Book review, Entrepreneurship, Start-up ideas

Trajectory: Start-up Ideation to Product/Market Fit

The book opens up with the scary quote

“Don’t waste the next 24,960 hours of your work life on a dumb idea. That’s eighty hours of work. Every week. For the next six years of your life. You can’t get that time back. Ever. And according to the statistics, 75 to 90 percent of startups will fail. You shouldn’t be a statistic”!

Introduction

This book is for founders. Many people may want to leave their current job and pursue a start-up. Another one may want to do a start-up because he is confident of his great idea which can change the world and another may pursue it because of fear of failure or losing his job or source of income. A reverse understanding of why ‘not’ to do a start-up can also be understood through this book.

Some call it a calling, testing or mission. The book is a great source for those who want to do a start-up and inventors who know invention but lack the process to pursue. Also for students, who want to know how to implement their idea as well as lawyers who want to know how to take on a new client.

As an example author takes Quibi as an example to teach about start-ups’ success and failures. The author says Quibi had a great team of founders and executives. They spent $2 Billion but closed just six months after funding. It all says we can stop things from drowning which are not a market fit. The author has been a founder of 5 start-ups, of which three were sold and two were closed. So it is up to the founder only where and how to invest.

This book is a guide for those who want to pursue a start-up. It helps evaluation of ideas, and judge if this is worth your time and effort. The author says if you would like to advise yourself as young would your repeat the mistakes. So this book is aimed at helping people not to repeat those mistakes that the author made in these five start-ups.

The author says there can be three types of people (person); one, who has many ideas but does not start, and the second is a person who has one idea but holds on until it fails. the third is one who has many ideas but wants to dig deeper before initiating one and the author approves this as the best of the strategies.

It is not right to just indulge in a war without preparation and die young but it is to strive for more data and info before you begin. The Author discusses that your idea may be already out there in the market, if you think it is unique it needs grit and a part of luck to make it unique. You just need to look at the right place for what you are searching for.

There is a difference between side hustle and start-up. The side hustle is to utilise your extra hours for something you are interested in. If you are a designer and you also design and upload new things and earn money. or you are working but you also drive a cab for extra hours. Or you are working and you look for new investment opportunities as well. All these are side hustles but the start-up is all about dedication. Crafting opportunities, looking for dozens of things and making a path for a successful business model and profitable business.

Chapter 1: Why are you doing this

The why of a start-up is important. We have been made to believe this fancy word but it is really time-consuming. Companies that we know do not become overnight success it takes years of preparation, hard work and preparedness to raise that first round of funding. It is a time taking process from launch to scale. You can understand the process through this figure. It shows where you start and when you scale. Many start-ups that fail to get a vision mission in the initial time, identify the same in the later years.

From the first chapter

Ideas without execution are nothing. Neither anybody can take your idea while you stop yourself from discussing it with others. Some day you will see a product and say oh I had this idea!! The author says companies may fail but the products stay. Sometimes external effects are so hard that you fail. When you fail, you own it. When you succeed, the team gets the credit. Get used to it, because that’s the role of a leader. John Kennedy popularized the quote that sums it up nicely:

“Success has many fathers, but failure is an orphan.

Instead of answering what would be the result or what would you get out of this start-up. The more important thing is why you want to pursue this idea. Simon Sinek in his book stresses over to answer this why part. Sinek outlines his Golden Circle, starting at the centre of three rings:
Why you do what you do
• How you deliver
• What you do or what you make

Setting goals are important, author says if your goal is to be a billionaire, drop, this book is not for that but it is aimed at leading you to the first funding round.

We must set SMART goals which stand for
Specific—well defined, clear to anyone working on the project
Measurable—understand what “completed” or “achieved” means
Agreed Upon—when you’re working on a team, the individual goals need to lead to a team accomplishment
Realistic—within the time and resources available
Time-based—reasonable timelines based on the work required, usually broken down into quarters

As you answer the question of why you are doing this venture, always consider your motivation and mindset and answer.

