The Disciplined entrepreneur

24 steps to help make your venture successful

Six themes of the 24 steps

Who is your customer?

What can you do for your customer?

How does your customer acquire your product?

How do you make money off your product?

How do you design and How do you scale your build your product? business?

1. Market Segmentation! 2. Select a beachhead market! 3. Build an end user prole! 4. Calculate the Total Addressable Market Size (TAM) for the Beachhead market! 5. Prole the Persona for the beachhead market! 9. Identify your next ten customers

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6. Full Life Cycle use case! 7. High-level product specication! 8. Quantify the Value Proposition! 10. Dene your core! 11. Chart your Competitive Position

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12. Determine the Customerss Decision Making Unit (DMU)! 13. Map the process to acquire a paying customer! 18. Map the sales process to acquire a customer

15. Design a Business Model! 16. Set your pricing framework! 17. Calculate the Lifetime Value of an acquired customer (LTV)! 19. Calculate the Cost of Customer Acquisition (COCA)

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20. Identify key assumption! 21. Test key assumption! 14. Calculate the total ! addressable market size 22. Dene the for follow-on markets! Minimum Viable ! Business Product 24. Develop a product (MVBP)! plan 23. Show that the dogs will eat the dog food

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Six themes of the 24 steps

paying customer

primary market research specic customer brainstorm focus narrow identify potential industries avoid the china syndrome

create a new market that you will dominate market opportunity

Market segmentation

6 questions to help you decide which market is compelling

1. Are you passionate about the market? Is it congruent with your personal values? Will you be able to show success in a timeframe that is acceptable to your founders?

4. Is the target customer willing and able to pay for your solution if it has a compelling value proposition?
5. Is the market good from a competitive standpoint? Are you truly bringing something new and different to the market, or is there entrenched competition that can block you? How do you stand out from what the customer sees as alternatives, real or perceived?

2. How condent are you that you can deliver the full solution for this market?

3. How strong is your value proposition, which is the additional value your product would provide to customers? Is it very strong compared to what the customers do today?

6 questions

6. Will wining this market lead to attractive follow-on market opportunities, where you can either expand to new markets with minor modication to your product, or you can sell additional products to the customers in this market?

End user: who specically would be using your product? They are your champion, the person you need on board so that your product is successfully adopted.You have narrowed down your end user some already, but as you do primary market research you may nd the category can be very segmented.

Lead customers: who are the most inuential customers?

Size of market: roughly how many potential customers exists if you achieve 100% market penetration? Benets: what is the actual value that the end user would gain from using your product? not future or function, but value.

Market characteristics: what about this market would help or hinder the adoption of new technology? Needs: What else does your customer need in order to get the full solution, to get full functionality from your product? Application: what would the end user be using your product for? what is the task that would be dramatically improved by your new venture?

Competition: who, if anyone, is making similar products - real or perceived? From customer perspective

Organize your research

Industry End user Application Benets Lead customer Market Characteristics Partners/players Size of market Competition Platform Needs

Entertainment

Design

etc

etc

etc

Market segment template

you are not looking for the perfectmarket

stay away from large markets multiple path to success

rst market will be learning experience get started doing, rather than get stuck analyzing

Select a beachhead market

6 criteria to determine the best market opportunity

1. Is the target customer well funded? 2. Is the target customer readily accessible to your sales force? 3. Does the target customer have a compelling reason to buy? 4. Can you today, with the help of partners, deliver a whole product? 5. Is there entrenched competition that could block you? 6. If you win this segment, can you leverage it to additional segments? 7. Is the market consistent with the values, passion and goals of the founding team?

6 criterias + 1

what do they fear most? gender who is their hero? income range where do they go for vacation? for dinner? before work?

geographic location

tell their story

what motivates them? what is the general reason they are buying this product? savings? image? peer pressure? what newspapers do they read?websites? what TV shows do they watch?

what makes them special and identiable?

Build an end user prole

rst calculate how many end users exist that t your End User prole

determine how much annual revenue an individual end user is worth

TAM is the amount of annual revenue, expressed in dollars/euro per year, that your business would earn if you achieved 100% market share in your beachhead market.

top down analysis bottom-up analysis multiplying the revenue per end user by the number of end users will give you the TAM.

Calculate TAM for beachhead market

should become a touch point

prepare a fact sheet about your persona interview a persona that is your persona use a real name

involve team members identify facts about your persona

in case of two sided markets to end up with two personas

Prole de persona

Persona:
Environment Personal information Career context Information sources Purchasing criteria in prioritized order Other noteworthy items

Persona fact sheet

should explain how the Persona determined that their existing needs were not met by existing products, and how the Persona would nd out about your product

should be visual

Full life cycle use case

10. Buying more product and/or spreading awareness about your product. 9. Getting support for your product

1. How the end user determine they have a need and/or opportunity to do something different

2. Finding out about your product

3. Analyzing your product

8. Paying for your product 7. Determining the value gotten from your product 6. Using your product (in detail)

4. Acquiring your product

5. Installing your product

Essential elements of Full life cycle

describe features of your product explain how those features translate into function be very specic benets for you customer

High-level product specication

What value do I get out of your product? set up a simple comparison of the as-is state today and then compare this to the possible state that you are condent will exist when the customer is using your solution.

get the priority for your Persona keep it simple dont make it complicated

Quantify the Value proposition

list ten potential customers aside from your Persona important to have homogeneity in your list present your product in inquiry mode not advocacy/sales mode

include pertinent information if you get validation try to get a letter of intent if somebody disagrees dont worry, unless there is major disconnect each of this customers should be similar to each other and the Persona

Identify your next ten customers

contact them and present your product

the core is not what benets you deliver to the customer you are looking at a single thing core is different than competitive position

the core is something that allows you to deliver those benets more effectively than any other competitor

rst mover advantage is not a core

you need to gure out something that you do that will make you better than anyone else at producing a solution for your customers.

