strategic planning

Tom Koor

Is your company planning to fail? V4

What is the purpose of this article?

  • The audience for this article is corporate leadership (i.e. boards of directors, C-Suite, and controlling shareholders).
  • The focus is on the characteristics of corporate leadership talent which maximizes the chances the chances of your company failing (i.e. going out of business or providing poor returns to investors).
  • This article can also be viewed as a checklist of talent characteristics your corporate leadership should not have.

This is the third article in a series:

#1 Your company will fail i.e. go out of business or provide poor returns to investors.

#2 Why will your company fail? i.e. your corporate leadership is not superior to and differentiated from your competition.

This article does not provide tax, legal, or financial advice.

You must do your own research and fact-based analysis using current and relevant information.

You can download a PDF of this article from: Is your company planning to fail V4

Ensure that your corporate leadership core components of talent are significantly below the median of your competitors.

The core components of talent are:

#1 Self Awareness

There are two types of self awareness

  • Internal self-awareness: Leadership doesn’t clearly see and understand themselves. They don’t understand their competitive strengths, weaknesses, and capabilities.
  • External self-awareness: Corporate leadership doesn’t understand how others (customers, employees, shareholders, society, etc.) view them.

#2 Character

  • VME (Values, Morals, and Ethics. Employees, customers, and society perceive that corporate leadership lacks integrity, and has poor value, morals, and ethics. The decisions and behaviours do not reflect what the published and documented VME.
  • Courage Don’t have the courage to make the right decision. The right decision is often not: the cheapest, easiest, lowest risk to the company, lowest risk to you, and not what everyone else is doing.
  • Don’t have perseverance, especially against all odds.
  • Don’t know when to stop persevering. When they are digging themselves into a hole, they keep digging.

#3 Relationship skills:

  • Corporate leaderships lacks the ability to create and sustain a network of personal relationships inside and outside your company.
  • They have limited persuasion and negotiation skills. They cannot manage different points of view and interests.
  • They cannot create and maintain committed followers .

#4 Communications

  • Oral and written communications is poor. The messages that people perceive are very different from the messages corporate leadership intended to broadcast.
  • Corporate leadership has poor listening skills. Do not listen to customer, employees, society, etc.

#5 Crystallized intelligence

  • Corporate leadership had limited knowledge of historical events, thus does not prepare for those events and is surprised by those events e.g. Labelling as “black swans” pandemics, wars, liquidity freezes, etc.
  • Lacks current relevant knowledge e.g. customer needs, employee needs, technology, ways of thinking, paradigms and methodologies.

#6 Fluid intelligence

  • Corporate leadership is unable to solve problems if they don’t have past experience with the proble.
  • Makes decisions about the future, assuming that it will be the same as the past. E.g. customer needs, competition, employee needs, etc.
  • Assumes that the future can be predicted. Unable to create scenarios and plan for them.
  • When there is no map of the future, cannot provide direction or create a map,

#7 Cognitive skills

  • Limited long-term memory
  • Small working memory: able to only retain a small amount of information and knowledge while working on something.
  • Limited logic and reasoning: not able to use facts, evidence, rules, and principles to draw valid conclusions and make sound judgments. Errors, biases, and fallacies distorts their thinking and lead to poor outcomes.
  • Visual processing: Poor ability to interpret the information their eyes receive.
  • Processing speed: takes a long time to receive information, process it, and figure out what to do.
  • Attention
    1. Sustained – cannot stay focused for long periods of time.
    2. Selective – easily distracted.
    3. Divided – can only do one thing at a time.

#8 Cannot quickly learn and unlearn: paradigms, frameworks, methodologies, data, facts, knowledge. Unable to unlearn.

 #9 Creativity

  • Cannot think about a task or a problem in a new or different way.
  • Cannot create new ideas and act upon them.

What are your next steps?

#1 Understand how your board of directors and C-Suite talent is perceived.

#2 Data collection must be anonymous. A third-party can help provide anonymity.

#3 Define the components of talent to be assessed.

#4 A key set of questions for each component of talen can be:

  • Are they the very best in the industry? – no company has superior talent
  • Are they above average?
  • Are they average?
  • Are they below average?
  • Should one or more be replaced immediately?

Consider asking why they have that perception.

#5 Assessing the Board of directors

  • Each director assesses themselves and then the rest of the directors, as one group.
  • The C-Suite also does assessment of the board as a whole.
  • A random sample of employees, customers, suppliers also assess the board as a whole. One possible response could be that have no opinion.

#6 Assessing the C-Suite

  • Each C-Suite member assess themselves and then the rest of the C-Suite, as one group.
  • The board of directors also does assessment of the C-Suite as a whole.
  • A random sample of employees, customers, suppliers also assess the C-Suite as a whole. One possible response could be that have no opinion.

