Foolproof: De-Risking New Ventures

Whether it’s a start-up or a product line extension, next to having the right team on board, validating your market prior to developing your product is the best way to increase the probability of your success.

Often I hear the cry “oh, this doesn’t apply to us”…. “We do disruptive technology like Steve Jobs… “our customers don’t know what they need till we show them”.

Truly successful disruptive technologists use research to back up and tune their visionary thoughts. They study their target audience’s behaviour to the point where they can create powerful product insights based on a combination of research and creativity to de-risk their investments. Without this behavioural research you are simply guessing.

It’s no wonder we have such a high failure rate with companies in this country when you hear facts like – “only 20% of companies approaching MOVAC for investment have completed market validation, which is a perquisite for us to invest” – Dion Mortensen

85% of those completing market validation will fundamentally change the functionality of their product, ultimately creating a product that will be more profitable and actually sell!

Jenny Douché has just released her latest book Fool Proof – How to find and test great business opportunities”.

“This easy to read book is full of great tips and guides, it should be compulsory reading for all new ventures and product managers”.

Jenny has included some insights from New Zealand entrepreneurs (Rode Drury’s Xero, Campbell Gower, Phil & Teds buggies, etc) and a few local investors who have experienced the fruitful outcome of performing market validation.

Foolproof is an easy light read, designed for entrepreneurs – 2 aeroplane trips should have it read with no bullshit or big theories. It will be one of those books that you will refer back to.

Unlike other books on this topic, Jenny actually gives you plenty of actionable content, rather than just theory, including lists of questions for all participants of market validation including: target end users, distributors, market influences and enablers. She covers both desk research and engaging with stakeholder groups, including how to talk when interviewing and surveying.

Too many entrepreneurs  fail to look at the wider macroeconomic factors that will influence their business both now and in the future. It’s amazing what insights you can gain from mapping and studying your market place’s value and supply chains along with current trends. (Note: value chain mapping is one of the key activities we do in Business Dominoes – strategy programme). By performing this type of research, you can save yourself the embarrassment of being blind sided down the track, or worst still investing in the world’s best mouse trap that no one will ever buy.

Just because what we have created is faster or better than the existing market alternative, it is not a right of passage to easy sales. As creators of new products, we easily forget the life of a consumer; where we are faced with better and newer products and services, yet we choose to ignore them and use what we consider easy, safe and predictable.

Clearly getting there is a balance between “no market validation” and “doing so much research you never do anything”. Either extreme is going to be a recipe for failure.

Some takeaways on Market Validation:

  1. Market validation before undertaking any major investment is an essential risk mitigation tactic
  2. If you are seeking investment, doing market research will put you ahead of the pack
  3. Do both desk and personal research – yes, talk to potential customers
  4. Map out your market place (value chain and trends), make sure you are not missing any opportunity or trend merging – a lot of this can be done by desk research and validated by contacting key industry commentators
  5. Engaging key stakeholders in the industry in market validation often builds loyal evangelists for you and your new business
  6. A quick prototype or sketch can help discussions
  7. Market validation is not a one-off exercise, it is a crucial part of improving your business and product over its life
  8. If you are developing disruptive technology then you need to be doubly sure of your target audience’s “pain” and more importantly motivation to change behaviour to adopt your new product. Do some behavioural research.
  9. Be warned if you have been in the industry or are a target user – you do not know enough.
  10. Doing market validation will often open your eyes to a better product than the one you have conceived by yourself.
  11. Buy Jenny’s book

I have already purchased 10 copies of the book and are handing them out to clients as compulsory reading.

Advertisements

Pigs and Chickens – Business Model

Is your business a pig or a chicken?

Harold Star’s book “Chicken and Pigs – Business Models and Competitive Strategies” puts  businesses into 4 categories.

These models are referenced by transaction frequency and revenue contribution from each transaction.

My takeaways from this book are:

Business models are about customers not end users, often people get these stakeholders mixed up. Customers are the ones writing the cheques.

  •  Few companies know why their customers came to them and why they stay
  •  It takes different skills to attract customers and retaining them
  • Once established a business model is very difficult to change. This comes from the customer behaviours and required skills associated around maximizing operational efficiencies working each model.
  • Business models are predicated around decisions made by management around three model elements (strategic DNA) : Customer, Resources and Capabilities and Value Proposition.
  • Many companies operate multiple models,  as such they need to be conscious that each model requires different skills and behaviours

Through his book it he never actually mentions why he calls them such, perhaps obvious, but my take is:

Chickens: Lay eggs – lots of regular contributions
 Pigs: good for bacon and ham at the end, lots of reward once
 Black Widows: Mate and kill their prey, like big customers who consume your business leaving you  at risk with a small number of large customers
 Locusts:  lots of them and they move in packs, short life expectancy

Check out both Harold Web Site and his book for more detail on this pragmatic approach to classifying and developing strategies to manage your customer pools and business model.

