Investment should not be the single goal of a founder.

“-Can you tell me what you would look for in a startup so I can properly build my MVP?” I am at a Meetup where investors (VC’s mostly) sit around the table with Saas startups. Others are nodding at this question, it is the thing they want to know as well.

“-So what do you have now, right this moment?” Another investor asks. The founder, or rather intended founder explains that he is still playing with the idea but before he starts he wants a clear idea of what investors and VC’s in particular would look for in an MVP. He then intends to build an MVP to match these expectations and also wants to know from what point onwards he needs to contact the VC.

“-Does that imply you mean to build one single MVP based on what the investor expects rather than what a customer would want?” I ask the founder. He answers yes, he also does not know what other way there would be to start. In all of the examples he sees online he understands that there is some sort of MVP with which you gain the interest of an investor. He is not the only one. After the meetup another founder connected with me on Linkedin to thank me for the insight; ‘we need to listen to our customers’ rather than build for an investor. The rise in popularity of startups and the seeming ease with which to start one, has peaked the amount of people wanting to start a startup. Thinking that building an MVP is step one and getting investment is step two.

Being a founder is not easy, starting a startup is relatively easy, but proving, with actual customers, that your idea is actually something you can build a business on is hard, and it takes time. It starts by listening to your customers, figuring out what it is they need or want, than prove that your solution is something that really helps them and makes them happy. The next step is to prove that people will pay you for that, and the last is to prove that there is a possibility to scale.

at NEXT we have developed a progress canvas

It doesnt make sense to get an investor in if you haven’t proven the viability of your idea yet. You can put your own money in it, or bootstrap, maybe there are friends that want to help you. Ask yourself why you want to have an investor? Is it the goal of your startup? Or is the goal to actually build something that people will buy. An investor will want to see return on her investment, so think about that when and where looking for an investor makes sense for your business, if at all. But always prove your idea has a healthy business model first. Are you looking to build something that is a healthy business but not something you want to scale big, maybe you do not need any investment at all, or just some starting capital from friends or Angels. If you are looking to scale big, than investment makes sense, but only in the phase where you have proven the problem, the solution, and the revenue promises.

Risky assumptions and Experiments, where do I start?

Once you have filled in your canvas, you are stuck with a pile of stickies filled with assumptions. Do they all need to be tested? Is every single one of them risky? Where do I start?!

There are a couple of tools that can help you prioritize and create order in the chaos. One that is really helpful is the Hilo matrix. In a guest post on Tristan Kromers blog, Dan Toma is writing about how this has been helping teams prioritize on risk in a very easy way.

Once you have written down all of you assumptions on stickies you can use this visual method to decide which things needs derisking the most. First you order you assumptions based on the knowledge you have on that subject. Do you know the facts the mindset, the problems etc… or not at all. Order your stickies along a horizontal axis from left to right. From ‘I know a lot about it’ to ‘I know nothing about it’. Once you have ordered them, add a vertical axis. Going throught the middel of the horizontal one, dividing everything into 4 squares. This axis is going from ‘Has low impact on the Businessmodel in the bottom to ‘ Has high impact on Businessmodel’ on the top. If you order your stickies as honeslty as possible the right hand top quadrant is now containing all of the assumptions that are most risky and should somehow be tested.

The HiLo matrix by Dan Toma (drawing Esther Gons)

Using this tool to prioritize experiments works really well in combination with our progress Canvas. The NEXT canvas is using 8 building blocks ( partially taken from Ash Maurya’s Lean canvas) and is ordered in such a way that the blocks form steps that correspond with the 4 basic phases in a startup journey:

From left to right it determines the order ( or proposed order) in which it makes sense to test assumptions first. Moving along the canvas will show you the progress you are making towards product market fit. Starting your experiments with assumptions that are marked in the top right quadrant of the HiLo matrix AND are in the first step of the canvas is a perfect place to start. Testing risky assumptions on your solution make less sense if you havent proven the problem yet.

Progress board: tracking learnings over time

This is Part 2 of our Innovation Accounting series.

For the sake of learning and progress it is important to be able to keep track of what happens in terms of the changes and adaptions to your Business Model in every stage of your startup. Every update due to an experiment, the things you have validated or dismissed over time. The closer you get to product market fit, the more likely it is that you can show metrics like traction or retention, but are those the metrics you can account your decisions on, put milestones on or determine your roadmap on? From the very first start you want to be able to account for the decisions made towards building a viable business model, you want to see the progress you are making towards a this. Most likely (in the very first fase of your startup) you will start off with multiple possible options and models. The goal is, over time, to validate and de-risk as much as possible, ending up with one that actually works. Going through the phases, experiment by experiment, means you are making decisions and setting milestones along the way. To account for those, it makes sense to document the learnings in such a way that it gives insight in this learning progress.

At NEXT we are using a Trello board for now. We have changed our approach over time and probably will optimize it when we have learned more. Playing with the structure is easy with a flexible tool like Trello and we don’t have to build anything yet ourselves. Although it misses certain other things, this still gives us a flexible approach towards something workable.

Setting up the Trello board

Create lists that correspond with experiment loops. These are preferably two-week time slots, but sometimes something happens and the timeslot changes to a longer period, so it makes sense to number the lists. Something like ‘Experiment loop #’, but weeks or dates work as well, whatever gives you insight.

Every Trello card within a list corresponds with a Business model canvas that is still in option. Experiment loops at the very beginning of the board can have multiple canvas cards, since there are often a lot of options in play. Some are discarded on gut feeling or research, some on experiments. We use a picture of the business model canvas (lean canvas or our own canvas) as a cover for the card, adding color to the canvas segment that is specifically being tested. This makes the overview more clear. There can be more than one experiment in play on a specific card. Note also that in a two-sided businessmodel, you will need a canvas for each side, each is put on its own card.

Canvas cards

Whenever an experiment is run, we add the experiment to the corresponding canvas card. In a comment we upload a picture of our experiment card, with its unique number. (Make sure that the canvas remains set as cover on the card.) The due date of the experiment is set in the calendar. Once an experiment is finished, the end result (validated or invalidated ) as well as the metrics or documents that proof this, get uploaded or linked to this card as well. The updated Business model (Canvas) is than made into a new card in a new experiment loop.

Stickers and labels

Every card that has an experiment attached to it gets a triangle/exclamation mark sticker. If an experiment fails it gets a thumbs down sticker, if it validates a thumbs up or checkbox sticker (whichever you prefer). Running experiments get a rocket sticker and business models that are still in play but without experiments currently being done get a clock sticker. For experiments that have proven inconclusive or those that need follow up experiments, either more experiments are added to the card, or the card is copied to a new loop and experiments are added there. Sometimes we assign a confused smiley sticker to show this.

Labels are very useful especially for two-sided marketplaces or more complex models that need several canvasses for one option. Colored labels can be assigned to cards indicating the two sides of the market place, or the slices that belong to different users within a certain segment when you are dealing with complex markets/customers that need separation into user, influencer etc.

Progress reports

If you keep updating your board over time this will create a very visual overview of your learnings. Building up from one side, that has many options and assumptions, working towards something that has fewer assumptions and is less risky. It will give you some insight into your learnings and a way to proof your progress. Whenever there are periods of time when you have not been able to take steps in proofing your businessmodel, this will also be visible on the overview, just as pivots or new options.

You can work from left to right or the other way around, the result is the same. A progress over time, validating towards a working businessmodel. With everything that is related to this, the exeriments and their corresponding results attached to it. Thus accounting for decisions and steps made along the way.

We’d love to hear how you keep track of your learnings and if and how you have made adaptions to make this work for your startup? Let us know in the comments!

Learn more about NEXT Amsterdam →

Introducing our innovation accounting framework

This is Part 1 of our Innovation Accounting series.

We have talked about the importance of Continuous Experimenting and working on a sustainable business model, experiment by experiment. Even more important is a way to keep track of these experiments and the progress made. Not only to see what you have learned over time, but also to account for the decisions that are made in the process and why certain things need priority over others. In his book Eric Ries calls this innovation accounting:

To improve entrepreneurial outcomes, and to hold entrepreneurs accountable, we need to focus on the boring stuff: how to measure progress, how to setup milestones, how to prioritize work. This requires a new kind of accounting, specific to startups.

Keeping track of your learnings

Usually, as a startup, you can start tracking as soon as there is a version of your product out there and some metrics are in place. This is why it is important to get an MVP out there. But your much craved hockeystick curve is usually mainly flat in the very beginning. Not because founders are not doing anything, but because looking for a working business model takes time and is hard. You usually get the most valuable insights from the most failed experiments, but this doesn’t show up anywhere in our metrics. How do you keep track of the experiments you have done, and the learnings from these experiments even before having a MVP out there?

