New Venture Milestones

During the past 12 months in Business School @Graziadio, I've been involved with 3 different startups including EarlyX, Pepperdine.Us, and Get Ed on Budget. The most challenging part is not coming up with a a solution to a problem/frustration, but rather executing the idea to find a repeatable sales model.

Here are a list of milestones which are crucial steps during a new venture creation:

Identify problem or frustration you seek to solve. I've had a lot of success using Lean Canvas Model. Be clear about what business you're in, how you'll be making money, and how that ties to your goals.

Naturally, your venture will fit into one of the following:

Each quadrant offers it's own set of challenges and rewards.

Determine how big is the market size. I've found IBIS World to be an excellent source for a top-down market research (free for students). You will also want to perform a bottom-up market analysis which would meet your top-down projections of total, addressable, reachable and likely to buy market.

Develop the Concept / Prototype
Develop a prototype. Recent innovations in software have reduced the time and capital required to build a Minimum Viable Product. Determine whether to proceed with further development based on initial feasibility experiments. This is a low cost step relative to future product development investments. You should figure out whether a real market exists or fix flaws in your assumptions. Some questions to consider are:

• Is there an opportunity with sufficient up-side gain relative to necessary risks and costs?
• What has the test taught us which modifies our assumptions and product dev objectives and target markets?

Completion of a Prototype 

Obtain any useful information from carefully analyzing prototype development. Understand what caused road blocks, disappointments and how did you overcome them. Consider the following...

• What assumptions did you make about dev time, cost? How has that changed?
• How does your findings affect financial needs and timing?
• What did you learn about labor, material, equipment availability and cost? 
• How do your findings affect your pricing plans?
• Do your assumptions about 

Initial Financing

Businesses must compete in capital and product markets to survive. Securing financing is an opportunity to learn about venture's acceptable financial and expense structure. First round funding can be used to test concept's potential, finance product dev, or initiative sales. I've found financial pro forma projections to be one of the most challenging parts of new venture creation. Investors will look at this very closely, I suggest you get an experienced advisor to look at this before pitching it to investors. There are several templates you can find on the web for startup finance model.

Pilot Project

Pilot projects are a great way to challenge your assumptions and validate value from your customers point of view. Consider launching your product/service to a minimal audience as part of your pilot project. Observations from pilot projects can be used to improve performance and cost estimes. 

Product / Market Fit Testing

By far, one of the most common reasons why startups fail is because they build products which aren't used. What is your target market for your product? What is the desired set of characteristics/features of your product for this market? Some additional questions to answer:

• Have customers bought your product? Why or why not?
• Is it really different from competition?

Re-design or re-direction 

Use findings from pilot project and marketing testing to redesign or select a different target market. This is proportional to the differences between what your product offering is vs market need. Examine your basic assumptions concerning market size, segments, investment needs, pricing and financials.

Scale Up Production

After incorporating feedback from pilot project, production run test will reveal a new set of problems which need to be solved. Most important thing is to note true cost of producing a steady flow of product and meeting quality standards. The last thing you want is customer rejection as that will increase dissatisfaction and waste huge amounts of resources. 

First BIG Deal

This is the first sale to a major account. In B2C market, this could be a deal with a major distributor. In B2B world, this could be a sale to another major company. Some questions to ponder about:

• How does product compare to competitor in the real world?
• Continue or change initial selling method?
• Service layer agreements?
• What are quality control expectations?

Competition Reaction

How will competitors respond to your venture or product? Plan possible responses depending on what moves your competitors make. You want to know what your rivals competitive position is. I've found Mind Tools Strategy toolkit to be a very effective summary of 2 years of Business School.

Investor Pitch : Get Ed On Budget

I had a pitch infront of a few members from Tech Coast Angeles, BeachMint and a local early stage Venture Capital firm tonight.

Get Ed On Budget is a business model innovation helping students learn to earn. It accomplishes what most schools don't do today which is personalize the learning experience to match your goals by finding out who you are and where you're trying to go.

