Running Lean – Business Canvas Variant

Running Lean (e-book) attacks the problem of how to grow web start-ups.  Ash Maurya has taken my favourite business model tool “The Business Model Generation” and tweaked it to meet his need of web SaaS companies.  For me this book was almost two books in one, peppered with some great tips on going companies:
1)      A variant on the business model generation for SaaS companies– the Lean Canvas
2)      A form of the agile development process, adapted to web companies, integrating agile development, experience design and market validation.

The “lean canvas” section was of most interest to me and I finished feeling I wanted more,“perhaps the sign of a great book” – but worth the $19.95 all the same.

The Lean Canvas:

The lean canvas is an adaption of Alex Osterwalder’s  “Business Model Canvas” which he describes in his book: “Business Model Generation”. For those who are not aware of this methodology I would strongly suggest a read of my book review.
Ash dropped – partners, key activities, key resources and customer relationships and replaced them with Problem, Solution, Key Metrics and Unfair Advantage.

I empathise with the Steve Blank’s quote:
“Business Plan: a document investors make you write, that they don’t read”.

My advice to entrepreneurs is use a business model canvas to bait discussion and debate. Hell you may not even need as business plan.

One of the key advantages of this sort of technique is that can create several business models in one afternoon rather than taking months to perfect a business plan that is out of date. Ash recommends doing one canvas per customer segment.

I am a great fan of the business model canvas tool to speed up decision-making and the communication of business plans for both investors and staff.
Of the modifications made to the original plan – I most like the focus on “unfair advantage” and will add this into my own variant inspired by this technique.

An example of the tips that Ash has on start-ups:

• If you’re going to charge for a SaaS do so from day one – Price is a key ingredient to your product test it early – if you need a new business model find out early.
• There is an “I” on Vision – create a business model in isolation but then test it  and test it.
• Plan A’s never work – so be ready to adapt and create plan B and C quick.
• Focus on activities that generate results – don’t get distracted on long-term activities as many will become redundant as you adapt
• Distinguish between users and customers – always splinter customers into smaller subgroups
• 3 must have departments Design, Development and Marketing – all of equal importance
• Getting investor funding is NOT market validation
• Have staff meeting’s in most unproductive part of day – not first thing.

Development Model:

Ash’s development model is based around three iterative stages:

1)       Problem/Solution Fit : Do I have a problem worth solving?

• Is it a must have – if you take the solution away will they mind
• Can it be solved – feasible
• Will they pay for it? If not who will?

2)       Product/ Market Fit : Have I built something people want?
3)       Scale: How do I accelerate growth

The book devotes the majority of its 200 odd pages to describing this model-process in detail.

Close, constant and controlled customer feedback is the main theme around which he builds his model to develop the product/service around similar minimum viable product (MVP) principle the 37Signals team describe in Rework. (read my review here)

If you are interested in using diagrams and visual models to speed up your business planning and improve your stakeholder communication I would suggest coming along to one of my business planning seminars .
Oh – yes have a read of this e-book along with “the business model generation” and also check out Ash’s Blog

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Value Propositions – Revisited

Lack of clarity in business around what value they offer their clients or whats important to clients can be fatal. It has been so refreshing to recently read the 37Signals Rework book . Here is a company that has  been a raging success by focusing on keeping their applications simple – under doing their competitors on functionality.

To often we lose sight of our most important stakeholders our customers are we focusing on what is important to them.

Yes yet another post on value proposition from me – the last one was  No Value Proposition = No Business , this simple concept is still not understood.  I still come across too many business people who are confused between technology, features and Value Propositions (VP).

•  Value: quantified worth or success factor, equivalent worth in money
• Proposition:  the act of offering or suggesting something

Technologists in particular get fooled by their early adopters purchasing on technology and new. You need to remember this is a small group of people and will not make you rich. (Read Crossing the chasm – Geoffrey Moore)

The buying decision by your customer is complex – but there is always a mix of emotion and logic. In tough times clear value propositions dominate over emotion. My take is if you have a clear value proposition you business does not need to be sexy to win sales.