Why are you going to do a startup?
Solve a problem
• Create jobs for yourself and friends/family
• Create cash flow or an asset that you can sell at some point in the future
• Change the world
• Get away from your boss
• Because it’s really cool to do a startup

Chapter 2: What Do You Need to Do?

Now that you have decided to start, you need to build a market-fit product that customers use and increase its usage. It is always that market is taken into consideration not the product as Wealthfront CEO Andy Rachleff puts it,

“When a great team meets a lousy market, market wins. When a lousy team meets a great market, market wins. When a great team meets a great market, something special happens.”

The ability to create a great product does not make it a market fit. Without product/market fit (PMF), the idea has no value even if you gain customers you will not reach a satisfying number.

Chapter 3: How Are You Going to Do It?

We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten. Don’t let yourself be lulled into inaction.

Bill gates

The path of building a start-up must take into consideration the next 10 or more years. It is not possible to make profits early but if your idea is not great you will never make a profit. Some say don’t worry about the idea execution. Yes, execution matters but for the great idea.

It is not just being market fit and market-ready which decides your worth but it is the customer interaction, customer belief and continuous use of your product which makes you successful. The author says when I met a founder over coffee and listened to his idea, I found a lot of flaws and wanted him to get a few answers. I also insisted to stay with his job at Google to get answers to many of my concerns or questions. However, he had already left the job and was doing start-up full time.

Chapter 4: Why Do Startups Fail or Succeed?

The author begins with a quote that ”idea don’t matter execution matters” is a half-truth. Start-up data globally highlight that majority of the start-ups fail but failing is not the end people learn from the failure. So in this chapter author discusses the reasons for the failure of start-ups. The author highlights the below given 20 reasons for start-up failure. The survey found more than 100 reasons but these 20 are the most vital of them.

Idealab based in Los Angeles is an incubator/accelerator program by Bill gross. In his seven-minute ted talk, he gives five reasons for the success of a start-up.

  1. Timing
  2. Team/Execution
  3. Idea/Truth Outlier
  4. Business Model
  5. Funding

Sometimes people keep moving with a zombie start-up. Neither they can sell nor they get funding. It is a start-up whose product or service is not a market fit and keeps dragging for years together. Sometimes founders think of a pivot but fail again. It majorly happens that customer retention is low and acceptability is also low. All these things make them stay in the zombie land.

Chapter 5: “start-up Economics”

Economics has a great role to play in start-up emergence. Successful start-up have their own characteristics and building a great product is very important. A great product makes a start-up successful and every startup entrepreneur must think of the time he is giving to building a start-up. The three major economic components of a business are

  1. How you create value through your product or service. This includes the cost of building the product and delivering the product.
  2. How you deliver value through marketing, sales, pricing, and monetization (revenue model), and the corresponding cost of sale.
  3. How you capture value is the margin after removing those costs from the sales price of the product

Creating value is all about the time and cost involved in creating a product. It is not just the money even if a short time is involved. Opportunity cost which means what you could do or receive if you did not do a start-up for three continuous years. Time is an important cost which you pay while building a product or start-up.

The next is delivering value. The product is built and now it is to be brought to market, people must use it and the company must market it. All these are part of the delivering value, it is the task of the start-up to decide who will sell the product, who will do the marketing, how likely people will buy it and many other things are involved in it. The unit economic cost must figure out the details of the product in the market.

In capturing value section we can say that exceptional profit but exceptional investors and normal profit bring normal investors and the profit are zero it leads to no leads of funding from investors. Creating profit is very important in this.

Things may go ugly when plans do not work fully. Engineers build the product in a time-bound manner but it takes more than that. You plan to sell easily and people buy but you find no one searching for it leading to earning of not enough profits. All these take you out of the ven suggested here.

Every Business model works on this create capture and deliver

Part two: Doing the Work

Chapter 6: Ideation, Research, Competition, Markets, and Scorecard

If you are in the ideation stage of your startup the following books are worth a read.

