Does a great market really pull product out of a startup?

Large market

Over the last few years, I’ve been quite interested in the startup investing process.

At the trivial level, understanding the investing process could help struggling entrepreneurs (like me) raise funding faster. And, assuming that this investing philosophy does pick winners, this could also teach us what kinds of businesses tend to make it big. And we could then apply those patterns to our own businesses.

Marc Andreessen wrote a landmark article in 2007, on the only thing that matters. If you haven’t read it, go do so now. I’ll wait.

 

I re-read this article every few months. One line stood out to me the first time itself (and every time since).

He channels Andy Rachleff (Co-founder of Benchmark Fund, one of the most successful VCs) in his article, saying:

When a great team meets a lousy market, market wins.
When a lousy team meets a great market, market wins.
When a great team meets a great market, something special happens.

Thus, of the three key dimensions of a startup opportunity – market, product and team – market is far and away the most important aspect.

What’s the takeaway for an entrepreneur? Take aim at a humongous market, and put your head down and execute.

But is that true? Is targeting a large market the only important factor? Are the team, technology, etc. not as important?[1]

Is large market the most important factor?

It certainly is, according to the conventional wisdom. According to Andy Rachleff, again [emphasis mine]:

The best investments have high technical risk and low market risk. Market risk causes companies to fail. In other words, you want companies that are highly likely to succeed if they can really deliver what they say they will.

Don’t take market risk – i.e., aim for markets that are already large. Instead, take tech risk – where the product itself is hard to create.

This sounds great, and is a commonly accepted truism. And it also seems to be common sense.

But, again, is it true?

 

One way to settle this is to look at the performance of venture capital over time. As they say, nothing talks like money. But a quick look at VC returns can be quite sobering.

The Kauffman Foundation reports that VC hasn’t outperformed public markets since the late 1990s. In fact, since 1997, VCs have returned less cash to investors than they invested!

Could it be that this VC approach of taking high tech risk but low market risk isn’t working? 

 

Tech matters (more)

I’ve just finished reading Crossing the Chasm, Geoffrey Moore’s landmark book. He presents technology adoption as a bell curve, with a few “gaps” between segments.

Chasm ModelIt’s easy to get the innovators and the early adopters. They want to be the first to try new technologies, so they’re primed to be convinced. You start hitting the main market only with the next group, the early majority.

Moore’s key insight is that it’s not natural to move from the innovators and the early adopters to the early majority. That’s why there’s such a huge chasm between these segments in the image above. A graveyard of companies that show great early traction, but suddenly hit a wall and collapse into the chasm.

His model suggests two pointers for technology companies:

  1. Building a version of the tech, and serving innovators and early adopters, comes first.
  2. The real challenge is crossing the chasm. You need to find a specific application to solve the early majority’s existing problems. This market isn’t visible or obvious at first – you need to create / discover it.

Thus, tech companies don’t take tech risk. They take market risk. If they find a big market, they succeed big. If they don’t, they fail. 

Jerry Neumann has written an excellent history of venture capital in the 80s. He makes a few similar observations (I paraphrase):

  • Whenever VC returns peaked, the driver was high market risk. Would there be a big market for computers (60s, Intel)? Would there be a big market for PCs (70s, Apple, Microsoft)? Would biotech become big (Genentech)? Would the Internet reach the masses, or would it remain a plaything of the elite (90s)?
  • These markets may seem inevitable today, but that’s just hindsight bias. Ask Ken Olsen. Or Thomas Watson. Or anyone in this article.
  • In most cases, investors didn’t take tech risk. Often, they found already-working products. Apple’s technology was already working when it raised funding.
  • Whenever VCs tried to reduce market risk to stabilize returns, they failed. For example, in the 80s, they entered more traditional, massive industries like retail. Result: returns were consistent and stable. But bad.

Thus, VCs didn’t often take tech risk. They preferred technologies that were already proven, and showed promise. And whenever they tried to reduce market risk by entering existing large markets, they failed.