To illustrate the point here are the value propositions and thoughts I went through on some recent purchasing decisions for my business:

Product:  Learning Source Training Logistics -Booking System  VP:  $129 per month is cheaper than hiring support staff to manage venues, registrations and last-minute course communications.
The per registration fee is directly related to my success.

Product:  Xero Accounting:  $50 per month is cheaper than wasting my time with bank reconciliation and checking bank balances via my banks proprietary web site.  Automated processing is quicker than that on MYOB. Saving me 4 hours every month.

Note: the reason I shifted GMC from MYOB (which BTW I think is a better technical product) is because they wanted to charge me for a software upgrade for new GST rate (a feature I just expected to work).  The business values were miss aligned with mine.

 Interesting my guess is many business owners are still paying for bookkeeper’s that could easily be replaced with Xero plus business owner devoting 30 mins a day to staying in touch with their business finances.

Apple mac air:  value proposition : its starts instantly – but most importantly it’s sexy.

50 G Drop Box: $100 per year – fear of loss of data was the final VP that tipped me. My server lives my house – a break in forced me to consider what if I lost all my data. It was the only thing not replaceable in my house. $100 appeared as an insignificant cost. The convenance is great – but note it was  fear that closed the deal.

Its Business Not Technology – Accelerate 2011

“Tech Companies are still over focused on technology rather than business”… that was my big take away from and exciting day and two nights with a great bunch of emerging tech companies at Accelerate 2011. (#0to60) Well done Rod for yet again mustering great pool of emerging tech companies for this power networking event for rising stars.

It was great to see Rod and Sam Morgan get 5 of the lead pack to present their business and more importantly their business model. What was a disappointing was the fact that Mario Sidhe Interactive was the only one to “factualise” his presentation and come up with hard facts and show his P&L.

My take is that tech businesses, still over talk their technology and are lost on what is really important: 1) Value propositions that are relevant to clients and 2) making a buck.  Yes the technology will appeal to early adopters but the mass markets need something that adds value to end users and purchases a like. My advice check out the business model generation

We need to get more comfortable thinking and talking numbers. It was great to see Sam Morgan – (co chair of the day) nail into the guts of it : “tell us – how the numbers look when you are a $100M company” – what does the EBIT look like at that point? – is it worth while?

Hopefully next year we can get to hear more about what is really going on under the hood by others – Well done Mario.

Below are a few more of my diary notes from a great day:

Sam’s Words of wisdom:

Sam warned the crowd of creating a “Zombie Business”-  what other’s often refer to as walking dead!

Sam’s hit list this year for evaluating companies was:

• Business model
• Talent
• Capital intensity
• Sales Momentum

More take out notes, from this inspirational day were:

Sonar6 – These guys have online marketing and follow through sussed – hell they send out 9 million emails a quarter and track all of them through their process – they’re closing more sales with less sales staff than last year.

Online-Email marketing:

• “Be likeable”
• Don’t oversell in your email marketing – make only 1 in 4 emails about direct selling i.e make 3 out 4 about adding value. Email out once per two months.
• Create audiences so you can avoid talking to customers 1 on 1 early on in the sales cycle –  (this is one of the 37Signals techniques documented in their book “rework“)
• Build emotional attraction – then close with ROI

On capital:

• Sam – key advice – always have a price in your head ready to sell.
• Rod – take baby steps, Don’t hang out for big sale, sell and build confidence and credibility with investment community. Ready for next step up the ladder. Investors love entrepreneurs who know how to exit.

On talent Management:

• Under 35 Year old not interested in Stock, give them cash bonuses – techo toys
• Make sure sales people are encouraged to earn more than CEO
• Use yammer to share stuff

USA Beachhead:

If anyone is interested in taking a seat in a San Francisco office – Sam & Rod are underwriting a lease in SFO and are encouraging other tech businesses looking to establish sale beach heads in the Bay area.

The headline on the web site for this exciting day was “ Its not the big that eat the small, it’s the fast that eat the slow”.

Awesome conference – Awesome lunch – Awesome People look out for Accelerate 2012.