Dene your core

The Competitive Position is where you take your core and translate it into something that produces real value for the customer and they will care deeply about customers usually make purchasing decisions on comparative basis

this helps you to see how much better you are

Chart your competitive position

take the top two priorities of your persona start with assumptions that these two priorities are all that matter
create a simple graph as follows:! 1. Divide both the x-axis and y-axis into two halves! 2. On the x-axis, write the number one priority of your Persona! 3. On the half of the x-axis closer to the origin, write the bad state of this priority (e.g. if the priority is reliability then write low here)! 4. On the other half of the x-axis, write the good state of this priority (e.g. high for reliability)! 5. On the y-axis, place the number two priority of your Persona. Write the bad state on the half of the y-axis closer to the origin, and the good state on the other half of the y-axis.! 6. Plot you business on the graph, along with your competitors (current and future). Also include the customers do nothing or status quo option.

How to dene your competitive position

you need to identify all the people involved decision to acquire the product for the end user

additional roles:! primary and secondary inuencers! veto power! purchasing department

primary roles:! advocate! primary economic buyer

Determine the Customers DMU

Start with your Full Life Cycle Use Case, the following is important:! How the customer determines they have a need and/or opportunity to move away from their status quo and do something different! Finding out about your product! Analyzing your product! Acquiring your product! Installing your product! Paying for your product

For each step in the process, include:! Who is the key player?! What is their inuence on the process?! What is their authority (amount and type)! How long will it take to complete this step? (Be diligent to have at least 80% certain on each step. Make conservative estimates.! What are the inputs and outputs of this step?

Map the Process to acquire a paying customer

there are two ways of extending your market:! by selling new products to your existing clients - upselling! sell the same products to additional markets

identify some follow-on markets

Calculate the Total Addressable Market Size for Follow-on Markets

a business model is not pricing

Key factors:! Customer: What will the customer be willing to do?! Your Value Capture: How do you capture some of the value the customer gains from your product, and at what magnitude?! Competition: What are they doing?! Distribution: How do you make sure your distribution channel has the right incentives to sell your product?

Design a business model

free is not a business model

One time upfront charge plus maintenance hourly rates cost plus advertising subscription or leasing model cell phone plan

licensing

consumables franchise reselling the data collected upsell with high margin products micro transactions parking meter or penalty charges usage based shared savings operating and maintenance

Some generalize categories of BM

basic Pricing concepts:! cost dont matter - based on the value the customer gets from your product

use DMU and process to acquire a paying customer to identify key price points it is always easier to drop the price than to raise the price different types of customers will pay different price

understand the price of the customers alternatives be exible with pricing for early testers and lighthouse customers

Set your pricing framework

Key inputs to consider:! 1. One time revenue stream, if any.! 2. Recurring revenues streams, if any.! 3. Additional revenue opportunities! 4. Gross margin for each of your revenue streams! 5. Retention rate! 6. Life of product! 7. Next product purchase rate! 8. Cost of capital rate for your business

you will calculate it for a 5 year time span

its a tool not a strategy usually is used to dene marketing strategy

Calculate the Lifetime Value of an Acquired Customer (LTV)

entrepreneurs are inherently optimistic

sales process changes over time

they fail to take into account:! all the sales and marketing costs! long, drawn-out sales cycles that cost a lot of money! all potential customers who did not buy their products

Map sales process to acquire a customer

develop a short term, medium term and long term sales strategy

Key questions that your sales process should address: How will the target customer learn that there is a solution to a problem they have, or learn there is an opportunity they did not previously know about?! Once target customer knows about your business, how will you handle the education process that allows them to make a well-informed analysis about whether to purchase your product?! How do you make the sale?! How do you collect the money?

How to map your sales process

typically COCA exceeds the Lifetime value of an acquired customer

in a sustainable business COCA continually decreases until is less than the LTV

Calculate the Cost of Customer Acquisition (COCA)

COCA(t) =

Total marketing and Sales expanses (t) - Install base support expense Number of New Customers (t)

How not to calculate COCA

1. While very powerful, use direct sales judiciously as it is very expensive! 2. Automate as much as possible! 3.Improve conversion rates in sales! 4. Decrease the cost of leads/improve quality of leads! 5. Speed through the sales funnel! 6. Choose your business model with COCA in mind! 7. Word of mouth! 8. Stay focused on the target market

How to reduce COCA

go through each step of the process and nd areas in which you have made logical conclusions

Have you identied your Personas priorities?

will your customer nd the value proposition attractive?

will the customer take the time and effort to integrate your product into their workow?

Identify key assumptions

There are no excuses to not test these key assumptions To test the interest of the lighthouse and linchpin customers, go talk to them and see if they will do any of the following:! prepay for your solution (best)! put down a deposit (good)! provide a letter of intent (ok)! agree to a pilot (acceptable)! express a strong interest in purchasing if certain conditions are met (not too reassuring but may be acceptable!

Test key assumptions

!

Three conditions of a MVBP! Customer gets value out of use of the product! customer pays for the product! the product is sufcient to start the customer feedback loop, where the customer can help you iterate toward and increasingly better product

Dene the Minimum Viable Business Product

Show that the Dogs will eat the dog food

Develop a product plan

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