Archive for February 16th, 2012

February 16, 2012

Business as a Hypothesis – Notes for 5th Lean Startup Session

This is a picture of Tony Hsieh, CEO of Zappos.

This is a picture of Tony Hsieh, CEO of Zappos. (Photo credit: Wikipedia)

Delivering Happiness

Delivering Happiness (Photo credit: Wikipedia)

Today we will be discussing the concept “Business as a Hypothesis” in our weekly Ministry of Ideas meeting. The details of the meeting are here. I wrote about our first meeting and I have been really encouraged to see the swell of participation. We started with maybe 15 to 20 people, but last week we had over 40 participating. Sharing and learning from each other is fun. I thought Gunni was going to lead the meeting but he has asked me to do it, so I am going to give it a try. This blog post is more like my notes for the meeting. I was curious whether the two words “Business” and “Hypothesis” are linked together, so I did what any respectable researcher would do… I Googled it and guess what there is absolutely nothing out there in Google land explaining this concept so I think it should be a good discussion. Eric Ries talks about breaking any business vision into its component parts, he talks about two assumptions in business are “Value Hypothesis” and “Growth Hypothesis” in his book The Lean Startup, which is by the way the book we are using during these discussions.
Value Hypothesis: This tests whether a product or service really delivers value to customers once they are using it. The traditional way would be survey or ask your customers to get their opinion, but that would not be very accurate because most people have a hard time assessing their feelings objectively. Eric tries to emphasize, experiments provide a more accurate gauge. 
Growth Hypothesis: This tests how new customers will discover a product or service.” (pp 61)
Zappos is the world’s largest online shoe store which was acquired by Amazon for $1.2billion, yes with  “b”.  Here is a excerpt from the book “The founder Nick Swinmurn according to the book was frustrated because there was no central online site with a great selection of shoes. He envisioned a new and superior retail experience. Swinmurn could have waited a long time, insisting on testing his complete vision complete with warehouses, distribution partners, and the promise of significant sales. Many early e-commerce pioneers did just that, including infamous dot-com failures such as Webvan and Pets.com.
Instead, he started by running an experiment. His hypothesis was that customers were ready and willing to buy shoes online. To test it, he began by asking local shoe stores if he could take pictures of their inventory. In exchange for permission to take the pictures, he would post the pictures online and come back to buy the shoes at full price if a customer bought them online.”(pp 57)
What is interesting in this experiment is that while running his experiments, Swinmurn tested various other  assumptions as well like interacting with customers, taking payment, handling returns, and dealing with customer support. What they learnt in that has become the stuff of legends i.e Customer Support made their online shoe store sticky therefore they spent considerable amount of time making that their main priority. Their CEO Tony Hsieh, wrote the book “Delivering Happiness” based on that premise. I also like the following excerpt from the Lean Startup book – “Even the seasoned managers and executives at the world’s best-run companies struggle to consistently develop and launch innovative new products.
Their challenge is to overcome the prevailing management thinking that puts its faith in well-researched plans. Remember, planning is a tool that only works in the presence of a long and stable operating history. And yet, do any of us feel that the world around us is getting more and more stable every day? Changing such a mind-set is hard but critical to startup success.” (pp 72)

February 16, 2012

Isafjordur the next Startup Hub?

I saw this video on Bloomberg TV, the interesting thing is many of the new “hot” startups are cropping up in NYC because I believe there is a transition that is starting to happen, the technology is getting easier to put together the cost of creating a company is also getting to be not a huge hole in your wallet. NYC has many of the Fortune 500 companies, so if your startup is in the business of Media, Advertising, Fashion, Financial Services or even Pharmaceutical NYC is not such a bad place to be. Goes back to the Investment thesis that I wrote about, all the traditional businesses are now the users of new technology infrastructure built by Google, Facebook, LinkedIn, Amazon, Apple etc.
The investment thesis is quite simple, if one looks at:

  • 1970s: Successful companies that created a lot of value were the hardware companies like Atari, Tandy, Radio Shack, Apple etc
  • 1980s: IBM PC, Microsoft, Lotus 123, WordPerfect, HP, Compaq, Apple – Software companies that built applications for the Micro and Mini computers (back then Personal Computers were called that!)
  • 1990s: Sun Microsystems, Cisco Systems, Microsoft, NeXT, Novell – Network related companies that made the plumbing of the Internet work
  • 2000s: Google, Amazon, Ebay, PayPal, Yahoo, Apple, Microsoft – Software companies that build application on top of the Internet infrastructure
  • 2008+: Facebook, Twitter, LinkedIn, Apple, Google, Amazon – Software as service companies that run on top of the software that connects the Internet.
  • 2010+: Any company that is building applications on top of the software stack of Facebook, Twitter, LinkedIn, Google, Amazon and the Mobile Devices
What is even more exciting is that the companies in the future that are building things on top of the Internet Software Infrastructure can be located anywhere and still sell it to the entire world. This creates an  awesome level playing field for places like Iceland. You can be in Isafjordur or Egilstadir and still create companies that solve a global problem. The picture is from Isafjordur, not a bad place to start the next Google. Nobody says it cannot be done!
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