Rework your perspective on growing companies

Jason Friend & David Heinemeier Hansson are founders of 37signals – home of products such as base camp, high rise and creators of the “Ruby on rails” revolution. The 37signal’s team created software products that are used by millions of people, by doing stuff different.  

They provide simple tools for people like them, with basic problems. They have not designed a product with more feature s than their competitors.  They focus on delivering fewer features, in a simpler and easier product to use.

I have just finished reading their book “Rework”. I must say it’s is the most refreshing look at how to grow a business, that I have come across for some time.  It has gone on my top 5 books business owners must read. Every page is a gem.

What makes this book interesting is they challenge the norm e.g. you don’t need to employ heaps of people to grow a successful business. Their company is small, Frugal and profitable”, services millions of users worldwide and employees only 16 people.

So here is a taste of their magic:

• Workaholism is stupid – working more doesn’t mean you get more done, it just means you work more.
• Underdo your competition – focus on less than your competitors but better than them.
•  Start a business, not a startup: Let’s drop the word entrepreneur and startup it has become synonymous with: creating businesses that spend other people’s money that don’t focus on making real revenue with real profits. 
• Less is a good thing: it forces you to be smart with money. Only employ people who do stuff – no managers. – Hire when it hurts – resist the urge to over hire – teams are more productive when small.
• Build half a product, not a half assed product: focus on the basics and get them right, and get it out there. Hell they launched a product with no billing system; they figured they had until the end of the month to create the billing system.
• Make lots of small decisions: the consequences of failure are less and you build momentum.  Swap: let’s think about with, let’s decide- don’t waste time on long planning sessions – just do it.
• Pick a fight: – stand for something, take a stand against competitor
• Culture is by product of consistent behavior:  No policies – just tell people when they do wrong stuff

My favourite:

•     Nobody likes plastic flowers – imperfection is natural, seize it and don’t over fuss stuff. 
      Make a stand for something and be brave enough to defend it.

  “So those that know me well – those typos and spelling mistakes – that’s just me imperfect. I add value in other ways – not as an editor”

The book concludes with a great concept:

 Inspiration is NOW THING.
Inspiration is perishable – it has a use by date.
So when inspiration strikes, do not hold back. – that’s the time to do the all-nighter.  Not when you are late on something.

Get your own copy of this book, it’s truly inspirational.

11 Questions for the Wise Men – (Reprint 2)

11 Questions entrepreneurs ask – Yet more Agony Ant reprints from my Fairfax business column… answers at bottom

Q1:  I’ve been in business quite a while selling the same product for the last 5 years and pretty well.  I have built up good reserves in the business and I’ve had an idea for a cool new product.  But it’s a totally different product for a different group of customers which scares me.  What can you suggest I do before jumping in?

 Q2: Everyone keeps talking about sustainability and business. What things do I need to consider to make my business sustainable?

Q3: I took on a sales person on quite a high wage that is simply not performing. How do I get rid of her now because it seems so hard to fire people?

Q4: How do I recover  lost customers or should I just focus on finding new ones?When you lose a customer it is always worth asking them why?

Q5: What do I need to consider if I want to set up a business from home?

Q6: Cash flow is pretty tight but I want to develop a cool new idea and the bank won’t lend me the money. What should I do now?

Q7: I want to set up an e-commerce website but it seems really expensive. What should I look at when weighing up who to go to?

Q8: I only have a handful of staff but think I should be doing performance reviews, at least annually. Or shouldn’t I bother given how big the company is?

Q9: What are the ten key steps to business survival?

Q10: I keep getting hassled by people wanting me to buy advertising  for my company. I have a small marketing budget but how much is appropriate and how do you decide where to spend it?

Q11: I have a world-first product that only has a limited market in New Zealand. I want to start exporting or get into licence agreements offshore but I’m worried about protecting my IP yet it’s really expensive to get patents in lots of countries. What should I do?

___________________________________

Some Answers

Q1:  I’ve been in business quite a while selling the same product for the last 5 years and pretty well.  I have built up good reserves in the business and I’ve had an idea for a cool new product.  But it’s a totally different product for a different group of customers which scares me.  What can you suggest I do before jumping in?