At the end, Jerry summarizes:

The only thing VCs can control that will improve their outcomes is having enough guts to bet on markets that don’t yet exist. Everything else is noise.

There is no reason anyone would want a computer in their home – Ken Olsen, Founder, DEC

There is no reason anyone would want a computer in their home – Ken Olsen, Founder, DEC

Peter Thiel’s Founders Fund adds its own voice to the argument. It highlights how, from the 60s to the 90s, VC was a predictor of the future. Today, though,

VC has ceased to be the funder of the future, and instead has become a funder of features, widgets, irrelevances. In large part, it also ceased making money, as the bottom half of venture produced flat to negative return for the past decade.

When you focus on incremental innovation, for a market that’s here and now, returns fall.

 

And last, Paul Graham makes a similar point, even more indirectly:

When something is described as a toy, that means it has everything an idea needs except being important. It’s cool; users love it; it just doesn’t matter. But if you’re living in the future and you build something cool that users love, it may matter more than outsiders think. Microcomputers seemed like toys when Apple and Microsoft started working on them… The Facebook was just a way for undergrads to stalk one another.

I alluded to a similar point in a previous article, where I said that you must target a deep need for a narrow population, rather than a shallow need for a broad one.

What about the team, then?

As a VC friend of mine was quick to remind me when we discussed this, the quality of the team is incredibly important!

Large Market or Strong Team

But this quality is not theoretical or bookish. It’s not about which Ivy League school you graduated from. Or even whether you have a string of successes under your belt (at least in consumer).

Instead, it’s about three things:

  1. How driven you are. Will you overturn that 99th stone to find the gold mine? Or will the first 2-3 pivots fatigue you? Your initial ideas for tackling a problem will rarely be right. You’ll need to persist: find a new beachhead, and wade in again.
  2. Are you willing to learn? Again, you won’t be right the first time. They say industry knowledge is a great unfair advantage. True, but it’s also a double-edged sword.
  3. Can you execute?

 

So what’s the conclusion?

Which of these three is the most important?

The ex-consultant in me would answer, “all three”. And he’d throw in an “it depends” for good measure.

But it appears the conventional VC wisdom, of taking tech risk but not market risk, is wrong. As the Founders’ Fund article above says, the current trend of funding incremental innovations and more efficient solutions for existing markets is what has pushed VC returns downwards.

And what does this mean for entrepreneurs? Instead of trying to build something for large markets that VCs seem to be interested in, “swing for the fences”. But not in the conventional sense of aiming for large markets. Instead, try and piggy back on emerging trends that could become waves.

Sure, you’ll probably strike out. But should the market materialize, you will laugh all the way to buying the bank.


I’d love to hear your opinions. If you’re an entrepreneur or startup investor – what’s your stand on market risk vs. tech risk? Do email me at gt.jithamithra@gmail.com, tweet at @jithamithra, or comment here. I’d love to publish a follow-up sharing your opinions.

Thanks to Aditi Gupta and Abhishek Agarwal for commenting on drafts of this post.

[1] This article is about VC backable startup, and not a small business in general. Many great cashflow businesses (e.g., auto dealerships, general manufacturing) are often not high-growth businesses that can return 20x on invested capital, and are therefore not VC backable. See this article for a great description of such businesses

Related Posts:

How to break the chicken and egg problem – A Framework

In March last year, I published an article called How Uber solved its chicken and egg problem (and you can too!).

Multi-sided business models are a unique phenomenon – unlike standard businesses which offer a product / service to a particular type of consumer, multi-sided businesses don’t offer any product / service. Rather, they provide a platform that connects buyers and sellers.

Think of Uber – it connects cab drivers and passengers, who benefit each other. E-commerce marketplaces are also examples – they connect buyers with sellers.

Such businesses face a natural chicken and egg problem. For the platform to be useful, both sides have to be present. Sellers won’t come on to your platform without buyers, and buyers won’t come either, unless there’s enough choice (i.e., sellers).

