Posts tagged ‘Customer’

July 24, 2012

2 reasons why a startup fails

balance sheet in chinese

balance sheet in chinese (Photo credit: Wikipedia)

The first reason is obvious and I am not sure if I have repeated it enough… Startups fail not because they have bad ideas or products or teams although those are some of the reasons but the single most important reason why a startup fails is because it does not have Customers. The second reason why a startup fails is because the team has not built the discipline to mind its business. What do I mean by minding ones business? well Yes, it is the boring stuff but I love it… I love it like I love Ice cream. There is nothing more important than having the discipline to maintain clean accounts of your startup. If you don’t build the discipline when you are small you will never build the discipline. So take the time to learn about how to maintain accounts. There is a difference between Accounting as a book keeping activity and Accounting used for Management decision making. I am a strong believer that you have to manage things and lead people. You have to take the time to manage your accounts. So what am I talking about? it is actually quite simple when you are in the initial phases of your startups development, create a discipline to make sure you record all your financial transactions i.e spending like paying salary, rent, internet access etc and receiving grant payments and investments. This discipline will help you in multiple ways one it will help you plan and budget, second it will allow you to understand your key financial metrics of Cash burn, sales etc. If you are not a finance person, take the time to understand what all the financial statements are about. Fred Wilson had detailed posts on every type of financial statement and what it is used for through his MBA Mondayssection, here are the subsection of the posts that I think are relevant:

Finance

Finance (Photo credit: Tax Credits)

  1. Accounting
  2. The Profit And Loss Statement
  3. The Balance Sheet
  4. Cash Flow
  5. Analyzing Financial Statements
  6. Key Business Metrics
  7. Booking vs Revenue vs Collection
March 15, 2012

Waste vs Value – 7th Lean Startup Meetup

We had our 7th meetup on the Lean Startup and the topic of discussion today was Determining Waste vs Value. The biggest reason for waste in any process is big batches. The book refers to a number of examples where batching things in smaller sizes actually resulted in the overall job getting done faster and in addition to that reduced waste in the process. Here is one example, where the batch processing of stuffing envelops vs stuffing each envelop had a show down. We discussed how the product development cycle if done in a lean way could result in getting feedback faster from the customers by getting a usable product to the market. We also spoke about the Lean Manufacturing Process of Toyota, how the Pull method is used to replenish inventory rather than storing a large stock. Although my experience with Toyota in Iceland is very different, my Toyota 4Runner rear wiper broke and when I wanted to buy a replacement I was told that they need to order it for me, it took a couple of days but when it came I realized I needed to get the wiper unit as well once again it was not in stock. I basically informed them that I was not interested to wait another couple of days for the wiper, I will just find the old one and try to fix it to the new arm. So, it is not consistent that Toyota has the same process world over. In manufacturing, pull is used primarily to make sure production processes are tuned to levels of customer demand. Without this, factories can wind up making much more or less of a product than customer demand. Lean Startup models do not work this way, as customers often don’t know what they want. The goal of any lean startup in building products is to be able to run experiments that will help us learn how to build a sustainable business. Thus, the right way to think about the product development process in Lean Startup is that it is responding to pull request in the form of experiments that need to be run. It is not the customer, but rather our hypothesis about the customer need, that pulls work from product development and other functions. Any other work is waste.

There were a number of questions and examples of how testing was done to validate hypothesis. Kristjan shared some examples that Eric Ries, the man himself was sharing in SXSW last week in Austin, Texas. Kristjan will talk about SXSW experience next as it relates to the book and how the whole conference was organized. During the discussions, there were  a couple of questions related to how to apply the lean methods in established conservative organizations. I tried to give examples of how hypothesis testing can be done in any process. The end result is the key and defining success and/or failure is also key to test hypothesis.

March 5, 2012

#BMD – Value Proposition II

BMD-ValueProposition

BMD-VP

This is the second of the posts related to defining the Value Proposition. The original post is here and the first post is here. I am using Startup Iceland as an example. Value proposition needs to address multiple stakeholders. The first post was the value we bring to the Entrepreneur, this post is going to focus on the Value to the Investors and Limited Partners (LPs) of Startup Iceland. We invest money on behalf of our investors and LP:

What value do we deliver our Investors and Limited Partners?

Traditional methods of measuring Return on Investment or Return on Capital Invested are good metrics, however the biggest value we bring is transparency. We plan to run the operations of the Venture Capital Fund in a transparent, inclusive and open manner. We clearly state our investment thesis, the timeline of investment, decision criteria for investing capital, our performance, time invested and effort in a team.

Which one of our customers problems are we helping to solve?

Mentoring, advising and creating an environment where the entrepreneurial teams get motivated to execute, win and be a world class company on a tough compressed timeline is a lot of work. We solve that problem for our limited partners and investors. Typical investors are passive and look at Venture Capital Asset class as risky, we asked the question ourselves why is that? the answer is it takes a lot of effort and handholding to make startups succeed. Eric Rise, the author of the Lean Startup defines Startups as an “Organization dedicated to creating something new under conditions of extreme Uncertainty”. We strive to reduce the uncertainty through our disciplines approach, working harder and smarter, bringing the power of the network to increase the odds of success and following the time tested methods of building companies. We are entrepreneurs at heart, we have had experience building companies and we want to ensure that our experience gets translated into our portfolio companies.

What bundle of products or services are we offering to each Customer Segment?

Investors and LPs are always looking for avenues to invest their capital. We believe we provide a platform that is underserved. Venture based investments have outperformed typical asset classes over a 15 year period. A Venture Fund dedicated to creating valuable internet based companies out of Iceland is a unique value proposition. Our intention is to use Iceland as a good testing ground to validate the product quickly and help launch it in the global market place. We understand the world of Technology, being technologists, architects and geeks. We understand the direction the social networked world is moving to. A platform to invest in this new trend is the product and service we provide to the customer segment of Investors and LPs.

Which customer needs are we satisfying?

Diversification in capital allocation. High Return on Invested Capital and Being responsible stewards of capital. We want to earn the trust of our partners. We understand we do not exist without their trust. Our values of Integrated, open, transparent, fair and trusting relationships in building wealth and return to our Investors is our gospel. We don’t just say it we live it every day. We will NEVER put our interest before that of our investors. We will measure ruthlessly our performance and we will be transparent about communicating our failures and wins. Transparent Governance is the core belief of our operation.

February 29, 2012

#BMD – Value Propositions

This is the first of the posts on Business Model Design. The topic this post will cover is Value Proposition, it is one of the boxes in the Business Model Canvas. In my opinion defining the Value Proposition is one of the fundamental blocks in building any business. The definition of value has to be clear. Lets consider the example of Auro Investment Partners aka Startup Iceland. When I embarked on this journey almost 3 years back the value I wanted to create was to enable entrepreneurs to achieve their highest potential and goals. Although the fundamental definition has not changed, what is valuable has changed depending on the lifecycle and stage an entrepreneur or the company that we work with is in.

BMD-ValueProposition

BMD-VP

Alexander Osterwalder in the Canvas asks fundamental questions that we need to take the time to answer:

What value do we deliver to our customers?

We deliver speed in capital decision, know-how, networking and physical presence into the US and Indian markets, mentoring and experience in starting, building and scaling companies in the technology and the hospitality business. Characteristic addressed: Speed, Performance, Risk Reduction, Customization, “Getting the job done”,

Which one of our customers problems are we helping to solve?

At the initial phase it is providing the seed and angel funding, followed up with mentoring, advising and help in building  the team, a network and large markets of US, Europe and India. Characteristic addressed: Performance, Risk Reduction, Customization, “Getting the job done”, Cost Reduction

What bundle of products or services are we offering to each Customer Segment?

Our customer segment is broken down into Entrepreneurs in the technology space and Entrepreneurs in the hospitality space. For the customers in the technology space, we provide validation of the business model hypothesis, marketing and sales strategy, operational know how, team building know how and developing the market and customer know how. In the hospitality sector we bring vast experience in developing, managing and running hotels. In addition, we bring experience in advising investors in investing in hospitality business. Characteristic addressed: Customization, Risk Reduction, Performance, “Getting the job done”, Cost Reduction

Which customer needs are we satisfying?

We satisfy the need for early stage capital, mentoring and network development to validate product market fit. We try very hard to build relationships and partnerships that are driven by the principle of win-win. We want to understand and provide value for Entrepreneurs in the entire gamut of business development. We understand it is our previlage to have the opportunity to work with Entrepreneurs and not the other way around.  We want the entrepreneurs who work with us to see the value we bring to the table, if we are unable to justify the value we simply don’t waste the entrepreneurs time. We believe we need to be evaluated the same way as we evaluate the teams and entrepreneurs we work with.

February 18, 2012

Business as a Hypothesis – 5th Meetup

We had a very good turn out for the 5th meetup to discuss the book the Lean Startup. We had a new interesting idea that was tried out, where one of the participant takes 5 minutes to talk about something that he/she found interesting and wanted to share with the group. Sverrir took the first stab at it and outlined a check list for making a business case for your product or service. His posting is here on Facebook, for those who don’t want to go there and find the post I have reproduced it:
22 Power techniques to show that your product or service has characteristics and benefits to secure a unique position for your product and sell it (From Formula Five)
The core things need to be present (all products and services have these), how can you show that you have strength in each of these attributes?

  1. The specific product or service, describe it
  2. Any associated service or product
  3. Bonuses coming along
  4. Pricing
  5. Quality
  6. How is it used, how easy is it to use it?
  7. Perceived value and status element
  8. Your delivery
  9. Your deliverability
  10. Is it readily available? How is it available, when?
  11. Your customer and technical support
  12. Your selection
  13. Your convenience
  14. Any warranty
  15. Your policies
  16. Terms
  17. Your guarantee or risk revearsal proposition, how do you minimize the risk for the buyer?
  18. Your reputation
  19. Reputation of people that own product
  20. Joining the club
  21. Ownership
  22. Experience
  23. (more, not mentioned here?)
Set up your Super Value Proposition (SVP)
  1. Find and show the financial value of the element that will positively effect the buyer. – Calculate and show the better value. – If you are giving bonuses, say what they are worth.
  2. Free focus factor, if the product has lower cost, calculate when the lower cost has added up so that the product is really free after that point. Tell it. Show it. „Pays itself up/free in ten months.“
  3. Instead of value, when pays itself up, show how much extra profit customer will make. Do the math for customers (most won‘t do it themselves).
  4. If not cost and money, show how things are quicker, easier, simpler, better environmentally.
The discussion centered around the notes that I had shared from the previous blog post. There was a number of discussion around how validating and hypothesis testing is critical to learn whether what we are trying sell has a customer. There was also a lot of discussion around why traditional businesses do not try this method with their current customers. Overall fun evening and I learnt a lot listening to the group.
February 9, 2012

Validated Learning – 4th Meetup

We had a fantastic turnout today with over 40 people participating in Hotel Kex lobby in our 4th event related to the Lean Startup book discussion. Ari led the discussion about Validated Learning, once again the whole meeting was in Icelandic until I interrupted the flow with my 2 cents in English :) what can I say I am like that. Anyways, it was very exciting to see the level of participation and interest in this material. I think the most important element of the discussion was when Gunni gave examples of how traditional businesses can apply the Validated Learning concepts to established and functioning business models, and how one can improve on them. The whole premise of the Validated Learning concept is to treat every assumption we have about our business like a scientific hypothesis and build tests to validate those hypothesis. There were a bunch of references during the examples and talk to Steve Blank‘s book the four steps to Epiphany. I thought this video was very apt as it talks about the lost lessons of validated learning, I like the conclusion- “Lean Startup does not teach you to create value, that comes from within and from your value system. Use Lean Startup methodology to refine that.”

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