The Importance of Vision
Every startup has a true north, a direction where it would like to go, which is directly associated with its vision.
You need to have a clear strategy that involves a business model, product plan, and a clear market understanding, including partners, competitors, and customers. The product sold by a startup is the end-result of this strategy and can – and should – always change to achieve the predetermined vision. Eric refers to the great strategic turns of a startup as pivots. The vision almost never changes, but most companies fail because they are unable to execute and put this vision into practice. A startup is a human organization designed to create a new product or service in an environment of extreme uncertainty. Therefore it is necessary to experiment and learn quickly.
The Importance of Validated Learning
It is natural for people to say they learned a lot during a project, or while starting something new, but for Eric, it takes more than just learning. It is necessary to constantly validate the learnings and check if it still remains true. Your true goal is not the learning itself, but the validation of it. Validation comes through simplifying and proving that you are solving a problem that people have. You need to focus on what customers really need and eliminate everything else. In IMVU, his startup, Eric worked developing a 3D virtual world and plugins for chat tools in 2004. During the company’s initial testing phase, in conversations with users and observing their behaviors, he found that consumers did not want – nor did they know – how to install the plugins in their chat software. On the other hand, he also learned that people did not mind having to install new chat software, or even use more than one software. This learning was validated by consumers, and he realized that he had wasted a lot of time and resources creating something that people did not want or knew how to use. After this realization, Eric and his team realized that the important thing was to launch experiments quickly, learn from them and understand what works and what doesn’t.
Validation came from the numbers and analysis of users’ behaviors. If a change occurred and brought good results, it was validated and maintained. Otherwise, it was removed.
The Importance of Early Monetization
In the life of a startup, one of its goals is to find a business model, and this comes through revenue generation. If people pay for something, that is minimally validated.
Eric’s startup started charging its customers early, unlike many startups, and that also helped his team. It is better to have some income as soon as possible, even if it is low, than to spend a lot of time trying to figure out something that people will pay for one day. Many entrepreneurs get caught up in product development for a long time without charging their potential customers and dreaming of the day when people will simply want to pay for their products and services. The great truth is that most of the time postponing invoicing leads to the development of products for which people do not want to pay. Starting to charge early is important and will help you to really understand how much value you are generating for users with your product or service.
To discover a business model, you need to interact with potential customers and capture value. Therefore, you need to start with a prototype, albeit incomplete and constantly validate it with your potential customers. Create revenue targets, although low, but grow steadily from the start.
The Importance of Experimentation
The founders of Zappos had a vision in which he believed that people would want to buy shoes online.
But how do you test if this really works, without having to buy thousands of pairs of shoes, building a website and build a stock? Rather than starting with a large structure, they did an experiment to validate if there was enough demand to achieve the vision of selling shoes online. They started by taking pictures of shoes in various physical stores and advertising them on the internet. If a customer placed an order, they would go to the store, buy the shoe, and send it to the customer. This minimal product allowed them to test many critical factors for business success. With this experiment, they validated that there was demand, they learned the optimal pricing for their products, became aware of complaints and the logistical challenges of the business with a minimum of expenses. This validation allowed them to really start the company and it was such a success that it was eventually acquired by the giant Amazon for more than one billion dollars.
Build, Mesure, Learn
To experiment in the right way and to generate validated learning, you must follow the scientific method. Just as in science, in the business world, every experiment must begin with a hypothesis. A price hypothesis, for example, tests whether the product generates value to users. A marketing hypothesis, on the other hand, tests whether the company can reach out to consumers at a cost to generate profit. To test the value of your product to the customer, find potential customers to run the experiment. To conduct an effective test, you need to follow 3 main steps:
In a startup, this cycle must be running all the time. Find people who would be the ideal customers for that imaginable product and build a minimum viable product (MVP), having you as a concierge. Yes, the product will not be mature enough, but for the initial users, if the problem you solve is large enough to generate value for them, they will forgive you for its shortcomings and bugs.
Participate actively in product validation with customers and monitor all experiment results. Track new revenue, adoption of features, the frequency of use, etc. Always analyze whether the measurement corroborates your initial hypothesis.
For example, if a customer asks for a feature that does not yet exist but you plan to do one day, that means you’re on the right track. On the other hand, if there are features in the product plan that are not ordered by customers, remove them from the plan to avoid waste. These close interactions with customers will help you to constantly validate your hypotheses.
The build-measure-learn model is the main pillar of the lean startup, and once an MVP is built, its purpose is to quickly learn and iterate through it, always starting from new assumptions and user feedbacks.
The Leap of Faith
Every startup also needs to have their own beliefs about its product and its ability to truly cater to the cravings of customers. Steve Jobs, for example, when launching the iPod, had 2 primordial beliefs, which were considered true. The first of these is that users wanted to listen to music anywhere, on their headphones. The second is that they were willing to pay for music on the internet, unlike how they formerly consumed music, through digital piracy. The first had already been validated by Sony, with the Walkman, but the second was much more uncertain and risky. You need to be able to choose the risks you are going to take and reduce them to the maximum through validation.
Intuit is a company that was founded on the belief that someday companies would use computers to pay bills and to track their expenses and their financial and accounting status. To test the concept, the founders phoned random people to understand how this vision applied in practice.
Startups should take a scientific approach to test their main assumptions and then build a sustainable business model from a validated hypothesis. They should develop product prototypes quickly and then continually refine them by collecting consumer feedback and BML(Build, Measure, Learn) cycles.
Every startup must define its core metrics and analyze them appropriately.
Credit: 12 minutes app
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