(This is part 1 of a 12 part series. Read the Introduction.)
There are different methodologies you can use to launch your start up. In this section, I’ll discuss some of the options and explain the plusses and minuses of each. I’ll also introduce “wicked problems” and explain their importance in the start up process.
GET BIG FAST
In the late 90s, a single mantra ruled the business world—Get Big Fast!
Capture the market before competitors and prioritise growth over profitability.
This strategy naturally attracts customers, generates profits and has significant benefits, since it is based on the “availability heuristic”—big events grasp the attention of customers.
The AIDA model is relevant in the context of this guide, which is based on raising awareness, generating interest, creating desire, and prompting action.
The “get big fast” model is based on the belief of an eventual capital profit. Unfortunately, the majority of the businesses using this model have failed. Perhaps the best example of a business that folded because of improper scaling is Webvan.
Webvan, founded in 1996, was initially a popular California grocery delivery service. Pressured by investors, it rapidly expanded its business to 26 major cities and in the process built custom warehouses at the cost of $30 million each.
Despite being popular, it failed. The investors and founders realized that the company had been operating on a faulty business model that they had failed to fine-tune in their original market. Perhaps the most spectacular of the dot-com busts, Webvan closed in 2001 after losing $830 million. The “get big fast” mantra was certainly one of the major causes of its failure.
Jeff Bezos, the founder of Amazon, on the other hand, has steered his company to success incrementally, not managing to turn a profit until 2003, nine years after the company’s founding. Bezos rejected the “get big fast” wisdom and did not give up during all those years of losses. By not worrying about short-term profit and instead emphasising growth, Amazon centred on building brand awareness, enhancing its infrastructure and developing customer loyalty. Today Amazon absolutely dominates the field of e-commerce and now is ingrained into our day-to-day culture. Its revenues had grown to $177.87 billion in 2017.
Source: Richter (2018)
The examples of Google and Yahoo echo the success of Amazon. Both of these giants in their early years failed to turn a profit; however, they managed to show that by increasingly cultivating and expanding a strong place in the online community, profits would eventually result.
The model of “get big fast” is rarely a recipe for success.
LEAN START UP METHOD
In the world of start ups, The Lean Start up by Eric Ries has become both a New York Times bestseller and the entrepreneur’s bible. It is not possible to attend any business panel, networking event, or start up incubator without hearing references to the book. The lean start up method emphasises the following important principles:
1. Go to market quickly.
2. Constantly validate and iterate.
3. Keep costs low.
Source: Chan (2015).
The Lean Start up approach is a direct response to the dotcom bust that led to collapse of many companies. The strategy is to focus on short-term profit over growth, with the aim of ensuring a business’s long-term longevity. But before Ries brought the lean start up process to mainstream attention, it had existed for years. The lean method’s origin lies in Japanese manufacturing companies, like Toyota and Kaizen, which largely focused on the process of continuous improvement. Steven Blank’s book The Four Steps to the Epiphany also mentions the elements of the lean start up.
Lean Start up Method. Source: Chan (2015)
It’s significant to note the major flaw in the lean start up method is that it discourages out of the box creative thinking in favor of incremental improvement to existing products and services. Nonetheless, the lean start up method prides itself on being constantly learning and agile. Leaving the rest and using only the best. Many young entrepreneurs have been inspired by The Lean Start up, giving new life to the whole start up community.
During the dotcom era, another popular strategy emerged, Stealth Mode, which lies somewhere between the lean start up method and get big fast. Start ups operating in the stealth mode intentionally avoid public attention, often to prevent competitors from stealing their ideas. Like the lean start up method, the stealth mode emphasises an iterative process for research and design, as well as developing a strong product and infrastructure foundation.
Successful and growing businesses can sometimes fall out of touch with their customers either by focusing exclusively on innovation or becoming stagnant because of market dominance. Such companies are vulnerable to new products and services developed in stealth mode—disruptive innovations that dramatically change the business landscape. Disruptive innovation, a term coined by Clay Christensen, takes place when a product or service provides something completely new, quickly dominating the market due to its uniqueness.
Source: ITONICS (2018)
Unlike large companies, small businesses and entrepreneurs operating in the stealth mode are in a unique position to disrupt the marketplace because they are more connected to the customer, are closer to the ground, and have more space for innovative and creative thinking. If a company has operated successfully in a stealth mode for two or three years, it might well be in a position to suddenly bring to market a truly innovative disruption.
However, a near or complete refusal to accept any help or outside opinion because of secrecy concerns is perhaps the key drawback of the stealth mode. Different opinions and real world user feedback bring about innovative ideas, and a company truly operating in a stealth mode is essentially operating in isolation. Regardless of the effort and time put into the project, the business will have no measurable outside authentication that its concept is even feasible. General consensus now exists that the stealth mode generally leads to failure. However, it has been demonstrated by Coravin and AppLovin that the stealth mode can be a viable start up strategy if used in the right context.
It is significant to note that these strategies are just recommendations, not rigid rules which must be followed without question. Some start up companies will see more advantages in the stealth mode as compared to the lean start up method. Companies and businesses need to know and understand what the significant values are that lie behind their business and choose a strategy—or combination of strategies—that best represents those values.
Some entrepreneurs incorporate bits and pieces of each strategy, letting it evolve and grow with their business. Many successful businesses have never rigidly followed any strategy. The marketplace is changing constantly. As the world grows and develops, entrepreneurs need to evolve and adapt. New strategies will be developed, and start ups everywhere can test the success or failure of those strategies in the crucible of the marketplace.
What exactly is a “wicked problem”? In traditional problem solving a problem is first defined and, through various problem-solving strategies, a solution is eventually agreed upon. This does not mean that the problem is simple and that the solution is easy. Even the most complex problem can eventually be solved through traditional problem solving methods.
But what if we cannot even agree on what the problem is? Then we are facing a “wicked problem.” A wicked problem cannot be defined until a solution is proposed. Wicked problems resist definition and almost never have right or wrong answers—only answers that are better or worse. Each wicked problem is unique and even if a solution is agreed upon, immediate feedback on any implemented solution is often not available. Because the solution to a wicked problem is one-of-a kind, no learning about how to improve an organization’s problem solving takes place. Finally, a wicked problem may be a symptom of another even more wicked problem.
Wicked problems can destroy a start up. At a technical level, since the problem cannot even be accurately defined, massive resources can be expended as developers go down the next promising rabbit hole.
It may be, however, that wicked problems have the greatest negative impact at the interpersonal level. Most start ups usually have a small group of key players and if those people can’t even agree on what the problem is, the kind of interpersonal conflict that may result from such disagreement can destroy a start up in its cradle.
So how can a start up deal with problems that cannot be solved in a traditional sense? First, the start up must acknowledge that it is facing a wicked problem. This can be particularly frustrating for those members of the company who have been brought up in the school of rational problem solving. Second, they must assign the problem to a very small number of developers, which should reduce the number of competing points of view at the start. Third, on a small scale, they must test potential solutions against each other. Smart companies build and test prototypes and MVPs, and launch innovative pilot programs. Even if they fail, something is almost always learned, which can allow the start up to pivot in a new direction.
If a start up can tolerate the uncertainty and ambiguity of attempting to solve unsolvable problems, it can grow and flourish in ways that can even surprise the vision of the original founders.
Next Week – Part 2: Minimum Viable Products
Next week, we’ll go into detail explaining MVPs, their importance, and a few success stories that used MVPs for their idea validation.
If you’re ready to get your App started today, reach out to us at MVP.dev and we’ll work at making your idea a reality.