The 4 startup games. Which one are you playing?
Most startups fail.
Most failing startups self-destruct rather than being out-competed.
The number one characteristic of startups that fail is that they scale too soon — moving on to the next stage of growth without succeeding meaningfully at the one before.
As startups develop, they have 4 games to play and they must be played in order. The playbook for each game is different, and using tactics from the wrong playbook is a sure way to waste time and money.
If you don’t know which game you are playing in your startup, you are significantly increasing the chances your venture will fail. As always, situational awareness is the key.
Game 1 — The Search
Objective: Find a problem to solve, and ensure you can make money from solving it.
The first game is The Search. In this stage everything your startup does should be aligned to exploring the problem space. This is the time for researching, interviewing, understanding the needs of people in the world you hope to serve — and sell to. At the same time, they playbook also demands that you understand the market context. You are looking for an economic disequilibrium i.e. there’s unmet (or under-served) need that people will pay to have met. You will be sense-checking each potential market niche to see how large it is, how mature it is and how well-served it is. Knowing this will give you the focus to execute effectively in the next game.
Common mistakes in this game are: to conduct far too few interviews and conduct them badly; to fail to assess the market or business model; to start building product; to rush through this game; to hire people; to raise money; to get spooked by the fact that as you know more, you enter “high-quality ignorance” ie. the more you know, the more you know you don’t know. If you do these things, you will lose focus and your startup will churn due to poor quality foundations.
Completion criteria: You have found a compelling need within a suitably qualified market, you know the nature of the prospective buyer and user, you have checked that there are ways to become profitable servicing it (even if you don’t yet have a clear solution in mind).
Game 2 — The Test
Objective: Check that people who you think have this need are willing and able to pay for a solution to it.
You must test your market first. By first I mean before making product. You should do the cheapest, quickest things you can to find out what value people will get from your solution. This is the time for all the fun things like Wizard of Oz MVP. At this stage you are fairly confident about the user need you are meeting, you are really experimenting on the solution and how people actually want to engage with the value (the acid test is whether they will pay). You will be prototyping subsets of the MVP. You can expect to be rapidly gaining feedback and making mini-pivots. You are only in this game if you have a reasonable sample size of actual users. In this game you also dig deeper into your market, fleshing out buyer and user profiles, and experimenting with growth strategies. You are calculating whether you have a profitable business model for your emerging solution.
Common mistakes in this game are: to not have any actual users; to have some people who have signed up but not using or paying; to only use feedback given at demos; to start scaling sales and marketing; to hire people; to raise too much money.
Completion criteria: You have at least 10 real users. You have found a minimum viable product that meets a compelling need within the suitably qualified market. You have a viable business model that will deliver profitability.
Game 3 — The Build
Objective: Build the engine of the business.
Now is the time to start travelling in a specific direction, the time to prune down some of the variety in your work and create your early growth. You know you are in this game because you have a modest, growing user base with strong referrals (i.e. you have product-market fit). You are confident in who your users and buyers are, and how to reach them. Your early MVP is getting a UX overhaul in the context of your users’ demands. You have a clear value proposition and product messaging. You are making your first few hires. You are getting serious on your business model details and monetization.
Common mistakes in this game are: Building too many new features, over-hiring based on projected need, focusing on large product launches, creating departments, taking a large funding round too soon.
Completion criteria: You have good user retention, organic referral-driven growth, you are run ragged serving customers.
Game 4 — The Scale
Objective: High growth without breaking.
This is the stage where you multiply your organic growth with directed marketing efforts and curated product improvements. You are systematically testing, standardizing and optimizing your processes. You are hiring a lot more people. You are seeking a large round of funding. You have a steady roadmap of releases and launches. You have a clear path to profitability.
Common mistakes in this game are: Stopping qualitative research and contact with customers (risk of product-market fit drift). Poor pricing and monetization strategy.
Completion criteria: The company reaches sustainable profitability.
The game is determined only by traction
I see a lot of startups scaling prematurely at least in one dimension of the business. The true startup stage is always determined by customer traction. Startups commonly scale prematurely by pressing ahead in other areas such as product, funding or team. However, if the customer traction isn’t there, the later playbooks won’t work. On the other side of the coin, areas such as business model often don’t get reviewed often enough and lag behind.
Knowing the game you are playing gives you at least a better chance of succeeding — goodness knows it’s a hard enough endeavour already!
Find out more about my work at Rosmarin.
