As an entrepreneur pursuing a software product idea or a software-enabled service business, how do you get from a blank sheet of paper to a company with customers and momentum? This biweekly column focuses on ideas that can help you on your path.
If you’re an entrepreneur, your job description is a pretty nasty piece of work.
You have to be an idealist. Entrepreneurs have to dream big and imagine what will be, not just what is. The dreamer has to engage in magical thinking, believe in the vision completely, and convince others to drink the Kool-Aid.
Idealism sounds sexy; who wouldn’t want a great job like that? But idealism won’t get the job done. You have to be a pragmatist.
Pragmatic entrepreneurs have a strangle-hold on resources, are practical about what they need to do to develop their venture, and work the long, hard hours to make the donuts.
Being a pragmatic idealist may sound challenging. It is. But it still isn’t the whole job.
To add to the entrepreneur’s challenge, all ventures have an expiration or “sell-by” date, like milk. Your startup is simply a temporary organization created with the goal of becoming a going concern.
In plain English, your resources are limited and will run out. Your goal is to succeed in transforming yourself from startup to company before you hit your sell-by date and things start smelling sour and getting chunky.
That invites the question, “How do I ensure I’m using my time wisely?”
One of the most important things you can do to manage your resources well is to confirm that what you’re building can generate revenue. (We’ll assume that you don’t have a passion and idealism deficit.)
While your big idea and vision are important, they’re only half the story in your startup—and can get you into a ton of trouble. The other half of the story is embodied in the voice of your customer, and crystallized in your business model*. Getting the complete story is challenging, but has a huge impact on your probability of success. And fortunately, tools exist to help you.
*Google’s definition search provides this definition for a business model: a design for the successful operation of a business, identifying revenue sources, customer base, products, and details of financing.
It’s A Poor Workman That Blames His Tools
Two very significant tools to help aid in your transformation are Customer Development methodology and the Business Model Canvas. The two work together to help you profitably build something your market wants. They do it by creating structure and process around capturing the voice of your customer, synthesizing it with your big idea and knowledge, and examining the factors at play in delivering your product/service successfully. (Note: Agile methodology is an excellent companion to these tools.)
Steve Blank is widely credited with the development of Customer Development methodology. Although there’s a lot to know about customer development, here are the key steps:
- Clearly state, document, and refine your hypotheses about your target customers, product, and other issues.
- Go out and test them by talking to potential customers (“get out of the building”).
- Create or modify a minimum viable product (MVP).
- Test the MVP by talking to customers.
- Verify and repeat as necessary.
The value of using a structured methodology as you capture the voice of the customer is simple. Capturing data from a consistent set of questions posed to a large enough pool of potential customers means you can draw more reliable conclusions. And that means saving time and resources.
Another tool that helps you in the process of articulating your hypotheses and examining them is the business model canvas, a tool based on a 2004 thesis by Alexander Osterwalder. Osterwalder, a Swiss entrepreneur and PhD at the University of Laussane, proposed the canvas in a 2008 blog post, and it later became the foundation for the 2012 book Business Model Generation.
The canvas is a quick, visually simple, easy-to-use tool that captures how a business makes revenue and profit. Once documented in this short form, it’s much easier for advisors and your own team to spot the weak points. It includes the following nine elements:
- Customer Segments
- Customer Relationships
- Value Propositions
- Revenue Streams
- Key Activities
- Key Resources
- Key Partners
- Cost Structure
Creating a few different models you think might be successful in the process of customer discovery is a good way to think through how your big idea might get traction.
It’s important to note that the canvas wasn’t created for startups; the tool was originally used in a more general way to understand the business models of established companies. Some believe that a special canvas is needed for startups; you can make your own call on which tool to use.
Pragmatist, Idealist, I Got This
Your team doesn’t want to spend time building something that’s going to fail. You don’t want to spend your time and money only to find out that what you built isn’t what your customers want.
It might be scary, but once you get in the rhythm of using these tools to cut down ambiguity, you’ll find that they transform your thinking about the job of being an entrepreneur. You’ll find that your decisions are more balanced, your risk-taking is more calculated—and your idealism isn’t just blind faith.