A: Take the time to research what the market demand for the product is, and how you will make money from it. Engage the target customer set, find out what is important to them and what they will pay for. Focus your product development on features that they will pay for, rather than just “cool” stuff.  Then take the time to develop a full business product plan for the product line, most importantly how much of this cool stuff you need to sell to break even.

Do not be afraid  of starting the selling process now, see if you can sign up some orders subject to a delayed delivery. This will be the first test to determine, whether you are creating a business or a hobby.

I word of warning f there is no commonality in customer set or channels to market, you made need to consider whether this is a completely different business. Perhaps its time to put a manager in to manage your stable business and you focus on this new venture. Use dividends from the good one to fund the new one.

 Q2: Everyone keeps talking about sustainability and business. What things do I need to consider to make my business sustainable?

From a green point of view I believe the concept of green thinking is great as it forces people to be creative in their thinking. Coming up with new ways to solve business problems. But a green business also needs financial sustainability.

Sustainability for me starts with ensuring your business model is robust and can weather storms that come your way. As part of this you need to establish an advisory board that will challenge you, and ensure you have adequately anticipated possible risks and have plans to counter them should they eventuate.

Remember in many cases you are selling in a market full of other green products, you still need to differentiate your product and service. Green by itself is not a sustainable  business.

Q3: I took on a sales person on quite a high wage that is simply not performing. How do I get rid of her now because it seems so hard to fire people?

No matter how difficult the employment laws are you cannot afford for this situation to carry on. Fix or cure quick as you can. I cannot think of anything more important than fixing this sort of problem!

Sales people are the easiest employees to manage out of your business using the  performance management system required by law,  as their direct outputs such as Sales revenue are easily measured. If you have not set targets to date, set them now and manage to them.

No matter what other process you do, start a performance management process now with some open and frank discussions about their performance. Remember to Document conversations , collect  a dossier file in case you end up in court.

Stand back and look at the bigger picture and see what other are not working in your business, it may be time to restructure the business.  During this review process you may uncover other problems.

If you end up in a PG (personal grievance) situation , often it is better to not fight for the truth and what is right. Seek some outside advice, often outsourced HR departments like www.bluedot.co.nz can provide good affordable advice.  Also there are specialist employment lawyers if things are likely to go pear-shaped.

Q4: How do I recover  lost customers or should I just focus on finding new ones?When you lose a customer it is always worth asking them why?

This is a tough call to make, but you will learn from it. Often we have the wrong impression of why?
Some times they can be recovered, other times it may pay to learn and move on. Also remember not all customers are created equal, are these your most profitable long-term customers or are they influencers in the market. If not just move on.

Q5: What do I need to consider if I want to set up a business from home?

Lots of people start or build businesses working from their house.  First do some basic financial modelling and work out whether you are going to make money from this venture. Include paying yourself a market rate for remuneration in your calculation so you are going in eyes open.  There are no quick bucks to be made in business, overnight success usually take 5 – 7 years, check in that you are ready for the marathon.

If it’s going to be a home office, a must for me is making sure you have a separate place in the house that is for the business, set your set up with all the basic IT services etc.

You also need to consider whether you are going to bring clients to your office and how that will work. Depending on the business it may not be so good to have screaming kids running around the house, dog barking etc.  Or your desk set up in the lounge.

You need to create the empression of being a real business. At the very least register a domain name, do not use a plain name@gmail.com or xtra email address, you look like an amateur. For $40 you can register a domain name (www.freeparking.co.nz) and use google apps (for Free) for  100 email accounts, calendar etc.

 Set up an accounting system from day one – these days Xero has the market sorted.  If you are going to be on the road a lot investigate setting up good mobile services email, calendar etc  oh did I say I was a gadget man! Gadget or not, reading emails on a phone while waiting for a meeting at café or bus stop save precious time.

Q6: Cash flow is pretty tight but I want to develop a cool new idea and the bank won’t lend me the money. What should I do now?

How about considering outside investment, contact us at www.Escalator.co.nz. They run NZTE fully funded training workshops in all main centres.

Never forget the number one source of capital is sales, so if you have an existing product sell more of it to fund the new product.

