The Five P Model for Rapid Startup Evaluation

TL;DR: Product + Problem + Profit + People = Potential. Does your idea have what it takes in all five Ps?

Simon Klose presenterar
Simon Klose presenting at the hackathon TBD Malmö held in February 2012.

Recently, me and a couple of friends in Malmö have started The Startup Dojo, where soon-to-be-entrepreneurs can come and pitch their idea and get feedback on how to move forward. (It’s a very simple concept and you’re more than welcome to organise one in your own Town!) I have been part of organising a couple of different startup events like that over the last couple of years.

Organising these events have taught me a lot about quickly building value at the super-early stage of a startup. If you only have a weekend to build something, what do you focus on? How do you decide what’s the best idea to build?

For example, the latest batch of entrepreneurs at the Startup Dojo were very interesting in how different they were from each other.

The first gentleman was an excellent speaker and pitcher and had no worries about breaking in to a new market through sheer selling force. He also had identified a clear problem with a big market. However, his product was a little unclear and he lacked the skills to actually build it.

The second entrepreneur was a true inventor. He had designed a new type of shower meant to be used outdoors. He had made drawings and even 3D videos showing how it would work. But, it was unclear if there actually was a real problem on the market that needed to be solved.

The third entrepreneur had a proven product and solved a real problem on the market by saving money for farmers. A winner, right? Well, the problem was that the money it could save was far less than the cost for the product. So the business model didn’t hold and he asked the Dojo for advice on how to proceed.

IMG_9249.jpg
Hackathon Startup Sweden, Stockholm. December 2011.

As you can see the three different entrepreneurs had challenges in different areas.

One had identified a clear problem but lacked the product to solve it.

The other had a great product but was looking for an actual problem that the product would solve.

The third had a good product AND a clear problem yet lacked a business model that would unleash the full potential of the idea.

It seems a good and quick way to evaluate startups is to look on them through the same lens that we just looked at the these three potential startup projects.

You need a strong product that is technically feasible, sufficiently easy to use and scalable.

The product must solve a real market problem that sufficiently many people have.

The price of the product must be such that it leads to profit when costs are deduced.

Finally, and probably most importantly, you need the right people to execute the project.

Only when these four all work together will you reach the full potential of the idea.

So there you have it: the Five P Model for Rapid Startup Evaluation. The next time someone tells you they have a “great startup idea”, in 30 seconds you can pinpoint any holes in the idea and hopefully help the entrepreneur make it even better.

My name is Erik Starck and I work with innovation and growth for entrepreneurs and enterprises. Follow me on Twitter.

PS. We’re still running Startup Dojo in Malmö. Last Thursday every month. See you there?

Five different flavors of a digital strategy

ice cream [1081]
Yummy. Digital strategy!

Wikipedia defines a “digital strategy” as:

[…] the process of specifying an organization’s vision, goals, opportunities and initiatives in order to maximize the business benefits of digital initiatives to the organization.

What does that mean? I have seen many different flavors of a digital strategy over the years. Here are a few. Do you know any more?

A community (social) strategy. How to build loyalty amongst customers. How to make customers help each other solve problems. How to make customers extend and complete your products. How to make customers love you. Skills needed: community management, social media.

A multi channel strategy. How to make sure the mobile, tablet, desktop, TV and whatever else experience of your digital presence fits together, both from a technical standpoint but more importantly, how your organisation can manage it. Skills needed: change management, IT architecture.

A media strategy. How to use video, blogging, microblogging, live streaming, Facebook etc. as media channels to build on online presence. Every company is a media company – but how? Skills needed: content marketing, (low cost) video production.

A conversion and growth strategy. How to make sure that you get as many visitors to your web site as possible and that as many of the visitors as possible do what you want them to do, like buy your products. Aka “growth hacking“. Skills needed: agile development (for speed of changes), search engine optimization, web analytics.

An innovation strategy. How to make sure you keep pushing forward and explore new business models, new products and new markets that digitalisation enables. Skills needed: customer development, business model canvas, lean startup.

Selling is about framing it right

365 day228 Bubbles

In order to make a sale, you need to frame the product or service in a way that makes the benefit and value clear to the buyer.

An example, from real life. Trying to get my 2 year old daughter in the bath.

