The startup processes Flashcards
What is the number 1 reason startups fail
No market need
What is the goal of a startup to find(2)
Find product/market fit
AND
A revenue model
What is the definition of product/market fit
” the right set of product features that can offer a specific value to a well-defined, underserved segment of the market at an affordable price”
Define the value proposition
We do this (OUR SOLUTION) to solve this important problem (PAIN POINT) for these people (TARGET AUDIENCE) better than every other solution because (OUR DIFFERENTIATOR)
What does the value proposition tell customers (8)
- Tells prospective customers why they should do business with you and makes the value of your product/service crystal clear
- Summarizes why a customer should buy a product/service
- Targets customers who will benefit most
- Illustrates the promise by a company to a market segment
- Explains how product solves a pain point
- Communicates the added benefit
- States why it is better than anything else on the market
- Includes images, websites, experience
Differentiate between Lean vs Traditional
Strategy
New-product process
New-product process
Lean
Strategy
- Business MODEL
- hypothesis-driven
New-product process
- customer development
- Get out of the office and test hypotheses
New-product process
- Agile development
- Build the product iteratively and incrementally
Traditional
Strategy
- Business PLAN
- implementation-driven
New-product process
- Product management
- Prepare offering for market following a linear, step-by-step plan
New-product process
- Agile or waterfall development
- Build the product iteratively, or fully specify the product
The 5 lean startup principles
- Entrepreneurs are everywhere
- Entrepreneurship is management
- Build- Measure - Learn
- Validated Learning
- Innovation accounting
What are the 5 most common reasons for start up failure
- Never achieving product/market fit
- Unsuccessful marketing
- Personnel/team conflict
- Running out of money
- Technology issues
Define build-measure-learn framework
A key element to the Lean Start-Up approach, the Build-Measure-Learn Framework teaches start-ups to focus on getting a minimum viable product (MVP) into the hands of actual users as quickly as possible in order to conduct experiments and get real market feedback. This information is then analyzed to validate the underlying hypothesis of the business
Define value hypothesis
- The value hypothesis can be tested to see if the problem is of value to the customer (finds product/market fit)
- A value hypothesis described how you solve a specific client’s problem in a way that the customer values. It describes how your product is differentiated and what value it provides to a certain target audience
- A person has this problem when they do this currently but by using our product/service they can receive these advantages which they value
- Why do customer want us
- benefits the product delivers to target audience
Define growth hypothesis
- Revenue model
- How to get customers
- the growth hypothesis can be tested to see how you will obtain and retain customers (finds the revenue model)
- describes how your business will make money
- It describes how the business will grow over time
- It describes the assumptions made behind the methods and costs of acquiring, servicing and maintain customers and the profit that can be created to build a scalable and sustainable business
Define minimum viable product
- A central tenet to the lean start-up methodology
- “Product/service with the fundamental feature(s) of the hypothesis which allows testing with early target customers and feedback for further development”
- Serves a minimum function to a core set of users
- Speeds the process of finding real customers pain
What is the goal of MVP
- Test hypothesis quickly
- See if MVP satisfies early adopters
- Reduces development costs and risk
- Validated learning in action
Define validated learning. What cycle does it use
A process that treats product development as a series of experiments to gather actual data on market acceptance and demand.
Build-Measure-Learn cycle
Define innovation accounting
A process of defining, measuring, and communicating the true progress of innovation.
ex. customer retention and usage patterns
Define
Sticky growth engine
Viral growth engine
Paid growth engine
Sticky growth engine
- Focuses on retaining customers
- keep customers engaged and coming back
- churn management
Viral growth engine
- Relies on customer referrals and network effects
- customer tell friends
Paid growth engine
- involves getting customers through paid marketing efforts
Define the 3 traditional accounting statements
Balance sheet
Income Statement
Statement of Cashflows
Balance sheet
- Assets
- Liabilities
- Essentially what your net worth is
- Snapshot at one point in time
Income Statement
- Profit/Loss statement
- Gross profit
- over a period of time
Statement of Cashflows
- cash flow over a period of time
T/F Traditional accounting statements are useful in evaluating a startup’s value or growth hypothesis
False
T/F Vanity metrics don’t help you scale a real business
True
What do Vanity metrics include
- # visits to website
- # unique visitors
- # likes
- Time on site
- # pages viewed
- Emails collected
- Downloads
What does innovation accounting allow you to evaluate part of your hypothesis?