Made to Stick—Chip and Dan Heath
• Abundance—Peter Diamandis, Steven Kotler
• Creativity, Inc.—Ed Catmull
• Thinker Toys—Michael Michalko
• The Industries of the Future—Alec Ross
• The Third Wave—Steve Case

Tracking Your Ideas: If you come back to the idea and it’s still interesting, you can start on the research. Is it a problem you know?. I wouldn’t suggest that you go buy domain names for all your new ideas just yet. At one point, I had more than one hundred domain names. When I went back to look at some of them, I couldn’t even remember the idea that sparked the domain name. Save yourself some cash.

“The biggest startup ideas are terrifying. Not just because they’d be a lot of work. The biggest ideas seem to threaten your identity: you wonder if you’d have enough ambition to carry them through.”

A small business serves geography, so a better term is a local business. A startup has grander visions, maybe even to change the world or serve an entire nation or region. So let’s discuss the characteristics of a start-up…

Framing Your Ideas: Frameworks are useful ways to think about your ideas. Below, I’ve outlined some
of the company examples and frameworks used by other founders to move from an idea to a product.

The Value of Ideas: Another thought from the “what I wish I knew then” file. I mentioned earlier that
it takes as much time to build a product and launch a company for a small idea as it does for a big idea.

Starting with a Product or Innovation: If you have limited cash now, spend it on validating your idea by building an MVP and getting it in front of customers first.

Innovation & Curiosity: Innovation and curiosity by themselves don’t make a startup or entrepreneurship.
Especially if it’s too early to market or if you don’t have a go-to-market plan. The steam engine was
invented in 1698 and developed slowly over time.

It only found its application when James Watt introduced his version of the steam engine in 1776, which powered the Industrial Revolution of 1760–1840. If your product is too early for the market, you can be very enthusiastic about it, and it may be a great idea, but it will never make any money.

Market Trends: Market trends are a great way to think of new ideas. The internet created brand new opportunities for companies that build infrastructure, just as the gold rush did for picks, shovels, and, in the case of Nordstrom’s, providing shoes for the gold rush.

The Ecosystem or Waterline View: Uber Elevate. The author says he had an opportunity to sit in on the first Uber Elevate conference in LA in 2018. Elevate was about the future of “flying cars.” Uber envisioned big drones filling the sky above the highways in major cities. Even if it’s a big problem, if it’s below the waterline, you won’t make money. You have to focus your launch on revenue, and then you can reinvest in the other problems. The bigger problem may not make money at first, though people recognize the size of the problem.

Copycats and Playbooks: Regions and cultures vary greatly about whether or not “copycats” are OK. But let’s look at the data. Most high-growth VC-scale startups in the West should focus on their home
market first before expanding. That’s a six to eight-year process before they are considering launching in a different language or currency. That’s a great window of opportunity if you’re in an international market.

However, copycats in the same market as a dominant competitor are really hard. Being the next new food delivery app today is the same as being number 1,000 to copy Groupon in 2012.

Information Asymmetry: The same is true when you think about startup ideas. If you know the industry, but the customers don’t, you can take advantage of that asymmetry. But you don’t take advantage of the customer.

• Who will pay? Advertisers? Not likely, because the bulk of the users doesn’t have any money to purchase their items. Besides, you need millions of unique visitors before advertising becomes a viable revenue model

A Big Cause Isn’t Necessarily a Big Idea: I know you have a big cause that you want to serve. I recently had a company that wanted to connect mentors with students around the world. That is an awesome
cause but is likely a nonprofit instead of a for-profit idea. Why? Follow the money in this example:
• Students from around the world are the recipients of the benefit or the customers. Students in the US or other developed countries may have some cash to pay but it would be a very small amount.
• Global mentors are providing the service. They are already contributing their time, so they likely won’t contribute their money, too. And they likely won’t appreciate a company making money on that contributed time.

Are You Standing in a Graveyard?. Let me explain what a graveyard is. Adeo Ressi used this term and said any market or product that has seen many failures previously. an example can be music sales, Photo sharing, radio and some other network platforms.

Fatal Flaws: If an idea has a fatal flaw, founders must realise this soon enough. waiting for months and years to fail is not a good idea. It only lengthens the process and keeps you away from starting a new journey. If ideas are flawed the dream is dead.

Research your idea: Over the last few years, companies have grown on the basis of the following few points explained below.

  • Big and some nascent markets
  • Quality team
  • Either big ideas or fun
  • Scalable business models
  • Execution resulting in traction

The author recommends the following as a strategy to research your business idea
Every idea has a theme. To help you get there, think of the theme as the keywords someone would type into Google if they were looking for your product or solution. Maybe it’s something like “crowdsourcing real estate down payments.” Then go to SEO Monitor Topics explorer and type in the phrase. You’ll see which companies have the top rankings and other helpful information such as:
• Competitor list
• Keywords (start building a list of keywords for future use)
• Search volume
• Cost per click (CPC)
• Relevancy
• Annual trend

Chapter 7: Customer Development, Pivoting, Awkward Cofounder Discussions, and Telling Your Story

There are three steps to creating a truly valuable tech company. First, you want to find, create, or discover a new market. Second, you monopolize that market. Then you figure out how to expand that monopoly over time.
—Peter Thiel

The author is not a proponent of failing fast but talks about his background that he could not afford a failure and wants every entrepreneur to reject the failed ideas and not to keep them up. He is not a silicon valley guy and he does not promote the idea of failing fast to learn fast.

Henry Ford says if I had asked people what they want they would be asked for a faster horse. While customer development as per Eric Reis in Lean start-up says go out and ask people what they want and build it that way. However, the author of this book combines the customer discovery and customer validation from Steve blank’s article and confirms these make up the customer development for a start-up. The author has also asked for the use of a business model canvas for the same.

The author suggests creating questionnaires and making surveys in relation to your product and features. He wants the startup to create a list of questions for various components of the process before launching his product. He also advises entrepreneurs to see if an email list can be created and continuous feedback is received. He advises creating google format and working on an email list.

The author now talks about pivoting (Pivoting as explained in other books is to keep one foot standing and move the other one to check what is the update or change. The author of this book says that if the entrepreneur or founder does not feel any customer development and thinks there has been no great change in the last 90 to 180 interviews or days. The time is to pivot as it is the indication. Like Jack Dorsey created Odeo and then Pivoted it to Twitter. It is important to take this step before you run out of cash.

After discussing and iteration start-ups need to incorporate the business. Create a plan for that and make preparations. Start marketing the solution you are offering. Telling your story to customers, cofounders and everyone. Every story is perfect in the eyes of the teller but it only comes out when shared. Now we can move on to the next.

Chapter 8: Value Propositions, MVP, Features, and Costs

The value proposition is an important term to explain the viability of the product in the market. It is time to find out the answer to any question of whether your product is needed or if it was just hype. Value propositions help you make your product attractive to your customer by addressing their wants, needs, or
fears.

In order to be sure of the product to be made as an MVP, the founders must be sure of its existence and market gap. For this founders need to take more surveys, talk to entrepreneurs, go to start-up weekends and discuss. All of these will help founders to build confidence that they are doing things in the right direction.

MVP

MVP can be a presentation, a webpage you have developed. anything can work but it must fulfil what is required for an MVP. Many of the founders start with answering the features, but the best is to start with problem focus and get feedback, then to features and then we can talk about the product or app or website. These things can be done by hiring a developer and in that, an entrepreneur has to do some expenditure because nothing comes free.

Chapter 9: Marketing, Sales, Revenue Models, and Pricing

Where there is mystery, there is margin.

—Dave Berkus

Marketing is a vital part of the process of setting up a business. Whether you are online or offline you need marketing. Marketing now has changed a lot. The traditional marketing methods are disappearing and new ways of making people aware of your product are coming up in line. First of all, it is the naming and branding which brings the customer. Your name and brand is the first marketing tool that you use.

A market funnel, inbound and outbound ways of doing marketing are also getting noticed for online or web-based businesses.

Search terms can land you a good number of customers, same way email marketing, google ads, Facebook ads, and public relations help an individual to gain new customers.

Having a sales model is important. Every start-up needs a sales plan as finally, you are doing things to sell what you are offering. Any start-up can choose a web direct model where people buy a product directly from websites, such as amazon. Another model is the Direct sales model where transactions can be done online but customers need a salesperson to explain or to have a conversation about the product. Another sales model can be the indirect sales model where buyers can have it from an indirect source and lastly retail model of sales can be used where the customer knows the positioning of the product and buys from a particular retail point.

Another term for this is business development, which means when you try to sell your product to the customer of your partner. there is a difference between sales and BD. The company may do BD based on things which are unique to both partners and mutual customers.

Pricing of the product for the market is another important issue to be solved, there are many things to keep in mind while setting the price, for example, competitors, if you are a big company you can hire an agency to look for price options but if it is not that you have to manage yourself. there are some models like a cost-based model of pricing in which every start-up or business takes the toll of product cost and makes a standard price to be announced for the market. Other models include value-based pricing, revenue share pricing, customer-based pricing, quantity and usage-based pricing, market competitors pricing and many others.

In the pricing method, start-ups can use financial modelling, price committees etc.

Chapter 10: Preparing to Pitch, Fundraising 101

When you take money from a venture capitalist, your business model is now their business model.
—Steve Blank

By the time you plan fundraising you must have completed between one hundred and two hundred customer development interviews. By this point, many start-ups fail in securing funding for their idea. In that situation, if you find your idea not worth it should be easy for you to shed that idea and start up over idea again.

There’s no shame in killing a bad idea. But failing is hard—and expensive. Different cultures place at least some level of shame in failing, whether that is right or wrong.

there are various stages of funding and entrepreneurs must decide how much they require and how they will doubt the initially raised capital in the next 10-18 months. Funding can be of varied types, simple bank note or debt, convertible debt, a simple agreement for future equity, and seed funding of various levels like A, B, and C..

Fundraising: Fundraising is another important milestone in the growth of a start-up. The majority of the founders think funding is the outcome of the work they have put in and funding is the answer to all the questions but basically funding is only part of the total process. Funding agencies which expect an equity share of 3-8 per cent are biggest the leeches of the start-up ecosystem. They know where to invest and where they will get that 10x return.

After a fundraising round things change as business which concentrated on earning money now changes and concentrates on earning money for themselves and investors’ equity.

Fundraising through debt is another great option where you pay certain interest without surrendering equity to the investors. But before anything start-up needs to be evaluated for value. the value of the start-up is determined on the basis of various techniques let’s discuss some of them

  1. Berkus Method—Created by Dave Berkus (quoted above) for a company expected to reach $20 million in revenue in five years, starting from zero:
    a. Sound idea (basic value) +$300k
    b. Prototype (reducing tech risk) +$500k
    c. Quality management team +$300k
    d. Strategic relationships +$200k
    e. Product rollout or traction +$100k
    Total pre-money value $1,400,000
  2. Comparable value—A simple comparison of companies which are expected to be a competitor or an equally sized company as equal to yours. this can be used as a method of evaluation for your start-up.
  3. Discounted cash flow—This is a way of valuing a company over time, based on future revenues and profits. But, for an early-stage startup that’s creating profit, it’s hard to value.
  4. Venture capital method—Based on dilution and average investment size of the fund. A fund may have a target of 20 per cent ownership and an average investment or check the size of $2 million, a post-money value of $10 million. If you’re early, they won’t invest because your deal isn’t in their stage of the investment thesis.

Lead investor and customer reference is the other requirement in this process. Sometimes investors start asking customers about the product or the company and if the same thing is repeated with the same customer without making investments in that start-up it becomes difficult for a customer to hold on to the company.

The author also discusses the do’s and do not’s of a business fundraising and also explains why founders should avoid the rhetoric question, kitchen sink, buzzword bingo and having more than one person on stage.

The author in this next part has discussed the business model but I have already written an article about the business model which you can check out here on my website.

Funding is not the end. It is the beginning of a new journey. Now entrepreneurs have to succeed in fulfilling the promises and market potential of the startup. The success of a stat-up may depend on many factors and those factors highlight the growth of the start-ups as well.

Entrepreneurs try to increase their chances of success by being part of the community of entrepreneurs. It is also to be done by using various techniques.

I hope you found this review helpful and this blog will be available as a podcast on my ‘entrepreneurs Inda 101’ channel on Spotify.

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