Rapid Execution Part 2. Applied Entrepreneurship.

A while ago I wrote an article introducing the topic of rapid execution and innovation in multi-culture context. In part 1, my focus was on the difference between innovation in Europe and Asia. The clash of “lateral thinking” and “horizontal innovation” and how entrepreneurs can learn from both approaches.

Now I would like to continue this topic by presenting my personal rapid execution framework.

This framework has helped me shape an idea into an investment-ready business case in a period of 8 weeks.

Those of you who ran a startup before are most probably familiar with the methodologies utilized below, for the rest of you, I will make sure you get a brief introduction to the topic.

While none of those models are new to entrepreneurship, what you have to pay attention to is their sequence and in what timeframe I have applied them.

The framework is most appropriate for “matchmakers” or also referred as “marketplace business models.”

Nowadays some of the most successful companies like Alibaba, Facebook, Google, Apple, Visa and even the most valuable startups in the world e.g. Uber and Airbnb are matchmakers. Those companies provide physical or virtual platforms for different groups of people to get together.

My goal here is to help you identify whether your idea for a matchmaking platform is economically feasible.

Week 1 — Designing Hypotheses, Guesstimating Market Size, Competitive Landscape.

Time frame — 7 days.

Designing Hypothesis

Your very first step would be to list down all assumptions related to your idea e.g. What is the problem? What is your solution? Who will buy it? How would the process look like? Who will supply the product? etc.

Once all assumptions are listed, make sure you prioritize them, while designing cheap experiments (e.g. interviews, surveys, observations) and minimum success criteria that will help you determine whether you were right or not.

Market Size

Next, you need to estimate the market size to figure out if your business idea will be attractive to investors and make sense in the long run.

As a point of departure, you will need to make a Google search and see if this information is available online.

While we have access to an immense amount of information, you will be surprised how often it seems impossible to determine the size of your market.

Here, it comes a method I borrowed from Management Consulting called “guesstimation” or also referred as “market sizing.”

Guesstimation is a matter of reasoning skills; you have to be able to make logical assumptions while handling ambiguity.

When considering how to approach the guesstimation in a marketplace startup, you have two major choices to start with: demand and supply.

Let’s take a look at an example of guesstimation through the lens of demand:

For the sake of argument, you are building a marketplace for hotel amenities, connecting hotels with manufacturers in China.

In the previous phase, you have listed an assumption stating how your customers are budget hotels (up to 3 stars).

Your Google search has shown you an approximate number of budget hotels in your country of residence, followed by the average number of rooms per hotel.

Based on your travel experience, you have identified that most often, budget hotels provide the following amenities: toilet paper, dental kit, and shampoo. A quick Google search helps you discover the market price of those amenities.

Now you are ready to guestimate:

Total number of budget hotels * Average number of rooms per property * 255 days (considering an average occupancy of 70%) * Total expenditures on hotel amenities per room = Market size

Now let’s do a sanity check and use “supply approach” to market sizing.

Find a supplier of hotel amenities and ask them how much an average budget hotel spends on hotel amenities. Then multiple the number, by all budget hotels in your area of interest, and you will have the market size.

If the answer from the previous equation, matches your findings from the second estimation, you will be able to determine pretty correct market size. If not, look back at both equations and question your logic.

No matter what, your answer would not be 100% accurate, but with time you will be able to adjust the variables until you reach the actual market size.

Competitive Landscape

Make sure you cover the following steps:

• Identify direct and indirect competitors
• Group competitors. Based on their presence, focus, business models, geographical location, etc.
• Visualize the information via chart so that it’s easy to understand how you aim to position your concept on the market.

Tools:

Designing Hypothesis: Validation Board or Javelin Experiment Board
Market Size: Guesstimation and TAM, SAM and SOM
Competitive Landscape: Xtensio

Week 2 and 3 — Demand Validation.

Timeframe — 14 days.

While the previous phase helped you understand the market better, now it’s time to get out of the building, talk to potential customers and based on the outcome, adjust your concept.

My recommendation would be to start with validation of demand, as most probably this will be your revenue source.

When it comes to research design, your first step would be Attitudinal Research.

Attitudinal Research refers to asking people’s opinions about the problem you are solving and a potential solution you have in mind.

In this phase, your purpose is to meet with potential customers, get to know them, build relationships and understand their problems to the extent that you start empathizing with them.

Objectives:

• Validate/Invalidate customer, problem, solution hypotheses.
• Empathize with potential clients.
• Build a relationship with potential customers. You have a unique chance to turn these people into early adopters of your solution, make sure they like you.

Tools:

• Face-to-face in-depth interviews. Open ended questions.
• Observations e.g. ask them to deal with the problem you are solving in front of you.
• Role playing.

Sample:

Depending on your solution you are aiming to meet with a minimum of 5 and up to 30 people. At some point, they will start repeating each other; then you will know that the sample is big enough.

Tools:

Research Design: Lean Design Thinking

Week 4 and 5. Supply Validation.