- Acquisition percentage
- Cost per acquired customer
- Revenue per customer
- Repeat and referral business per customer
- Profit per unit
- ROI
- Market share assumption
Define Pivot
A course correction to test a new fundamental hypothesis about our value proposition, engine of growth, marketing strategy or other critical part of our business plan
What are the benefits of Pivots
- Based on iterative feedback from customers on some element of the MVP
- Help us find the right value prop, engine of growth, revenue stream
- Helps us remove emotional connection to the current path
- Help reduce risk
What are some pivoting questions to ask? (5)
- Have we identified a problem that lots of customer will pay us for?
- Does the product solve the need distinctively, cost effectively, and profitably
- Do we have a sizeable market
- Have we captured a complete picture of how our customer purchases and interacts with out product
- Do we have a clear picture of our customers and distribution channels
Why are pivots necessary (4)
- Validate the BML process
- create opportunity to expand revenue
- Allows companies to remain relevant
- Grows new ideas
What are barriers to pivots (5)
- Inventor syndrome (attachment to original idea)
- Unclear hypothesis
- Fear of failure
- Modest success already
- Sunk cost (time and money already invested)
Define
lifestyle business
Value creation business
Lifestyle Business: A business aimed at sustaining a specific income level or lifestyle.
Value Creation Business: A business focused on creating and growing value for shareholders.
What are 5 key considerations in forming a start-up corporation
- Geographic Jurisdiction
- state level or federal in canada for multi province - Distribution of Founder Shares
- Shareholder agreements
- outline shareholder rights - Vesting rights
- allow company to reclaim shares if founders leave prematurely - Minimum viable legals
- legal team to create essential documentation without overspending
Define sweat equity
A term used to describe the founders’ involvement in the very early stages of the business when they are not drawing a salary.
Define Bootstrapping
Minimizing expenses, working from home, sharing resources, and having early customers pay for development is a preferred and respected model for de-risking the earliest stages of a business’s development.
What are the stages of start-up funding (4)
Pre-seed
- involves initial idea development and prototype creation, often funded through personal resources or small competitions.
Seed
- when a start-up raises its first outside funding, typically from angel investors.
- Seed funding is used to finalize product development and market launch.
Growth (Series A-C)
Exit
Define the 3 common forms of ownership
Sole proprietorship
Partnership
Corporation
Sole proprietorship
- business owned by 1 person
Partnership
- business owned by 2 or more people
Corporation
- separate business entity owned by shareholders
What are the 4Ps of marketing
Product
Pricing
Place
Promotion
What are used in market segmentations (4)
Geographic
Demographic
Behavioural
Psychographic
Define sweet spot
The strategic area of customer need that can be serviced by the capabilities of a company that cannot be met by a competitor
Define
Innovators
Early adopters
Early Majority
Late majority
Laggards
Innovators
- Early experimenters who enjoy new technologies but may not drive broader adoption.
Early adopters
- Influential buyers who seek to apply new technologies to improve their businesses, crucial for start-up launches.
Early Majority
- Represents significant growth potential; they prefer established companies and structured buying processes.
Late majority
- The last group to adopt, typically dominated by established companies.
Laggards
- The final adopters, often resistant to change
Define chasm in the technology adoption life cycle
A gap between early adopters and the early majority that complicates market transition for companies.
What are strategies for crossing the chasm (4)
- Focusing on a market niche
- The D-Day strategy
- Concentrating resources on a small market segment to establish a strong foothold - The bowling alley strategy
- Focusing on a key market niche and expanding into adjacent markets - Leveraging a Minimum Viable Product (MVP):
- Quickly getting to market to gather feedback and refine offerings.
What are advantages of corporations
- Perpetual life continuity of ownership
- limited liability
- Ease of raising capital - sell shares
- Issue options
- Transfer ownership
- Professional management/ separate
- Governance
- Attract people
What are disadvantages of corporations
Taxation
Government regulations
Difficult and expensive to form
Lack of secrecy
When do you incorporate
Raising capital
Personal income vs business income
Small business Tax deduction
Liability risk
Differentiate between debt and equity
Debt
- repayment required
- often regular monthly payments
- interest rate
- can take security against assets
- Gain limited to interest
Equity
- selling shares/stock
- Represents ownership/voting interest
- No ongoing payments
- No security
- Gain is unlimited
Only 3 ways to finance grow
Equity
Debt
Profits
What are the stages of capital raising (4)
Found (seed capital)
Development (VC rounds)
Growth (growth capital)
Mature (IPO)
What are common forms of seed stage financing
Sweat equity (not drawing a salary)
Friends and family
Boostrapping (minimize expenses)
How do you make it across the chasm
Shift from early adopters to the economic buyer
- They look for efficiency, cost savings, and economic gains
- Willing to try something new and abandon
Important considerations for scaling a business (3)
- Define the culture first
- Build a financial plan
- Build the organization
