1. Sketch out your business model
The first step to getting to product-market fit is to sketch out your business model. Blank’s students use a business model canvas taken from the book Business Model Generation by Alexander Osterwalder. For each part of the canvas students need to answer a few fundamental questions.
- Value proposition (or product offering).Every business has a value proposition or product offering to attract customers. Google’s value proposition is a fast and relevant free search, with targeted ads and monetising content; Skype’s is free Internet and video calling and cheap calls to phones (Skypeout). What value proposition or product offering are you going to sell?
- Customer Segment (or target market).Every business needs a customer or multiple customer segments to sell to. Skype is used by web users who want to call phones; Nintendo Wii is targeted at casual video game users. What customer segment do you plan to sell to?
- Customer Relationships.A customer relationship refers to how your business will acquire and retain customers. This includes marketing and sales activities, as well as any activities that are used to retain customers, such as customer service. Coca-Cola uses traditional media advertising and excellent distribution to attract new customers and retains old customers by maintaining top of mind awareness. Facebook uses referral emails to attract new users and online advertising to attract new advertisers. How do you plan on attracting new customers? What will each new customer cost? How will your business retain new customers? How much will it cost?
- Distribution Channels.A distribution channel refers to how you will get the product or service to the customer. This may be through a sales force, web sales, and retail stores or through distributors. Kalahari.net uses an online store and a courier company to get the product to the customer. Gillette uses retail stores to sell their razors and blades. How do you plan on distributing your product or service to the customer?
- Revenue Stream.The revenue stream of a business model refers to how the business charges for its products and services and what price the business charges for its product or service. Common revenue streams include: sales of physical goods, rental, subscription fees, licensing agreements, and advertising and brokerage fees. For example, Pick n Pay or Spar make their money from sales of goods, while gyms and golf clubs charge a monthly or yearly fee. How do you plan on charging for your product or service? And how will you price your product or service?
- Key Resources.Key resources are the employees, financial capital and physical resources that a business needs to function. There are four common types of key resources: human, financial, intellectual and physical resources. For example, Makro and Game require employees, all the equipment found in a retail store, as well as all the resources to manage the supply chain. Facebook requires programmers, servers and buildings to run the website. What key resources will your business need to get started?
- Key Activities.Key activities are the essential activities a company needs to create and deliver the product or service to the customer. A newspaper’s key activities would include writing, producing and distributing the newspaper, while Skype’s key activity would be software development. What key activities must your business perform to create and deliver the product or service?
- Key Partners. Key partners are the principal relationships with other organisations that make the business model work. These relationships may include joint venture partners, supplier relationships or strategic alliances. For example, Apple’s key partners for the iPhone include manufacturing companies and App developers. What key partners does your business need to create and deliver the product or service?
- Cost Structure.The cost structure refers to all costs that are incurred when operating the business. When doing projects, costs are usually divided up into fixed and variable costs. What are your business’s fixed and variable costs?
2. Test your business model
Once you have laid out your business model you need to prove the idea will work in the real world. The idea is to have a plan that is based on facts and not guesswork, and to test the business model as quickly and with as little money as possible.
This is best done with the use of learning experiments. And the secret to running a great learning experiment is to ’think small’. Small experiments that are cheaper and quicker to run are generally better. There are four types of learning experiments that can be used to test if your business model will work:
- Interviews: Talking to potential customers, industry experts, thought leaders, suppliers, adjacent competitors and potential partners. This will give you quick insight into the realities of your industry or market.
- Personal selling: Pitching your product or service to potential customers using PowerPoint presentations or a prototype will give you a fair indication of how many potential customers will actually become real customers when the business launches. This process will also give you valuable feedback on how your product or service needs to change to meet customer needs.
- Marketing campaigns: You can test whether the customer will buy your product by running Facebook Ads and Google Adword campaigns to see if people will click on the advert or not. If customers click on the advert in large enough numbers it means there may be a market for your product. If not, time to change your business model.
- Minimum Viable Product: A minimum viable product is a small, cheap product that can be built quickly to find out if customers are interested in buying and using your product. In the case of web start-ups, this may be a page that gives some information about the product and asks customers to pre-register for service. In the case of physical products, this may be a building, a prototype or a small feature version of the product. Doing this will give instant insight into whether people want your product or not.
Learning experiments have the advantage of being low cost, and low risk, allowing you to get a good idea of the potential demand for your product before investing large amounts of money and time. Learning experiments also unearth unforeseen obstacles and challenges that can never be planned for.