For example, people buy video game consoles only if there are games they can play. But game designers make games for a console only if there are enough people who own it. The proverbial chicken and egg problem. How do one solve this impasse?

The above article discussed a few ways in which businesses can break this deadlock. Many readers wrote in after the article, asking if I could create a framework / checklist that they could use to brainstorm ways to scale their own multi-sided businesses.

Towards that end, I recently published this presentation on SlideShare. Check it out, download it, and let me know what you think!

Related Posts:

How ratings result in worse, not better, customer service

A few weeks ago, my wife and I were in Galle, Sri Lanka for a much-awaited vacation. We chose a villa with great reviews on TripAdvisor. It seemed a decent place. A little far from the main town, but the hosts were quite friendly.

But we couldn’t get much sleep any of the nights we stayed there, because our room had bedbugs.

After we came back from the trip, we made sure to rate the place. We left not one, but two ratings (one each from my wife and me). Both of them were 5 stars.

Wait, what?

Did we enjoy getting bitten by bedbugs?

I was surprised too. Not just at my own rating, but at other ratings on TripAdvisor too. This place was one of the most recommended ones in Galle!

So how did this happen? How did I – and all the other guests – rate inferior customer service so highly?

 

Do ratings work?

The prevailing wisdom is that ratings work. That’s why they are everywhere. When you open an app on your Android phone, it asks you to rate it on the Play Store. Complete a ride on Uber, and you have to rate your driver. Order something from Amazon, same story. Open your inbox after a long vacation, and what’s the first email you see? A message from either your airline or hotel, requesting you to rate your experience.

Blog00001

I’ve always found the act of rating quite empowering. The equation is simple – if you can rate a service provider in public, he has every incentive to ensure that you get great service. Right?

Well, after that incident in Galle, I realized that ratings may not result in better customer service. In some situations, they may be worsening it.

Wait, how does that make sense?

 

I’ll explain. But first, let’s agree on two key facts about ratings.

1. Ratings have an impact on service providers. That’s one reason they’re ubiquitous. Drivers on Uber do get blacklisted for low ratings. Top-rated hotels on TripAdvisor do get ten times as many bookings as lower-rated ones.

2. Customers know ratings have an impact. This makes them capricious (this Verge article calls them – us – entitled jerks). To see this, you only need to see a few app reviews. Sample these ratings on Circa (an app that used to provide summaries of important news):

Blog00002

Ratings are supposed to highlight how good an app is. But no, sometimes you get a 1-star for an innocuous review request.

This customer fickleness is not just an app store phenomenon. As the Verge article says,

We rate for the routes drivers take, for price fluctuations beyond their control, for slow traffic, for refusing to speed, for talking too much or too little, for failing to perform large tasks unrealistically quickly, for the food being cold when they delivered it, for telling us that, No, we can’t bring beer in the car and put our friend in the trunk — really, for any reason at all, including subconscious biases about race or gender.

Please the customer, and hope for the best

The fact that we wield a strange amount of power and know it, turns upstanding, proud cab drivers and B&B hosts into fawning, obsequious and servile slaves. You can’t jilt or offend a customer in any way. A single misstep, and you get a 1-star rating. Not a 4- or 3-star. Your last five customers may have given you 5 stars, but this single rating could put you out of business. In New York, Uber delists drivers from the platform if they go below a 4.5 star average!

So what is a service provider to do? Provide honest-to-God great service. And hope that nothing gets screwed up.

Blog00003

 

But there’s an easier way.

The honest approach is hard, time-intensive and expensive. And it’s subject to random whims of the entitled customer. If a customer expects Hilton service at McDonald’s rates, you’re bound to get 1 star. No matter what you do.

But there is an easier, quicker and more inexpensive way. One of the oldest psychological tricks in the book.

Dr. Cialdini, the author of Influence, calls this trick “Liking – The Friendly Thief”. Studies show that if you spend more time with a person, you end up liking her. And if you like a person, you tend to favor her in your dealings.

