Entrepreneurs & the lean start up

Let me start with an analogy of the marshmallow challenge. For those of you that aren’t familiar with the challenge, it’s a team building exercise used in large organisations and schools alike.

The concept is simple. The participants are given 20 strands of uncooked spaghetti, some tape and some string. With this, they must build the tallest possible structure, on top of which, they must place a marshmallow.

Results show that recent business school graduates; lawyers and CEO’s perform poorly at this challenge. While engineers and kindergarten students excel.

Why do business students and CEO’s struggle with this challenge? Because they’ve been taught to follow a linear process: plan, execute, test. So, they sit and draw up the concept that they wish to build, they build it and then they test it by placing the marshmallow on top – having never felt the weight of the marshmallow before and unsurprisingly, their structure fails to hold the weight.

Kindergarten students on the other hand, play with the marshmallow, understand it’s weight and adopt a trial and error process in order to build their structure. With each iteration, they place the marshmallow on top and see what happens. They therefore usually stumble upon a formula that works and is able to support the weight of the marshmallow.

What does this experiment have to do with being an entrepreneur?

Well, traditional business logic tells us that we should carry out thorough market research; write a long business plan and build financial forecasts before we do anything. Then, we should follow the tried and tested method of plan, execute, test to deliver the product to the market. That though, often results in failure.

Entrepreneurs should, like the kindergarten students, experiment,  test and prototype their ideas in an iterative process. Why? because the traditional approach assumes that we know the answers, which we rarely do. Through rapid prototyping and customer feedback, we can adapt to the customers real needs, rather than delivering a rigid product to meet their perceived needs.

It goes back to the core of any product development. The first question you should ask is ‘what is the pain point that I am trying to solve with my product’. To understand whether it’s really a pain point, you can rapidly develop a prototype of your minimal viable product (MVP) and canvas feedback from your potential customers.

This enables you to collect the maximum amount of validated learning with minimal effort (i.e. you didn’t spend 2 years developing a product that didn’t quite meet the needs of the customer). Based on this learning, you can then pivot or adapt your model.

You must start learning as soon as possible. To do that, you need to get a prototype into the customers hands quickly. That means, you need to be okay with shipping a product to your customers with the ‘that’ll do’ attitude. You can’t afford to work for years to make the prototype perfect.

Remember, you need to fail often to succeed sooner.

Enlightened trial and error succeeds over the planning of a lone genius.

What about pivoting?

Pivoting and adapting are two words that can be used interchangeably. It simply means, altering your business model to meet the customer need.

Let’s look at Yelp as an example of a successful pivot. Did you know that they began life as an automated system for emailing recommendation requests to friends? You wouldn’t know that from the website we see today. They pivoted to meet the needs of their customer – which they identified through feedback.

You’ve also got Twitter, which started as podcast startup and Starbucks which started selling coffee beans and espresso machines – until their customer feedback suggested that they wanted brewed coffee.

They pivoted to ensure brand success.

How can I start up my business?

Lean start ups are easier today than ever before. Why? because the cost of compute power has dropped, open source software is available and cloud computing enables access to enterprise-grade technology for a low cost. All of this, enables rapid, low cost MVP prototyping.

We’ve seen an explosion in start up accelerators aimed at helping entrepreneurs build their businesses.  These companies help entrepreneurs get new ventures off the ground.  They coach and work with the entrepreneurs for 12 weeks and provide them with a small amount of seed funding. In return, they take a small percentage of the company (between 5-10%). At the end of the 12 weeks, the companies pitch to investors, in the hope of securing investment.

How do they compel those venture capitalists to invest? Well, did you know that venture capitalists invest in both the team and the idea? They invest in the team because they know that your product isn’t final, they know you will have to pivot a lot and they want a team that they’re confident can adapt quickly.

To really get an investor on your side, you should answer all of the below questions:

  1. What pain are you trying to alleviate?
  2. What’s the business model?
  3. Who’s in the team and what’s their value?
  4. What makes you and your company different?
  5. How can you sustain that differentiation?
  6. Any trade-offs that you’ve made

Remember, a business model is the model you use to gain competitive advantage.  It’s an integrated system of activities that delivers value to the customer.  For example,  the iPod was just an MP3 player, there were plenty of others on the market. But, couple the iPod and iTunes together, and you’ve got a world-conquering integrated system, delivering value.

Why do many people not adopt this mentality?

Businessmen have been trained to get something perfect to maintain or improve brand reputation.

This is because large companies are adverse to failure, and who can blame them? After spending many years building your brand image, you may well decide to take a risk adverse approach – especially while it’s smooth sailing for your business.

This generally stops large companies releasing inexpensive, fast prototypes that are not 100% perfect, but can cause them to miss huge market opportunities.

The moral of the story is, don’t look to big companies to be the leaders of innovation.