Category Archives: Strategy

Location, Location, Location

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It amazes me how many people cling to the romantic notion of starting a new business in their garage. Garages are typically full of stuff (including your car), poorly lit, and cold due to a lack of insulation. Your garage is also attached to your home which means you’ve chosen a location for your business based on where you live right now.

That a dangerous mistake.

Even if you are not starting a retail store or a restaurant, location is an important factor in the success of your business. It might not seem so at first when it is just you, your laptop and a phone working from a coffee shop. However, if you are successful and need to grow then you want to make sure you are in a city that facilitates your growth. Just like natural resources fuel economic growth, your company will need business resources to grow.

Three common business resources that depend on your location are: Employees, Financing and Customers.

Location Based Employees

Assuming your business takes off, you will want to grow your team quickly. This might mean hiring engineers, artists, sales people or simple manual labor. Whatever kinds of employees your business calls for, you want to make sure you have a ready supply of candidates in your area to fill those positions.

It is not a coincidence that you find many companies in the same industry gravitating to the same city. Companies in the same industry hire the same kinds of people, and often away from each other. This creates a liquid workforce where you can quickly scale up when you are successful by drawing from employees at larger companies in the same industry.

The major drawback to being in close vicinity to many other companies in the same industry is that your employees are more likely to be poached by those companies. Ideally, you want to find somewhere with enough density to make hiring easy but not so dense that employees will switch jobs every six months.

Location Based Financing

At some point your company will require outside capital to continue to grow. Despite the global nature of business these days, most early ventures are initially funded by local investors. There is so much risk in early ventures that investors focus on the people more than the business and to do that they need to meet you in person. Of course, to be funded by locals there need to be locals that invest in your kind of business. While there may be investors in your city, if they don’t typically invest in your kind of business you will have an uphill battle to raise money.

Put simply, you want to be in a business that your city is in already. It’s easiest to raise money for a high tech company in San Francisco and for a new hedge fund in New York City but if you need to finance a new farm both places will prove difficult.

You want to be in a business that your city is in already.

The good news is that if you’ve already chosen a place with a large pool of potential employees, chances are that they work for competitors and those competitors have raised financing already. That means you might already have an educated investor community.

Location Based Customers

While you can reach customers by email, phone and even video these days there is no replacement for meeting your customers in person. Sales is still a very human activity and your ability to sit down with potential customers and understand their needs will be critical to your success. While you can’t work in the same city as all of your customers, you want to be close to enough of them to fuel your early sales and product development.

Another added benefit of being close to your customers is that other companies who service the same customers will be there as well. This means you will have more opportunities to develop partnerships (and potentially be acquired).

Moving On

The reality is that any location you choose will never be perfect. Whether to move your business, or even your home, somewhere new is a decision that you will need to make after weighing the facts. It is possible that the potential of easier financing is outweighed by your desire to be near your family, which is a very logical decision. However, realizing that limitation up front means that you can plan ahead and work harder to overcome it.

Thanks to Evan Cooke for inspiring this post. He promised me a job cleaning his yacht in exchange for covering the topic. 

Photo made available via Creative Commons by Jim Trodel on Flickr. 

That’s Just a Feature

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Stop me if you’ve heard this before:

It’s just a feature, not a product.

It is a popular refrain from skeptics who want to sound intelligent about a new innovation, product or company. On the surface it sounds insightful because it draws a line between a product that stands on its own (“product”) and something that solves a small problem and cannot stand on its own (“feature”). It is hard to refute as it is a subjective statement and easy to justify.

It is also meaningless.

Dismissing something new as a “feature” ignores the fact that every product starts by solving a small problem. When you are starting from scratch, you don’t have the time or the resources to build a perfect product that solves a big problem so you carve out a small part of that problem to solve. Whether you follow the Lean methodology and build a Minimum Viable Product or simply suffer from the resource scarcity that follows starting a company, your initial product will be simple and basic. That is a good thing.

Many successful companies follow a common progression during their growth:

Feature -> Product -> Platform

If your business has potential (see Are You Solving a Problem), you should be able to prove it by starting with a feature. From that feature you can build a complete product which, if also successful, will form the basis for a platform on which additional products can be built. Companies like Facebook, Google and Sony have all been built this way.

So if you find a skeptic that dismisses your idea as a feature instead of a product, don’t let that get you down. Instead, explain to that person the bigger problem you are tackling. If they still don’t understand, then I suggest ignoring their opinion. Life is too short.