At a certain level, this is obvious. But that doesn’t make it any less powerful. Malcolm Gladwell cites a great example of this in Blink. Patients don’t file lawsuits when they suffer shoddy medical care, if the doctor is polite. They only file when they feel the doctor mistreated or ignored them.

“People just don’t sue doctors they like.”

So, to get a great rating, all you need to do is: (a) smile a lot and appear likeable; and (b) talk a lot, to create a human connection and familiarity.

Tried and tested. Once you get to know the service provider, you’d be a stone-hearted reviewer to leave anything less than 5 stars.

 

Nice host + bad customer service = 5 star rating

That’s what happened to us in Galle. Even though I was aware of this cognitive bias, I was powerless to counteract it.

The owner received us with great cheer. He chatted with us for hours. Always smiling and laughing (even when I didn’t crack a joke. And I’m not that funny anyway). I learned a lot about his life. I commiserated on his past troubles, and lauded him on his recent turn in fortunes.

My room still had bedbugs.

But my wife and I didn’t complain. Who can tell off such a nice guy? And when he requested us to leave two ratings on TripAdvisor, how could we refuse?

 

Talk more. Do less. Get 5 stars. Repeat.

This is just one small episode. But it sets in motion an insidious feedback loop, which could result in worsening customer service over time.

Blog00005

  1. Customer give a 5-star rating despite bad customer service.
  2. Service provider sees this as validation of his strategy. And becomes more chatty, more fawning.
  3. Soon, if he’s smart (our guy was), he realizes there’s no return on actual customer service. It’s much easier to smile and bluster, than it is to clean the room. Over time, he’ll become more talkative, and true customer service will degrade.

Woe betide the unsuspecting traveler when that happens.

Thus, ratings may have an impact that’s the polar opposite of your intention.

 

How do we break this loop?

Now, I’m sure you want great customer service. So, how can we break this loop?

Just being aware of what’s happening is not enough. You’ll only feel worse, as you continue to give 5-star ratings like a powerless lab rat.

The only way to break this cycle is to have a system of multiple ratings on different attributes, instead of one single unidimensional one.

Why would that work? For three reasons:

  1. It would force objectivity. If you’re rating your stay at a B&B separately on Cleanliness, Quality of Food and Friendliness of Staff, you’re more likely to question the halo around your host’s head, and distill your cheery feeling into its components
  2. It would give the service provider the right feedback on how to improve.

 

Ratings are here to stay. Let’s make sure they actually improve customer service. Rather than slowly turning us into smiling zombies.

Related Posts:

What’s the right time to start up?

[Note: This article first appeared on YourStory last week.]

A few weeks ago, I gave a talk at the Indian Institute of Management, Trichy, on entrepreneurship. [You can find my presentation here, and my reflections from the talk here]. I also had a chance to speak one-on-one with many students from the B-school, as well as from NIT Trichy, the engineering school they share a campus with.

One question I got from many students was this – “I have a great business idea. Should I start up now, or wait and gain some (valuable) work experience first?”

YS00003

Let’s assume, for the moment, that their business ideas were indeed great. Then, what’s the right answer to the question? It’s clearly an important one. Not least for students without much worldly experience, making a “risky” choice. Let me try and answer it.

But hidden inside this nuanced question is a far more basic one – why should you start up at all?

 

Why start up at all?

Granted, there’s a ton of hype about startups. If you only hear of Flipkart raising billions or SnapDeal buying Freecharge, your glasses will be rose-tinted. But 92% of startups fail, and most of the survivors meander without decisive success. So, don’t start a company in expectation of a massive exit alone. Or even a small exit.

The journey of building a business is long and arduous. Even uber-successful Elon Musk compares it to ‘eating glass’! It doesn’t make sense, if all you have at the end of it is a minuscule probability of making some money. Especially if well-paying jobs are available.

So, why start up at all, if the expected monetary return isn’t high? Here’s my opinion, based on the last two years I’ve spent trying to build a sustainable business.

