TESTING IDEAS: What Should Be the Entrepreneur’s Behavior in the Different Stages of a Startup

Since the early 2000s, we have observed the emergence of different approaches and methodologies to help with the task of developing and managing startups. Largely due to the understanding of the value generated by such ventures leveraged by the success of many businesses that emerged in the Silicon Valley ecosystem. A very well presented and observed methodology for accomplishing this task is Steve Blank’s “Customer Development” (2012). In his book “The Four Steps to the Epiphany”, Steve brings 4 important stages that need to be experienced by every startup to achieve success in the business world, especially considering the context in which a startup is inserted.

Fig.1: 4 steps of Customer Development
Source: adapted from (Blank, 2012)

The proposed process suggests an empiricism very similar to laboratory experimentation based on tests and prototypes. However, in my opinion, this should also consider a traditional design process, where we need to diverge and then converge to acquire the right information. Then, the famous double diamond of the Design Thinking process can be considered as a great ally in several moments of this process, and I will tell you why:

Fig.2: Design Thinking Double Diamond Framework
Source: Grand Designs Inovação

If we make an intersection between the two frameworks, we can say that the Customer Discovery stage of Customer Development (fig.1) would be a divergent-convergent moment (demonstrated with “1” and “2” in fig.2), where we need to acquire more knowledge — in its many different states — to better understand who the initial customers (beachhead) are and what are their main problems. Such activity can be considered a design process due to the efforts that must be made with the management of data and information, preferably, with the aid of tools and methods of design and social sciences. Exactly for this reason, it is important to understand what the entrepreneur’s behavior should be at each moment of the design, development, and management process of a startup.

Fig.3 shows that this process travels between two worlds: Concrete and Abstract. Most concepts about startups — such as Customer Development and Lean Startup (Ries, 2012) — consider mainly the concrete world in their framework. In this world, empiricism prevails as the main way of discovering and validating business needs. This happens a lot because at this moment we are in more convergent phases of the process. Therefore, we are better able to formulate hypotheses (null and alternative) for further empirical validation, just like a research or laboratory process. However, the initial stages of creating and designing an innovative business do not seem to give much space to this way of thinking, making it inefficient.

Fig.3: Phases of the Innovative Service Design process
Source: Grand Designs Inovação

Therefore, the Customer Discovery stage must be done by something less “Aristotelian”, where we can raise more open questions (not necessarily affirmative assumptions), such as the existence of a customer (and the very “existence of this customer” can be considered a question/assumption) who has “Jobs to Be Done” (Ulwick, 2016). Thus, the whole process of understanding the problem, as well as searching for a solution is much more abstract than it seems. Therefore, we shall use as many design techniques and tools as possible to organize information, mainly with the use of visual space to create meaning.

Speaking of which, did you realize that we are speaking in “the same language” of one of the most important tools in the customer discovery process? Yes, the Value Proposition Canvas is the tool we must use as a repository of information in this divergent-convergent process of surveying and validating value assumptions, i.e., those that indicate who our customers are and what we must solve for them. Note that we are still not talking about a concrete solution, but rather a process of discovering what this solution should solve and for whom. Therefore, we are talking about the right side of the Value Proposition Canvas, as shown in fig.4 below:

Fig.4: Value Proposition Canvas
Source: adapted from (Osterwalder, 2015)

To give you a general localization, we’re still in the customer discovery and validation phases of Customer Development (fig.1). Why is this process so important that we must do it multiple times? Because we need to look for the Problem-Solution Fit, with the help of the VP Canvas. We also need to find the Market-Solution Fit, which can be done by using the left side of VP canvas, BMG Canvas (especially by defining revenue model, key-resources and activities) as well as tools to assess addressable markets. Therefore, the initial goal of this phase is the discovery of the beachhead, the public that has such latent needs that will help us to discover not only how to better solve it, but also exchange such benefits for actual money.

Fig.5: Innovative product adoption curve
Source: adapted from (Moore, 1991)

As shown in Fig. 5, these customers (or beachheads) are decisive in making the concept capable of overcoming the “chasm” between Early Adopters and Pragmatists of the solution (Moore, 1991). This information is crucial to enhance the potential of Return on Investment (ROI) of the business once the market may become even broader and/or significant. All being right with that, we are again in a divergent-convergent process, i.e., we only need to discover how to exchange the “Value” (or benefit) delivered by the Value Proposition of our solution for a “Monetary Value”. Therefore, we reached an important phase of business modeling (which I will explain better in another post).

At this point, it is worth remembering the advice given by Eric Ries in his book that: “we should never trust a customer’s feedback about the amount paid by him for a solution without making him actually put his hands in his pocket”. Therefore, we must understand that this process, as more empirical it may be, must be done through a “market test”, i.e., a solution or MVP (Minimum Viable Product) must be created and put for sale. Fig.6 shows the Premise Guide tool, where we can list the main assumptions or premises of our solution, infer the importance of each one of them, as well as determine the most accurate type of test (e.g., Data, Prototype and, Market).

Fig.6: Premise Design Template
Source: adapted by Grand Designs Inovação from (Liedtka, 2011)

After all, it is necessary to remember that, as much as we are a startup with creative freedom, we need to use our resources (especially time) wisely. Therefore, managing tests and assumptions is perhaps the main element of managing a startup. “Time is Money”. In a future post I will explain better the testing process and show you how to use the Premise Guide and other very important tools.

In short, we can say that in the first two stages of Customer Development, the entrepreneur must behave as a mix between “designer and engineer”. However, for growth and exploration phases of the business, characteristics such as strategy, vision and business management must be added. This is why we observe more and more job opportunities in LinkedIn for “Entrepreneur in Residence” asking the professional to have “comfort with ambiguity”. Soon I will bring more tips on the final moments of the process.

I hope I have clarified some common doubts to get us out of the obvious. I would like you to comment on which of the above tools you would like me to talk more about. If you are interested, you can be inspired by “TIB” (Thinking Inside the Box) , a toolkit we created to help entrepreneurs like you at any time you need. Who knows if it may be able to help you too? 😉

REFERENCES

- Blank S. G. Do sonho à realização em 4 passos: estratégias para a criação de empresas de sucesso. — São Paulo: Steve Gary Blank, 2012. — 3: Vol. 1.
- Brown T. Changed by Design: How Design Thinking transforms Organizations and Inspires Innovation. — San Francisco: Editora HarperCollins, 2009. — Vol. 1.
- Liedtka J. Design for Growth: A Design Thinking Tool for managers. — New York: Columbia Unity Press, 2011. — Vol. 1.
- Osterwalder A. [et al.] Value Proposition Design: How to Create Products and Services Customers Want. — [s.l.]: Hoboken Wiley, 2015.
- Osterwalder A. e Pigneur Y. Business Model Generation. — New Jersey: John Wiley & sons, 2010.
- Ries, Eric. The Lean Startup: how today’s entrepreneurs use continuous innovation to create radically successful businesses. New York: Crown Business, 2011.
- Ulwick A. Jobs to be done: theory to practice. — [s.l.]: Idea Bite Press, 2016. — 1: Vol. 1.
- Moore, G. A. (1991). Crossing the Chasm: Marketing and Selling High-Tech Goods to Mainstream Customers. New York: Harper Business.