Have you asked this question recently ?

'What important truth do very few people agree with you on?' ... Peter Thiel

Ask this about :

1. The market you choose
2. Habitual patterns in your business, and community
3. Your reaction when you hear " That is just the way it is "
4. The "spin" in the local or national press or politicians
5. The facts you accept, the interpretations you make, the actions you take as a result of those interpretations.
6. Life direction

For more business and startup wisdom, Google " Peter Thiel " and his book  "From zero to one" is worth the time to chew on his nuggets of in the trenches wisdeom from Palantir and PayPal.

Here is the Stanford Startup course curriculum that is mentioned in this article  . You decide whether the course is meant for disruptors, vs incremental innovation .

Two problems to test your Startup CEO and Investor Savvy.

This post is first in a series to highlight potential challenges as business owners, entrepreneurs, CEO that we could face, before it happens.

It is also a post to sharpen our critical thinking and problem solving skills. We are in the trenches solving internal or external problems and keeping our ears to the ground as to what may impact our business for the better or worse. Our problem solving skills need to be at "peak performance" and we need to develop filters to separate "signal from noise". We need to de-risk our startup or business risk while creating and capturing value. What mindsets and methods will help along the journey?

So here are two common challenges that we are likely to face either as a founder/business owner or investor.

Questions for CEO for Scenario #1 - Current Sales short of projections to profitability.

1. As a CEO what questions would you ask your team to initiate the problem solving process ?
2. How would you determine the root cause of your gap in revenue?

Scenario #1 : Current sales is short of projections to profitability and TAM

In scenario #2, you are a seed investor in a business that is highly recommended by your friends and family.  This company is "selling and scaling" and have achieved "product-market" fit, "traction", you were the keynote speaker at the launch party and you are thrilled when the first sales orders are in.  Now, the company is coming to you to lead the next round of investment.

Scenario #2 : How to solve this problem BEFORE it happens ?

Questions for an investor for Scenario #2

1. How would you determine if the business you have invested in, is not facing scenario #2?
2. What questions and proof would you ask of the founder/team? 
3. As a founder, what can you do, before you launch your startup to de-risk your investment of time and sweat and capital?

Scenario # 2 is quite common by the way.  Having a VC or Super Angel invest in your business is a huge accomplishment, however according to the WSJ about 30%-40% will likely encounter Scenario #2.

Here are some reasons that Founders share about why their startup failed and here is Paul Graham's take on some mistakes startups make . For inventors and hackers,  here are some links on lessons learned from  product launches from Harvard Business Review and some updated numbers on new product success rates .

So what are your solutions to Scenario #1, and scenario #2? 

 It could save, and help grow your next or existing business!!

4 suggestions before you launch your new venture

I am often asked what are the steps to launching a new business. My answers vary but it is rarely if ever, "incorporate now, file a patent, or promotion tactics, or build a website ". 

Why? Launching a new venture or introducing a new product or service is a heavy investment financially and emotionally for an entrepreneur before you reach the promise land. The rewards of the "promise land", both financial and personal have to be worth the effort for you, your team and your investors. I was fortunate to have my company launch a successful IPO on the Nasdaq, but the journey and mistakes we made was horrendous. I hope to share some lessons here and in future posts.

Essential steps : An Entrepreneur's journey 

Take the time to sit for a couple of weeks to think through your new venture and new journey in life. If you are a first time entrepreneur, you would probably need to develop some new habits and new ways of thinking and doing that will serve you well down the road.

Like an architect designing a home, the upfront investment in thinking through what your home/business will look like, function, purpose it serves, and flow will save you a lot of grief in changes in construction and the resulting increase in costs and time delays.

So what would you think about first ?

1."Who and what before how " - who are my customers and the overwhelming benefit?

Asking what business are you in helps you focus in on customer outcomes the "ends" that customers want to achieve.   Are you in the "build a better mousetrap" business or are you taking the time to understand customer outcomes?  Is your new product/service improving the means or delivering a better outcome, customer ends?

The difference in what you are introducing impacts the time to market, time to profit, financial resources, team talent to create and deliver value to customers, and how profitable you are. When you are focused on customer outcomes, the means or the how, of delivering those outcomes gives you" innovation flexibility" - it point to what and where you innovate and introduce your product/service.

Who are your customers and what can you do better - what is the problem you solve, the value you create? 

Customer centered questions - create freedom to innovate the means and the type of  business you create

Your customer understanding combine with your team's talents could lead you to a new coffee house or a new Thai restaurant or it could lead to the next AirBnB - creating value through unused assets - in this case the spare room in that house. Knowing your customers outcome will help you build desirable and viral traits into your offering.

After who, what you plan on offering and how will determine how large the market is and how much value you want to add to a process such as renting out extra space in a home could mean the difference between a Craig's list or AirBnB. The scope of what you offer initially, and how you offer it may evolve over time and change your growth strategy, once you can prove the unmet need.

Who, what and how determines whether you have a lifestyle business (a restaurant) or a scalable startup (AirBnB ), the investment you would require and type of investors as well as company entity and the proof points you need to make the jump while conserving your capital.  If you are a local business that depends on neighborhood foot traffic, you are wasting your time learning SEO/SEM when what may matter more is community goodwill and reputation of your service.

If you are a scalable social entrepreneur solving global water purity or renewable energy problems you want to focus on managing market, product, team risk .

2. Managing Risk - Know your knowns/unknowns of your business to develop and demonstrate your "proofpoints" - be smart about how you allocate your capital.