#7 Discuss the findings and document everyone’s views about what the implications are.  Have this discussion first in two groups: the board and the C-Suite.  Then have a joint meeting of the board and C-Suite to discuss.

What further reading should you do?

Your company will fail

https://koorandassociates.org/avoiding-business-failure/your-company-will-fail-v1/

Why will your company fail?

https://koorandassociates.org/avoiding-business-failure/why-will-your-company-fail/

What are the core components of talent?

https://koorandassociates.org/creating-business-value/core-components-of-talent/

Tom Koor

The business framework has 10 components. V2

The business framework has 10 components. V2

 

What is the purpose of this article?

Enable a discussion regarding the key components of a company intended to last for the long-term.

The audience for this article includes:

  • Founders, boards of directors, C-Suite, investors and others.
  • Companies of any point in their life, ranging from early stage to long-established

This article does not provide tax, legal, or financial advice.

You can download a PDF of this article from:The business framework has 10 components V2

What are the critical learnings in this article?

  • The critical questions are: what is the purpose of your company; what are your company’s values, morals, and ethics; and how is your talent, and talent management, competitively differentiated?
  • Always think about competitive differentiation. Competitors can include long-established companies as well as insurgents backed by large amounts of capital.

What is a business framework?

  • The business framework outlines the 10 sets of discussion components regarding what is needed for an long-term company.
  • The 10 components of the business framework are all inter-related( e.g., every component requires talent):

#01 What is the purpose of your company?

What is the purpose of the company? Why does the company exist? The description of the purpose of the company should be positive and outwardly focused on how you benefit customers and society.  For example, Nike’s “authentic athletic performance,” rather than “sell lots of shoes made in China.”  Is the purpose of the corporation to make as much money as possible? How should the company benefit society?  Or, should it?

Larry Fink, in his 2018 letter to CEOs, said “To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate…..Without a sense of purpose, no company, either public or private, can achieve its full potential…..And ultimately, that company will provide subpar returns to the investors”1

 #02 What are your company’s values, morals, and ethics?

What are the company’s values, morals, and ethics?  These are often referred to as culture.

Values: Values are what someone thinks and feels internally and the rules by which they make decisions about what they should or should not do. Values have different importance, which are helpful when people need to trade off or balance one value versus other values.  You make a decision based on what you believe is “the right thing to do.”

Morals: You are judged by others as to whether or not your actions are moral or immoral.  Morals reflect external observable actions and behaviours. Morals are decisions, actions, and behaviours which people feel are right or wrong, good or bad.  Morals are actions and behaviours arising from one or more values.  Not all values are related to morals.  Morals are based on a broader perspective than just the individual.

Ethics: Ethical decisions, actions, and behaviours are based on following a documented set of standards or principles.   Many companies and professions have a Code of Ethics.

Values, morals, and ethics should also tie back to the purpose of the corporation. Is the sole purpose to make as much money as possible, constrained by laws, regulations, and company policies?

 #03 How is your talent, and talent management, competitively differentiated?

You need the appropriate talent at the board and C-Suite, and throughout your company.

  • The right talent will figure out how to succeed in a rapidly changing and competitive world
  • Do you have the right talent in the right places to succeed?
  • Do you have the right processes and technology to attract, retain, develop, and exit talent?

#04 How is your corporate governance competitively differentiated?

  • Corporate governance is focused on the board of directors. Governance exists throughout the company, at all levels, and should be aligned with corporate governance.
  • A definition of corporate governance: “Corporate governance involves a set of relationships between a company’s management, its board, its shareholders and members of the company’s ecosystem. Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined. “2
  • Governance will dramatically evolve from the early stage with only two founders, to a company with thousands of global employees.

Some companies have published a set of decision-making principles.  A famous example is Bridgewater Capital (a $150 billion investment fund).  Ray Dalio, the founder, has published many of his beliefs in the book “Principles”.

#05 What are your value creation plans?

  • The long-term value creation plan which include the long-term cash flow forecast, capital allocation, and talent creation/allocation. Your company may not always provide value to every member of your ecosystem. There may e value destruction. E.g. Cutting employment in one country as part of moving jobs to a lower cost country.
  • There will not be a single value creation plan e.g. the board of directors, CEO, business unit leaders will all have their own value creation plans.

 #06 How do your ecosystem members perceive your competitively differentiated value proposition?

