Disciplined Entrepreneurship – Bill Aulet
A must read for new entrepreneurs.
Starting A New Venture
There are basically three different reasons that people start new ventures:
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They have an idea; they have thought of a way to improve something or make a positive impact on the world.
They have a technological breakthrough; they have a new gadget that changes how people live or work.
Finally, they have a passion; they know they want to be entrepreneurs, even if they don’t yet know exactly what their product will be.
Some say that an entrepreneur needs to identify a customer pain, a problem that the customer will pay to fix. But it isn’t strictly necessary to start this way.
Customers are the single most important factor for a business, so build your company around customers, not products. There are limits, however, to letting customers guide your decisions. You needn’t chase after every potential customer on the planet.
How To Start
Start by brainstorming a wide variety of market opportunities. Even at this early stage, start talking to customers to see what they think. Analyze your potential market, and look at the industries where you can market your product. Write a list of people in that industry who might benefit from your product.
A Beachhead Market
- A beachhead market is a specific market that a company can target and “win” in order to establish a foothold before expanding to other markets.
- In order to find the best market opportunities for a product, consider factors such as affordability, accessibility, customer motivation to buy, delivery feasibility, competition, potential for expanding to other segments, and alignment with the company’s goals and values.
- To narrow down the beachhead market further, identify a segment of customers who buy similar products, have similar sales cycles and expectations, and are connected in a way that allows for information and opinion sharing.
The End User and The Total Addressable Market
- Consider the end user (person who will use the product) and the decision-making unit (people who make the purchase decision).
- The total addressable market (TAM) is the potential revenue that could be made if all potential customers in the target market became customers, and it can be calculated by multiplying the expected annual spending per customer by the estimated total number of customers.
- To help visualize the target customer for the beachhead market, create a persona based on a real person.
- Through primary market research, learn as much as possible about how customers will use and think about the product. Map out the full lifecycle of product use from the customer’s perspective.
- Explain how existing products are not meeting the customers’ needs and describe the process of finding, buying, using, and promoting the product.
- The quantified value proposition measures the value that a customer expects to receive from the product, focusing on the customer’s needs rather than technology or features.
- To calculate the quantified value proposition, start with the customer’s top priority and show how the product addresses it.
- Identify 10 potential customers who fit the description of the end user and are similar to the persona. Contact them for information, not sales.
- The network effect is the idea that the value of a network is related to the number of people on it, and the company with the most users becomes the most valuable. New customers are attracted to the biggest, most valuable company, creating a positive feedback loop.
A company that features outstanding customer service retains a higher portion of customers compared to the competition. This reduces churn, which reduces expenses.
The Final Analysis
- Analyze how well both you and your competitors fulfill the customers’ two highest priorities and show that you meet the priorities better than the competition and other existing products.
- Create a graph comparing the persona’s two top priorities using the x and y axis.
- Identify the decision-making unit (DMU) for purchasing the product, including the champion, end user, and primary economic buyer.
- Understand the DMU’s decision-making process and make the product fit that process, including the time and cost of acquiring new customers and any obstacles to making the sale.
The Final Analysis Part 2
- Consider two types of follow-on markets: upselling to existing customers and selling to new customers in adjacent markets.
- Design a business model that outlines how the company will make money and where the money will come from.
- Set a pricing framework and estimate the lifetime value (LTV) of an acquired customer and the cost of customer acquisition (COCA).
- Map the sales process to acquire a customer and calculate the COCA by including costs such as sales staff salaries, marketing materials, and unsuccessful efforts.
- Estimate the sales volume needed to reach profitability and the timeframe for achieving it.