  1. Starting a company from scratch teaches patience and long-term thinking. Few other experiences can match it. You often have to persevere in the face of repeated and several “No”s, making the joy of finally hearing a “Yes”, of beating the odds and succeeding, so much sweeter.
  2. There’s an unmatched joy to building something yourself. Even more than the first time you wrote a “Hello World” program.
  3. It’s a great learning experience. Nothing teaches you as much about starting up… as starting up (a point I’ll come back to later).
  4. And there’s a tiny, tiny chance that you’ll luck out and won’t have to work for money again. But again, the probability is so low that on average, it won’t be higher than a full-time job (which has much less stress).

So, despite the lack of income, there’s definitely value in trying to start a company. But should you start one now? Or, as the prevailing wisdom in college campuses / steady jobs seems to be, should you wait and take the plunge later?

 

Should you wait?

Wait

Some of the main reasons you hear for waiting your turn at the startup lottery are:

  1. “Let me gain some experience first – I don’t want to make any rookie mistakes”
  2. “Let me collect a decent pool of money first”
  3. “I need a brilliant idea. I come up with 3 ideas a day, but a little research shows that someone’s already doing it / it doesn’t work.”

All good reasons. But incorrect. Here’s why:

1. Experience: Hate to break it to you, but no experience can teach you how to build a business. Apart from trying to build one, that is. Recursive logic, but true just the same. Even if you work at a startup, it’s not the same as founding one.

Trust me, I know. I started a company after several years of experience helping companies enter new markets, launch new products, or develop business models. I knew how to build a new business from scratch. Except that I didn’t.

2. Resources: You don’t need a ton of money to start up. As I mention in this Slideshare (slide 30), it’s inexpensive to start a company today. Once you see consumer traction for your first product, you can begin investing more (or raise funding).

Moreover, today, tools like Kickstarter make it even easier to test your product concept for free, before investing your time and (other people’s) money in building it

3. Idea: This is the hardest roadblock – without a decent plan of action, your business will be stillborn. But it’s also an easy one – good ideas are a dime a dozen. Just look for problems you or your friends have, and try to solve them. Sooner or later, you’ll stumble upon a goldmine. Like Twitter did. Or Hotmail.

 

Thus, you don’t gain any specific advantage by “starting up later”. You’re much better off diving in now, when you’re young and less risk-averse. So, what are you waiting for?

YS00001


I’d end the article now, but this answer leaves me a little unsatisfied. You see, a wise man once said – there are good reasons, and there’s a REAL reason. Experience, resources, lack of an idea – all these are great (but wrong) reasons. So what’s the REAL reason? What if you really need the money? What if the above reasons are just excuses?

Specifically – what if you want to start up eventually, but would be really comfortable if you took a job and earned some money first?

Well, you’re in luck, pal. Because this is a false question. You don’t need to choose between a job and starting up – you can do both!

Validate the idea (or the MVP if you will) in your free time, while working at your day job. Flesh it out gradually, observing user behavior and feedback on each iteration. If it catches fire, you’ll quit on your own!

Related Posts:

What do you really need to start up? [Slideshare]

Last week, I was invited to the Indian Institute of Management, Trichy, to talk to the students about startups.

Given the hype associated with “starting up” today, with investors opening their purses wide and newspapers dedicating daily centerfolds, everyone wants in. And if I remember correctly from when I was a student (or even when I was working in strategy consulting), it can become difficult to separate fact from fiction when you’re looking in from outside. More so if your only source of information is a newspaper.

 

Therefore, I decided to speak on “The truth about startups”. Apart from being clickbait, the topic is also pertinent for a number of reasons.

  1. Startup accounts in newspapers are almost always after the fact – they are tinted with 20:20 hindsight. There’s a lot more uncertainty when you start a business. Lots of things go wrong. All of this is airbrushed away in the ‘inevitable march to victory’ accounts you find in newspapers.
  2. If you look for patterns only in companies that succeeded, then you’ll suffer from survivorship bias. Seeing that many successful founders are passionate today is not enough to conclude that it is necessary and sufficient for starting up. For all you know, the graveyard of failed businesses may be littered with passionate entrepreneurs (and it is, as you’ll see in the Slideshare presentation below).
  3. As Steve Blank says, small companies are very different from large ones. A company that has just started is very different from one that has found product-market fit, which itself is distinct from one that has scaled. You hear only of startups that have found some measure of success already. Applying patterns from such companies to your fledgling company indiscriminately will at best be a waste of time. At worst, it can cause active harm.