The definition of a business ecosystem: “A business ecosystem is the network of organizations—including suppliers, distributors, customers, competitors, government agencies, board of directors, C-Suite, employees, society, and so on—involved in the delivery of a specific product or service through both competition and cooperation. The idea is that each entity in the ecosystem affects and is affected by the others, creating a constantly evolving relationship in which each entity must be flexible and adaptable in order to survive as in a biological ecosystem.” 3

What is the value of taking an ecosystem perspective? Members who have no direct involvement with your company may have a massive impact on your company. e.g. social license to operate.

A value proposition is the ecosystem members’ perception of value.  This perception can be influenced by facts, emotions, family and friends, social media, etc.

What is a customers value proposition?

  • The value proposition = (All the customer achieved benefits) / (All the customer incurred costs)
  • You will only succeed if the customers believe your value proposition is better than the alternatives, which may include the status quo.

#07 What is your competitively differentiated business model canvas?

#07a What is a business model canvas?

Who is your customer, why they buy from you, and how do you make a profit?

Your business model describes, for a single point in time:

  • The value the company enables its customers to achieve.
  • The resources and capabilities to create, market, and deliver this value.
  • How to generate profitable and sustainable revenue streams.

#07b What are the 9 elements of a business model canvas?

  • Who are your target customer segments? Some segments may not provide any revenue. g. Google seeks to provide the best search experience, which enables Google to generate advertising revenue.
  • What is the customer’s perceived value proposition of your solution? How are you competitively differentiated?  The value proposition includes all of the customers’ costs and benefits associated with adopting your solution, which includes any transition costs from existing solutions. All the customer achieved benefits can include both financial and non-financial factors (e.g. time savings, convenience, status, etc.). All the customer incurred costs can include financial (purchase costs, costs to switch to your company, other adoption costs, and ongoing costs) and non-financial (time, inconvenience, loss of status, etc.).
  • What are your customers’ expectations of their relationship with you? g., if it’s a software product, how often will there be updates with new features?  How easy will it be to install a new version?  Will customer service be a chatbot or a live person? Etc.
  • What will be your channels to the customer?
    1. Communications channels with potential customers?
    2. Sales channels which result in a sales transaction?
    3. Logistics channels which deliver the product or service to the customer?
  • Who are your key partners? A partner is more than a channel. A partner may be: enhancing your credibility due to their reputation; adding value to your solution due to their resources; or enabling you to close sales.
  • What are the key activities? Which processes and actions are required to manage partners, channels, and resources in order to enable customers to achieve their value proposition.
  • What are the key resources to enable customers to achieve their value proposition? These include: intellectual property, technology, people, contracts, financial and physical assets.
  • What is the cost structure to create and deliver the value proposition?
  • What are the revenue streams? These could include: subscription-based per person per month, free for a basic service, with multiple tiers of extra services with fees, etc.

#08 How is you capital and cash management competitively differentiated?

A monthly free cash flow forecast, with detailed assumptions is critical.  You need to understand, and model, what drives revenue and costs.  A rapidly scaling business will have negative cash flow, and likely negative accounting profits.  You need to be able to understand and describe this to both investors and employees.

#09 How is your investor management competitively differentiated?

You must define your target investors and how they will enable value creation within your company.  Start building relationships with investors before you need the capital.  Ask potential investors if it is alright to include them on your monthly investor update.  Shareholders will require additional detailed communications and meetings.

#10 How is your exit management competitively differentiated?

Your company will almost always have an exit, some of which include:

  • Sale – planned or hostile takeover
  • Windup
  • The founders will leave the company at some point, even if it’s by death. You need to first establish founder expectations regarding exit and potential risks, such as unexpected death. Processes and legal frameworks should be in place to deal with the risks.  Planned exits, including selling stock as part of an IPO, need careful planning.  The founders need to take into account their personal family, tax, and financial situations.

 What are your next steps?

  • Create a commonly understand set of definitions.
  • Create a set of questions, customized for your company.

What further reading should you do?

  • What is the purpose of your company?

https://koorandassociates.org/corporate-governance/what-is-the-purpose-of-your-company/

  • What is corporate governance?

https://koorandassociates.org/corporate-governance/what-is-corporate-governance/

  • Why are values, morals, and ethics important?

https://koorandassociates.org/values-morals-and-ethics/why-are-values-morals-and-ethics-importan

  • Is your company planning to fail?

https://koorandassociates.org/avoiding-business-failure/is-your-company-planning-to-fail/

Tom Koor

Critical learnings from Collision 2023.

What is the purpose of this article?

  • Share my critical learnings from my three-day attendance at Collision 2023 in June 2023. Collision was a North American startup conference with 36,000+attendees, ranging from pre-revenue founders to large established companies, and investors ranging from angel investors to multi-billion-dollar funds.
  • The critical learnings section below are my key learnings from Collision. I believe that these learnings apply to any size company.
  • The observations section below are some of the facts and opinions shared by presenters. I believe these have massive short and long-term implications.  Reach out to me if you wish to discuss the implications.
  • The learnings and observations in this article are only a tiny subset of my 48 pages of notes.

You can download a PDF of this article from: Critical learnings from Collision 2023

What are the critical learnings in this article?

  • There is close to a universal belief that the critical aspects of talent are: collaboration, learning, and problem solving – and that these are hard to find. Hard skills are easier to find but of less value.
  • Generative AI was a universal them. Jobs with limited skills and experience will be eliminated or dramatically reduced in the next three years e.g. call centre staff, law firm associates.
  • There continued to be unlimited money available to start and grow companies BUT due diligence has dramatically improved with a stronger focus on competitively differentiated talent.
  • If a company can train, develop, and grow an employee who had spent decades in prison, I wonder why many companies are unable to train, develop, and grow their employees. Too often the easy approach seems to be fire and replace.

 What were my key observations?

  • The world is no longer predicable.
  • Hire people for purpose and values.
  • Ask people why they stay at the company. Do a NPS (Net Promotor Score) with current employees.
  • There’s a company that helps other companies hire former prisoners. This company hired someone who had been in prison for decades.  The person first started in customer support and ended up as a customer support manager.
  • A survey of over 200 Chief Technology officers revealed the top three things they were looking for in employees: ability to collaborate, ability to learn, ability to problem solve. Coding skills and knowledge of coding languages was not in the top 3.
  • 15 years ago, the competitive differentiator for software engineers was their coding skills. Today, the competitive differentiator is problem solving.
  • The most important factors in selecting founders are: what will enable them to survive the hard times; why are they doing the startup; what is motivating them.
  • Facebook paid $1 billion for Instagram with 13 employees. The capabilities of current and emerging tools will enable a single person to create and sell a company for $1 billion.
  • Apple Vision Pro will make remote work similar to being in person. Collaboration, team meetings, etc. will be far more effective than today.
  • Look at the customer ROI and customer risk, not just the company ROI and company risk.
  • Deliver to customers far more value than price. Willingness to pay is based on value.
  • Casetext, a legal AI firm, has launched CoCounsel, a legal AI assistant with the potential to replace law firm associates. Thomson Reuters announced they’re buying Casetext for $650 million US.
  • AI will change the talent pyramid in Financial Services.
  • Generative AI will increase polarization in society.
  • 50% of the people in a session I attended, use AI to create the emails they send.
  • ChatGbt-4 already scores in the top 10% in LSAT and SAT tests.
  • The capabilities of Generative AI are doubling every 3 months.
  • In the near future, everyone will be able to create movies themselves with personalized content. E.g. each person could be a character in the totally realistic movie.
  • Expedia has 70,000 terabytes of data.
  • The number of pre-seed and seed fintech raises are at a record level this year. The total dollar amount is lower.
  • A good portfolio company will run with bad news to their Venture Capital investors.

What are your next steps?

  • Identify the roles that have the great impact on the value proposition for your customers and users.
  • Determine the additional value the roles must provide, in this hyper-competitive world we live in.
  • Identify the additional talent requirements.
  • Determine how best, from a customer perspective, to meet those requirements i.e. what combination of human and Generative AI.
  • Benchmark your talent assessment, hiring, developing, promotion, succession and exits process, technology, and staffing relative to the best companies in the world. What are the implications in terms of your company’s long-term success? What changes do you need to make? Start with the board of directors.

 What further reading should you do?

Generative AI – by McKinsey

https://www.mckinsey.com/capabilities/quantumblack/our-insights/generative-ai

Is your company planning to fail?

https://koorandassociates.org/avoiding-business-failure/is-your-company-planning-to-fail/

Tom Koor

What is a value proposition? V3

What is the purpose of this article?

  • Enable founders, investors, C-Suite, boards of directors, shareholders, etc. to understand what a value proposition is and to discuss their company’s value proposition.
  • This article encompasses all members of your company’s ecosystem, but focuses on customers and users.

You can download a PDF of this article from: What is a value proposition V3

What are the critical learnings in this article?

  • A value proposition is someone else’s perception of the value you provide, not your opinion.
  • All members of your company’s ecosystem have a perception of your company’s value proposition.
  • Your company’s growth and survival depend upon your understanding of the key members of your ecosystem and their perception of your competitively differentiated value proposition.
  • Some members of your company’s ecosystem may perceive a negative value proposition e.g. employees who are terminated as part of moving their jobs to lower cost employees elsewhere in the world.

 A value proposition is some else’s perception of the value you provide, not your opinion

  • This perception can be influenced by: facts, emotions, family & friends, social media, etc.
  • Perceptions are both based on fact and emotions. g. many people in the US believe that Donald Trump won the 2020 presidential election, although there are no facts supporting this.