3. Improve your business model using real world feedback
Every business model has a number of assumptions or best guesses: unforeseen obstacles, non-compliant customers, hidden costs. As new knowledge comes in from your tests, you need to change and adapt your business model to find what works in the real world.
A number of studies by leading researchers have shown that successful entrepreneurs seldom succeed with their first idea. In one study, Harvard Professor Amar Bhide looked at 100 of the most successful start-ups in the USA and found that 67% of them had radically changed their original business idea before succeeding. It is, however, not easy to fundamentally alter the strategy of your company.
It is often painful and no one likes to be wrong. But the research shows that the ability to change your business model when real world feedback says you are wrong is the mark of a great entrepreneur.
A famous example is Evan Williams, the founder of Twitter and blogger. Both companies were ideas that changed radically. When Williams started Pyralabs, a project management software company, he found that customers were particularly attracted to the note-taking feature.
Using real world feedback, Williams abandoned the project management software idea and launched blogger, which was later sold to Google. Similarly, Twitter was founded as a spinoff of Odeo, a failing podcasting software business.
When developing your business idea it’s important to take note of the real world feedback, and use the feedback to adapt your business model to what the marketplace wants. Adapt and change price points, product features, delivery channels, and marketing propositions until your business idea evolves into something that can become the next big thing.
4. Only start building your business once you have reached product-market fit
Traditional theories of entrepreneurship go as follows. Entrepreneur finds an opportunity, writes a business plan, raises funds, gathers a team and then gets on with the task of building the business, using the plan as a guideline.
This model is fine in the predictable world of known business models, known markets and known products, but in the uncertain world of new ideas, new businesses models, new products and new markets this method usually spells disaster.
Researchers call this type of disaster ‘premature scaling’. A business is considered to be scaling prematurely when it starts spending money on growing the business (ie. advertising, hiring employees, expansion infrastructure) before it has proved all of the assumptions of the business plan.
For example, WebVan, one of the famous dot.com era’s most spectacular flameouts started to expand its operations even though a number of the assumptions in its business plan were wrong. Customers cost more to acquire than originally planned, the customer retention rate was lower than planned and delivery costs were higher.
Even so, the company signed a R7 billion deal to expand by adding 24 distribution centres.
The result: bankruptcy in two years and R5,6 billion wasted. The reason: WebVan started to expand before testing all of the assumptions in its business plan. They scaled prematurely. When you are setting out on your start-up journey, ensure that you don’t start spending money on marketing, hiring and growth until you are sure that all of the assumptions in your business model have been tested and proved, and you have reached product-market fit.
5. Company building
With a proven business model, it is now time for the business to scale. On a graph, this usually appears in the form of a 45 degree growth line. It is time to let the world know about your product. This means launching a PR blitz, ramping up your marketing and sales activities and ensuring that you increase your business capacity to meet the flood of new customers.
By this stage, your business should have found a consistent and predictable way to acquire and retain new customers, while making a profit. However, many businesses fail in the growth stage by not managing the growth process properly.
Three areas must be managed in conjunction with each other: the rate at which new customers are acquired, the capacity to deliver the service and product to the customer and the business’s finances.
Too much investment in capacity and no customers leads to cash flow issues as seen in the WebVan case; too many customers and no capacity leads to angry customers. This is part of the reason Friendster (one of the first movers in the social networking space) didn’t become Facebook.
It acquired too many new customers, more than the site’s infrastructure could handle. The site crashed a number of times, and customers became irritated. The key to successful growth is balancing the rate of customer acquisition with building the business capacity to deliver the company’s products and services.
Beauty Of Failure: The Art Of Embracing Rejection
In this piece I will try demystify failure, and look into why it should be embraced and not feared.
“Chaotic”, “uncertain”, and “rollercoaster” are three words that would effectively describe almost any entrepreneurial journey. If death and taxes are certainties in life, then failure and taxes are the only two guarantees in business.
If failure is (to some degree at least) inevitable, why should we fear it? In this piece I will try demystify failure, and look into why it should be embraced and not feared.
1. It’s Part of the Job
We can start by separating failure into two different categories – micro and macro-failure. If a macro-failure can be considered as the overall failure and shutdown of the business, micro-failures can be seen as the day to day events that go wrong – that potential client that hangs up on your cold call; the sales pitch that gets the soft-no response of “we’ll call you”; the product launch that no one pitched up to. As Mark Manson puts it, business (as in life) is just a process of becoming less wrong over time.
Everything is a hypothesis that needs to be tested, and the process of business is applying the learnings from each hypothesis – each micro-failure – to be less wrong next time to move the business forward.