 

As a founder who’s in the trenches right now, I thought I must set the record straight. When you’re trying to find your feet and learning how to build a sustainable business in an uncertain world, what do you really need to set out on the path to success?

I asked the students this question at the outset – what do you need to start a company? Almost all the answers were variants of the following:

  1. Passion
  2. Vision
  3. Dedication
  4. A brilliant idea
  5. Lack of competition
  6. A sound business model
  7. Huge risk appetite
  8. Tons of money / resources

These sound quite definitive. But they aren’t.

I don’t think you need ANY of the above to start up, as I explain in the embedded Slideshare presentation. They may become important at later stages of your startup’s life, but they are definitely not needed when you’re just starting out.

And I’m not saying this just to make a point. Some of the above factors are distractions at the start, and some others may in fact insidiously drive you to inevitable failure.

 

Then what do you need? You just need two things – a decent idea, and a willingness to learn. These are necessary and sufficient for most business ideas. Check out the presentation for more.

The presentation also includes links to various articles for further reading. I love diving down the rabbit hole, and I hope you do too.


I’d love your thoughts on this. If you see any gaps in logic or don’t agree with something, please comment here, write to gt.jithamithra@gmail.com, or tweet at @jithamithra. I’m willing to learn.

PS. Thanks a lot to Abhishek Agarwal, Aditi Gupta, Akshat Poddar, Shashank Mehta and Srinivas Chaitanya for their inputs on this.

Related Posts:

Your Minimum Viable Product can be more ‘minimum’ than you think

[A slightly abridged version of this appeared first in YourStory.]

Minimum Viable Product, or MVP, is sure to show up in any startup glossary. It would be the first word in the glossary if glossaries weren’t alphabetical. And like most other jargon, it is often misunderstood.

Final00001

But before we get into that, let’s come up to speed on the popular notion of the MVP.

An MVP, or Minimum Viable Product, is the most basic version of your product that still delivers your core offering. You build a bare-bones product fast (emphasis on ‘fast’), so you can get validation early before investing more time and money. Thus, the product needs to be as ‘minimum’ or basic as it can, but it also needs to be ‘viable’ – i.e., it still needs to solve the one problem it was created to solve.

Aiming for an MVP helps entrepreneurs (especially first-timers like me) avoid the rookie mistake – building too much product before validating market need. We all want the ten revolutionary features in our first version. But not only will these features take five extra months to build, most users will also not see them.


So that’s the concept of an MVP – sounds simple, right? I thought so too. I congratulated myself many times as I built my first prototype in three months, found that people didn’t need it, and junked it. And again when I built my next one in four months, tested it out over the next three, and pivoted it to its current form.

But when I took a step back recently, a thought struck me, “Four months to build an MVP? Sounds excessive.” We’d done all the right things – cut the feature bloat, honed in on the two key functionalities, and built them. But that’s how long it took. Notwithstanding my obvious bias, we couldn’t have done it in less than three months.

From talking to other entrepreneurs, I see that this is a common conundrum – why does the damn MVP take so long?

The reason is that we’ve got the notion all wrong – for all but the most tech-intensive products, you don’t need to ‘build’ an MVP. You just need to ‘put it together’. And this often doesn’t need much coding at all.

Final00003

Let’s say you’re starting a website that offers personalized fashion tips. You can launch in one day or less – you don’t need the full website right away.

  1. Buy a domain – 3 hours. [Hint: The name doesn’t matter. But we know you’ll take the time. And buy five domains.]
  2. Build a one-page website with LeadPages, where people can upload photos or ask questions – 1 hour. No need to create an account or browse any content – they can ask fashion-related questions, and you can email your replies.
  3. Or, you know what? Ditch the website. Just have a number that people can Whatsapp their snaps or questions to. 1 hour [for you and your co-founder to fight over whose number to use.]
  4. Run a small Facebook campaign publicizing this site / phone number. Or tell ten friends, and have them each tell ten more. That’s your test audience. 2 hours.

Thus, you can be up and running tomorrow – even if you’re slow because this is your first time. What are you waiting for?

I know what you’re thinking – why should we listen to this guy? What has he done?

I’ll tell you what he’s done (yes, it’s normal to talk of yourself in the third person). He’s compiled a list of companies that hacked together an MVP. You may recognize some of them.

 

A. Started with an incomplete product

  1. Zappos is a US e-retailer specializing in shoes. When it started, the founders visited a few shoe stores, took photos of their merchandise, and put them on their website. When customers purchased the shoes, they would buy them from the stores and ship them.
  2. I’ve heard this about Flipkart too. At the beginning, they went out and bought books themselves when they received orders, and couriered them.

Back then, they still had to build the e-commerce website. Today, with Shopify, you can do even that in a jiffy.

 

B. Started by combining existing products

Final00004

  1. Angellist is a LinkedIn for startups – a marketplace that connects startups and investors. How did they start? Their MVP was good old email. They made intros connecting a startup looking for funding to an investor looking for investments. That’s it!
  2. Amazing Airfare helps you find ridiculous bargains on airfare. The company put together its MVP with text messages, PayPal, Excel, and email. No code.
  3. Saralmarket is a fruit procurement company. They don’t have an ordering website or complex prediction algorithms. They use Whatsapp to send out market rates and take orders.

 

C. Started without a product (!)

Final00002

  1. DropBox started as… a video! No product – just a clip of the founder shifting files between folders. Interested people could sign up for updates. And tons of people did, so this was strong validation.
    1. Wait, there’s no product! So how can this be an MVP? You’re right – this may not be an MVP. But it is a great example of how to validate your product without a single line of code.
  2. Kickstarter campaigns do exactly this. You put up interesting product ideas before you build them. Others demonstrate their desire by supporting you. Validation complete – go build the product now.
  3. Buffer, a tweet-scheduling tool that manic tweeters swear by, also started as a two page website ‘MVP’ – the user could see what Buffer would do, and could sign up to learn more. When several people signed up, Joel Gascoigne knew he was on to something.

We’ll see more and more of this, as social media makes it ever easier to test your product. Even when it doesn’t exist. As Ryan Holmes (CEO of Hootsuite) demonstrates, you can simply ask Twitter.

 

This list can go on. But I’ll stop here with an anecdote. A friend told me a couple of weeks ago that he had a great business idea. He’d planned it in detail – he already knew the 12th feature he’d introduce in month 22. But he hadn’t launched yet – seemed too daunting. So this is what we did – we took one of these to-do books (check them out – the irony is delicious), and made a list of starting tasks. It wasn’t that long – only three items, one of which was finding a name – which he had, so we ticked this with a glorious flourish. You’ll hear from him soon.


I hope to build many MVPs over my career, so any lessons from your experience would be quite handy. Mail me at gt.jithamithra@gmail.com, tweet at @jithamithra, or comment here.

Related Posts:

What strategy consulting for big businesses taught me about… starting up?

[This article first appeared in YourStory.]

Presentation

Strategy consultants are a much maligned lot in the startup and business world. Over the five years I spent at the Monitor Group (a strategy consulting firm started by Michael Porter), I heard various complaints:

  • How can a young consultant say anything useful to an industry veteran?
  • What’s the use of a plan that’ll take five years to execute?
  • Consultants don’t do anything except make slides.
  • You don’t know how to make decisions. Sure, you can advise people…
  • You never put your money where your mouth is. (I think Paul Graham meant this, when he called management consulting a version of ‘gaming the system’).