The web site has plenty of great information. Click on each model to get more information.

Do you have proof that your product will sell?

Starting a new business or product line?
Have you validated your market yet?

Do you have enough facts to convince a complete non-emotional stranger that once you have built your product or service that people will buy it and you will make enough money to create a business?

We all too often fall into the common trap of thinking that we have come from the industry, so we do not need to do any validation that customers will actually want and more importantly buy our product.

Too many businesses, fail to complete this best risk mitigation technique available to them, before ploughing into developing their product. 60% of new products fail when launched, many taking the company out with it.  This failure rate can be eliminated with a simple 60 day market research programme, started before you invest your time and energy into developing your next product.

I have just read Rob Adams “If you build it they will come” book. This post is a small collection of some of the topics covered and thoughts I have had post reading it. This book is now going to be compulsory reading for my clients who are starting a new business, including those attending the new Activate – business growth programme I facilitate.

Rob details a simple process of first doing some basic market sizing work off publicly available information (secondary research) and then getting in front of customers to conduct a series of rounds of one on one interviews. Nothing in the book is rocket science – yet 90% of businesses I come across could save a lot of time, money and frustration by following his process.

Rob, recommends you allocate 10% of your product development budget towards market validation before you start developing it.

My recommendation is that you do 50 -100 interviews, including testing what your potential customers will want to pay for your product-service (ie the ASP – average sales price). Then work out how many you expect to sell each year.

Revenue per employee is a great benchmark metric for businesses, under $100K you do not have a viable business. Over $200,000-250,000 per employee then you are on the money.

Do the maths:  (X customers x Spend Y$) / (number of people in your business) if < $100,000 stop and get help quick.

If the thought of interviewing 100 potential clients to understand their needs daunts or scares you, then I would say give up now, these same people are going to be the people who once you have set up your business you are going to be selling to.

This simple market validation process ensures that you can create a “must have product” rather than a “nice to have”  that people will struggle to open their wallet for. I can guarantee as a result of these interviews you will change your product as a result. Don’t be like others who develop and release version 1 to find this out. Likewise you can establish the “minimum viable product” a concept of the least functionality you need to make your mark in the market.

Explore the bounds of your competitors including substitutes (work a round’s or doing nothing). This is particularly relevant when you are creating new disruptive products, in which case you need to work out what discretionary spend budget you are going to take the consumers money from.

So if you did not get a copy in Rob’s recent NZ tour, get yourself a copy. It will be going on my Top 5 must read books, kicking off Rob’s Early book “A good kick in the arse basic guide to entrepreneurs” only because this kick (market validation) is the most needed one for startups.

I love Rob Adams phrase “Business Pornography” – the fairy tale stories the press love propagating about businesses, that magically created the dream product, its running out the door and live is easy.

PS: This was my first kindle experience – loved the ability to highlight sections then export them to word doc.

PSS: for us visually oriented people, can we have some pictures-diagrams in your next book.

Straight Talking Strategy – Rockefeller Habits

“Mastering the Rockefeller Habits – What you must do to increase value of your growing firm” by Verne Harnish was referred to me by an entrepreneur who thought it was my style of book: pragmatic, full of useful tips and to the point. He was on the money, in fact I found the book addictive – I could not put it down. For me it went well beyond the promise of another one page business plan template to consider, its goes on my top 10 must read business books list.

What I liked was the way Verne brings business strategy and plans back to simple lists, questions and statement. Below I have given you a taste of what is in this great read.

The right things model – 3 basic decisions Executives need to make:

  1. Do we have the right people?
  2. Are we doing the right things
  3. Are we doing those three things right?

Base Strategy:

Let’s face it, business is basically the act of Getting, Keeping and Growing – Customers, Staff and Shareholders and we get better at this when we sell stuff, make or buy stuff and measure stuff.

Verne has simplified all business strategy into two dimensions best illustrated with the diagram below.

Often in business we can make things more complex than we need to. Verne’s one page business plan and measurement framework is well worth exploring.

Note: you can download a word version of Verne’s one page plan from www.gazelles.com.

For me it’s not necessarily the exact template as much as the principles behind concise “Succinct”  business plans and measurement models.

  1. A simple framework that documents your position
  2. Use of a common language to express the strategy
  3. Develop a habit of using the framework and a language to continually evaluate process. (Like the GMC guide to NO).

This one pager is a good mix of strategy, execution and measurement and complements the business model canvas and balanced score card approach I use.  My take is, you need to work with a model that works best for you, perhaps a hybrid of all of the above.

