Why every business is a startup or soon will be.

Every business – however large and however profitable – is a startup. Or is about to be. The big WTF is that they just don’t realise it yet.

This epiphany struck me recently and life hasn’t been the same since. I am eternally grateful to Massimo Lucchina for stating the simple truth behind this and triggering the idea that follows.

A Successful business model is a non-loss making one.

Steve G Blank, in his book – “The Startup Owner’s Manual” – defines a startup as ‘ an organisation searching for a repeatable and sustainable business model’.

When I first read this and applied Steve’s ideas to my own startups, I made the rookie mistake of thinking it was a one off search. I committed my time and resources to validating my idea and doing customer development, sure, I needed to do that – every startup does. The mistake is thinking is was a one off activity and this thinking can lead to unsustainable behavior.

When you are going from zero customers and revenue to something enough to quit your day job for, it can seem like you only have to do this searching thing once and yes, it can take ages.

Whilst searching, you might twist and turn as you try and find that seam of gold in a grotty old mine. If you take the right kind of risks, you might find enough of this seam to generate some revenue and gain early customers. You might even make enough to print some decent business cards, move out of your parents’ garage, hire some people and get into business.

What you soon realise is that a business model is a relative thing. The model needs to generate at least as much – if not – more revenue than your costs – hence profit. The trouble is that as you grow revenue, gain new customers, expand your market share – possibly with the same products and services – your costs grow too.

So a business model is about the relationship between revenue and costs and a successful one is where revenue trumps costs most of the time.

You die because your heart stops

Just as the heartbeat is proof of life, so it is that consistently not making a loss – in the case of successful non profits – and consistently turning a profit – in the case of for-profits – is the indicator of life in business. Many things can kill a business, but how it dies is that it becomes increasingly loss making and ultimately insolvent or euthanised before that point.

What happens when revenues do not grow as fast as costs are rising?
Or when costs remain constant or daresay, even drop, but so do your revenues?
Quite simply, what does your business do when revenue does not  match or even outpace costs and your once successful model is losing steam?

There is some value in understanding how this might happen because there may be some learning into what the next twist, turn or pivot that your business needs to take to regain its mojo. I’ll write another post that delves into the various ways this slow failing model can happen.

Suffice to say, every business will encounter this problem and will continue to encounter it whilst they exist. In fact the reason they cease to exist will be singularly because their business model fails and they are unable to find another one quickly enough.

Whilst the triggers for a previously successful business model starting its descent from profitability to oblivion can differ between business and industries, the symptoms are always the same – declining profits.

Every business hitting a growth ceiling will either hover around it , drop from it or crash through it.

So, let’s assume for a moment that you get from zero customers to current break even – hurray you are officially an unofficial non-profit. You might tick along for a while. What this looks like in real life might be that:
You don’t gain any more customers,
Or don’t charge your existing customers any more for the same offering.
Or you charge them more for something new, but still only matching costs.
Or you are gaining as many customers as you are losing

Basically what you have is equilibrium. This business has found a ceiling and is hovering around it. It is not simply a revenue ceiling. It is a growth ceiling – honouring the relationship between costs and revenue.

This situation is actually identical to a company that has grown from $100m to , say, $1bn revenues. Heck, some of that growth might even have resulted in profit. Though now they find themselves steadfastly unable to break through that revenue ceiling, often falling just below it or even accidentally crossing it momentarily.

Both business are hovering, simultaneously trying to stop dropping away whilst unsuccessfully trying to break through. But only one of these is in a worse shape than the other.

Can you work out which one and why?

The only difference between these two examples is how far each has to fall and how much it has at its disposal to both prevent it from falling and propel it crashing through the ceiling.

To break through a ceiling *always* requires a search for a new business model i.e becoming a startup.

This sounds drastic – and it often is. Though in practice, the new business model is a variation of the previous one. Business models are merely versions of each other – each iteration a new version beyond the previous one.

Businesses hovering beneath a growth ceiling must – quite simply – find a different way to make money. This may be new product or service offerings; or the same products in new markets or radically change the revenue vs costs relationship – usually by slashing costs, because revenues aren’t budging.

I believe though that this last option is really one of the dumbest things a business in this situation can do – especially if it is not *yet* in dire straits. Ahem , Yahoo.

Why reducing your search capacity during a search a dumb idea.

If you buy into my assertion that breaking through the growth ceiling is a search problem, then it becomes clear that a search often benefits from having as many eyes involved in coordinated search effort as possible.

Imagine a search for a chest full of pure gold doubloons in the Atlantic Ocean.
Can you imagine starting with 100 people with skin in the search and then firing them , reducing the search effort down to 50 people. Clearly to search the Atlantic, you need as many people and vessels to search the space as possible. Why would you knowingly reduce that effort?

Costs aside, the only reason I observe that this might be done is because those doing the reducing do not have the skills to effectively coordinate this many people in a search. This assumes they even recognise that searching is what they need to do.

Once you have broken through a ceiling, the clock is reset and starts ticking again.

Just when you thought it was safe to put away the search lights and whistles because your new business model has been found, you discover that you simply are now on a countdown to reaching the next ceiling. The most prudent thing you can possibly do is to recognise this and begin to explore and create options for the inevitable next growth ceiling.

I am discovering a new passion and it is that beyond each growth ceiling is a new way of thinking and approach, to get momentum to make the next ceiling easier to crash through and to make the next hover as short as possible.

Look around you and see if you can identify the ceilings in the companies you know. Can you observe how they are trying to crash through the ceiling?

I would really love to hear your views and experiences around this idea – I’m still developing it. Tweet or comment and make my day!


Featured Image By: Jan FidlerCC BY 2.0

Gifts in unlikely places.

By: JD HancockCC BY 2.0

Finding the right gift is a pain – it shouldn’t be, but it is. My friend Søren has just launched a new product – Giftri.com. It is a clever and useful little app that helps you give and receive the right gifts. 

We were chatting about the challenges of launching a product and getting people to visit the site and use it and be wowed by its value. I prefer thinking of it like this (people and value vs traffic). I asked Søren what he had tried to get people to the site.

We’ve tried lots of things, Google ads, Facebook ads, joining forums and trying to promote it in conversation. We even used 3rd party ad sharing networks – which had lots of poor quality traffic. We also monitored tweets from people asking about what gifts to get and politely suggested using our service.

“The single, most effective thing we did”

Despite the investment in advertising on Google and Facebook and all the effort in mining social media –  lots of people came to the site, but  the conversion to using the site and seeing the recommendations was still very low.

What worked for them was simple. Søren says:

But you know what really worked for us? The single, most effective thing we did that brought the most people who used the site, checked out the recommendations and ultimately bought something from our partner?  I commented on a thread on reddit by a guy who was concerned about what to get his family for Christmas!

I was very surprised! This single thing whilst not generated lots of page visits, generated the most valuable visits. Maybe I’m reading more into this, but a profound lesson was reinforced for me by Søren’s experience. – understand the problem people have and how (and where) they express it.

 

People have needs and favorite places to express them

I was really inspired by a tweet by my friend @paulKlipp:

https://twitter.com/paulklipp/status/413619440081588224

‘People have needs’ and this is fundamentally true. Not meeting those needs can be a problem, it seems to me that needs also have channels where they are most effectively expressed. For any entrepreneur trying to understand problems in order to find a product/market, finding places where people express their needs is almost as crucial as the need itself.

The work in understanding where needs are expressed pays huge dividends. You find somewhere to engage with your audience and listen to their needs and demonstrate empathy and as you strive to solve them, you find a willing community to help you test your ideas.

As I work on building my app – Hashies – focused on helping communities have powerful conversations on Twitter, I am discovering that my engagement with those channels is vital to understand their pain points. Participating in these communities is also exceptionally rewarding in terms of learning new domains. If you aren’t already participating in these – I encourage you to take a look. A great place to find a list of Twitter chats is TheChatDiary.com [update 04/June/2014: TheChatDiary.com link is no longer valid]

So, as you do market research for your startup or are engaged in customer development, it might be worth your while to seek out the channels people use to express their needs as well as the needs themselves.

What are your thoughts on needs and channels? I’d love to hear and share the most – and least – effective things you’ve done for Customer Developement. 

 

I really suck at finding early customers.

By: Stewart ChambersCC BY 2.0

I meet many people who struggle with ideas for a startup – at least for one they would be ready to take a risk to explore.

Thankfully this is not a problem I have. There is no shortage of ideas nor of the capability to generate ideas. Neither do I have a huge aversion to risk – I try to fail cheaply and try to learn as fast as I can.

My biggest problem is finding customers. Not customers to buy a finished product that I have spent thousands of pounds and countless hours building – I don’t often get that far. What I struggle to find are early adopters to test the ideas on for real – meaning that they actually have the problem I am trying to solve and would be willing to pay for the solution.

Early customers may not stick with your product all the way through, but the early feedback they can give is invaluable – at least this is what I hope. Without early customers helping to validate my assumptions, my real risk aversion kicks in and I will stop working on the idea. The lack of feedback may, itself, be valuable feedback!

There may be lots of reasons why early customers are hard to find, but some reasons are more reasonable indicators of the viability of the idea than others. My main reason is fear of what I perceive selling to be, crossed with impatience.

My Definition of Selling (and marketing)

My operating definition of ‘selling’ is this:

Selling is the art of persuading someone to exchange  something they have  – that you want –  for something you have.

Interestingly, my definition of ‘marketing’ is:

Marketing is the art of persuading someone to want what you have to sell.

In my mind, selling and marketing share the same process – persuasion- and differ only by goal.

To me customer development is a form of selling. One where I’m trying to persuade someone with valuable insight into how their business works and real world needs to exchange their insight, time and money with me for the chance to have those needs met through my development of a product/service. Once I ‘sell’ them on the idea – then I can do surveys, usability testing, A/B testing blah, blah, blah. But if they don’t ‘buy’ – I got nothing!

My Name is Mike and I’m Afraid of Selling

I love people, I love talking with people and listening. I love hearing about the problems they have and I have learnt to not jump in with solutions. However, when I think that what I need to do is ‘sell’, my brain goes into lockdown. I find every possible reason not to ‘sell’. I procrastinate, dive into distractions and otherwise avoid this activity.

My perception is that selling is a black art that I am unqualified to do and this ‘inferiority’ complex haunts me. This means I constantly second guess myself in a way I don’t do when I code or when I coach. It also means I over-analyse what possible response to my approaches will be (and overwhelmingly I conclude they will be negative, hostile or both). Inevitably I never do anything.

To make matters worse, the people I want to contact are busy people. They aren’t sitting around waiting for my call. So, often their responses are delayed and this plays into my fears.

Frankly I’m stuck at this point. I think I understand where my current problem lies. Once I can get to speak with a potential early customer, I’m fine. All my skills kick in and mostly I can persuade them to try what I am offering  – if they have a glimmer of the problem I am trying to solve.

My problem – when I zoom into it, is in generating leads. Getting folk interested enough to get to speak with them. This is where the art is the blackest for me. This is where I need help.

Do I have to be good at the approach?

My gut answer is that early customers are key to building businesses – at least using a lean startup/customer development approach. So generating leads would seem a fundamental skill that every founder should have. So now, I am operating on the basis that I have to go from ‘crap’ to ‘good enough’.

When I have wanted to improve at things in the past, I have often hired someone with the skills I wanted to improve and I then paired with them doing some real work. It was slow for me and them, but the learning was incredible. It cut out a lot of the noise and the outcome was awesome.

That is what I intend to do this time. This worked for understanding SEO and learning Ruby on Rails. So I am exploring hiring someone to help with customer development who I can pair with. More on this soon – in the meantime if you know someone I should be talking to , ping me!

Do you have a fear of selling? I’d love to hear your experiences – maybe something you have learnt can help me, maybe vice versa. Either way – let’s not suffer in alone.