Here are some take aways and feedback about my pitch:

• Pitch as business owner, not as a consumer. At times, consumers and business owners have differing interests. For example, as a small business restuarant owner, you wouldn't want consumers to hang around after their meal, though consumers would.
• Be specific, show details. Pick a location, take a screenshot, any detail helps
• Show average consumer spending, before and after your product 
• Don't over promise the financials. If your financials look better than Google's, take another stab at it.
• Show a demo 
• It's amazing how many pitches end while investors are wondering..."What is it that you're selling"
  
  
• 50/50 is about right for revenue share deals. At first you need them more than they need you, then you use it as leverage
• Pick a niche market for validation and product/market fit
• Cost to build software is $
  
  
• Give 100% away initially to prove market validation
• Get 10 people to pay you to prove product 
• Don't use slang words, don't expect investors to keep up latest phrases. For instance, what is a MOOC?
• Consumers will compare your price with others, and if significantly cheaper, then they perceive your product to have lower quality. For instance, $11.99 vs $3000, consumers think you are sacrificing quality
• Focus on 1 thing and do it really well.
• Don’t undersell your experiences.
• Don’t ever lead with a negative, be confident about what you know.
• Cost of selling to retail is very high...gotta get 5x retail margin
• Consider sales cycle, how long is it? How long will you need to persuade them decision makers to purchase?

Persuasion: Universal Principles that Guide Human Behavoir

Dr. Robert Cialdini, Professor of Psychology and Marketing @Arizona State University, has written the most convincing evidence describing the principles which guide human behavior in the context of Persuasion.

In decision making, you would think that one would consider all the possible solutions and alternatives before making up their mind on a decision. In todays environment  the number of choices leads to an explosion of choices and alternatives.

Here are the 6 shortcuts we use to make decisions:
1. Reciprocity
People are obliged to give back to others the form of behavior, gift or service that they have received first.

Examples:
A favor for a favor.
Easiest way to get a smile is to give one first.
A waiter who gives you candy with the bill increases his tips by 14%.
Personalized and unexpected.

2. Scarcity
People want more of the things they have less of.
It's not enough to tell people about the benefits or uniqueness of your product, but also explain what they stand to lose by not purchasing your product.

Examples:
Concord flight sales doubled when it was announced that it was no longer economical to fly.

3. Authority
People follow the lead of credible and knowledgable experts.

Examples:
Physicians display diploma on the wall.
Customer testimonials. Science says it doesn't matter if the person giving testimonial is related or has something to gain from the testimonial.

4. Consistency
People like to be consistent with the things they have said or done.

Examples:
Ask for small commitments prior to asking for a bigger one. Consider newsletters which lead to subscribers purchasing product down the line.
Voluntary, public and active commitments in writing.
When patients write appointment details

5. Liking
People prefer to say yes to people they like.

3 Factors of why people like you:
Similar to you.
Complement you.
Cooperate with you on mutual goals.

Examples:
Exchanging personal information, similarities or interests before getting down to business.

6. Consensus
People look to actions and behaviors of others to determine actions of their own.

Examples:
75% of the guests who stayed in your hotel room re-used towels. Think about how this will affect your behavior.

Employing these costless shortcuts in an ethical manner will considerably increase the chances of persuading someone by your request. 

http://www.influenceatwork.com

Influence at Work is a great resource I recommend you read.

The Problem Interview

Case Study of Product, Market, and Customer Validation

As you start out on a new venture, whether it be a product or service you seek to sell, it is crucial to understand your customer's point of view before coming up with a solution. Many entrepreneurs fail because they start out with a solution prior to defining a problem. This ultimately leads to a product which no one wants to use.

One of the ventures I have co-founded is to disrupt the higher education space. Here are some thinks we considered during the problem interview:

Product Risk: What is the problem/frustration? What are the top 3 problems?

Market Risk: Who is the compettion? How do customers solve the problem today?

Customer Risk: Who owns the pain/frustration?

My co-founder and I identified a group of 10 customers from three segments and conducted a face to face group interview/discussion. Here is the script we followed...

Welcome:
Thanks customers for participation. Begin telling them the about your product and the problem as you understand it, and see if it resonates with them.

Customer Segments:
How old are you?
Do you take courses online?
etc...

Tell Your Story:
Tell a story which includes use case about the problem/frustration you are going to solve. Does this resonate with you?

Problem Ranking:
Prioritize problems from customers point of view. This will help focus your efforts during product development by working on the most desired features first.

Explore Customers Views:
No script is needed for this. A heart to heart talk about how big of a problem is this and what the customers are currently doing about it. Understand the workflow from cradle to grave. Clearly identify 'must-have', 'nice-to-have' or 'don't-need'.