Verne also shares his philosophy on people and management – including effective use of meetings.

We have all heard people say they don’t need help; Verne says it all “if your staff do not have bottlenecks, then more than likely they aren’t doing anything at all”. As a manager always find out your teams top 3 -5 bottlenecks, remember that it’s your job to clear those.

On KPI’s he also follows the “keep your KPI list small” model, he sights one CEO who had three critical numbers engraved on watches that he handed out to his execs’

Having worked with a number of high growth companies I have come to realise that high growth companies operate with a different measure of time and pace. Verne confirmed this with the statement:

“If you’re growing at 20-100% per year – think of each quarter as if it were a year”

Oh and the link to “Rockefeller”…. well to be honest, you’ll need to read the book for this, for me it got lost in all the great gems I took from the book on how to help companies grow fast.

Why do business people speak like idiots?

Before you hit send on that next memo, or deliver that speech or announcement to your staff, or write that next PR release – check for bullshit!

Ok look at your last piece of prose: did you include any of these words “Best of breed, centre of excellence, paradigm shift, results driven, socialise”?

Fear and Peer pressure it seems is the main cause for most business people to use this strange version of the English language.

I have just finished reading “Why business people speak like idiots” a book authored by Brian Fugere, Chelsea Hardaway & Jon Warshawskey.

Whether it’s memos that say nothing, sloppy boring presentations or jargon overload these guys take the knife to all of it. Their take is: this predictable-PC dialect, the business world has fallen into is a waste of time. Hell, we’ve become immune to these empty, generic messages. And as a result no one really listens any more.

The worst enemy of all – CUT PASTE and BLOAT – be careful with that next power point you prepare and how you use these features. Templates kill the message, and cut and pasted templated messages are the worst.

A couple of my favourite tips were reiterated in this book:

  • Stand for something – avoid the curse anonymity – staying low may keep you safe but will not help you get noticed and achieve stuff
  • People love imperfection – ums and ah’s are ok. Overly scripted messages fail. Check out my Rework blog post- “no one likes plastic flowers”
  • Avoid the tedium trap – boring, boring, boring – spice thinks up
  • Stories work – tell a story about a customer or something relevant to your topic – people get it.

Theory vs Story telling:
Brian and team give a great comparison as to the world’s acceptance of storytelling versus theory. Compare the book sales numbers on the two books on transformational change below.

  • “Leading change” by John P Cotter – 210,000 copies sold 2003 – Theory
  • “Who moved my cheese” by Spenser Johnson – 14 Million copies sold 2003  – Story

More Tips from this entertaining and informative book:

  • Short presentations pack punch – straight talkers get more credit
  • Short sentences are more memorable
  • One syllable words build momentum – big words don’t impress
  • Bull has an aroma – and it isn’t exactly channel 5. Say it as it is – if its bad news front up to it and take ownership
  • Avoid the obscurity trap – don’t let fluff and verbosity get in the way of the real message
  • Avoid stupid generic photos or clip art

The good news is that it is not that hard to stand out from the pack, by just telling it as it is and using simple words.

Check out Winston Churchill’s famous speech to the House of Commons June 4 1940, below.

“We shall go on to the end, we shall fight in France,
we shall fight on the seas and oceans,
we shall fight with growing confidence and growing strength in the air, we shall defend our Island, whatever the cost may be,
we shall fight on the beaches,
we shall fight on the landing grounds,
we shall fight in the fields and in the streets,
we shall fight in the hills;
we shall never surrender”

How many big words does Winston use ? 

If you are after a light read and are willing to join the no bullshit movement get your hands on a copy.
Thanks for the book Motive8 team – a great read.

Forget Motivating Staff With Incentives – Pink Drive Review

Are your staff on board or not?   Do a quick test – sit back and listen to how your staff talk about your company. Is it  in terms of “we” or “they” – this is a good barometer as to whether you have engaged your staff or are controlling them.

The old days of control, carrots and stick have gone – they simply do not work. In fact research shows giving people extra rewards for work is not a way to motivate them in the long run. It works the first time, then they expect it and when it doesn’t come they get de-motivated.

I drew a parallel for you cyclists out there, it’s like eating chocolate on a long hard ride, a great sugar rush  that is followed by a crash in energy.

This is not to ignore a basic “baseline reward” (remuneration) that people get for doing their job. But we need to hunt down how we inspire the inner drive in people.

Enter the new age of autonomy, mastery and purpose…

I have just spent the weekend reading Daniel Pink’s Drive – the surprising truth about what motivates us.  Many of the business owners I deal with, are often faced with the thought “how do I get that extra drive out of staff?”

