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Fail Fast or Win Big

The Start-Up Plan for Starting Now Bernhard Schroeder Copyright © 2015 AMACOM, a division of American Management Association 208 pages [@]

 

 

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8

9 Applicability 8 Innovation 8 Style

Focus Leadership & Management Strategy Sales & Marketing Finance Human Resources IT, Production & Logistics Career & Self-Development Small Business Economics & Politics Industries

Take-Aways • Moving fast gives entrepreneurs an advantage and a better chance to succeed. • Today’s market pace makes the “traditional entrepreneur’s model” obsolete. Once you spot an opportunity, you don’t have time to write a business plan.

• Creating a business plan wastes time and doesn’t spur sales, and a plan ages quickly. • Instead, develop a business model. This blueprint for your start-up should identify your “revenue sources, customer base, products and details of financing.”

• Use the “LeanModel Framework” to put your business model into action with “lean

resources,” quick prototyping of a “minimally viable product” and customer feedback.

• The framework helps you decide quickly to “iterate, pivot or abandon your idea.” • Customer feedback or “customer truth” is crucial to your business. • Crowdfunding is the process of raising capital online from a large number of investors. • Today’s promising business arenas include the pet industry, cloud services, big data, wearable devices, remote monitoring, healthy fast food and 3D printing.

• “Love what you do; do what you love.”

Global Business Concepts & Trends

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getabstract What You Will Learn In this summary, you will learn:r1) How the “LeanModel Framework” works, 2) Why you should create a business model instead of a business plan, 3) How to use crowdfunding and 4) How to assemble these elements for entrepreneurial success. getabstract Review One of four new businesses fails in the first year, so entrepreneurs undertaking a start-up must know what they are doing. Bernhard Schroeder, the acclaimed director of the Lavin Entrepreneurship Center at San Diego State University, offers advice and wisdom gained from his entrepreneurial success. Schroeder was a senior partner at the marketing agency CKS | Partners, which sold for more than $300 million. His firm planned the business strategy for Amazon. Though perhaps somewhat optimistic about crowdfunding, his advice is useful and direct. It is accessible and almost always very comprehensible, though he occasionally offers impenetrable statements like, “Customers are not always right, but they are never wrong.” Seasoned salespeople will intuitively understand what he means, though beginners could be a bit baffled at first. getAbstract recommends Schroeder’s solid, wide-ranging and applicable advice to all aspiring entrepreneurs and to those leading entrepreneurial ventures within established firms. getabstract getabstract

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Summary

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getabstract “If you want to sell a product, just make it. If you want to sell a service, just deliver it. If you want to create a company, just create one.” getabstract

getabstract “It’s the marketplace that matters most. You can have an amazing idea, but if there is no clear market opportunity, it might… as well be worthless.” getabstract

Sunglasses, Cables and Bracelets In 2011, as part of San Diego State University’s Entrepreneur Day activities, two students contracted for the offshore manufacture of 300 pairs of sunglasses in the college’s colors. They paid $3 per pair and sold out their stock for $20 each. The students applied their profits toward a campaign at Indiegogo, an Internet crowdfunding site, to raise capital for their own sunglasses firm. Today, the company operates in six countries with sales of more than $750,000. Adam, an entrepreneur in the “commodity products business,” launched his firm by charging $3,000 on his credit card to buy Chinese-manufactured HDMI cables for resale. Today, he manages a $3-million-a-year online business from his condo. He sells more than 100 different products for an average gross margin of 60%. Adam doesn’t pay for or manage his own website. He piggybacks onto other firms’ online platforms and uses web companies for shipping and operations. He limits his costs by having student interns handle day-today tasks. Two new college graduates took a surfing vacation in Costa Rica where they bought bracelets from a beach vendor. They liked the bracelets and bought 1,000 more, which they quickly sold when they returned home. Seeing the business potential, they contacted the vendor, bought more bracelets and sold those. Working from their apartment, the partners developed a website for the bracelets and marketed them to local stores. The more contacts they made, the more items they sold. They recruited student interns to assist with their now multi-million-dollar enterprise. The “LeanModel Framework” This is an ideal time for entrepreneurs. If you move fast, you can score big. The LeanModel Framework provides a successful plan for being first out of the gate. Focus on developing

Fail Fast or Win Big                                                                                                                                                                 getAbstract © 2015