As Seth Godin says, “The cost of being wrong is less than the cost of doing nothing”. Embrace being wrong. Rejection and failure are part of the job.
Related: The Art Of Embracing Rejection
2. Opportunity to Refine
There is one undoubted truth about every failure – and that is, each failure gives an experience to dissect and learn from. The Roman Emperor Marcus Aurelius had a similar view; that to one person a situation is good, and to another, that same situation is bad – Only perception decides.
As an entrepreneur, it is important to adopt this stoic thinking of managing your perceptions. Look at situations rationally, and perceive rejections as opportunities to refine the product that the market really needs – not the product you are forcing on your market.
3. With each Failure, Fear it Less
One of the great things about rejection or failure, is that the more often you are exposed to it, the less you fear it. In fact, micro-failures can become such a common part of an entrepreneur’s day, that you stop even noticing them as failures at all.
You may look back on a day with multiple rejections from prospective clients as a normal day on the path to building a business. The goal is to get to that point as quickly as possible.
4. One Less Avenue
In the beginning, any failure will elicit a strong emotional response, however, when it becomes embraced as part of the journey, as crazy as this sounds, you may even get excited for the next rejection or micro-failure.
Why? Because each micro-failure takes away one possible path you could go down in your business. Entrepreneurs tend to be highly ambitious, highly idealistic people. This may result in wanting to do too many things, take the business in too many directions simultaneously, and run before walking.
The beauty of failure is it re-clarifies the path, stops the entrepreneurial mind from getting carried away, and brings everything back into perspective. What’s better than pursuing 1000 potential clients? Pursuing 999 higher potential clients.
Eliminate avenues that aren’t right for your business as quickly as possible so that you can spend time on providing best possible product or service for the ones that are right.
5. Practical Tip to Embrace Rejection
So with all this theoretical talk out of the way, how do we get over that fear of failure to see the beauty of it? Start by watching Jia Jang’s TED talk of 100 Days of Rejection: https://www.ted.com/talks/jia_jiang_what_i_learned_from_100_days_of_rejection. The talk genuinely impacted my life. I have since implemented an annual (and much less impressive) 10 days of proactive rejection in my life. The goal is for 10 days, to do anything in any aspect of life that you would do if you weren’t ruled by fear. Ask yourself today, “what would I do if I wasn’t scared?”
The goal is to actively seek rejection to remove the power of fear from damaging your business’s potential.
Finally, I believe we should get our heads around the idea of celebrating our failures. Go for a drink as a team and give a toast to that failure even more than if it was a success. After all, if life is more about the journey than the destination, surely we should celebrate and cherish every event of the journey along the way?
Every event that happens will be critically important in forming the empire of a business that you are building. Take a step back, see the big picture, and smile whenever it doesn’t go as planned. See the beauty of failure.
6 Resources For Start-ups Looking For Funding
Here are 6 online resources that can help you pay the bills and grow your business at the same time.
Anyone who has ever considered starting their own business, or is currently in the process of doing so, knows that every little bit helps when it comes to making ends meet. Part of the charm of start-up culture is the low-budget creative atmosphere that seems to continually fuel innovation. But, eventually you’re going to have to keep the lights on and water running, and you can’t do that with creativity alone.
Whether you are a business that is just starting out, or already well on your way, there are plenty of online platforms that offer start-ups advice and funding opportunities. Here are 6 online resources that can help you pay the bills and grow your business at the same time.
At one point it seemed that anyone with a clever idea could make a video showing why the world should invest in the next big thing. While a lot of crazy projects have gotten funded over the years, utilising a crowdfunding platforms like Kickstarter continues to be a viable way to get your project off the ground. Of course, if you want to reach your funding goals, it’s best that you have already done your market research, have a solid plan, and treat crowdfunding like a global VC.
Visit Kickstarter here.
Those who are new to the start-up world might not know exactly where to start when it comes to looking for funding. While the freelance economy has grown immensely in the last 5 years, it’s important to know where to look.
Platforms like Toptal offer a wide range of freelance professionals that specialise start-up funding. Start-ups seeking a consultant on Toptal can also rest easy knowing that they carefully screen each candidate, ensuring they have the necessary professional background and experience to guarantee a successful project.
Visit Toptal here.
If you couldn’t already tell by the name, appbacker is definitely worth checking out if you are a start-up working in app technology for both Android and Iphone. The platform helps people discover different apps through the crowdsourcing model. Investors can scroll through apps from around the world, and if they like what they see, they can choose to invest. Funding incentive is based on an investor’s ability to purchase an app at the wholesale price, eventually making a profit once the app starts flying off the shelves in the official app store.