Wrap Up:
Thank customers for their participation and follow up with demo.

Document Results:
I would recommend having someone document your results. This is very important as you will likely forget some comments which can be extremely valuable in the future, especially if you pivot.

Ash Muarya has a book titled "Running Lean" which talks about this in further. Ash was the former CTO and friends with my Entrepreneurial Operations professor Kyle Murphy. Kyle has taught me critical skills about operations & execution of newly created ventures.

Social Network Analysis: Centrality, Closeness

I've been hacking at social network analysis concepts using some sample data from livejournal.com. I will have another post with code snippets of this analysis, but here are some concepts I've learned so far during my analysis:

The data gathered from livejournal is done using a BFS like algorithm called Snowball Sampling.

Snowball Sampling:  uses a small pool of initial informants to nominate, through their social networks, other participants who meet the eligibility criteria and could potentially contribute to a specific study.

Pseudocode:

# start with central node

# get friends of central node

# for every one of friends:

#     sample friends of friends

#     For every friend of friend

#        sample friends of friends of friends

*Date is stored in Pajek format using simple text file. Python NetworkX library contains useful methods of analysis, including Pajek output support.

Though there are advantages & disadvantages to Snowball Sampling, humans have a limited sense of perception in social networks. This phenomenon is known as Horizon of Observability. In other words, we have a good idea of who are friends are, but less insight to friends-of-friends,  and considerably or almost no knowledge of friends-of-friends-of-friends.

One of the first approaches for analyzing social networks is to measure power, influence or other characteristics of people based on connections. 

Degree Centrality: # of connections that a node has.

Closeness Centrality: How close is this node to celebrity nodes (lower distance to high degree individuals).

Boundary Spanners: Nodes who act as bridges between 2 or more communities that wouldn't be able to communicate with one another.

Eigenvector Centrality: A node is central to extent that node is connected to others who are central. In other words, a node is high on Eigenvector centrality is connected to many other nodes who are connected to many others.

PageRank is similar to eigenvector centrality, but the algorithm scales much beteter to very large networks which change over time. PageRank is an iterative process, knows as anytime algorithm.

Centrality metrics are point-measures on the network. It does not tell us why a high centrality visionary is surrounded by followers, or what forces bring or tear people apart. Inorder to understand those concepts further, we need to consider deeper point measures such as cliques and clusters. 

The 4 Hour Chef

Tim Ferris has a new book called "The 4 Hour Chef" and here are some summary notes.
Whether you think Tim is a snake oil salesman or a self promoting guru, I find his work interesting.
In the spirit of his work, here's a 1 page summary.

Acronym DSSS
Deconstruction:
What are the LEGO blocks? LEGO blocks being the units of work for a goal.

Selection:
Which 20% of the blocks will give me 80% of the outcome I want?

Sequencing:
In what order should I learn the blocks?

Stakes:
How do I set up real stakes to guarantee follow-through?

Acronym CaFE
Compression:
Can I encapsulate the most importnat 20% into easily graspable pieces?

Frequency:
How frequently should I practice?

Encoding:
How do I anchor new material to what I already know?

I recommend you read all of Tim's books, they are thought provoking with creative, real life stories.

Scalability : A Case for Cloud Computing

Scalability is the ability of a system, network, or process, to handle a growing amount of work in a capable manner or its ability to be enlarged to accommodate that growth. It impacts performance and efficiency of your system.

Scalability can also impact business if you're cloud application can't handle users beyond a certain threshold.  Moreover, reducing the latency between your customers and business can improve user experience, thus; encourage repeat usage/visitors.

Hardware resources which can impact your ability to scale include:

• CPU

• Memory 

• Disk (capacity & throughput)

• Network Bandwidth

Node: Physical server, virtual machine, or cluster of servers

Data Node: Contains data used by application

Compute Node: Contains application code logic

There are 2 approaches to scaling:

1. Vertical Scaling (Scaling Up) : increase overall application capacity by increasing resources in existing node

1. Horizontal Scaling (Scaling Out) : increase overall application capacity by adding new nodes

Vertical Scaling is often less complex, as you're throwing more hardware at the problem.

Horizontal Scaling is more complex, and architecture focused.

For more detailed account of Scalability...I suggest you look at Cloud Architecture Patterns Develop cloud-native applications by Bill Wilder