Pink questions the age-old management philosophy of carrot and stick. He provides some great scientific examples of how people behave or more importantly how traditional management approaches simply do not work. “So here we have a major mismatch between what science knows and how business behaves”.  I drew a parallel for you cyclists out there, it’s like eating chocolate on a long hard ride, great sugar rush that is followed by a crash in energy.

Pink presents an evolutionary approach to how people are motivated – i.e we have lived in two worlds and are about to join a third. Motivation 1.0 – world of basic survival, Motivation 2.0 based on fact that humans respond to rewards and punishments and now we have entered the world of 3.0 – Motivation 3.0  is based on the theory that humans have a third drive – to learn, to create, and to better the world. For me it was like the next step from the Maslow’s hierarchy theory. By the way like DOS motivation 1.0 and 2.0 are no longer supported!

Pink advocates that we need to focus more on unleashing the inner drive – that place we get to when we are doing thing that we enjoy and have purpose – that state of flow.

What he advocates is that we need to create an environment of:

  • Autonomy – the desire to direct our own lives
  • Mastery – the desire to get better at something that matters
  • Purpose – the yearning to do something in the service of something larger than ourselves

In practise, we need to find ways to let people harness what matters to them, rathing than ordering creation or fun!

To spark creativity in teams Atlasian ran FedEx Days – like Fedex they had to deliver something overnight. So all the staff were given complete freedom to work on anything they liked as long as it delivered something finished the next day. After initial trials Atlasian now give staff freedom to spend 20% of their time on stuff that is not part of their normal tasked job.

The book suggest caning those “fun off sites” and replace them with “fed Ex days” hell most people like what they do let them “create” with their skills. An interesting example was given – Artist’s best works are never the commissioned ones. Another interesting point is that generally people waste at least 10% of their working day anyway.

Gmail and google news, all came about by giving staff free creativity time.

Drive is one of those books that doesn’t give you the answers, as much as it inspires you to rethink your world both from a personal and business perspective.

Questions that came to me reading Pink’s Drive were:

  •  Do you earn your money from a job or your vocation?
  • How much of your time are you operating in your flow zone?
  • What are you doing in your business to ensure you are creating flow, unleashing the inner drive in your people, rather than using carrots and sticks?

So my verdict … not good enough to topple a book of  my  top 5 book  list.  Why, too slow to start and not enough practical takeaways, but certainly a great thought provoking book just the same.

Thanks Simon for putting the link to this video in comments on this post

If you are  looking at how to best capture human capital for your business then get a copy. Bottom line it has changed the way I think, I sense as I reflect on it I may change my rating.

post ed note: It definitely rates in my top 10 books, although post Simon connecting me to the video I actually recommend people watch the great RSA animates video version of the book. Now posted above.

Documenting and Developing Business Models

The “Business Model Generation” methodology is an essential aid to all business owners and consultants, who want to  document, communicate and brainstorm businesses models in a succinct manner.

The book “Business Model Generation” by Alexander Osterwalder & Yvess Pigneur provides great examples of how to document business models, along with methods to brainstorm innovative changes in business models for existing businesses.

If you like visual aids, then you are going to love the techniques described in this must have book. What struck me, biased as I am toward visual tools, is how their visual models encapsulate the linkage and dependency on the key elements of the business in one page.

The base technique describes uses a common base canvas to capture the core building blocks of your business model: Key Partners (FP), Key Activities (KA), Key Resources (KR), Value Proposition (VP), Customer Relationships (CR), Channels (CH), Customer Segments (CS), Cost Structures (CS)  and Revenue Streams (RS).

A simple example of how this would work for apple’s I-pod is shown below:

Once the base or existing model is created the book then helps you explore the opportunities to explore other alternative business models. Some example business models described in the book include:

  • Unbundling Business Models
  • The long tail
  • Multi sided platforms
  • FREE as business model
  • Open Business Models

Key techniques described include brainstorming with the use of post-it notes against the base canvas, as well as my old chest nut of customer value propositions and what’s in it for customers.

Once you have your model developed with post it notes, you can really go to town and prepare a visual form of your business with pictures.

BTW: Do not be put off by the 72 page book preview available on their web site http://www.businessmodelgeneration.com/.  As a result of my pre-read of the preview I nearly didn’t buy the book. So glad I did purchase, based on a recommendation (thanks Matt McKendry).  My order on amazon was delayed waiting for a reprint, so hopefully they now have plenty in stock.

This book is now going on my must read list for entrepreneurs, order your own copy now

Post Ed note: I now run workshops which include this methdology – www.growthmanagement.co.nz/training

After using this model for some time I have come up with my own variant read more>