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Illustration made available via Public Domain. 

Not All Customers Are Created Equal

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You have finished the first version of your product. Congratulations! Now it’s time to start selling to customers and generating all important revenue. At this stage you are probably eager for any and all customers that are interested in your product.

Before you start selling, it is important to understand what kinds of customers you want to pursue. While any paying customer can be considered a good customer, you don’t yet have the resources to sell everyone on everything that you do. Focus is critical and to focus, you need to segment your potential customers.

A simple way to segment your customers is as follows:

Customer Segments

In this simplistic customer segmentation, we have three types of customers: Big, Medium and Small. Note that while the potential revenue for a Big customer is much higher than Small customers, there are many more Small customers than Big customers. The labels Big, Medium and Small will have different meaning depending on your business. Big might refer to the size of the company (large enterprise) or complexity of the customer needs (custom solutions). The important factor in this segmentation is the inverse relationship between potential customer value and number of potential customers.

While you might be able to pursue Small, Medium or Big customers, you are probably not capable of pursuing all at the same time. The sales strategy for each segment will be different:

  • Big Customers require large amounts of time in sales and account management by dedicated salespeople. The sales cycle (total time to close the sale) may be measured in quarters.
  • Small Customers require self service products and strong marketing. Since revenue per customer is low you cannot afford to have a salesperson talk to all of them. So, you need to rely on customers finding you and signing up entirely on their own.
  • Medium Customers require a combination of an outbound sales force and strong marketing to reach them cost effectively.

Your target customer segment will dictate your sales strategy and hence your business strategy for the near term. It is important that you choose your segment wisely since it is easy to fall into some common traps:

  • The Over-Reach: You focus on Fortune 500 customers because you want brand name reference customers for your company, but you only have 6-9 months of runway. That’s not long enough to both complete the sale to companies of that size and raise additional funding, since the sales cycle for large enterprises can be 12-18 months.
  • Going Too Big: You focus on consumers but you have a complex product that they can’t understand without someone explaining it to them. You spend a lot on marketing in hopes of reaching tens of millions of consumers but can’t convert any of them, burning through all your capital.
  • Too Much TLC: You focus on a small customer segment with the goal of providing perfect customer service and spend a lot of time with each customer. Unfortunately, the segment isn’t large enough to support your business model and your deep customer service prevents you from growing your customer base fast enough.

Remember that the example customer segmentation here is simplistic and you should decide on the appropriate segmentation for your potential customers. Whatever you choose, make sure the segmentation reflects the market data you have available and not just your gut instinct. There is nothing worse than choosing to pursue Big customers, only to find out they don’t exist.

It may feel like you are giving up a big opportunity when you segment potential customers and only focus on some of them. That is only true in the short term, while your resources are limited. If you are successful with your first few customer segments, you can eventually grow to tackling all potential customers.

 

 

 

The Only Thing That Matters

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When you are building a company, it is easy to be overwhelmed by the number of things that have to be done just to keep your company running. Between accounting, paying bills, signing contracts, financial planning and payroll you might find yourself spending half of your time just on operations. If you have never done these kinds of things before you might spend all of your time learning and doing them until you get proficient. It can be fun to learn and makes your new business seem like a real business.

The problem is that none of it matters.

At all.

Not even a little.

No company has ever been acquired because it paid all its bills on time, had flawlessly accounting ledger, perfect financial planning or impeccable contracts. Those are just the table stakes to play the game.

Absolutely the only thing that matters to your new company is whatever makes you different. That difference is what separates you from the competition and makes you stand out as a better solution. That difference makes you better. It is your competitive advantage (See Never Play Fair) and it underlies everything from your sales pitch to your strategy. If you do raise investment or get acquired, it will be because of that difference.

You should spend 100% of your time investing in your differentiation. Make it better. Make it obvious how you are different. Think of it like a wedge that you are using to split the market wide open and keep hitting it. Be relentless and focused on winning through your differentiation.

This extends to “feature parity” as well. If you look across all your competition and create a feature comparison matrix (See Only the Paranoid Survive), there will be a lot of features everyone else has that you lack. You could spend your time adding those features to get even with the competition, but what does that get you? If you look exactly like them why would anyone choose you? You should understand those gaps but invest in your differentiation.

What about all those operations that your company needs to run? Outsource. Pay people to do them for you. Don’t think of it as a cost, think of it as an investment. Every hour you pay for them to review contracts, pay your bills or run payrolls is an hour you can invest in your company’s differentiation. You are buying time, which is a rare commodity for start up companies, and investing it in the only thing that matters.

