Struggling to Find a Business Model for Your Idea? Read The Startup Owner's Manual

by Kia Davis, October 1, 2012

Raise your hand if you've heard or seen a startup idea recently in the Middle East that doesn't have a real market. Or whose game plan is to simply "get a lot of users" with an idea that perhaps only the founders are convinced of, and no sellable product. As large companies with well-thought out business models sometimes cave to the difficulties in the region, there's no time like the present for startups to get serious about customer research.  Thanks to two Silicon Valley seasoned entrepreneurs, there’s now a step-by-step method.

The Startup Owner’s Manual (also on Kindle) by Steve Blank and Bob Dorf sets forth this method. If followed, it will save startups time, money, and the headache of making the wrong decisions. The book details a step-by-(painful)-step process for making sure your launch has the best chance of success, incorporating ideas from other books such as The Business Model Generator, The Lean Startup, and 4 Steps To The Epiphany. Its model is easy to understand and difficult to argue with.

In short, it describes a scientific approach for success. However, what The Startup Owner’s Manual doesn’t address are those very important team dynamics, such as how to ensure the right people are on the team, and how to push through those highly emotional ‘bad days’ that threaten the venture itself.

The motto of the book is ‘Get Out Of The Building,’ a call for entrepreneurs to think less and do more, and to stop assuming that they have the all the answers and start asking customers what they want. It encourages specific customer development and validation processes to help entrepreneurs identify the market need and set a distribution model.

Like The Lean Startup, The Startup Owner’s Manual is based on the theory that rigorous and repeated testing is required to guarantee your idea has a market. Yet unlike The Lean Startup, it reads as a textbook, with practical recommendations, checklists, cases, metrics, and processes. Not limited to tech startups, the process works for businesses selling anything from games to grapefruits. While the method may not guarantee success, it will ensure that failure will be fast and cheap, which is the next best thing.

The Method

The first step of the Customer Development process is to complete the Business Model Canvas, an exercise that involves breaking down the business idea into 9 component parts: value proposition, customer segments, distribution channels, customer relationships, revenue streams, required resources, activities, partners and cost structures. For each component, entrepreneurs must develop hypotheses, such as “customers will pay more for a personalized version,” and develop a way to test that hypothesis.

After building a rough prototype called a lo-fi MVP (minimum viable product), tests are carried out and data is recorded. If the components have passed their tests, the team continues to the next phase. If not, they revisit the Business Model Canvas and find alternatives, then test again. The goal is to find your customer base and locate your early adopters.

Founders must also validate the customer problem, making sure that it is real, pressing, and could even be solved by a worse product than the one they are building. This is more difficult if you are creating a truly innovative product, but it’s still important to make sure customers are energized enough to buy. 

In the Customer Validation phase, a more sophisticated and realistic MVP is built, and rigorously tested down to the tiniest detail. The sales and distribution strategy is identified with feedback and commitments from early partners, like distributors or affiliates. A customer acquisition strategy is designed, tested, and examined for its impact on the profitability of the company. The best possible sales strategy is agreed, and the Business Model Canvas is updated again. 

Then comes the moment of truth: the management team locks themselves into a room all day to think, argue, fight, review, and finally make the decision: Pivot….or Proceed?

Those that proceed know that they have the right product, for the right market, and a strategy to find the right customers at the right acquisition costs, via the right partners.  They will have built a community of customers, supporters, partners, and advisors who want to see them succeed. And most importantly, they know that the business will make enough money to be worthwhile.

Putting the Startup Manual into Practice

One entrepreneur who has actually tested manual’s method is Al-Hassan Hleileh, a Palestinian/ Jordanian/British entrepreneur in Silicon Valley who founded his new startup, Nudge, after studying at Stanford University with the author, Steve Blank. 

Al-Hassan emphasized the scientific approach of the method and the constant testing of the concept. “Steve would always ask us, ‘how many customers have you spoken to? How many partners have you spoken to? How many mentors have you spoken to?’ The process for us was really about building a community around the company,” he says. Nudge’s journey reflects the headache as well as the payoff of this hard work: over an 8-week period they pivoted 5 times, eventually building a winning concept of inspirational, personalized activity suggestions, called ‘nudges.’

Al-Hassan’s advice to new entrepreneurs is to get as much feedback from the market as possible, to build a community around the startup, and to get the team right. “We have a stellar team and a lot of that has evolved from validating the product. How the team coalesces is so important. If you don’t get the team right from the outset, you’re setting yourself up for failure.”

A scientific approach to startup development is an unusual idea in a global startup community that believes great ideas only come from flashes of inspiration by charismatic young leaders. But the reality is that returns for venture capitalists are declining, the investor community is less willing to overvalue startups, and startups are facing ever-fiercer competition for funds and customers.

The process outlined in The Startup Owner’s Manual will prevent the waste, mistakes, and failures that come from launching too soon or too expensively- perhaps exactly what’s needed.

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Kia Davis is a mentor, advisor, temporary operating executive, and "Fairy Godmother" for startups, living in Dubai. You can find her on Twitter @kiardavis.

 
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