How we do innovation accounting at NEXT

Identifying priorities and risks in your businessmodel is hard, setting up and formulating an experiment is even harder. We have found out working with a lot of startups that once you have a framework in place, it is more manageable.

For every experiment sprint or loop, we look at our canvas and decide on the things that are still risky and decide on experiments based on that. At NEXT we like to work very visually so that every team member knows what is going on and why. The starting point is a canvas. We use the Lean Canvas instead of the Business Model Canvas in early stage startups because it helps to focus on the problem and solution rather than strategy and product. We also have developed our own NEXT Canvas, which we will share with you soon.

A physical version of the canvas is always on the wall and gets updated with every single insight from experiments. The canvas helps identify risks and priorities and decide on the next experiment (or set of experiments) to validate assumptions. Once we have decided on an experiment and what it is that needs validating, we formulate an hypotheses or learning goal.

To help us formulate an experiment and to define its succes criteria upfront, we have designed this experiment card:

The card helps us to be scientific about every single experiment. It helps formulate an hypothesis and learning goal, forcing us to think about what it is that we are testing. It also helps being consistent across experiments.

How to use our experiment card

The upper row:

Used to fill in the date of designing the experiment.
A number for this specific experiment. This way you can attach this experiment to a canvas or other events in metrics that this experiment relates to. See it as a unique ID for this experiment
The actual cost of the experiment, this could be time, development time or actual hard cash.

Hypotheses: A falsifiable statement. (What is it that you want tested)

Context: With which segment on the canvas does this experiment correspond. What risky assumption are you trying to validate and why? We put dots in the areas of the canvas to visually mark the segments the experiment is related to.

Learning goal; what is it that you want to learn from this experiment. (If the hypotheses is not really clear, for instance in an exploitative customer interview, this one should be even clearer.

Experiment: It is important to time-box every experiment. Set both a start and end date.

Describe the experiment; Is it an interview? A fake button experiment? Describe how you are testing the hypothesis. In relation to this, which metrics are being monitored to determine succes?

Result: When is the experiment a succes? Write this down before running it. When the experiment is done make sure that the actual numbers are updated.

Next step: Was the hypotheses validated? Did you learn anything? And what does this mean in terms of next steps. Pivot, persevere, or do another experiment because this one wasn’t really testing what you wanted to test?

To do, done

All running experiments are put up on the wall next to the canvas. Once an experiment is finished it is taken from the wall and archived. But not before we have decided on a next step, and updated the canvas or the product from the results of the experiment. The experiment cards are then archived together with the corresponding canvas ( the one just before we updated it with the results of the experiment). In this way we can see which experiments accounted for which decisions and if there are any metrics of importance that relates to them.

Avoid going around in circles; track your progress.

In the next blogpost we will dive into how we use Trello as a tool to keep track of current and past experiments and the changes of the canvases in a ‘timeline’ of sorts.

Learn more about NEXT Amsterdam →

Validated Learning: The ‘Build, Measure, Learn’ loop

In the previous post I introduced the lean startup methodology by Eric Ries. He defines two phases in a startup. There is a Customer Discovery and Customer Validation phase. The first fase is all about proving problem/solution fit. It starts of with exploring the customer segments, validating there is a real problem and deciding on a solution. The second fase starts with validating this solution offer and optimize this into something that a lot of people will actually use, and more important, pay for. If you can also grow the number of those users rapidly, you are ready to scale.

The first phase is all about validating if there is a customer that has a problem at all. Whereas the second phase is concerned with optimizing your solution offer into one that a lot of people will actually pay for to use. Although the experiments are likely to be different depending on the fase that your startup is in, the goal is the same.

The goal is to learn.

As with any new idea, the boxes in your businessmodel or lean canvas are filled with a lot of assumptions and therefor a lot of options. It is all about finding the few that really matter. Test if assumptions are true before building upon it. Not every assumption needs to be tested though. You start of by identifying the riskiest assumptions on the canvas. The one that, if not true, will have your whole idea come tumble down like a house of cards. From there you learn, update that information into your canvas and decide what is most critical to learn next.

Traditional product or service development cycles, look something like this; decide on a product, do research, build the product, put it out there and see how people react to it. The time between the idea and putting something out there is a rather long one. In this period, typically nothing is learned at all. Only when the physical product or service finally hits the market and people interact with it, something happens. By than it is usually to late to fix problems is the product is not working, all the while spending time and money. The lean startup methodology aims to increase learning and decrease risks. The goal is to learn and iterate all the way to something that works.

Business Science
But how do we learn? For every assumption that needs to be tested, you design an experiment to test this. Applying a scientific method. Business science that is, a ‘pseudo’ scientific approach optimized for time and money.

The scientific approach lies in the fact that every ‘experiment’ that you run, whether this is a customer interview, an MVP or an A/B test, should validate an hypotheses. The criteria for this hypothesis to fail or succeed should be decided upon by the team and written down before the experiment. The criteria should be based on business value. (Although there are no hard numbers here, it helps to count back from the bigger picture. i.e. What is the amount of people that need to say yes if you look at it from a market segment perspective and the percentage you need to have a viable business.) Build an experiment, Learn, update the information from the experiment on your canvas and make the next step or decision.

Startups exist not to make stuff, make money, or serve customers. They exist to learn how to build a sustainable business. This learning can be validated scientifically, by running experiments that allow us to test each element of our vision -Eric Ries

The startup experience is really a series of experiments. Every single experiment is build to learn. Your Business Model or Lean Canvas is not filled in at once or only once, but is something that you iterate upon. It makes sense to look at your canvas as the product of your startup. Your goal is to learn and iterate this canvas into a working and scalable business model. Experiment by experiment.

Learn more about NEXT Amsterdam →

An introduction to Lean Startup: How it all started

The Lean Startup, Running lean, The four steps to epiphany, we have all read the books. We use the Business Model Canvas and build MVP’s. The Lean Startup methodology has become very popular not only within the startup industry worldwide, but also amongst companies that want to enable innovation and change. Allocating time and money as efficient as possible, shorten development cycles and make something people actually want to use.

But what does it really mean to run a lean startup? Why are we doing it in the first place? In this series I will give a short introduction to the lean startup methodology and how to implement this in your startup.

Let’s start at the beginning.

Why do startups need a different approach from all other companies, starting or not. Why did the Lean Startup methodology came to existence in the first place. The use of the word startup is immensely overused and hyped as a marketing term for every single starting company that has something new or is tech related. The term startup however is used specifically to highlight the difference between starting companies and startups. According to Steve Blank:

A Startup is a temporary organization searching for a scalable and repeatable Business model

What does that mean? It simply means that Startups have no Business Model. Yet. Me starting the most beautiful and successful hair salon in the world does not make me a startup. It makes me an entrepreneur, and my entrepreneurial skills and passion can certainly make a successful business out of it, but the Business Model behind hair salons is an existing one. I can roughly calculate the amount of money I need to put into the business, to know what I will be able to get out of it. I can differentiate, target niches, be more exclusive, but still, I am not inventing a new model to change what has been done before in a repeatable and more important scalable way.

The global reset

With the rapid rise of new technologies, easier acces to people all over the world, access to tools not available before, it also became possible to disrupt the way business was done for years and years with only a small team and an innovative idea. The digital revolution demands a global reset. New ways to accommodate the new economy and change in social structures and relations. Startups are searching for those new ways, combining new technologies with business insights. Searching for new ways to make things work using new technologies and new insights.

Lean Startups

Now no two startups are the same, everything they do is new. Paths to succes can not be copied.

What Spotify did for music might work in the world of books, but the path to succes is going to be a very different one. For startups it is important to have a way of minimizing the time and resources in this search for succes. Minimize the risk in every step of the way in order to optimize the chance of succes. You do not want to find out 100K of your savings and 2 years of hard work and no sleep later that you have build something nobody really wants.

This is where the Lean startup comes in. Lean in itself is not new, the concept was coined in the 1980’s when Toyota introduced its minimal waste manufacturing principles. This management system based on making obvious what adds value by reducing everything else has since been introduced in many industries.

Some of the main principles of Lean where taken to accommodate the typical startup search fase for a businessmodel. Be as efficient as possible, reducing both time and money spent as well as minimizing risk along the way:

Respect people (customers and employees)
Solve real problems for real customers
Improve using an iterative, scientific method
Be willing to discover the answer by testing things instead of “knowing” the answer
Do work in small batches and focus on flow and quality
Ask “why” instead of “who” when something goes wrong

With this the Lean Startup methodology was introduced, its main concept being the Build, Measure, Learn loop or validated learning.

Next time I will tell more about what validated learning means for your startup.

Originally published at next.amsterdam on December 16, 2015.