If you succeed, your differentiation will be so clear that it will be easy to create marketing materials, sales pitches and investor presentations. That differentiation will be how you recruit employees, close partnerships and build value. The message of your company will be told through your differentiation because that will be the story of why you are the best in the market.

Even if you pay your bills late.

The Difference Between Impossible and Really, Really Hard

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Starting a company is very hard. You put every ounce of your energy into the new business, fighting for every new customer and struggling to make ends meet. In the midst of the chaos, it is very easy to lose track of whether you are making progress or just running in circles.

Every company runs into a wall right around their product launch, when the initial excitement of the start up wears off and the first version of their product makes contact with reality. Reality is a harsh place and even the brightest dreams never quite work the way you would expect. Success fails to come easily and you sit there wondering if your idea, which seemed brilliant a week ago, can really work at all.

At that point, many first time founders will start thinking of a pivot. The original idea isn’t working out exactly like you expected but you have another, equally brilliant idea that will be much better. This new idea has not had to survive contact with reality so it will always look more attractive. You start to think the original plan is impossible but this new path will definitely work.

But, is the original plan really impossible or is it just really, really hard?

Don’t get me wrong, pivots can be an important part of start up success as almost every successful company ends up doing something different than what they started out doing since they learn from the market. However, pivoting too early or often can actually hurt your chances of success. You should not pivot unless you are positive that it is the best thing for your company.

Here are some questions you should answer before deciding for or against a potential pivot in those early days.

Question 1: Have you followed through on your go to market plan?

It is easy to panic if you begin to test your concept in the market and things don’t go as you expect. Even if you were able to demonstrate demand with alpha customers, raise funding and recruit a team, there is no guarantee that customers will flock to you when you launch. If your launch doesn’t give you immediate benefits then you will feel panic setting in.

Making good decisions when emotions and stress are high is very difficult. That is why you laid out a plan for your go to market strategy (see Go To Market To Win) including specific milestones that you would aim for and how you would achieve them. Those milestones are important, because they give you a decision making framework that is above all of the emotions of the launch. Do not make decisions until you hit your next checkpoint to ensure that you have given it a chance to work.

Even if the early results don’t match all of your original expectations, look for promising signs and clear feedback from the market. Perhaps your pricing model is too aggressive or there are certain customer segments that are working well that you should lean into. Remember that whatever concept you might have started with, you will need to refine it as you learn from the market.

You should not continue trying to force a product that is clearly not working, but you need to be sure you have given your product a chance. Sticking to your go to market plan and avoiding panic are important parts of doing that.

Question 2: Do you have enough time for a pivot?

Pivoting your company is a lot like starting over again. While you might be able to use some of the assets you have accumulated along the way, you will be at a much earlier stage of development on the new idea than you were on the old one. You will need to start over again with your market planning, prototyping, customer development and strategizing. All of that will take time, just like it did the first time you did it.

The unfortunate truth is that when companies get the most desperate they start to favor pivoting as a solution to their problems. Often, this means they are trying to pivot when they have only months of runway left, which is not enough time to restart their go to market strategy. While it is true that your current business might not be working, if you only have a few months left then you likely don’t have enough time to make a new business work either. Be very practical about your existing runway and whether a pivot is really an option for you.

Question 3: Is your team on board?

At the end of the day, your company is made up of people. Maybe it is just you or maybe you have a team of dozens. Either way, pivoting is a traumatic event for everyone involved. You are, in essence, admitting that your previous plan which you used to recruit and motivate them, was flawed. The passion that drives early stage companies can quickly deflate.

You cannot change your team as quickly as you change your business so make sure that the team you would hire for your new idea and the team you have already are almost the same. If they are not, then you are faced with rebuilding your team at the same time you rebuild your business which is very hard.

Assuming your team is right, make sure they are on board. If you think a pivot is the right move but they are still committed to your old concept it is unlikely you can pull them along. Besides, if you can’t convince your team that it is a good idea then maybe it isn’t.

Impossible vs Really, Really Hard

All of this should make you realize that the difference between Impossible and Really, Really Hard is difficult to see when you are in the moment. Start up companies are at least really, really hard and often impossible so it is easy to confuse the two. While you don’t want to waste your time on something impossible, all the value and benefits of starting a company come when you overcome things that are really, really hard.

Whatever you choose, be sure not to waver. If you pivot and then swing back again you aren’t pivoting, you are waffling. Choose a direction and stick with it.