How does someone perceive their value proposition?

Value proposition = (All their perceived achieved benefits) / (All their perceived incurred costs)

  • Perceived achieved benefits can include both financial and non-financial (e.g. time savings, convenience, status, alignment with personal purpose, values, morals, and ethics, etc.)
  • Perceived incurred costs can include financial (purchase costs, costs to switch to your company, other adoption costs, and ongoing costs) and non-financial (time, inconvenience, loss of status, mis-alignment with personal purpose, values, morals, and ethics etc.)

People may include in the value proposition impacts on other members of your company’s ecosystem as well as their personal impact.  E.g. cash paying customers considering buying from companies that pay employees a living wage or from companies that raise animals in a humane manner.

All members of your company’s ecosystem have a perception of your company’s value proposition. E.g.

  • Employees may consider: compensation, working hours, working location, alignment of your company’s purpose with their personal purpose, development programs which increase the value of the employee, etc.
  • Shareholders may consider: long-term shareholder price, company purpose aligned with shareholder purpose (reducing the company’s impact on climate change, increasing diversity (gender, race, sexual identity, sexual orientation, etc.) at all levels of the company.
  • Society may consider: your company’s impact on the environment, the % income tax your company pay’s vs the average taxpayer, whether you pay your employees a living wage, etc.

You need to understand both the customer and the competition.

  • What is the reason the customer wants or needs something?
  • How can you help the customer with what they need or want?
  • Do your customers believe your value proposition is more attractive than the customers’ current situation?
  • How do your customers perceive your value propositions’ competitive differentiators? And weaknesses?
  • How do your customers perceive your competitors’ value propositions differentiators and advantages? And weaknesses?

How is your company going to grow and survive in the marketplace?

Your company will fail if you are not competitively differentiated.

  • Your company’s growth and survival depend upon your understanding of the key members of your ecosystem and their perception of your competitively differentiated value proposition.
  • How other members of your ecosystem perceive your value proposition for them may enable or destroy your company’s success.
  • You may need to provide other members of your company’s ecosystem with a competitively differentiated value proposition. E.g. your current and future employees.

You need to provide your cash paying customers with a competitively differentiated value proposition.

  • You must take market share and business away from competitors.
  • Your customers need to decide to stop dealing with current suppliers and start dealing with you.
  • Your customers need to stay with you.
  • Your customers need to recommend your company
  • You may be creating a new market (e.g. Apple with the iPad)

What are your next steps?

Understand how the critical members of your company’s ecosystem think and feel about your company.

  • Survey the individual members of your board of directors, C-Suite, and key shareholder to identify who they believe are the critical members of your company’s ecosystem.
  • Also ask them what they believe those members view as your company’s competitively differentiated value proposition.
  • Then individually survey those critical ecosystem members to determine how they perceive your company’s competitively differentiated value proposition.
  • Collect the facts regarding those critical ecosystem members e.g. customer/market share growth, customer churn, employee retention, etc.
  • Identify the implications of the above information.
  • Determine what needs to change, in your ecosystem’s members of your company’s value proposition, to enable your company’s future growth and survival

 What further reading should you do?

Do you understand your customers?

https://koorandassociates.org/understanding-customers/do-you-understand-your-customers/

An example of a business ecosystem: What does the Toronto Startup Ecosystem look like?

https://koorandassociates.org/the-startup-journey/what-does-the-toronto-startup-ecosystem-look-like-v4/

Thomas Ripsam and Louis Bouquet, “10 Principles of Customer Strategy”, PWC Strategy& website, https://www.strategy-business.com/article/10-Principles-of-Customer-Strategy?gko=083a5

Tom Koor

What does the startup journey look like? V4

What is the purpose of this article?

  • To illustrate the growth stages of a company, from startup, to mature company, to crisis or decline.
  • This article is intended for the board of directors, company leaders, and investors – to enable their discussion and understanding.

You can download a PDF of this article from: What does the startup journey look like V4

 

What are the critical learnings in this article?

  • This article applies to any size company at any stage in their evolution. Why? Any company, division, or major market/product segment may be in a startup or may become a startup through crisis or decline.
  • The market place determines what stage the company is in, not the company/
  • A startup is a temporary organization designed to search out a repeatable, scalable, and profitable business model with lots of potential customers who are willing and able to pay to solve their problems and needs. Startups are not building a solution.  They are building a tool to learn what solution to build.

How to read this article

Section 1 outlines some general concepts.

Section 2 outlines the journey from the perspective of obtaining customers.  There are 5 stages:

Stage 1 Find a potentially repeatable, scalable, and profitable business model with lots of potential customers who might be willing and able to pay to solve their problems and needs.

Stage 2 Create a repeatable, scalable, and profitable business model.

Stage 3 Scale and rapidly grow the company. At this point, no longer a startup.

Stage 4 Continuously changing a mature company.

Stage 5 Crisis or decline

Section 3 outlines potential financing journeys.

Section 4 outlines potential leadership journeys.

What are your risks and challenges?

  • There is no guarantee that you will progress from Phase 1 to Phase 4.
  • At any point, your company may move backwards, even from Phase 4 to Phase 1
  • Many large and long-established companies in Phase 4 don’t realize that they have dropped to Phase 1.
  • Many large and long-established companies in Phase 4 don’t realize that they need to be constantly changing.
  • The talent you need in Phase 1 may be very different from the talent you need in Phase 4 when you are a large global company.

Section 1 Some general concepts

 What is a startup?

A startup is a temporary organization designed to search out a repeatable, scalable, and profitable business model with lots of potential customers who are willing and able to pay to solve their problems and needs.

Startups are not building a solution.  They are building a tool to learn what solution to build.

What is a business model?

A business model describes how a company creates value for itself while delivering products or services to customers.  Who are your target C&U (Customers and Users)? What C&U problems are your solving? What C&U needs are you addressing?  What benefits and value are you enabling customers to achieve? What are the human and technology resources needed?  What are the channels and partnership?

Incubators and accelerators

  • Many startups work with incubators and accelerators.
  • Some startups work with several incubators and accelerators.

Section 2 The journey from the perspective of obtaining customers.

Stage 1 Find a potentially repeatable, scalable, and profitable business model with lots of potential customers who might be willing and able to pay to solve their problems and needs. 

Your journey is driven by your understanding of your potential cash paying customers. E.g. before building a beef ranch, you must understand whether or not your potential customers are vegetarians.

Phase 1 has 8 steps. Steps may be parallel and iterative.  Some steps may be combined.  You may have to go back some steps – your journey is not always moving forward.

Step #1 The founders have an idea

  • The founders have an idea. They first agree upon: equity split, their expectations regarding startup, how decisions will be made, the purpose of the company, and who has the title of CEO.
  • The never-ending process of interviewing and surveying potential customers and users begins.
  • Before building anything, 100 potential customers and users will be interviewed and 100’s more surveyed. This begins the never-ending process of understanding the problems of potential cash paying customers

Step #2 Understand the potential customers and users before building a solution.

A business model canvas is a one-page document which easily defines and communicates the business model.  There are 9 components to the business model canvas: customer segments, customer value proposition, customer relationships, channels, key partners, key resources, key activities, cost structure, revenue streams.

On day one, this canvas will be only assumptions.  The interviewing and surveying process will validate or invalidate assumptions and identify new assumptions.

Value proposition

This is the customers and users perception of value.  What are all the financial and non-financial benefits achieved? e.g. time savings, convenience, status, reducing negative emotions or risks, benefits achieved (financial and non-financial) achieved by the customers?  What are all the costs incurred by the customer (purchase costs, costs to switch to your company, other adoption costs, ongoing costs)?

Customer journey map

The customer journey map is a visual representation of the customers’ experiences with your company across all touchpoints. Customers interact via social media, email, live chat, or other channels, mapping the customer journey out visually helps ensure no customer slips through cracks. The journey also illustrates the customer interaction with influencers and other who impact the customer. The following are some examples of customer journey maps.

https://blog.uxeria.com/en/10-most-interesting-examples-of-customer-journey-maps/

The business model canvas, value proposition, and customer journey map are continuously validated and revised throughout the life of the company.

Customer engagement

Customer engagement is the relationship and interactions between customers (existing and potential) and the company.  Engagement may include: useful content on the website, newsletters, interviews, surveys, etc.  Engagement continues and improves throughout the life of the company.

Step #3 Create a Wireframe

Provide a visualization of the potential user/customer interface of what will the customers/users will perceive in the MVP.  Note that customer/user interfaces are evolving to include voice interaction, hand gestures, augmented reality, neural monitoring, etc.

Step #4 Create Proof of Concept

The purpose of the proof of concept is to gain customer/user and domain expert feedback to validate specific critical assumptions of the future MVP.

Step #5 Create a Functional Prototype

The hardware or software prototype is only the hardware or software components of the MVP. The prototype’s purpose is to enable learning from customers/users and support demonstrations to customers/users.

Step #6 Pilot Solution

This is the MVP, including onboarding, customer support, and exiting.  The customer may not be paying for the pilot.  The two-fold purpose of the pilot is to identify any issues which prevent customer/user problems and needs being solved and to identify any issues which prevent the customer/user from being delighted. The pilot is providing specific feedback on the value the customers/users are achieving. The pilot helps determine what price should be charged.

Step #7 MVP (Minimum Viable Product)

This should really be called Minimum Viable Solution. A product or service with just enough features to have delighted early cash paying customers by enabling them to solve some urgent problems or needs, and to provide customer/user feedback for future development.  The MVP includes onboarding, customer support, and customer exiting. What the customer does not see or interact with (i.e. all the behind the curtain resources and activities) will likely be inefficient, have manual components, technology that is temporary, etc.

Customers/users determine whether or not there is an MVP, not the startup team.  If the MVP does not solve some core customer/user problems and needs that the customer is willing to pay for there isn’t an MVP.  The startup needs to learn from customers and users what needs to change to enable an MVP.  It may take several attempts before there is an MVP.

The initial MVP will have a small number of customers and users.

Step #8 Evolve the MVP until there is product market fit

The MVP will be iterated and enhanced until there is product market fit.

You know you have product/market fit if:

  • Your customers are so delighted that they are recommending it to others.
  • Your customers would be extremely disappointed if your solution disappeared.
  • Your customers can describe the big problem they had and the big benefit they achieved from your solution.
  • There is clear demand in the market place for your solution.
  • You are clearly and obviously differentiated from competitors in terms of the value customers achieve.
  • There are a large number of potential customers who believe their problems are urgent enough to buy your solution, and they can also afford your solution.

You do not have product/market fit if:

  • Your customers are not recommending you to others.
  • Your customers would not be extremely disappointed if your solution disappeared.
  • You customers cannot describe the big problem they had and the big benefit they achieved from your solution.
  • The marketplace is not demanding your solution. You have to persuade/educate your customers that they have a big problem with a big opportunity.
  • You are not clearly and obviously differentiated from competitors in terms of the value customers achieve. Your only differentiation is price.
  • There are not a large number of potential customers who believe their problems are urgent enough to buy your solution, and they can also afford your solution.

Your metrics, facts and analysis show that:

  • There are a large number of potential customers who believe their problems and needs are urgent enough to buy your solution, and they can also afford your solution.
  • The customers and users believe you have a better value proposition than the competitors.
  • The Net Promoter Score is excellent.
  • Churn is low and retention is high.
  • There is a metric for new customer value achievement (e.g. for Slack it was 2,000 team messages sent within 60 days).
  • Measuring and analyzing new customer value achievement metric (e.g. % of new customers achieving new customer value achievement indicator within 60-90 days).

Marc Andreessen’s definition of product/market fit:

“The customers are buying the product just as fast as you can make it — or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company checking account. You’re hiring sales and customer support staff as fast as you can.” The following is a link to the article with quote:  On product/market fit for startups

Conclusion of Phase 1

  • You have found a potentially repeatable, scalable, and profitable business model with lots of potential customers who might be willing and able to pay to solve their problems and needs.
  • The leadership may not be able to create and lead a company that can scale. e.g. A Chief Technology Officer who was a great coder many not have the skills to manage a team of coders.
  • The existing processes and technology may be inefficient and unable to scale cost efficiently.
  • Many processes to enable rapid growth will be missing e.g. the capability to recruit, onboard, and develop large numbers of employees, profitability analysis by customer segment, cohort, channel, and partner.
  • Customer acquisition costs may exceed the lifetime value of the customer.
  • Your metrics may show an unprofitable business with customer acquisition costs exceeding life time customer profitability. Your analysis will show the potential for a profitable business with life time customer profitability exceeding customer acquisition costs.,

Section 2 The journey from the perspective of obtaining customers.

Stage 2 Create a repeatable, scalable, and profitable business model.

  • Ensure the leadership able to create a company is in place.
  • Changes may be required at the board of directors, advisory board, CEO, C-Suite, advisors, and consultants.
  • Develop a plan to create the company. New and changed talent, processes, technology, channels, and partners are required.

Customer understanding continues

  • Interviews and surveys continue.
  • The solution is enhanced to enable the company to understand whether or not customers and users achieve value, and how many achieve that value.

Section 2 The journey from the perspective of obtaining customers.

Stage 3 Scale and rapidly grow the company. At ths point, no longer a startup

  • Execute the plan from Phase 2
  • Add additional geographies, channel, partners, and customer segments. Drop unprofitable ones.
  • Add additional and different types of employees.
  • The customers and users are profitable (i.e. life time customer value is much larger than customer acquisition costs). The cash flow and accounting statements may show a loss because the customer acquisition costs are incurred upfront while the customer profits are achieved over the lifetime of the customer.
  • Continue to maintain or improve the value achieved by customers and users. Improvement actions are based on: Ongoing customer interviews surveys, and analysis of customers; Ongoing analysis of the competition, adjacent market, trends in the ecosystem including  technology and customer behaviour.

Section 2 The journey from the perspective of obtaining customers.

Stage 4 Continuously changing a mature company.

  • Market size is constant or growing. Market share is constant or growing.
  • The company still needs to be continuously improved due to ongoing competition, changes in customers problems and needs, and trends in the ecosystem.
  • The company must continuously monitor the external world to determine if major changes are required. Blackberry and Nokia used to be leaders in phones.  Their leadership crumbled due to changing customer problems and needs combined with competitors focused on meeting those changes.

Section 2 The journey from the perspective of obtaining customers.

Stage 5 Crisis or decline

Market size is shrinking and or market share is shrinking.

This could be for many reasons: e.g. the number of customers who perceive they have a problem they are both willing and able to pay for declines, customers perceive that they can achieve a better value proposition from competitors, changing regulations impact customer problem and needs, and/or your solution, etc.

Section 3 Potential Financing journeys

Financing stages

The startup may bootstrap (i.e. no equity or debt financing other than friends and family) or go through one of more stages of raising external financing.

#1 Friends and family

Most early startups depend upon founders, friends and family for funding.

#2 Angel investors, pre-seed investors.

These are the first investors outside of friends and family

  • Only 24% of angel deals in the US in 2019 were for pre-revenue companies.

https://www.angelcapitalassociation.org/angel-funders-report-2020/

  • in 2019, only 2.4% of the applications to Canadian angel groups received funding

https://investorreadiness.ca/cdn/bba/NACO-AngelActivityReport.pdf

#3 Seed investors

These are the second round of investors, after pre-seed investors

#4 Series A, B etc. investors

These investors are funding the rapid growth of the company

#5 Longer term

  • Company is bought and merged into an existing company;
  • Long-term private equity investors; or
  • Public markets

Types of financing

There are many types of financing:

  • Equity e.g. common stock, preferred stock.
  • Convertible debt.
  • SAFEs (Simple Agreement for Future Equity). The SAFE is a contract which gives the investor the right to purchase stock in a future equity round (should there be one) subject to the terms and conditions in the SAFE contract.
  • Government grants, loans, tax credits.
  • Funding for research.
  • Paid pilots.
  • Profits and revenue sharing.
  • etc.

Section 4 Potential leadership journeys

The skills, experience, and capabilities which leaders need to create value at each stage of the company are different.  Leaders need to learn and transform themselves, be replaced, or lead the company into failure.

  • The company starts out as a very small team, searching for a repeatable, scalable, and profitable business model. Efficiency, profitability, and scalability are not the day one objectives.
  • Then the company needs to create a business which has the potential to be repeatable, scalable and profitable..
  • The company then grows through rapid growth.
  • Finally, a mature company is reached – massive rapid growth has ended.

The types of board directors also change. The skills, experience, and capabilities needed to grow and preserve the value of the company change.

The role of the CEO changes. There are three things only the CEO can do, and no one else in the company:

  • Create and maintain alignment of people with the purpose of the company;
  • Nurture the company’s values, morals, and ethics (often referred to as culture);
  • Hire the leadership team and ensure they work well together. Up to 50% of the CEO’s time will go hiring and managing the leadership team. At least 1/3 of the leadership team hires will not work out and must be exited.

65% of the failures of high-potential start-ups are due to people problems: relationships, roles and decision-making, and splitting the income. More than 50% of founders are replaced as CEO by the C round of financing.  In 73% of these founder replacements, the CEO is fired rather than voluntarily stepping down.1

Footnotes

1 ,Alistair Croll, Benjamin Yoskovitz, Lean Analytics – Use data to build a better startup faster, Sebastopol California, O’Reilly Media 2013, Page 41

2“The Founder’s Dilemmas”, by Noah Wasserman. Pages 299, 301 Noah was the Professor of Clinical Entrepreneurship at the University of Southern California and the director of USC’s Founders Central Initiative.  The book is based on his study of 10,000 founders from 3,500 startups.

What are your next steps?

  • Determine what stage your company is in.
  • Determine your talent requirements for the stage you are in, and the stage you want to move to
  • Assess your talent, and talent process, relative to the stage you are in.

What further reading should you do?

“The Hard Thing About Hard Things: Building a Business When There Are No Easy Answers” by Ben Horowitz.

Ben describes the incredibly tough challenges and experiences he went through in the process of his ultimately successful startup.  He then became a successful venture capitalist.

Startup terminology and metrics, https://koorandassociates.org/selling-a-company-or-raising-capital/startup-terminology-and-metrics/