Wondering if you have what it takes to be an entrepreneur? Are you considering becoming a startup founder after some business or technical experience? Elana Fine, Executive Director of the Dingman Center for Entrepreneurship at the University of Maryland’s Robert H. Smith School of Business, recently shared her thoughts in a webinar entitled “Is a Startup Part of Your Second Act?” Fine considered three main questions. Why? What? and How? Visit our post on the Why here, visit our post on the What here; today, we’ll examine the How.
How? Some tools to get started.
How do you make the first steps? Making your first steps can be challenging and daunting; it helps to understand the thought process of those who have successfully navigated the How. Fine went on to discuss two tools or thought processes that are well regarded: Lean Startup principles and Effectuation principles.
The principles of Lean Startup are based on the book The Lean Startup by Eric Ries. Lean Startup has changed how startups are launched; the thinking minimizes the risk of spending a lot of money to build something that no one buys. Fine went on to discuss four steps involved in Lean Startup.
Step 1: Ideation. Ideation is about falling in love with a problem or need in the market. Start with brainstorming for an idea in areas that you know about. What industries do you have work experience in? What extracurricular activities are you involved in? The most successful startups fill a need in the market. Think about what problems exist in your industry or other activities you are involved. The most successful startups fill a need in the market by solving a problem that those in that market will agree is a problem. Remember, this is brainstorming – keep an open mind about what the problem(s) is and what the solutions might be. Solutions sometimes come from unexpected people and places – so talk to a number of people about your ideas.
Step 2: Apprentice the problem and the market. Ask some questions to help prompt you to the right problem and solution. Who is the target market? In that market, what excites, frustrates, or bewilders you? What problems do customers face in this market? What could be done to solve this problem? The solution could be an app, a device, a person, some form of automation to solve the problem, etc. What customer segments can you interview to learn more about these problems and potential solutions?
Step 3: Risk mitigation – test your assumptions. In addition to the Lean Startup book, Fine mentioned the book, Talking to Humans by Giff Constable. By far, the number one mistake that startups make is building something that nobody wants. Risk mitigation is a process of treating your thoughts about problem and solution as hypotheses to be tested in the market, similar to a scientific experiment. The key here is to get out and talk to potential customers. Take the information you gather and build a Minimum Viable Product (MVP) for product testing.
Fine gave an example of one MVP developed by an entrepreneur who was investigating an online market for selling shoes. This MVP was just a landing page with a “click here if you want to buy these shoes” button. There was no software platform behind the button. This MVP was used to gather real feedback from real customers in a cost-efficient manner. A useful method that Fine mentioned is the Business Model Canvas Alexander Osterwalder explains in his book Business Model Generation. Realize the idea is only the starting point. A business model is how a company creates, delivers and captures value. In other words, a business model is how a company makes money! Discovering the “value proposition” is the center of the Canvas. As Bob Smith, Director of the GMU Small Business Development Center says, “the goal is to find the right solution to the right customer problem with strong enough demand to warrant launching a business”.
Step 4: Leap! Fine quoted Mark Zuckerberg in saying, “The biggest risk is not taking any risk. In a world that changes really quickly, the only strategy that is guaranteed to fail is not taking risks.”
Another tool or thought process that Fine discussed is The Five Principles of Effectuation developed by Saras Sarasvathy at the University of Virginia. These principles provide important insight into how successful entrepreneurs think.
- The Bird in Hand Principle. Assess your assets and start with what you have.
- The Lemonade Principle. Leverage contingencies. Use bad news and surprises as opportunities to create new markets.
- The Crazy Quilt Principle. Build partnerships with stakeholders you can trust.
- The Affordable Loss Principle. Consider what you can afford to lose at each step instead of seeking all or nothing opportunities.
- The Pilot-In-The-Plane Principle. Focus on the activities that are within your control.
Remember, the customer is first, not the product. Constant innovation leads to entrepreneurial success.