Go To Market To Win

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There are only four kinds of events in the life of your company that are likely to get covered by the press:

  1. Acquisition
  2. New Funding
  3. Product Launch
  4. Partnership

Incidentally, those are also in the order of the likelihood of the press covering the event. These events are newsworthy because they are also the most important points of your company history.

Of the four, the one you have the most control over is the Product Launch. This is the point where your new product will be unveiled to the world and is your best chance to spread the word. A product is, of course, new only once.

Many companies will put together a launch plan, complete with a blow out launch party. Fewer will put together a comprehensive Go-To-Market strategy that includes the launch as part of the plan. While a good launch plan may make a splash, a good go-to-market strategy can position you to be successful.

So, what makes a good go-to-market strategy?

1. Plan for the Future

A good go-to-market strategy will start well before the launch and end at the first milestone after your launch. An example of the Go-to-market timeline for a company is below:

Go-To-Market

In this diagram the grey boxes are company milestones and the green circles are activities to help reach those milestones. The phases of the Go-To-Market timeline are broken down into three parts:

  • Pre-launch. Leading up to the launch, these are activities designed to help make the launch a success. The Alpha test is a small number of potential customers who help you refine your product. The Beta test is a larger number of potential customers who help you refine your business model. Coming out of the pre-launch phase you should feel confident in your product, first time experience and marketing strategy.
  • Launch. This is when your product is available to the general public. You will kick off your marketing strategy (see Marketing for Engineers) and hopefully get press coverage. You should have a party to celebrate this milestone with your team, but don’t count on your party to help your business.
  • Post-Launch. After the launch, you are now operating your business. At the least you want to maintain whatever momentum was provided by your launch, but ideally you begin growing and operating your business. This is where measuring your LTV and CAC become critical (see The Most Important Equation for Your Business).

By mapping out your full go-to-market timeline you will be able to think of the launch as a part of your strategy, not an end in itself.

2. Use the Launch to your Advantage

Since the launch is only part of your strategy, it is important that it helps you achieve your goals and is not a goal itself. Depending on the milestone you are trying to achieve, your launch may take on different forms:

  • Customer Growth. If your goal is customer growth, you want to reach as many potential customers as possible and let them know your product exists (raising awareness). This will vary depending on your business but remember that very few customers will read industry press (unless they are in your industry). Getting covered in TechCrunch might make you feel great but if you are offering a new service to kindergarden teachers you will not find many customers that way.
  • Fundraising. If your goal is to raise more funding, then your launch should expose you to as many potential investors as possible. This can mean speaking at conferences, participating in launch competitions or being covered in industry press (this is where TechCrunch can help). However, fundraising is rarely a goal on its own so don’t lose this opportunity to grow your customers as well.
  • Recruiting. If your goal is recruiting, you should try to reach as many potential employees as possible and make it clear why your company is a great place to work. This usually means talking about what and how you do things in detail. For example, you might open source software, publish design plans and give tours of your production facilities. Industry press can help here as well.

You might have more than one of these as goals and if so, your launch will have many different dimensions. The more you try to achieve with your launch, the longer you will need to prepare so begin the planning early.

To ensure that you can measure success after the launch, be sure to set some quantitative goals for the launch. How many customers do you want to have one week after launch? How many articles do you want written? How many inbound job requests? Having numeric goals makes it much easier for you to prioritize and measure success later.

Whatever your goal, make sure your launch helps move you towards it. You only get to launch once and it is a powerful weapon so get the most out of it.

3. Have booster rockets ready

Many companies execute well in the Pre-launch phase, execute their launch well but fail to plan for the post-launch. When that happens the business will stall and the company will scramble trying to regain its momentum.

To avoid that, you should have your booster rockets ready before you launch. Booster rockets are activities and plans that will help you continue to grow after your launch.

Examples of common booster rockets are:

  • Paid Marketing Campaigns. These are part of your marketing strategy already and will allow you to continue to acquire customers even after the free marketing from the press coverage of your launch ends.
  • Partnerships. Partnerships with other companies can open up new customer acquisition channels and help validate your business.
  • Product Updates. Improvements to your product, including new features, keep the product fresh and attract new customers. For example, mobile applications may plan out updates every few weeks after the launch so that the app continuously improves (and increase the chances that users tell their friends).

Just like your launch is not a goal, you should not fire all of your booster rockets at the same time. Ideally you can pace them out so that they fuel sustainable and ongoing growth instead of a single spike.

