Nobody sets out to start a ‘startup’.
Entrepreneurs take risk to develop a business with a sustainable and, eventually, a profitable business model. Technology is democratising entrepreneurship as almost anyone can access global markets and leverage the power of software and outsourcing everything from talent to logistics. This basically means that more costs are variable – i.e. they are linked to revenue or at least can be rapidly throttled to match the size of your business or the pace and direction of travel.
I have friends that have designed a product with a Chinese manufacturer and then have it shipped to a UK-based handling partner to be checked who then ships the product to Fulfillment By Amazon (FBA). They then focus on marketing and developing the product based on customer feedback. They run the business from their smartphone – and have a day job. Dropshipping, which is still easier to do in the US, means that you don’t even have to handle the product as the manufacturer ships the order for you retaining margin once enjoyed by middlemen to be shared between the retailer and the manufacturer, assuming you don’t use it to create a pricing advantage.
This means that it is now easier for entrepreneurs to get into the game and ‘try’. You can take risk with less capital and even outmanoeuvre larger players. You can test your idea – your hypothesis – and failure is less costly. In fact, you will learn from failure.
I am in the process of starting businesses – both myself and with others.I have been involved in startups, scaleups and buyouts since I started my first business when I was 13 when I provided a Sunday newspaper deliver service as the newsagents didn’t deliver on Sundays. It was an opportunity that allowed me to increase my income by 400% working one morning instead of 6 days a week. I have also invested in numerous businesses. Some have worked out. The majority didn’t, so I have made money and lost money over the years as an investor and founder. However, in every case I have learnt something about business, people, the entrepreneurial process and myself.
The point I am getting to is this. Starting a business used to be a high risk and capital-intensive process that limited the number of people who could try. That is no longer the case.The tools exist for anyone to test an idea – a hypothesis.This is very similar to the process that scientists apply to testing a hypothesis.Success can change the world. Failure results in learning.
Thomas Edison tried thousands of materials for the filament in his most famous invention – the light bulb. You might be surprised to learn that before tungsten was used years later, he settled with carbonised Japanese bamboo. He famously said, “I have not failed. I've just found 10,000 ways that won't work.”
The founders of Airbnb, Brian Chesky and Joe Gebbia, hypothesised that they could match those looking for affordable accommodation to attend conferences in San Francisco with people with spare rooms who could generate income. They bought a few airbeds and threw up a web site called ‘Air Bed & Breakfast’. In the early days they faced many hurdles and problems with their proposed business model. They even realised that traction was slow due to poor quality listing photos and took it upon themselves to visit each location to take the photos themselves. They then expanded from shared rooms and apartments to all types of property, and you know the rest. The Airbnb you know today evolved from a simple initial hypothesis that was tested and developed based on customer feedback which led to improvement and success.
Take a look at the diagram above that shows the scientific process. You will have the answer to a question or you may have know-how that provides you with an insight into an opportunity to add value for a customer you understand. It might be that you just know that you can do a better job than your current employer as they fail to innovate. The founders of most startups have some relevant experience and insights – they are not all software engineers toying with dropping out of college. You may have an idea about a sector that is completely new to you. I successfully went in to mobile phones when I barely knew how to use one.
Then, as I always say, do your homework. Once you have done your research you may already decide not to proceed, or you will realise that your idea already needs to be changed. Do not just push on if your research flags serious issues in the belief that you will work it all out down the line and “what do they know”.In many cases “they” don’t know, but still listen and learn.
You can then construct a clear hypothesis around which you will you can startup and go to market to test it.Start small, keep it lean and listen to customer feedback. Don’t forget to collect data and measure everything as if you can’t measure it then you can’t manage it.Then, most importantly, learn from it and iterate your product or service to better meet customer demands.As the military adage goes, “no plan survives contact with the enemy”. The lean startup approach is summarised as “Build, Measure, Learn”. Build it, measure performance against expectations and learn from feedback and iterate your business model. This applies to almost all businesses and not just tech startups.
If your hypothesis is proven or partly proven and you can deliver your product or service at a profit, then you may be in a position to scale your business. At this point a scientist will communicate the results in a journal.
If your hypothesis doesn’t work out when tested despite your best efforts to learn, iterate and solve to meet your target customer demands, then you may have to accept that it isn’t going to work. Some may label that a failure, especially when it involves personal or external investment. It may feel even more like an acute failure if you have told the world about your plans and even left a job.You may have investors – family, friends or angels that will lose money. That is the risk of early stage investing and anyone investing should understand the risk and be made aware (in so far as it is possible as your understanding will typically be far deeper) of the risks of your hypothesis and proposed business venture. If you have kept them up to speed with progress, or the lack of it, and can look yourself in the mirror knowing that you did your best, then that is the natural outcome of the process. You have to throw everything you have at it, but you also need to know when to stop. Entrepreneurs can suffer from optimism induced myopia, so avoid wasting more time, resource, money and even emotional energy chasing rabbits down holes. Listen to those around you who are not suffering from the same condition and can see where things are heading.
Get over it and move on. In some cases, the people who supported you will do so again. They are often investing in you as much as the hypothesis. Be open and honest with them.
However, whatever you call it – failure or experience. You will have learnt something – about yourself; about your skills and the gaps you may need to develop or resolve; about people and about the process of starting a business and testing a hypothesis.
You have made progress.You may have more ideas and now you have reduced execution risk by gaining experience. I know many successful entrepreneurs and it is rarely their first business that is the one that made them money. However, the ones that didn’t work out certainly helped to make ‘them’.
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