Ash Maurya's Blog, page 11

Science versus Entrepreneurship

The Lean Startup is heavily rooted in the Scientific Method and defines learning as the measure of progress. On the one hand, empirical learning (favoring facts over opinions) is critical for testing key assumptions and keeping our unbridled passion for our products in check.

Reasonably smart people can rationalize anything, but entrepreneurs are especially gifted at this.

– Running Lean

But the pursuit of empirical learning can also be taken too far. I’ve seen too many entrepreneurs use it as a cop out for not achieving business results.

I advise a number of early stage entrepreneurs and will often check in on their progress. Entrepreneurs, being overly optimistic in nature, will generally report things as going well.

My next question to them, however, is:

“How many customers have you signed up?”

The answer is often disappointing but they always highlight the amount of data (aka learning) they are gathering.

This is where I draw a sharp distinction between science and entrepreneurship.

Science is driven by the pursuit of raw knowledge

where learning is truly the measure of progress.

But entrepreneurship is a lot more directed.

Our jobs, as entrepreneurs, is building

a repeatable and scalable business model before running out of resources.

While empirical learning is a key part of that process,

if you can’t quickly turn that learning into measurable business results,

then you are just accumulating trivia.

If You Don’t Know Where You Are Going, Any Road Will Get You There

Before you can test whether a specific idea is worth pursuing, you first need to ballpark the finished story benefit or desired outcome of the idea which is orthogonal to your business model.

Using a journey metaphor, you have to begin with a destination in mind.

“If you don’t know where you are going, any road will get you there.”

– Lewis Carroll, Alice in Wonderland

I know this sounds a lot like the “exit question” investors ask and I can already sense your uneasiness. Most people hate this question because it feels like arbitrarily picking yet another large number out of thin air (like a $100M exit goal) and then working excel magic to rationalize the number.

But, this number isn’t quite pulled out of thin air. We need this number to justify our business model story – first to ourselves and then to our internal and external stakeholders (team, investors, budget gatekeepers, etc.).

A $100M valuation in 5 years represents a return on investment a VC needs,

to justify their investment across a portfolio of highly risky startups. That said, this number doesn’t have to be $100M and is more a function of your business model incubation environment.

If instead of a high-growth startup, you were exploring a new business model in an enterprise setting, there would similarly need to be some discussion of an expected return (one with a lot of zeros too) to justify the effort expended.

Even as a solo bootstrapper, you probably have (and if not, should have) some ballpark number to justify your return on effort per project. This could very well be a $100M exit, but could just as well also be generating an extra $1,000/mo of passive income.

There is no right or wrong answer but you should have an answer. I’ll warn you that this can be a deep (and often uncomfortable) thought exercise that gets to your personal “why”, but the constraints it exposes allow for a more actionable strategy. And that’s the more important message:

While we all need a ballpark destination to justify the journey, it’s not the destination itself but the starting assumptions and milestones along the way that inform whether we are on the right path or need a course-correction.

Going Long

Good ideas are simply hard to find.

And we all have lots of them.

But you can’t brute force an idea whose time hasn’t come.

The good news is that we now also have

better and faster ways for quickly vetting these ideas.

So in the short run, we are going to see more ideas fail than succeed.

But this is still a success in my book.

We are trading big wipeout failures

for much smaller resets.

These ideas were simply taking up space in your head.

There is now a free slot for your next “big idea”.

Go long.

Clean Slate

Every so often you have to wipe the slate clean and start anew.

You can maintain status quo and even sometimes 2X your way,

but 10X requires innovation.

It requires the cycle of destruction and (re)creation.

Unique Value Proposition Versus Unfair Advantage

Your Unique Value Proposition (UVP) is a conversation you have with your customers on why they should hire your product and fire their existing alternatives (includes current competition).

Your Unfair Advantage (UA) is a conversation you have with your competitors (current and new) on why they should NOT try to hire away your customers.

Sounds similar but it’s a subtle yet critical difference in perspective.

Facebook’s UVP to users is come use us because we have all your friends on the network already.

Their UA to competitors is don’t bother stealing our users because we have already everyone and their friends on the network.

Have You Tried Doubling Your Prices Recently?

Raising prices is a high return on effort tactic. It’s also the least utilized.

Without changing your product or anything else about your positioning, simply change your pricing page.

I know what you are thinking, conversion rate will drop.

What if it doesn’t?

If you double your price and don’t lose more than half your customers, you still come out ahead. Because fewer customers, means fewer support costs.

If you’re still worried, leave your existing customers alone.

Only do this with new customers.

Do it only for a week.

Split test your traffic if you’d like to…

But until your conversion rate doesn’t drop significantly enough,

you are leaving value on the table.

Would You Rather Have 100 Customers or 1,000 Customers?

Would you rather have 100 customers or 1,000 customers? What if the first customer segment paid $100 while the second customer segment paid $1?

It is obvious that the first customer segment represents the more valuable group.

But what if the first customer segment of 100 customers paid $100 while the second customer segment of 1,000 customers paid $10? Warning: This is a trick question.

The answer is still the first customer segment. Even though both customer segments generate the same amount of revenue, once we factor in operating expenses to service these customers, the net profit across both groups is no longer the same. From a systems perspective, it is better to have fewer high margin customers than lots of low margin customers. As in a real factory, you often have a choice of what to make.

Disrupt Yourself or Someone Else Will

There is a security company that encourages its employees to hack into the company’s security in their free time. If you manage to get in, you don’t fired, but a bonus. Each exposed exploit strengthens the overall system.

Every established company should similarly put out a similar challenge to its employees.

According to Yale professor, Richard Foster, the average lifespan of a company on the S&P 500 index has shrunk from 67 years in the 1920s to just 15 years today. If you aren’t trying to disrupt your own business model, someone else will.

First Mover (Dis)Advantage

Too many entrepreneurs cite being first to market as a competitive advantage.

Consider this list of companies: Microsoft, Apple, Google, Facebook, Ford, Toyota.

None of them were first in their respective categories, but fast followers.

Truly being first to market is not an unfair advantage, but an unfair disadvantage.

Not only do you have to build a great product,

but you also have to build a great market for your product.

Stumbling on either creates an opening for a fast follower to steal your lead.

The Illusion of the Juggler

We believe having more balls in the air is being efficient. The truth is it ends up with more balls on the floor.

Even professional jugglers don’t do this… In 3-ball juggling, even though all three balls move, it’s a great illusion. At any given time, there’s a single ball in the air while the other two are firmly planted in the juggler’s palms – ready for the quick switch.

People often ask me about the size of my team and are shocked to hear that I am involved with multiple software products, write books, and teach around the world with a team of just 3 people. That too is an illusion.

At any given time, I always only have one big initiative that I move incrementally forward with multiple balls – tackled one at time.