Get creative with other finance tools. Look at your current debtor management . Can you get prepayment from your customers or simply get them to pay on time?  Do you own your own commercial building, perhaps sell it and lease it back.  Invoice factoring (selling your invoices) is another often forgotten or little known about tool.

Q7: I want to set up an e-commerce website but it seems really expensive. What should I look at when weighing up who to go to?

Always challenge IT companies for a cheaper solution, too many of them over engineer solutions.
Look at using systems already available. Look for potential partners that may want to resell your product on line.
Work on a system that will get you started, and if you need to throw it out down the track,  if volume increases, so what?  You will have the cashflow to fund it.

I would always ask to see reference sites and talk to their business owners.  Get a fixed price, software projects are notorious for running over budget. If the e-commerce is going to be a major part of your business I would suggest hiring specialist talent in, even if just to keep an eye on any contractor. To many web businesses have gone bust, making  contract software development houses rich. Consider getting them in as equity partners, rather than parting direct cash – that way they have some skin in the game.

Q8: I only have a handful of staff but think I should be doing performance reviews, at least annually. Or shouldn’t I bother given how big the company is?

I have not meet a business yet that is not dependant on quality motivated staff for success. Always go out of your way to spend time with your staff.  Most people (staff and managers alike) find it difficult to talk about those buggy things. Formal reviews provide an opportunity to have some conversations that for many do not naturally occur on a day to day basis. I would suggest as a minimum of having a one – one conversation at least every six months – how’s things going for you, what’s working what’s not?  These need to be two way conversations and not just about pay.

Q9: What are the ten key steps to business survival?

1. Have clarity in how you add value to your clients – focus on that. Leverage your point of difference
2. Identify your target beachhead market – the people who you can make the most money from, in the easiest possible way.
3. Ensure your business model is robust and sustainable – i.e you make money
4. Create a one page business plan.
5. Employee the smartest people you can afford, ideally smarter than you,  always hire based on values and personality first – skills second.
6. Define your culture and brand identity and stick to it – NO this is not a logo!
7. Adapt fast and act on failure – including firing non performing staff, killing projects that will not deliver a return to the business.
8. Set up an independent advisory group that will challenge the thinking from day one
9. Engage your clients and have fun – perhaps explore Social Media Marketing
10. Have a goal and exit plan from day one.

 

Q10: I keep getting hassled by people wanting me to buy advertising  for my company. I have a small marketing budget but how much is appropriate and how do you decide where to spend it?

 If your money is limited save it for anything that puts you directly in front of your target customers, that you can make the most money the easiest possible way.

Usually this is phone bills, bus fares, airplane tickets and cheapest possible hotels in town.  Define you target customers –  a list of less than 100 and go talk to them.

Create maximum presence for least money. Create a one page website with your contact details, employ a graphic artist to make it look professional. Create a profile on www.linkedin.com and use it to get introductions to your contacts – contacts.

Remember it’s your money – say no to anyone who pesters you.  Ask them to quantify the financial gain your business will make as result of any marketing spend – 90% will have no answer.

Q11: I have a world-first product that only has a limited market in New Zealand. I want to start exporting or get into licence agreements offshore but I’m worried about protecting my IP yet it’s really expensive to get patents in lots of countries. What should I do?

First learn to talk about your product without giving away the secret sauce. This is best done by describing the impact the product will have on the users business. Too many NZ inventors fall into two camps: Either they say nothing – it’s a big secret, or are so excited about their product they always tell their audiences about the technology and give away too much information.

Explore other avenues to protect your product trade secret etc. Make sure you get good advice from commercially oriented IP specialists and commercial lawyers.  Do not get sucked into the “patent” everything , every where  one size fits all syndrome.  At very least invest in a Freedom to operate search to make sure you are not infringing some else’s patent.  Be careful many businesses fail because they have invested all their start-up capital with professional service providers and do not have enough money to get their product to market.

The NZTE web site has some great templates for Agents and Distributor’s agreements. Seek professional advice from someone who has experience in offshore agreements. I would recommend SimmondsStewart.co.nz  , remember to include clauses that cover the situation when it all turns to pooh!