Timeframe — 14 days.

By now you are supposed to have insights into your industry and how potential customers are solving the problem you are trying to address. Moreover, you are aware of your customers’ purchase behaviour, average basket size, annual spending, a frequency of purchase, etc.

To put the entire process in perspective, let’s take Uber as an example. Until now you have been talking to people who often use taxi services (demand validation).

Now it’s time to meet with suppliers i.e. individuals who have cars, spare time and would love to earn some extra money (supply validation).

The research design of this phase is a mixture of Attitudinal and Behavioural Research. Hence, you are using an explorative qualitative method as a point of departure, to understand current processes and problems faced by the suppliers.

However, once you explore the process, your next move will be to apply Behavioural Research i.e. acquire the vendor.

In most multisided platforms the supply side pays a commission to the platform for access to new/more customers. Thus, your goal is to negotiate the most favourable commission possible.

The behavioural research aims to see what people would do, as sometimes their actions happen to be contradictory to what they expressed as an opinion earlier on.

Let’s illustrate the difference through the following example:

Attitudinal research:

Entrepreneur: Would you be interested in getting more customers?

Supplier: Yes, absolutely!

Behavioural research:

Entrepreneur: If you sign a contract with us, we will bring you more customers, but you need to pay us a 20% commission on each sale that happens through our platform. What do you think?

Supplier: I am not sure… I have to think about it…

Therefore, here your objective is to understand the supply side and acquire the necessary number of suppliers so that you can kickstart first sales.

Depending on your concept, you will need a different number of vendors to be able to start. When I was running a marketplace for photographers in South East Asia, we identified that +80 photography services could provide us with the necessary credibility to get paying customers. On the other hand, when I was running a marketplace for hotel amenities we needed only one supplier to close first sales.

Tools:

Research Design: Lean Design Thinking

Week 6 and 7. MVP and Sales.

Timeframe — 14 days.

By now you understand the market, competition, demand, supply and you already have a few suppliers ready to provide a service or product at a rate you have negotiated with them.

MVP

When it comes to your product i.e. the platform that is supposed to facilitate virtually or physically, the exchange of value between supply and demand, my advice is simple.

Keep it as basic as possible.

“If you are not embarrassed by the first version of your product, you’ve launched too late.” [Reid Hoffman, founder of LinkedIn]

You MUST do everything manually until a point where you cannot handle the workload any longer. In this way, you will be able to learn every small detail, necessary for building a highly tailored platform to its intended users. You need to be the engine behind your Minimum Viable Product [MVP].

Your MVP must be straightforward and good looking on the outside e.g. landing page, PPT, a product from your competitors, etc.

However, behind the curtains, it will most probably be a mess, and that’s fine.

Rarely your initial demand is high enough so that you cannot handle it without a sophisticated platform. In most cases, a simple MVP, powered manually by you, will be sufficient.

Now that you have got an MVP, you are ready to start selling.

Sales

It’s been six weeks; you have a product and sufficient understanding of the entire value chain, followed by suppliers who are ready to provide value to potential clients.

Now it’s time to identify leads and prospects.

Most probably, you already have several prospects in mind, based on the initial meetings with potential customers.

My approach is very human centered, emphasizing that each client matters to you, despite the size of the sale.

Most often, in the beginning, you will need to subsidize discounts. Until you collect enough success cases, necessary to optimize the process. So do not be afraid to negotiate favorable deals for the clients at first. Just make sure that with every sale, your margins will get better. In this way, you will be able to test what would be the most favorable unit economics you can get.

Tools:

What is MVP: What is an MVP and how to build an MVP for your startup

Sales: B2B Sales and Focus on Sales

Week 8. Conclusion and Investment Case.

Timeframe — 7 days.

Seven weeks have passed. By now you are supposed to have a good understanding of the following topics:

• Industry
• Market size
• Competition
• Demand insights
• Supply insights
• Sale cycles
• Unit Economics

Based on that information, you are capable of identifying whether it makes sense to start this business or not. In a scenario where you are pleased with the outcome, it’s time to develop your investment case.

Focus on your strengths, namely, ability to execute, work on your own, adapt your concept to the needs of the market and close several sales, without actually having a product. Hence, what you need to emphasize is your velocity.

When I was running a marketplace for photographers, my business partner and I, managed to launch +130 photography services in 10 countries, in a period of 8 weeks, reaching week on week growth of 40%.

As a result, our investment case emphasised our ability to move fast despite uncertainties, culture differences and steep industry learning curve.

Final remarks.

This framework is my personal approach to validating quickly business concepts. I am not trying to provide a generic framework such Lean Startup or Design Thinking that could be applied to virtually any case.

Instead, my purpose is to help you decrease your chances of wasting time while increasing your chance of securing investment in a marketplace business model.

Time is your most valuable resource. Make sure you do not waste it.

PS In case this article is perceived well, I will develop a series of articles, where each step would be elaborated further.