I heard many such comments during my tenure, from friends, relatives, and chatty fellow travelers on long flights. And seeing how we addressed these complaints at Monitor – while advising large conglomerates in established industries, paradoxically enough – prepared me for starting up.

1. It doesn’t matter who you are or what you know. You need to have a hypothesis, and be ready to learn.

When I started in strategy consulting, the first thing that struck me was the novel, hypothesis-based approach.

Hypothesis-Based Approach

Hypothesis-Based Approach

Coming from an engineering background, I was used to the deductive approach – start from what you know, and proceed towards conclusions. But a hypothesis-based, inductive approach starts from the other end – you make some predictions, and then proceed to test them (and modify them as needed). This data-driven learning approach is a great complement to industry understanding. That’s why companies hire strategy consultants – to hold up a mirror to their beliefs, test them, and help company executives understand how the industry’s evolving.

Performing this process – of making predictions, being proved wrong, and correcting them – repeatedly over multiple projects gives you a healthy appreciation of your own ignorance. I’ve found this invaluable when starting up – I may not know the right answer, but I know how to test my beliefs and work my way there.

2. You need to be OK with uncertainty.

One of the differences between strategy and operational consulting is the timeframe – strategy is more long-term. The industry trends you bank on may play out over 3-4 years – some may not have even started yet. So there will be ambiguity. But you still need to make some bets, and find creative ways to validate (or invalidate) them – talk to industry experts, observe trends in related industries and evolution of similar economies, etc. But none of these will give you the perfect answer – you need to ‘satisfice’. Thus, not only do you not know the answer starting out, but you also may never know the answer with certainty.

And it’s the same at my startup – I don’t know if my product is going to be loved, hated, or worst of all, ignored – first by early adopters, then by followers, and then the rest (if I get that far). But I’ll keep plugging away, and figure out ways to run small tests often to ensure I’m on the right track.

 

3. Serving your clients’ needs is your foremost objective.

Ignoring the double entendre for a bit, client service is the priority in consulting – I heard this all the time from Partners at Monitor. Whether it’s sudden weekend work or an ill-timed field visit, you do it if it benefits the client.

Today, I have a consumer-facing Android app. Every once in a while I get a caustic review, or a needlessly harsh 1-star rating. But it’s not my place to rail against unreasonable users – if I focus on serving them well, then I hopefully won’t have to worry about these ratings in the future.

 

4. Brevity is the soul of communication.

Quote

Naysayers are true when they say consultants make a lot of PowerPoint slides. Boy, did I make a LOT! But the thing about slides is that, unlike a Word document, there’s limited space. So you need to make your point succinctly. And you need to say first up why that message is important (or as they say at Monitor, you need to bring out the ‘so whats’).

I’ve done my 10,000 hours of slide-making. I’m still far from a genius at it (Gladwell was wrong), but knowing how to deliver the key message upfront and in as few words as possible is a very useful skill at a startup. Whether it’s in crisp emails to potential clients, high-impact copy for Facebook ads, or elevator pitches to investors with short attention spans, brevity is invaluable to startups.

 

5. Ideas are worthless. Execution is key.

I know this sounds very ‘global’ (and it is – I won’t lie), but project after project has taught me that the best-articulated strategy can stop making sense once you start implementing. There was one case where we designed the strategy and left, and the client came to us after a few months saying everything is shot to hell and can we please come back and help them. We could definitely have done better – it was our responsibility to devise a plan that the client could implement, and explain it to the client’s team.

But the larger learning for me was that your plan doesn’t matter so much; it probably wasn’t rocket science to begin with. But you need to be able to execute on it effectively. It needs to be ‘actionable’.

In the same article where Paul Graham says that management consulting is gaming the system, he also mentions the similarity to college. And while I may not fully agree with his first comment, his second is spot on. A strategy consulting firm is one of the best finishing schools you can go to, if you want to build a business of your own someday.


What do you think? Did these learnings resonate with you? And did I miss anything? I’d love to hear what you think – mail me at gt.jithamithra@gmail.com, tweet at @jithamithra, or just comment here.

 

Related Posts: