Sunday, November 14, 2010

Rediscovering Search

Please check out the wonderful Slideshare "Creating Start Up Success" by Alex Osterwalder and Steve Blank which contains 5 rules for start up success. The basic concept is that no business plan survives the first contact with customers, and that entrepreneurs should spend a lot more time developing their customers and business model than a fancy business plan.

This is not a new idea, but it is contrary to the dominant logic of start ups (which the slideshare quickly covers).* Folks like Steve, Alex and Eric Ries are now presenting this concept in a compelling way, the "lean" start up, and it seems to be getting more traction every day.

I think part of the reason it is getting more traction is that it is getting more right every day. Changes are disrupting the way start ups are being started, operated and financed. Start ups, in general, are getting cheaper to start, at least in many industries. Technology, global talent, more distribution options help drive this. The balance of power between founders and funders is changing. If you don't have to raise millions of dollars and give up a chunk of your company, why would you? The last time the balance shifted (the internet craze), VC investors paid more to play. This time, they may not get to play.

Anyway, the reason for this post is not to regurgitate what Steve and Alex are doing, or speculate on the state of the VC industry, but instead point out that there is a common thread between the lean start up work and the work of William Easterly. In White Man's Burden, Easterly categorizes international development approaches as being either those of the planners or searchers. He is critical of the failure of the planners' approach, and hopeful that searchers will do a better job on reducing poverty, disease, illiteracy and other seemingly intractable challenges of the developing world. Both Easterly's critique of the World Bank, and Blank's critique of Motorola, show planners who fall in love with their theories can burn through a lot of other people's cash for far longer than they should. This isn't to say entrepreneurs shouldn't plan, just that their planning should be about how to search, not on polishing up a 40 page glossy business plan.

While Steve and Alex's advice is mostly aimed at mainstream entrepreneurship,** it's emphasis on searching is key to BOPreneurs as well. Many times, entrepreneurs tell me that they need money to get started on their wonderful, world changing ideas. But that usually isn't so. As Andy Hargadon is fond of saying, there are plenty of $5 and $50 experiments to test your business concept. Applying the lessons of the lean start up, and using the business model canvas, can help an entrepreneurial team map out their assumptions, try on different prototypes, and test those at low cost and with lower consequences. I can't see any reason to vary the approach for a BOP start up.*** If anything, it is more critical for a social entrepreneur. If a new web app fails, no one is going to go without food or water.

OK, gotta go. I am working with our GSSE students on just this topic tomorrow. We will discuss the Envirofit case, and the question of the day is: are start ups pretty when they are born? Usually not, in my experience. I sure wish we had some of these materials to guide us at Envirofit back in 2003-04. We certainly made a few mistakes, particularly in customer development. And we are still learning every day. One could even say "searching"....
*In his book, Four Steps to the Epiphany, Steve has a number of examples of the dominant model, which is product development focused- have a cool idea, get some people working on it, do some market research, write a business plan, raise money... and then see if any customers will buy it or if there is a scaleable business model. I might quibble and say this is more the dominant model of the Silicon Valley Venture world, and that many outside the valley have learned to bootstrap or at least finance without venture capital, which requires earlier contact with customers. But let's not get distracted with that here.
** Alex has a nice presentation on social entrepreneurship, and Steve and Alex blogged on one early stage BOPreneur, PeePoo. I expect we may see more in the future from them on this topic.
*** I do want to emphasize that when BOPreneurs "get out of the building" they must go all the way to their market. Sure Kiva was started at Stanford, but only after the co-founders spent time in Africa, and partnered with local micro-finance organizations. Similarly, Grameen Phone, profiled in Alex's book, was very much a Bangladeshi rooted venture. I am dubious of any venture that isn't rooted in the field, with some co-founders who know their way around on the ground. This raises some additional aspects of customer development that aren't touched on in Steve or Alex's books. Luckily, you can get started with Paul Polak's book and dive deeper with D-Lab, IDDS or GSSE programs.

Wednesday, November 10, 2010

My Bottom Line on Bottom Lines

I am fortunate, in that I know some wise, interesting people. And some even answer my phone calls. One of them is Jill Bamburg, who is one of the founders of Bainbridge Graduate Institute, and who has both a broad knowledge of sustainability and many deep, provocative ideas on what needs to happen to "Change Business for Good."

Jill talked to my class today about her book, "Getting to Scale," and shared some ideas on what she thought needed updating, and what was still very relevant. Good stuff. One of the things she mentioned was that she was thinking a lot about the usefulness of the "Triple Bottom Line." She thinks that People, Planet and Profit are all important aspects of a good business, but that sometimes it tugs entrepreneurs (and intrapreneurs) in multiple directions. It makes it hard to determine trade offs. What if, she asked, there was just one "P" of purpose,* and the other P's were viewed as constraints? Would that be a more useful model for designing a beneficial business model?

Well, it's hours later, and I am still thinking about that extra "P". I have used the triple bottom line for years as a way to initially analyze a business idea or design a business model, but it does lack the crispness of a single focusing factor. Recently, I have been questioning what seems to be the deep seeded need of homo economicus to have a "bottom line." I mean, I lived for several decades without knowing what a bottom line was, and am not sure I am better off now that I know about three of them.

And if focusing on the bottom line got the planet into this mess, is focusing on three of them going to get us out of it? Maybe. But is a periodic reckoning what business is about? Are bottom lines what drive the innovation we need? Do people get up in the morning inspired by bottom lines? To me, entrepreneurship is more about route finding and adaptation than score keeping.

Maybe it is my outdoor background, but I respect businesses that take the cleanest line.** It requires practice, it requires crux moves, it requires trusting partners, it requires adapting to changing conditions, it requires economy of movement and it requires persistence. Not sure it requires metrics, or lots of people watching or offering advice from below. But it does require focusing on the journey, not just the destination.

Once you have locked in on "why," "how" becomes very important. While the end often does not justify the means, the means almost always affect the end. If you "fudge" on your eco-friendly product or act inconsistently with your values, you get knocked off line, and end up at a very different place than you intended. The ability to recover, and stay on line, separates the best from the rest. This is not to say, however, that having a clean line avoids difficult, high risk or chaotic periods. But with proper focus and training, I think it improves the chances of avoiding the the most dangerous threats, and recovering from mishaps.

As you scope out your line, keep in mind who it is for. It must motivate your team, and it must resonate with your customers. Investors? Do you need them to make it happen? If so, be sure they understand and support your line.

While expeditions used to take dozens or even hundreds of people, and large business ventures (railroads, Ford, IBM) took thousands, much lighter venturing is possible now. In the mountains and in business, the size of the venture and scale of its impact are delinking. Some may even see an inverse relationship. So choosing the right partners and packing light are important. Lean is the watchword.

So my botton line? Focusing on a clean line helps entrepreneurs think about making both the journey and the destination worthwhile. It can be helpful to use those triple bottom lines to design and train for your clean line, but once you have that line, you may be able to lighten up by tossing out all those bottom lines, and instead focusing on how your venture is going to get to where it needs to go.*** Plain. Simple. And very hard to do.
* Jill does not claim "purpose" as her discovery. Peter Drucker, Jim Collins and Rick Warren have all tread the "purpose" path. And I hear it was the buzzword at the recent Net Impact conference.
**not even original.
*** might I suggest a BHAWG?
P.S. I also like her idea of design constraints, which are often great ways to enhance creative problem solving. Perhaps another blog topic.
P.P.S. I am also bothered by attempts to out "green" others. Adding new lines or new adjectives to the old lines. Blended bottom lines, integrated bottom lines, quadruple bottom lines... is this really helpful? Or are these merely attempts to sell consulting services or yet another book on the topic?