Getting To Market is Hard

It might seem like this is more effort than most companies put into their launch strategy. You read about companies launching every day who seem to just open up their product to the world and sit back as customers flock to them. If that were the case then many more start up companies would survive.

Most of the successful start up companies you read about today have struggled during the go-to-market phase including AirBnB, Dropbox and even WhatsApp. When you struggle, you will be in good company.

If struggling is part of the journey, then the best thing you can do is plan ahead to give yourself every advantage possible. Your go-to-market strategy can’t guarantee success but it can help you increase the chances of success.

Besides, if you’re going to play why not play to win?

Competition: Only the Paranoid Survive

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“Just because you’re paranoid doesn’t mean they aren’t after you” 
― Joseph Heller, Catch-22

Your competitors are out to get you. They do not want to compete with you any more than you want to compete with them, and they will look to steal your customers at every opportunity. You should treat them with respect, caution and a large helping of paranoia.

There are three keys to effectively competing and ensuring that your competitors do not dominate your business.

1. Know Everything About Your Competitors

As with any situation, the more you know the better the decisions you can make. You should study your competitors as closely as possible and know them and their products as well as you know your own.

This is easier if you follow a simple and structured format for collecting and tracking information on your competitors. I’ve made the template that I use available as a Google Spreadsheet that you are welcome to use here:

Competition Tracking Worksheet Template

Note that the template includes every aspect of your competitor’s business. Many first time entrepreneurs focus entirely on feature comparisons between products which can be very misleading. For example, if you have more features than your closest competitor but they have raised more capital, then they have more resources and will likely close the gap soon.

As an example, I filled out a version of the template for my app Wine Fog below.

Example: Wine Fog Competition Tracking Worksheet

2. Focus on Your Differences

Since you are competitors, by definition you will have a lot in common. You are in the same market, with products solving the same problems. It should not be surprising, then, that when you study your competitors the differences stand out the most. Understanding those differences, and why they exist, tell you a lot about your competitor’s strategy and market opportunity.

Specifically, you want to identify a few important things about each competitor:

  • What are their competitive advantages?
  • Why are customers choosing them over you?
  • What moves are they likely to make in the near future?

Considering these questions can help you think about the future of your company. If customers are choosing your competitors because of a certain feature, you might move that up on your roadmap. If they are going to be raising more money in the near future, you should consider how that might affect your ability to raise capital.

When focusing on these differences, be careful not to let them dominate your thinking. It is tempting to get into feature wars where you constantly try to add all of the features offered by your competitors. This is a never ending cycle because your competitors will continue changing and you will constantly be playing catch up. Instead, accept that you will always differ from your competitors in some ways and invest in areas that differentiate you even further.

3. Always Assume The Worst

One of the lessons of Game Theory is that you should always assume your opponent will make the best possible move. To assume otherwise is too risky and if you prepare for it you will be ready no matter what they do. You should do the same for your competitors and assume they will make the best possible moves for their business.

This is a difficult thing to do and it is easy to fall back into bad habits. You might assume you are smarter than your competition or that since they don’t know of your top secret project that you will catch them by surprise. Even if these were true they are not long term sustainable advantages so you should avoid the temptation.

Try to assume that your competition knows all of your plans and is in the process of hiring some brilliant people. Then focus on  your core competitive advantages (see Never Play Fair) and use them to beat your competition in areas where they are weak. If you do that you can win even if they know what you are planning, no matter who is on their team.

Live Your Own Life

While focusing on competition is a good thing, it should never dominate your thinking. Companies that obsess about their competition do not innovate because they spend too much time reacting to their competitors. You want your competitors reacting to you while you choose your own path.

Your competition does affect your market but they should not define your business.

The Entrepreneur’s Creed

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“My product is great. My vision is sound. My team is amazing.”
– The Entrepreneur’s Creed

Reality is a harsh place. Almost everything that is worthwhile doing is very hard and, despite what  you might learn in school, there is no credit for hard work. There is very little recognition for your success and plenty of recognition for your failures. To be frank, the world is out to get you.

The good news is that there are no rules. You can do whatever it is you like, pursue whatever goals you desire and set your own definition of success. Other people will try to do this for you but there is nothing forcing you to listen to them. You set your own rules and choose your own path.

Starting a business is a great case study of these two characteristics of life. Anyone can start any kind of business whenever they want, setting whatever goal they desire. Unfortunately, most people who start a business run out of money, fail to acquire customers or simply not be able to get started in the first place. