment resulted in its beta user requests growing from 5,000 to 75,000 users, validating critical hypotheses without investing in a single line of code. Starbucks’s first store attracted 1,000 visitors per day to a location that had previously never seen more than 200. Zappos’s website resulted in actual sales of shoes, which were fulfilled with purchases – at list price – from a local store.
Discuss results with advisors
Before starting the company, I created my own informal board of advisors, who included a venture investor, two technology CEOs, a business development executive and a technology founder. All were dedicated to my success, with no strings attached.
I met with them for coffee throughout the experimentation process, and always discussed with them what I was learning. Having talented colleagues to provide feedback and advice frequently produced new insights.
Rinse and repeat
Once you secure answers to your first hypotheses, it’s time for you to go back to the drawing board and create new hypotheses, design another experiment and test it. A hypothesis without an experiment does no good. You gain the most knowledge when you’re testing the ideas you propose.
Start the business
I equate the start of my company to an experiment I called “the sale.” After several months of developing hypotheses and running experiments, I had a good sense of where I could add strong and durable value for customers in the market. But what I hadn’t tested was price.
I hypothesised that a prospective customer would need to be willing to spend $50,000 annually – roughly the average price required to sustain the business model – on my product, to support the inside sales-driven model I was projecting. So, I designed an experiment around cold calling a handful of prospective customers and trying to convince them to purchase my minimum viable product for $50,000 per year.
In the process of being rejected, I hoped to learn about the additional features these companies needed to justify purchasing a product at that price point.
As part of the exercise, I first spoke with the CFO of a fast-growing technology company. While the CFO understood the problem I was addressing, he had almost no input on features, and no interest in paying for a solution. But then he surprised me by asking for another call the next day with his vice president of engineering and members of his team.
The assembled team not only had deep knowledge in the area in which I had built my MVP, but had already built many of my features themselves.
By the end of the call, the vice president of engineering made the surprising statement: “Sure, we’ll buy.” When faced with the potential for a sale, the first instinct of every good engineer is to do exactly what you shouldn’t: keep talking. Instead, I proceeded to explain how the CFO was hadn’t been convinced the previous day, and that maybe the engineering VP should talk to him before agreeing to a purchase.
“Our CFO is in the room right now,” the VP said. “We’ll buy. Just send us the contract.”
As I hung up, my excitement at having a first customer was tempered by the reality that I had no contract to send, nor a business entity under which to extend it. Since my experiment had been designed for failure, I hadn’t given much thought to what to do when confronted with success. Thus began my next challenge: Creating a business entity and onboarding a first customer – fast.
Reach a conclusion and communicate it with peers
Starting a company is one of the most irrational acts you can do as a human being. You are taking great personal and professional risk for an unknown outcome. While there is no foolproof way to manage this uncertainty, there is a way to minimise the risk: cContinuous experimentation in the presence of customers. My company exists as a direct result of a commitment to experimentation, a route you should seriously consider when you start down your own entrepreneurial path.
This article was originally posted here on Entrepreneur.com.
An Innovative Culture Absolutely Requires This Unique Capability
What you need is a ‘chaos pilot’ on board at your company. If you don’t have one, think about adding one.
In my line of work, I have the privilege of mentoring and working with start-up entrepreneurs who often offer unique and remarkable ideas that, in my opinion, have the potential for significant commercial impact.
Unfortunately, many of these ideas end up in the dust heap of forgotten businesses that never get traction.
Why do so many great ideas fail? The reality is that many promising new ideas are derived from products or services or systems that have yet to be considered. They are disruptive in nature and typically exist only in the abstract.
Dealing with these ideas therefore demands a unique set of skills that differ from general management capabilities typically associated with running a company.
In a recent article at Harvard.com, Nathan Furr, assistant professor of strategy at INSEAD and coauthor of Leading Transformation: How to Take Charge of Your Company’s Future, explained that a critical, and often missing, element for innovative teams is the capacity to function in the abstract. Furr referred to this capacity as negative capability.
To understand the concept, consider what Robert French of the Bristol Business School has called “positive” capabilities. These skills, as they pertain to new ideas, have been connected with successful general managers, because they can:
- Understand the complexities of new ideas
- Understand and manage the process by which new ideas are executed
- Understand and manage the necessary roles within an organisation or team needed to execute on new ideas.
These characteristics are typically technical skills that involve structure and discipline. They are valuable for managing any company, especially one operating in a business environment requiring constant innovation. Such innovation is needed to iterate new and bold ideas, but these skills alone are not enough.
The reason is that, to stay ahead and execute on a regular basis, new ideas, especially disruptive ones, often take a team and the entire organisation into unchartered territory where there exists no precedent, historical structure or “road map” to guide them. In these cases, positive capabilities based on structure fall short of execution.
As French explained, this type of change “always arouses anxiety and uncertainty,” and teams that are unprepared tend to move toward avoidance tactics – defaulting to known structures, which then lead to the collapse of the new project.
For that reason, it is critical to have members on the team who can handle uncertainty and unknown outcomes and also have the fortitude to pivot when necessary. These types of leaders are what Furr calls “chaos pilots.” To be an effective chaos pilot yourself, you need more than technical management skills. Here are the three other skill sets he lists:
1. Divergent thinking
To think divergently, Furr explains, individuals need to be able to synthesise a multitude of information and “uniquely connect new information, ideas, and concepts that are usually held far apart.” This skill requires the ability to stay constantly focused on a mission while constantly processing new information.
Leaders who operate as divergent thinkers often surround themselves with talented individuals who can handle the day-to-day operations; that capability frees up the leadership team to collaborate and collect valuable data.
2. Convergent action
According to Furr, great chaos pilots do more than just take in new information. They “execute on new ideas in order to create something tangible.” In other words, they synthesise all the information and leverage it to effectively execute on new ideas.
Far too often, entrepreneurs fall short here, getting consumed by FOMO (fear of missing out) and failing to prioritise, or at least balance, output time with input time. Doing so creates an entrepreneur with a wealth of information, but ultimately provides very little value.
3. Influential communication
Finally, thinking divergently and being able to “connect the dots” are great skills, but if a chaos pilot is unable to communicate new ideas effectively and, as Furr states, “inspire other leaders and decision-makers to believe, support, and act on a novel idea or opportunity,” the idea will stop short of execution, no matter how well synthesised.
Over the years, I have been a part of innovative teams (at times leading them) whose sole priority was developing new ideas for clients. I recall a few times leading those teams through a comprehensive mind-mapping process meant to spark new ideas. In these situations, we inevitably would stumble on a truly remarkable idea or two, but like our team, those ideas weren’t rooted in a stable and established process; sometimes they weren’t comparable to what we were already doing.
Our ideas would also sometimes get lost in the insecurities and anxiousness of the group and never even be presented.
Great management skills are clearly needed to lead a company and execute ongoing operations effectively, but to consistently generate and see great new ideas through to execution, it is critical to have an effective change manager – or chaos pilot – on your team. And while these skills cannot be taught, they can be learned and nurtured through experience and an environment that encourages and supports risk taking and failure.
This article was originally posted here on Entrepreneur.com.
Innovate For Change – Think Like A Social Entrepreneur
Why consider the social entrepreneurship model?
Social entrepreneurship is an exciting business arena that finds new, sustainable business solutions to long-standing problems. Social entrepreneurs see social challenges (such as poverty, homelessness, poor infrastructure or lack of quality education) as an opportunity for change.
This approach brings together the best that business practices offer and blends it with the best that civil society offers (a social mission, broader stakeholders involvement and the engagement of the community). By generating income from business activities and reinvesting its profits back into driving its mission, this approach generates both social value and economic value simultaneously.
Why consider the social entrepreneurship model?
1. Seeing social challenges as opportunities
South Africa’s social and structural challenges, from our poor ranking in health and education to the high level of unemployment, provide a myriad of opportunities for entrepreneurs that are willing to roll up their sleeves and work to build a better future.
The recent winner of the recent Nation Builder Social Innovation Challenge, Lungi Tyali, is a great example of this mindset.
Across Africa, there is a dire lack of provision for the electrification needs of the majority of the population, especially in rural communities. In South Africa, at present, there are 3.4-million households without a formal, metered electricity supply; 2.2-million in formal and 1.2-million in informal households. Lungi Tyali is the CEO of Solar Turtle who, with her business partner, James van der Walt, created a solar energy solution for rural and off-grid areas. Solar Turtle provides a solar-powered kiosk in a container that serves as a hub for renewable electricity. During the day, the solar panels are open to collect sunlight and at night they are enclosed and locked securely into the container.
Related: How To Be A Social Entrepreneur
2. Social entrepreneurship has low barriers to entry
Many of the most successful social enterprises start off small with an enterprising individual seeing an opportunity in their local community and building from this small beginning. There is no prerequisite for a university degree of formal training. Growing social enterprises can thus also offer employment opportunities to unskilled workers and youth without experience, addressing South Africa’s high level of unemployment.
One such story is that of Nonhlanhla Joye, the founder and facilitator of Umgibe Farming, Organics and Training Institute. Ma’ Joye, was diagnosed with cancer in 2014 and as a result, could not work to provide food for her family. She decided to grow organic vegetables in her backyard to feed her family. Unfortunately, the chickens ate all her vegetables and she had to come up with a solution.
She innovated a growing system using plastic bags. Before long Ma Joye was teaching other community members to use her growing system. A platform was born where poor communities started growing vegetables to feed themselves and collectively sell their surplus produce.
3. Corporate Social Investment, with purpose
Social enterprises also offer individuals and companies the opportunity to invest in lasting social change. Unlike traditional philanthropy, the impact of social enterprises has the potential to be much more lasting by directly providing affordable social goods and services, as well as employment opportunities.
Nation Builder, for example, is a platform* that brings like-minded businesses and civil society together in order to learn from each other and partner together for the greatest possible impact through wise and responsible social investing.
4. Personal actualisation
Perhaps the most rewarding advantage of being a social entrepreneur is the impact you can have on society, but this model also offers several personal benefits:
- working to solve issues you care about
- freedom to explore and create innovative solutions that can inspire change
- the opportunity to turn passion into profit
- working as your own boss.
Having The Perfect Product Isn’t Enough To Keep You In Business
The odds of the small business surviving aren’t stacked in its favour. It’s more likely to fail than succeed. That’s the bitter truth. However, once it’s able to shake off the niggling teething problems, watch it as it unfolds from a pupa to a beautiful butterfly.
There is a small bakery operates in my neighbourhood. It bakes bread; no cakes or other confectionaries. The best home-made bread that has your palates yearning for more. This is in sharp contrast with the bread produced by bigger bakeries. They also supply bread to the neighbourhood.
The bigger bakeries operate a model that is largely automated to the point that they lose a very important ingredient beyond flour, yeast and whatever goes into making bread. They lack the personal touch that gives it the home-made feel. This is why the neighbourhood bakery is preferred despite being pricier.
The small bakery isn’t without its flaws; avoidable flaws that may, sadly, sink the business. My view is more on the certainty of the demise of the business as observers would’ve noticed a slow yet steady decline in the output of the business. These flaws aren’t unique to the bakery, several other small businesses have share the same flaws.
Why would a customer who is willing to pay more for a product suddenly cease patronising the business. What other factor apart from higher price, in the absence of a drop in purchasing power, would make a customer buy bread of supposed inferior quality from the competition.
A couple of years ago when I moved to the neighbourhood the business was doing great. Even during a biting recession the shelves were always stacked with freshly baked bread of different varieties. Despite the excellent product on display, there was an unsatisfactory trend in the operation of the business.
For one, the sales personnel are rude. Having the right staff is necessary to grow any business, but when this very fundamental issue isn’t gotten right it will be fatal to the business. After all for how long would customers put up with poor service delivery in the face of stiff competition from bigger rivals.
Small business owners must realise that proper training of staff is as important as sourcing for capital and shouldn’t be overlooked as the survival of the business also rests on it. Bigger businesses in this regard always come out tops in comparison with their smaller counterparts.
Annually, big businesses spend billions of dollars on staff training for the simple recognition of the fact that having disgruntled customers, on account of poor service by personnel, is dangerous for business. Despite their size, big businesses tend to understand better the importance of the single customer. Also, how the discontent of a few customers can translate into poor sales which is detrimental to the business.
The mindset of a small business shouldn’t be different. Investing in staff shouldn’t be treated with levity to ensure the business not only stays afloat, but also grow it. Growing a business is in itself tough work, small business owners shouldn’t make it tougher by providing terrible service.
The neighbourhood bakery lacks this important feature and it’s been responsible for the steady decline in sales. I didn’t know the poor service rendered by the attendants had attained much notoriety until I was having a conversation with a group of individuals at a religious gathering and the issue came up. It’s a sad realisation.
For financial reasons small businesses aren’t known for recruiting the best personnel. Most employ the services of family members. While there is nothing wrong with this, it’s important to ensure such person is the best fit for the business. Employing family members may lead to a myriad of problems for the business. Therefore it will be in the best interest of the business not to employ an incompetent family member than have him ruin the business. This is a risky way of running the business.
The feeling of the customer towards the goods or services businesses provide is key to its success or failure. This is because customers can have the most unbiased assessment of the business rather than management and staff. Despite the poor service the bakery openly had on display, no one seemed to have bothered complaining to the owner of the business. So it may seem.
It will be in the best interest of a small business owner to leave an open channel for feedbacks from customers. This isn’t the case with the bakery and some other businesses face this challenge too which may lead to further problems.
The inability to provide an avenue for customers to channel their complaint to the proper individual creates a problem of inaccessibility. Accessibility happens to be an area of strength for small businesses because of their size. In larger businesses, despite creating channels for complaints there is usually no personal relationship between the owners and their customers. This is an area a small business shouldn’t be found wanting.
One would imagine that as a small business, the owner of the bakery should be easily accessible to interact with customers to in order to obtain feedbacks pertaining service and staff performance. This isn’t the case as the business clearly takes this important factor for granted. A lot of customers don’t know the owner of the bakery despite patronising it for years.
On paper the size of small businesses translates to easy accessibility. A closer look will reveal that the owners of small businesses tend to take a lot of things for granted. They fail to realise that they have to be consciously open to the idea and cultivate the habit of seeking feedbacks from customers. A small scale business has to maximise its potential for dynamism and flexibility. If it can’t take advantage of its unique qualities then it’s doomed.
There has been a reduction in the variety of bread baked and in addition to this is the equal reduction in the amount of bread on display generally. From observation it’s clear that patronage has taking a massive hit.
It’s painful witnessing the slow demise of a business with a good product due to its own failures. Having the perfect product won’t on its own keep the small business in business. The odds of the small business surviving aren’t stacked in its favour. It’s more likely to fail than succeed. That’s the bitter truth. However, once it’s able to shake off the niggling teething problems, watch it as it unfolds from a pupa to a beautiful butterfly.
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