When launching a business or a new product you are essentially juggling the following:

1. Market risk - will they like it and pay for it in large enough numbers so you are profitable and fund future growth?
2. Product / service - Is it sufficiently different and defensible and works like it promises?
3. Team / Founder / Advisers - Can the team execute ?- make the right things happen so the company becomes more valuable and profitable ?
4. Cash reserves and valuation - Prove enough of the first three before you run out of cash and go bankrupt. The only reason businesses fail - no cash because there is not enough customers to keep the business going. Why would investors invest more capital if there is no promised land of large and growing demand?

So how do you navigate product/market fit and risk while juggling your own and your team's knowledge / execution matrix of known/unknowns?

• Product-Market Fit Challenges: Map out the time and cash expenditures to demonstrate your new idea/invention "proofpoints". If you are a web/app startup show your activation - retention - growth metrics over time. It is a proxy of how the market values what you offer. There are a variety of sources on launching startups such as the Lean Startup/Customer Development etc. The lessons shared are a good starting point and you need to customize it to your own unique business - product - market opportunity.
• Team Knowledge / Execution Challenges: The lessons from the Lean Startup are easy to understand, not so simple to execute. Why ? Each market team solution is different. We hear of the winners, and we learn from those who did not make it, at least the first time around. The team's ability to understand, make decisions, take risks, and respond quickly to market needs and signals are different. The leadership and quality of guidance from advisors may vary, or the available cash and readiness for investment.

Here is another tip - focus on your pool of potential customers. Customers are ultimately the source of cash flow, not your investors or the bank. Banks and investors respond to market size of customers, speed of adoption of customers and defensible positions that makes you the premier choice, and only choice if you are good!   So drop the templates and business plans and understand customer outcomes.

Answer this question truthfully: Are you offering a differentiated offering that customers care about and will therefore pay for? Then prove it and show the results, investors will be interested and over time, for the right business - banks.

Answer that before you discuss "strategy", "pre-post valuation" etc etc. How do you develop strategy before you have proven your differentiated offering and business model? "Do Strategy" after you have proven desirable and feasible. What you learn from customers and the desirable and feasible stage will help you create viable and shape strategy. You may go a few rounds between viable and strategy as well. Conserve your cash - focus on customer outcomes. Did I say that already ? :-)

The more you prove, the higher your odds of getting funded by your friends, angels and VCs. Below is  my graphical description of the stages ... The more you can reduce your cash burn and to profitability the better off you are. What is not so obvious is how you go about it. Different backgrounds and experience see a different problem and a solution.  Our own bias and vested interest gets in the way of sound decision making. Google "Boyd's OODA loop", "ladder of inference " and my favorite " The Stockdale Paradox". Our own hopes, bias and vested interest gets in the way of sound decision making.  Get a good team of advisers before you get into trouble.

Demonstrate "proofpoints" to increase odds of success/valuation investment readiness before your cash runs out!

3. Dare to innovate !

Innovation is adding new value that customers will pay for. It is not restricted to scientists, engineers, programmers. This is coming from a guy who has a chemical engineering degree. Yes, you can innovate without a technical degree. Does Jeff Bezos have a technical degree?

You can innovate services and your business model. Would you consider 7-11 or Starbucks innovative? Forbes magazine thinks so.

Would you consider a coffee house as a scalable start-up?  Read this - Why are tech investors investing in coffee houses? Would you consider wine a growth industry? Ever heard of Yellowtail?

Two suggestions for areas to to encourage you to innovate:

1. increasing the value that customers really care about, re-segment (Yellowtail, SnapChat )
2. lowering your overall costs of creating and delivering what you offer 
3. how value is delivered and captured ( fast food vs dine in, google vs print ads )

Use technology to help you, you don't have to invent a "high tech thing" to succeed. You may have to use the "high tech thing". You can hire the "thing" by bring it in-house or outsource if it makes sense.

Does inventing a "high tech thing" increase the odds of your business success?  Take a look at the chart below courtesy of SurePay of startups in various industries.

A defensible, desired, scalable "high tech thing" that spits out recurring revenue that is mission critical or embedded into their clients success or lifestyle is a highly valuable entity. But if your goal  or in a different industry , quit comparing yourself to it. Look to a different set of role models. Do not let the lack of a "high tech" background deter you from starting a business or in a different industry.

4. As an entrepreneur - learn to solve problems, make decisions and sell.

Know the right problem to solve at the right time. Nothing like wasting resources on solving the wrong problem, use the 5 Whys as a starting point. There are other methods to identify the right problem to solve, too numerous to mention here. Know how to hear problems and hassles - they are usually opportunities to turn " Customer complaints into Cash Flow ".

Get into the habit of making good decisions, and bad ones are part of the package. Get over it and keep moving. How -? Build self-confidence and personal resilience, your team is looking to you  for direction and leadership - don't be perfect, be better over time. Remember the power of compound interest!

Learn to sell. Dont be a product pusher, learn to listen to your customer and explore what they have, what they could have and what is important that they will pay for. If your customers needs are not aligned with urgency and the value is not apparent , they are not the right customer for you, right now or you have not understood what is important to them. Selling is a skill and a habit - look at some videos of Steve Jobs.  Dont launch into a pitch till you are very clear on the following

1. The urgent and compelling problem or opportunity that aligns with customer's outcomes ( known or unkown)
2. Why do they need to buy now? ( If its not urgent or fun, that slows your customer adoption rate and cash flow )
3. Why is their best bet to buy from you vs. someone else?

Be a problem solving pro, not a product pusher that memorizes features without the ability to hear why...

Your life is yours to live.

In future posts I will share more ways to improve your odds of success in launching new ventures or new products. Thanks for stopping by, your time is valuable and I hope reading this post was worth it.