Premature Scaling is the #1 reason why businesses fail -- everything is built before there's been customers.

http://en.wikipedia.org/wiki/Genchi_Genbutsu - go and see.

"Successful startups are the ones who have enough money left over to try their 2nd idea." Clayton Christensen.

Avoid the danger of believing your idea is too right.  Need brutal intellectual honesty.  Don't discard contradictory evidence.

Tool #1 - Is the idea good?

  • The Big Idea Test. Sylostrum . Not a pain point.
  • To find a monetizable pain: Shark bite pain vs Mosquito bite pain.  Shark Bite: need pain killer to live. Mosquito: kind of annoying, but it's like vitamin.
  • Where to start? Start with the pain point.  Need an idea that will solve a pain point
  • Test: cold call other businesses and explain the pain point. If you get 50% or so people call you back that have the pain, that's good.
  • Principle: TALK TO THE POTENTIAL CUSTOMERS

 

Next concept: Articulate the pain

  • Create an elavator pitch
  • Focus on a monetizable pain
  • Try to understand the job the customer is trying to accomplish.
  • Start with a very narrow group of customers

 

Next Step: the Big Idea Hypothesis. Go to the customer and ask them about the idea.

Next Step: MVP Validation.

Definition of an MVP: Minimal Viable Product - the basic two or three features the system needs in order for a customer to buy.

Goal: don't spend a lot of money on the MVP. Record responses.  You record so that you can learn from pivots, etc.  Goal: get 5+ customers.  If you get 50%+ confirm the prototype works, proceed.

Suggestion for deciding what features to include in an MVP: get a bunch of smart people in the room, come up with feature list, vote on the most important features. Also consider cost for each feature.

Next step: Is the business model good?

Next Section: Market Analysis

When you do your market research, you do bottom-up, not top-down.  Bad example: "According to Gardner, it's a 1.2 billion industry. If we take a very conservative estimate and get just 1% of that market, that's a whole lot of money!"

Good Market vs Good Industry. A market might be good, but the industry might be bad. What about new legislation?

Next section: Finance management

"Manage a business at the level your'e actually doing business, not at the level you wish you were doing."

Cash is king. Preserve flexibility.

  • Keep burn rate low
  • Variable Costs -- much better.
  • Achieve high gross margins
  • Avoid premature diversification