– Honey, do you want to take a shower?
– Noooooo!
– Do you want to take a bath?
– Noooooo!
– Do you want to bake foam-cookies?
– Yeeeeeaaah!

Sold!

The only skill you really need

I’m a software developer by training. This has given me some amazing opportunities to create just about anything that’s digital. Knowing how to program when software is eating the world is truly a gift and I highly recommend everyone to learn at least the basics.

I have however felt for a long time that I would want to be better at not only building software but also making it more, well, I guess beautiful is the word. My aesthetic ability is far from where I want it to be.

I even think that, could I start my career over again, I should have chosen to focus much more on design and user experience. I wrote a blog post a few years ago about making it work, making it pretty and making it fast – in that order. Perhaps I should re-prioritize, making it pretty is the most important goal for a new project. The reason: if you can’t get people emotionally attached somehow to your product it doesn’t matter how many features it have, it will fail anyway.

But, after having a few beers with a wise friend two things dawned on me:

  • You can’t be good at everything. Accept it. Yes, you can learn but the more wide your skill set is, the less deep it will become as well. Obvious, yes, but worth reminding oneself of from time to time.
  • If anything, there is one meta-skill (and, yes, it is a skill – some people are better at this than others) that you really should try to be better at: getting things done. Executing. Doing stuff. Getting other people to do stuff. Making things happen. Moving the needle. If you’re good at that, you can do anything.

Accept your limitations. Focus on getting things done. That’s it.

(Follow me on Twitter.)

Update: great post. Get disciplined, not motivated.

What’s it like to be a Venture Capitalist

No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. No. Yes.

Repeat roughly 5-10 times per year.

(Inspired by venture capitalist Nikolaj Nyholms talk at The Conference.)

What makes SSWC so special?

Yet another Sweden Social Web Camp has come to its end.

And it was as beautiful as ever.

This was my third year on the Tjärö island in the Blekinge archipelago (I had to miss one year due to the birth of my daughter – a very good excuse if you ask me) and as I read through all the love coming from the participants and my old summaries and thoughts about the unconference (This is the Internet and What your company can learn from Sweden Social Web Camp) I am left to ponder: what exactly is it that makes this happening so special?

What’s the secret SSWC-sauce?

Burning sheep
Burning of the what!?

Because special it is. It’s almost a religious experience being there, including group singing, praising the almighty (web) and the burning of a wooden sheep(!). But, it’s all done tongue-in-cheek and the only reason to burn a wooden sheep in front of 440 people is of course so that you can tweet about it and share the experience.

But, it’s not just fun and games. As I wrote in What your company can learn from Sweden Social Web Camp I really do think there are important lessons for every business to understand what makes #SSWC tick. SSWC is a conference, but it provides more value at less cost than a traditional conference. More value and less cost is a sign of disruptive innovation, so let’s dig deeper into what makes SSWC so special.

  • Tomas Wennström & Kristin Heinonen. We start off with the two persons at the center of the whole thing. Look up “nice couple” in the dictionary and there’s a good chance there’s a photo of these two there. Tomas & Kristin are the founders of the conference and form the very important function of community leaders for the whole thing. Their friendliness, common sense problem solving and warm humor sets the tone for the rest of us to follow.
    Lesson learned: Set a culture and lead by example.

  • Not a product. A platform for sharing. This is the core of what sets SSWC (or any unconference) apart from a traditional conference. It’s not a prepackaged product with predefined speakers and topics. No, it’s a platform for the audience to become contributors and create the experience themselves. That’s why Joakim Green brings the SSWC flag each year. That’s why there’s an SSWC movie produced each year and even a book.
    Lesson learned: Go from product to platform.

  • It’s on an island. The fact that the conference is mostly outside and on a small island leads to some interesting consequences. Everyone you meet on the island is part of the same experience. People also live in tents which forces everyone to be more down to earth (literally). There’s more sheep than suits and ties on the island. The island, the tents and the sheep make us all equal. The island is the big equalizer. (Note that this also repels certain type of people.)
    Session
    No suits.

    Lesson learned: context and environment is important and you can use it to design how certain behavior is rewarded.

  • Swedish summer. August is the best time of the year in Sweden. Nuff said. Even when it rains it’s OK. We Swedes love this time of the year and being outside in nature to enjoy it. It’s part of our culture.
    Lesson learned: Swedish summer rocks.