Visit Appbackr here.
Investors are more likely to invest locally, which is why Gust is an attractive option for start-ups around the world, as they represent over eighty countries worldwide. Founded by a team of investors and lawyers, Gust knows their way around the start-up world.
With portals for both start-ups and investors, the platform seamlessly connects those seeking funds and those looking to invest. Start-ups can create a profile on Gust, and also have access to tools and tips to help them regulate finances and legal matters.
Visit Gust here.
Not just for investment, although that is a major part of the platform, AngelList is also a great place to find start-up jobs as well as recruitment. Those start-ups that are looking to expand can greatly benefit from this feature, while also getting their name out there to potential investors.
Their syndicate platform, led by technology experts make room for those who are looking to invest the chance to apply to a lead or directly invest in a fund.
Visit AngelList here.
From top corporations to big name accelerators, Seedrs aims to simplify the funding process for investors. Providing a vast network of investors from 48 different countries, who tap into an additionally impressive network of start-ups, there is plenty of room for collaboration on this platform. Seeders also encourages investors and start-ups to continue their relationship after the transaction is made. Their online and offline networks aim keep both start-ups and investors in the loop.
Depending at what stage of development your company has currently reached, exploring various funding options available to you is a worthwhile endeavour. Rather than blindly pitching investors, investigating each potential platform, whether it’s crowdfunding or a hiring a freelance funding expert, will save you time and resources so you can focus on the right type of investment based on your needs.
Visit Seedrs here.
Picking Your Lane: Maximising Your Chances Of Success And Happiness
How do you choose? What do you prioritise? What’s right for me is almost certainly not right for you.
Most entrepreneurs start businesses out of necessity. They do what they have to. They don’t think far ahead. They fight fires every day. They are the foundation of every economy all over the world. Some succeed, some fail, few shoot the lights out. Some are happy, some are not.
For me, there’s nothing more thrilling than building a business. Seeing your ideas turn into reality. Seeing your team exceed your expectations every day. Seeing your customers’ lives improved by your products.
But, entrepreneurship is not for the faint-hearted. You pour blood and sweat and tears into your business. You get more than your fair share of punches in the nose. It’s hard, but if you’re lucky and you persevere, the rewards are great.
So, how do you maximise your chances of getting into the ‘happy and shooting the lights out’ club?
Picking the right lane – figuring out what you’re going to do – is probably the most important decision you’ll make. Once you’ve figured that out, you can get down to the nitty gritty of picking your team and building your business.
But, how do you choose? What do you prioritise? What’s right for me is almost certainly not right for you.
The Sweet Spot Model, which has been drifting around the web for years, provides great guidance. If you do what you love, the hard yards won’t feel like work. If you do what you’re good at, you’ll beat or (even better) outstrip the competition. If you provide something the world needs, you’ll feel a sense of purpose. If someone will pay for it, you have a business.
When I co-founded Simply, I wanted to tick all 4 boxes AND work from Cape Town AND be extremely flexible (so I could prioritise family health).
I worked on three different ideas: A GIS-platform for solar and other utilities; a transaction platform for stokvels; and a cheeky online life insurance play.
The life insurance play quickly emerged as my best choice (it helped that my partners are top actuaries J):
- What I’m good at – doing start-ups, connecting people and teams, and using technology and data to solve business problems.
- What I love – working with people I like and trust to build businesses that solve hard problems and make the world a better place.
- What the world needs – most adult South Africans have one or more funeral policies. Few have life or disability cover and policies are often very expensive. There’s a clear need for simple, convenient, well-priced life, disability and funeral cover.
- What someone will pay for – the market we’re targeting is huge – nearly R7.5Bn of new premium is written annually.
With the stars lining up, we pressed the go button in early 2016. It’s now twelve months since we launched to market and early signs are good:
- Our innovative, online products – Family Cover, Domestic Cover and Group Cover – have been well received and are improving all the time.
- We have an amazing, engaged team – inspired by the purpose of protecting vulnerable people.
- We’ve sold more than 4 500 policies to date, providing more than R2.5Bn of cover to more than 20,000 people.
- We’re based in Cape Town, working hard and having fun, and I seldom miss a swimming gala, netball game or opportunity to go mountain biking.
While picking the right lane is no guarantee of success, it definitely helps stack the odds in your favour. You’re going to need all the help you can get. So, take the time to pick your lane. I bet it’ll be worth the effort.
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