Disciplined Entrepreneurship: 24 Steps to a Successful Startup

by Bill Aulet

Students who attend MIT start companies at an absolutely prolific rate. In fact, as of 2006, over 25,000 existed, and 900 new ones are started each year. These companies employ over 3 million people with aggregate annual revenues of approximately $2 trillion. To put that in perspective, the total annual revenue from MIT alumni–founded companies taken together would make them the eleventh-largest economy in the world.

Entrepreneurship is about creating a new business where one did not exist before.

Small and Medium Enterprise (SME) Entrepreneurship

This is the type of business that is likely started by one person to serve a local market

It is most often closely held, likely a family business, where close control of a small business is important. The business “rewards” for these founders are primarily in the form of personal independence and cash flow from the business.

These businesses generally do not need to raise as much money, so when money is injected into these businesses, the resultant increase in revenue and jobs created is relatively rapid.

Innovation-Driven Enterprise (IDE) Entrepreneurship

IDE entrepreneurs are aspiring to serve markets that go well beyond the local market. They are looking to sell their offering at a global or at least at a regional level.

These entrepreneurs usually work in teams where they build their business off some technology, process, business model, or other innovation that will give them a significant competitive advantage as compared to existing companies. They are interested in creating wealth more than they are interested in control, and they often have to sell equity in their company to support their ambitious growth plans.

While they are often slower to start, IDE entrepreneurs tend to have more impressive exponential growth when they do get customer traction

While SME companies tend to grow up and stay relatively small (but not always), IDE companies are more interested in “going big or going home.” To achieve their ambitions, they have to become big and fast-growing to serve global markets.

The company typically grows at a linear rate. When you put money into the company, the system (revenue, cash flow, jobs, etc.) will respond quickly in a positive manner. The company starts by losing money, but if successful will have exponential growth. Requires investment. When you put money into the company, the revenue/cash flow/jobs numbers do not respond quickly.

Types of entrepreneurship

In the short run, the SME model will be more responsive; but with patience, the IDE ventures have the capacity to produce profound results as we have seen with companies like Apple, Google, Hewlett-Packard, and other publicly traded companies.

I will teach IDE entrepreneurship, because this is what I know best, having co-founded two companies (Cambridge Decision Dynamics and SensAble Technologies) based on an innovation.

Innovation = Invention ∗ Commercialization

The invention (an idea, a technology, or some sort of intellectual property) is important, but the entrepreneur does not need to create the invention.

the inventions that lead to innovation-driven companies often come from elsewhere. Such was the case with Steve Jobs, who identified others’ inventions (the computer mouse created by Xerox PARC is the most famous example) and commercialized them effectively through Apple.

We do not need to invent. But how much internal developers do we need?

These examples show that the capability to commercialize an invention is necessary for real innovation. An entrepreneur, then, serves primarily as the commercialization agent.

Innovation can come in many varieties including technology, process, business model, positioning, and more.

at its core, Zipcar’s innovation is treating a rental car as a substitute for owning a car, rather than as temporary transportation for car owners and business travelers visiting far-flung areas. Zipcar doesn’t have to understand the intricacies of its technology to be successful, but it has to understand what it means for its customers to “collaboratively consume.”

Al the steps drawing

Technology: Passion: “I want to start a company in Africa that will create a sustainable business model to improve life for the people there and empower them with jobs.” Here, the idea is that a sustainable business model will reduce poverty in Africa more effectively than charitable contributions to the poor. This sentence is enough to move on to the next step of Market Segmentation, though as you will see, you will have to be much more specific before you can turn the idea into a business. “I have a robot that allows you to feel objects rendered by a computer.”

Technology driven entrepreneurship sound like infinite market as posed by Aguirre

What can I do well that I would love to do for an extended period of time?

Todo

Once you have answered this question, you will have taken the first step toward discovering a customer pain—

Financial assets: Do you have access to significant financial capital, or will you be relying on a meager savings account to start out?

Passion for a particular market: Does the idea of improving healthcare excite you? How about education? Energy? Transportation?

Often, you will find an idea or technology that improves something for you personally, then realize that idea or technology has the potential to help many others.

There are many resources that go into more depth about finding good co-founders. Probably the single best and most rigorous book on this topic is Harvard Professor Noam Wasserman’s book, The Founder’s Dilemmas.

Your first goal is to assess the needs of potential customers,

goal of achieving product–market fit—a product that matches what customers in a specific market are interested in buying.

Focus is very important because entrepreneurs have very limited time and resources and s...

IN THIS STEP, YOU WILL: Brainstorm a wide array of potential customers and markets for your business. Narrow your list down to your top 6–12 markets. Gather primary market research on your top 6–12 markets.

“What is the single necessary and sufficient condition for a business?”

The day someone pays you money for your product or service, you have a business, and not a day before.

You cannot define a business as a product, because if nobody buys your product, you simply do not have a business. The marketplace is the final arbiter of success.

Now, just because you have a paying customer does not mean you have a good business. In order to have a good, sustainable business, you will need to gain enough customers paying enough money within a relatively short period of time so you do not run out of capital, but instead, become profitable.

Therefore, you will not start by building a product or hiring developers or recruiting salespeople. Instead, you will take a customer-driven approach by finding an unmet need and building your business around it.

Creating an innovative product where no market currently exists is essential to the success of a startup.

Being a “me-too” company in an existing market is a more difficult proposition given your limited resources.

A target customer is a group of potential customers who share many characteristics and who would all have similar reasons to buy a particular product.

You must work hard to identify and understand customers through primary market research, because relying on “educated assumptions” or third-party analysis is guesswork when you are creating new markets.

Once you have established a foothold within that target group, meaning that you’ve provided that group with a substantially superior product and they are paying you for it, you will have enough resources to expand to an adjacent market.

In an adjacent market, some customer characteristics will be the same as your primary market, but there will be enough differences to require tailoring your strategy appropriately.

WHEN “PAYING CUSTOMERS” LEAD YOU ASTRAY

there are two common pitfalls you may encounter if you do not focus on creating a new market.

The first is “selling to everyone,” which is the idea that you, as a fledgling startup with little to no resources, can make products that fit the needs of anyone you run across.

The second common pitfall is “The China Syndrome,” also known to my students as “fun with spreadsheets.” Rather than create a new market, the thinking goes, one could choose a huge existing market, get a fraction of the market share, and reap the rewards. After all, if you could get even a tenth of a percent of the toothbrush market in China (population 1.3 billion), wouldn’t you make a lot of money?

I call such a high-level market analysis “fun with spreadsheets,” because you have not demonstrated in a compelling manner why people would buy your product or why your market share would increase over time. You also have not validated any of your assumptions by learning directly from customers—you probably haven’t even been to China.

Take your resources and apply them to a narrow, carefully defined new market that you can dominate.