  • Tjärö. The crew. The food. The setup. Everyone working on Tjärö help out making the experience for every participant as great as possible. They thus become the extended arms of Tomas and Kristin.
    Lesson learned: Hire people that share your values.

  • The long tail on the web. Of course an internet conference wouldn’t be an internet conference without blogging, tweeting, bambusing or facebooking. The internet enables us to transcend place and time and connect over physical boundaries. We can share stories – blog posts such as this. We can relive the moment, long after it’s over – and prelive it before it happens.
    Lesson learned: Share everything. Be open. Create social objects that people can discuss. Use the web. .

IMG_1313
Pinteresting stuff?

That’s a few lessons from Sweden Social Web Camp. It may look like a weird camp for nerds but look deeper. There’s an important business lesson for any company looking to upgrade their business model to the 21st century hidden among the rocks, sheep and beautiful ocean water at Tjärö. The lessons learned above are lessons in modern marketing and business development. I highly recommend a visit next year.

The best way to understand what makes SSWC so special is after all to be there.

/Me on Twitter. Me on LinkedIn.

The career dilemma for startup entrepreneurs

Leaving your day job to launch a startup is a big and difficult decision to make. It is made especially difficult because the skill set needed to run a startup is very different from the one you need to make a career in BigCorp, probably even more so if you have a technical background (like me).

How are they different? This is a gross oversimplification but let’s say there are three main activities performed in any company:

  • Producing. In a software company this is what the developer or designer is doing. They build stuff.
  • Managing. This is all the overhead activities that comes with more people, larger projects and multiple offices. It’s everything from managing customer requirements, writing change requests and setting salaries.
  • Selling. Selling is the act of bringing your product to your customers. For simplicity’s sake I include marketing here.

If you have technical background and want to make a career in a large company, most likely you will end up managing something or someone. Unfortunately, very few large companies have good career paths for technical roles. Even worse, “programmer” is usually at the bottom of the food chain and a so called “architect” will be spending more times in meetings with PowerPoints than actually producing (coding). I have spent years managing requirements in large telecom projects, for example.

When it comes to selling, very few people in a large organization work with actually driving and increasing sales. It’s usually a question of managing existing customer relationships. So, the skills needed look like this:

A corporate culture where managing is the most important skill will be characterized by endless meetings, a lot of document overhead, lots of middle managers (often competing with each other in political struggles) and long decision times (often months or even years).

In a startup, on the other hand, there are basically just three roles: hacker, designer (both producers) and hustler (sales). The skills in a startup look like this:

Yes, managing will be important some day in the future, but not when leaving the corporate career path and starting something new.

So there is the dilemma: you’re not just saying goodbye to your corporate salary, you’re also saying goodbye to skills that will reward you in the corporate career ladder. A hard choice.

Of course another way to look at it is: do I want to spend the rest of my life having endless meetings, working with document overhead, fighting political struggles with middle managers and spending most of my days without moving the needle?

Perhaps the choice isn’t so hard after all.

(Discuss on Hacker News.)

What is entrepreneurship and how does it relate to innovation?

I love this definition of entrepreneurship:

Entrepreneurship is the pursuit of opportunity without regard to resources currently controlled.

Compare this to the following definitions of the word “innovation”:

“Change that creates a new dimension of performance.”
-Peter Drucker

“The introduction of new goods (…), new methods of production (…), the opening of new markets (…), the conquest of new sources of supply (…) and the carrying out of a new organization of any industry”
-Joseph Schumpeter

“Innovation is a new element introduced in the network which changes, even if momentarily, the costs of transactions between at least two actors, elements or nodes, in the network.”
-Regis Cabral

“The three stages in the process of innovation: invention, translation and commercialization.”
-Bruce D. Merrifield

So then what is the relationship between entrepreneurship and innovation? Two sides of the same coin? Perhaps. Entrepreneurship takes the perspective of the individuals or the organization that drives the change while the innovation is the change itself. While they are not the same they certainly walk hand in hand.

The internet is a bubble


Links. Photo by me.

No, I’m not talking about a valuation bubble as in the .com-days. I am talking about how we are using the internet, today in January 2012, roughly 17 years after its breakthrough.

The evolution of the internet can be split up in to three phases, each building on the previous. Each phase is defined by a verb, which is the default behavior of a user of the internet in that phase.

