A key message from last time was recognizing your business model, not your product, as the true product of your startup.
Thinking this way is quite empowering as it allows you to apply similar techniques for building and testing your business model as you would to any product.
One of these is tackling the riskiest parts of your business model first.
Building a successful startup is fundamentally about risk mitigation or in marketing speak: “removing all objections”.
How to Prioritize Risk
A critical first step is prioritizing what’s riskiest on your business model right now.
Otherwise, it’s easy to fall into the trap of making marginal progress only to get stuck later.
Incorrect prioritization of risk is one of the top contributors of waste.
For instance, I used to advocate jumping right into customer interviews after “Documenting your Plan A” but customers don’t always have all the answers and/or getting these answers can take too long. Not to mention, you might be targeting too broad a customer segment, too small a customer segment, or the wrong customer segment all together.
Instead, I recommend spending a little more time upfront prioritizing risks and brainstorming alternative models with people other than customers – aka advisors. Advisors help you identify risks on the “total plan”, while customers mostly care about their problems only.
Note: These advisors may be potential customers but they tend to fall into the “visionary customer” camp. For example, they might be startup founders themselves.
I wrote a post about this titled: “Build Your Startup Through Conversations”.
Top 3 Universal Risks
While what is riskiest on your model will vary by the type of product you’re building, I’ve found some risks to be universal. Whenever I’m evaluating a new product idea or advising another startup, I always start by evaluating their business model against these three risks:
Top on the list is the risk of building something nobody wants. You not only have to be able to clearly articulate the top problems from a customer viewpoint, but you also need to have a clear definition of who the early adopters are and how they solve these problems today (existing alternatives).
Failing to build a significant path to customers is what kills most products. The more specific your early adopter definition, the easier it is to define channels to reach those customers. I usually find startups in the opposite camp – too broad a segment and no clear way to reach them.
3. Revenue Streams
And finally a business model without revenue is not a business. Even though you may choose to defer charging out of the gate, you need to be able to articulate how you intend to build a business over time. Whatever your revenue model, you HAVE to know how you will sustain your product development effort until then – through customer revenues, savings, external funding, etc.
What About Solution Risk?
Unless you are trying to solve a particularly hard technical problem (like finding a cure for cancer, or building the next big search algorithm), you will be able to build your product given enough time, money, and effort. The bigger risk is building something nobody wants. I focus on “finding problems worth solving” before worrying too much over feasibility.
How to Tackle Risk
Because the terrain before Product/Market Fit is riddled with qualitative learning, you may be able to mitigate but never completely eliminate any of these risks through a single experiment alone. Instead you need to consciously string together a series of experiments (into an iteration) and systematically eliminate these risks over time.
I first introduced this concept of the “iteration meta-pattern” in the Running Lean book. Next time, I’ll use it to show both how these risks morph from ideation to launch to Product/Market Fit and how you tackle them.
“Learning is never finished…”
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