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getabstract “In the next few years, you will see hundreds of investment firms rushing to offer crowdfunding equity platforms.” getabstract

a solid business model – not a business plan, which wastes time, deflects sales and can actually hurt new companies. A business model sets out the “design for the successful operation of a business, identifying revenue sources, customer base, products and details of financing.” Many successful entrepreneurs have applied the LeanModel Framework to start their businesses, often beginning in a garage, basement or dormitory. Such simplicity enables agile entrepreneurs to move quickly and overtake large, slow-moving firms. Speed is crucial. Slow entrepreneurs fail. Today, “speed to market is the new normal.” The LeanModel Framework has four essential components:

getabstract “It takes lots of hard work to make your new business successful. It… does not…take lots of money.” getabstract

getabstract “It is...easy for an entrepreneur to launch a crowdfunding campaign and raise thousands, if not millions, of dollars in a relatively short time.” getabstract

getabstract “You can’t spend months writing a complex business plan that will be out of date before your idea ever comes to market.” getabstract

1. “Lean resources” – “Less is more.” Leverage everything you can to minimize costs. 2. “Business model” – A quality business model shows an understanding of the market, particularly your segment and the significant commercial trends shaping it. To gain this knowledge, talk to customers who buy the types of products you plan to sell. Learn about your potential industry by attending trade shows and other events. Visit the competition to see how they manage a similar business. 3. “Rapid prototyping” – Quickly test your idea with the group that counts the most – consumers. If you want to enter the “food-truck business” to sell tacos, set up a “taco stand” and see if people like your food. Become well informed before you make a substantial investment. 4. “Customer truth” – This is the alternative name and essential nature of customer feedback, which gives you the vital data you need to decide if you are going to “iterate, pivot or abandon your idea.” To survive at the lowest possible expense while getting up to speed, make a prototype of a “minimally viable product” or service and test it with customers. Rely on their feedback to adapt your prototype for the marketplace. If this real-world test suggests your product isn’t viable, move on to something more promising. Entrepreneurs never fear failure: They learn from it. Most serial entrepreneurs undergo failures. They know setbacks are part of the territory. Creating a Blueprint for Your Business Your business model is the blueprint for your enterprise. It must include: • “Unique value proposition” – This states the singular way your product or service fixes a buyer’s problems. To identify it, ask, “What value will my product or service deliver to the consumer? • “Customer relationship feeling” – You want customers to react positively to your offering and feel good when they use it. Ask, “What kind of relationship do I want with my customers?” • “Customer target segments” – Many entrepreneurs initially try to sell to a broad market spectrum. Instead, focus on a specialized niche and then expand. Ask, “What is the size of the marketplace?” • “Distribution channel strategies” – What is the most efficient way to get your products or services to your customers? Should you move into the marketplace quickly (“more distribution, lower gross margin, higher potential sales”) or slowly (“direct sales, online sales, local retailers, higher gross margins”)? Ask, “Where are my customers?” • “Start-up activities” – Starting a new business is a huge undertaking. Numerous tasks clamor for your attention. Figuring out where to focus can be a challenge. Consider the

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• getabstract “Realizing exactly what is working and… not working…could likely be the most strategic decisions an entrepreneur can make.” getabstract

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getabstract “There is nothing like talking to customers to get insights.” getabstract

getabstract “Make sure you are testing your product in the right place, at the right time and with the right potential customers.” getabstract

getabstract “If you are listening to your customers, you will improve your product and service, based on their collective feedback. If you ignore their feedback, you won’t have to worry about improving your products or services – because you won’t have any sales.” getabstract

various segments of your business model, and plan from there. Ask, “What are [the] key things I need to do now?” “Start-up resources” – Once you know the sequence of your start-up activities, apply resources to them. Your main goal is to manufacture your product or develop your service. Focus your capital on the most relevant tasks. Ask, “What resources do I need for distribution,” developing customers and building revenue? “Strategic and tactical” partners – You’ll have three categories of partners: suppliers, manufacturers and distributors. Before you enter partnerships, discuss your options and opportunities with other entrepreneurs. Go to trade shows. Learn from the participants. Ask, “What key resources will I get from partners?” “Product or service costs” – Use a spreadsheet to outline your direct costs – “materials, direct labor and manufacturing expenses” – and indirect costs – “marketing, travel expenses, rent and labor other than direct labor.” Determine if you have sufficient funds to start your enterprise. Ask, “How can I outsource or cut my costs?” “Selling” and “revenue sources” – Entrepreneurs often find additional income sources that don’t always present themselves immediately. Seek out all possible income streams available. Ask, “Will my revenue produce a gross margin or profit to sustain my business model?”

“Lean Resources” As you consider the resources you need and how to acquire them, note that Harvard Business School’s entrepreneurship expert Howard Stevenson defines entrepreneurship as “the pursuit of opportunity without regard to resources currently controlled.” Successful entrepreneurs learn to “leverage everything.” They often use cloud-based “Software as a Service” tools to set up their websites, at almost no cost. Big Commerce, Shopify and similar cloud-based tools enable you to create e-commerce websites quickly, easily and inexpensively – for around $35 monthly in targeted markets. For other inexpensive resources, use Amazon to test-sell products, and work with 3D printers to create inexpensive prototypes. Leverage social networks to promote your goods and services. “Rapid Prototyping” Efficiently check the viability of a product or service by testing it, gathering customer feedback for your benefit and quickly making the necessary adjustments. Testing and speed is the essence of rapid prototyping, based on the need to “get something to market quickly.” You must beat your competition to the marketplace. “Don’t wait. Fail fast or win big.” You lead; they follow. Customer Feedback Businesses must make their customers happy. Pay attention to your consumers’ truth, and learn everything you can about their likes and wants. Spend time with your customers in their environment, not in the setting of a focus group. Observe how and where people buy and use your offerings. When you learn what your customers care about, surpass their expectations. Delight them. Provide excellent service. Stay flexible and innovative, so you don’t end up in the “marketplace graveyards” alongside Blockbuster, Blackberry, Borders, A&P food stores, Nokia, Kodak, Tower Records and Circuit City. Crowdfunding Entrepreneurs no longer have to rely on the financial assistance of their banks, families and friends. Today, they can tap a variety of crowdfunding sources to seek the money they

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need to operate. With crowdfunding, “hundreds or thousands of independent people ‘crowd together’ to fund a project.” Crowdfunders operate according to three different models:

getabstract “You can create quite a valuable company by listening to the marketplace and doing something just a little bit better, in your own, unique way.” getabstract

getabstract “You don’t learn to walk by following rules. You learn by doing and falling over.” (Virgin Group founder Richard Branson) getabstract

1. “Reward” – Investors earn special rewards, based on a “discount, freebie, product preorder,” or the like. Reward-based sites include Kickstarter, RocketHub and Indiegogo. 2. “Debt” – Investors realize interest returns on their money, as seen with Zidisha, Lending Club and Index Ventures. 3. “Equity” – Investors receive equity positions in the start-ups they fund. This is the strategy of Micro Ventures, OurCrowd and Circle Up. New Ideas To find inspiration for a great new entrepreneurial idea, develop expertise in an area that intrigues you – even if it’s selling bracelets from Costa Rica. Use your hard-earned knowledge to create a relevant, innovative product or service. Pay attention to significant trends. Associate with people of different backgrounds to learn new perspectives, which might spark fresh ideas. Focus on your designated industry, and search for a problem you can solve with a new product or service. Promising commercial opportunities are everywhere. Identify and exploit them. “Entrepreneurship is a Mentality” As an entrepreneur, you can choose exactly how you will make your living. Don’t leash yourself to some firm, and end up forced to do what it says, and to do it when and how you’re told. As Thomas McElroy, one of the founders of Volcom, an action sports company, put it, entrepreneurship gives people the opportunity to “design [their] luck.” Entrepreneurs work from a nurturing mind-set that says: “Love what you do; do what you love.” To succeed, you need viable skills, imagination, enthusiasm and a few good people to help you. You also need a great idea. You must be ready to work “harder than you’ve ever worked before.” Entrepreneurs have self-confidence; they’re good communicators and good listeners with the ability to stay cool under pressure. If that describes you, don’t delay. Plan your new product or service and make a prototype you can test. Take concrete steps to discover if you have a concept that will be commercially attractive.

getabstract “Move fast and break things. Unless you are breaking stuff, you are not moving fast enough.” getabstract

Believe in yourself and your innovative offering. If things don’t work out, be ready to pivot to something else. Discard your initial idea, and move onto your next one. Let experience become your teacher. Nothing else matches it. A number of promising areas are ripe for new business ideas, including the pet industry, cloud services, big data, wearable devices, remote monitoring, “smartphone platforms,” mobile applications, social causes, healthy fast food, “rental/sharing,” 3D printing and “ecommerce niches.” The time has never been better for an agile, move-fast approach. The tools you need to get started are all available, many for free. Handle your idea correctly and you can be operating your new business within 90 days.

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About the Author

getabstract Bernhard Schroeder, a director at the Lavin Entrepreneurship Center at San Diego State University, was a senior partner at CKS | Partners. Fail Fast or Win Big                                                                                                                                                                 getAbstract © 2015

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