The first phase is the SURFING phase, when we went from place to place looking for text and images. Yahoo! even started out as a company that manually tried to enter all the web sites of the world in to a categorized index. How crazy doesn’t that sound today?

This was the era of the bookmark and the URL. Your homepage (if you had one) back then was often just a dump of your bookmarks from your Netscape web browser.

The second phase is the SEARCH phase and started around the beginning of the century when Google became the dominant search engine. For many people, Google became the internet. I personally use the search engine more times than I can count during a single day. It has become almost an extension to my mind, an extra mind that we all share. It’s almost as if we’re becoming the same individual on some level. Quite fascinating.

Keywords and links became the hard currency in this era since links signal trust and is used by the Google algorithm to give each page a weight, the Pagerank. Search Engine Optimization tricks were (are) used to optimise your place in the search result but it really just boils down to creating stuff that people like to link to.

The third phase is SOCIAL and the verb is RECOMMEND, as in retweet, like, +1, share etc. This is where the bubble comes in because in this phase the internet is no longer interconnected web pages but streams of data from our friends. In the phase we live in sort of a Matrix reality shaped by the recommendations and retweets or the people (or companies) we trust.

An endless stream of status updates, this is the bubble we live in.

This is the era of hashtags instead of links or keywords, because the hashtag is how you pick out the signal from the noise in that endless stream. This is a significant shift from the first phase, which was essentially a broadcast phase where content owners had full control over the web sites they wanted you to visit. A hashtag, on the other hand, is just part of the stream and you have as little control over it as you have over the water in a river.

We’re only at the beginning of the social phase of the web so it’s not a bubble in that sense of the word.

Surfing, searching and recommending. The first three phases of the web. What do you think the next one will be?

Passive founder deadlock

Startup Founders are like toes
Startup Founders are connected like toes on a foot. Photo by me.

A “deadlock” is a state in a computer program where parts of the program is waiting for other parts to finish who in turn are waiting for the other parts. The result is a freeze where nothing happens. This has probably happened to your computer some time.

A similar situation can occur in early stage startups. Before a startup gets funding or revenue the only thing that drives it is the passion of the founders. But, the passion in every individual founder is deeply connected to the passion of the other founders. You need to have a passion balance equilibrium otherwise the startup will freeze just like the computer program!

As an example, you’re three founders, you get started, energy is high and you’re all excited to do this thing. Then after a while one of the founders starts drifting. Maybe her daytime job takes too much time. Maybe her spouse doesn’t like that she spends all her free time working on your startup. Maybe she just lost interest, the reason doesn’t matter but the fact is that you are now extremely close to a passive founder deadlock situation.

Her drain in energy will drain the other two founders as well. It’s Sunday evening and you have the choice between playing with your kids or working on your startup. Why should you sacrifice your spare time when the other founder don’t? You go play with your kids (a wise choice anyway). The startup dies.

The same situation can occur in later stages, when funds are limited. As long as your startup doesn’t have its wings in the air passive founder deadlock is probably your number one risk.

So, how do you prevent it? At the end of the day, you can’t. This is simply one of the facts of life for a startup. But you can limit the risk somewhat.

  • Of course you should make sure you have written agreements between the founders. This sets the baseline of what you expect from each other. It should also describe how a breakup should be done.
  • Too much administration can kill the passion too but some simple way of tracking who does what will help you see early on if someone is dragging behind. A Kanban board is an excellent tool.
  • One rather extreme way is to define an equity value for each task that needs to be performed and then split the equity after the task has been done based on who contributed the most to finishing the task. With this approach all the founders together make a list of what needs to be done and decide on an equity value for each task. When the task has been done the founders meet to “split the boot” with the founder who contributed the most getting the most equity. The downside with this approach is that you will spend a lot of time arguing over who did what and how much they contributed but if it works out it’s probably the fairest way to do it.
  • Do the startup alone is one way but the chance of success is even smaller with this option so this is not recommended.
  • If you’re OK with not an equal split of equity you can appoint one of the founders as “CEO”, give her more equity and the authority to be the driver of the startup. It’s then her task to “hire” co-founders and pay them with equity for the work they do. This approach also has downsides.
  • Of course the best way to solve this is to just simply get your wings in the air as soon as possible. You really should hate being in the startup phase.

What do you think is the best approach to prevent passive founder deadlock?

Hacker News discussion.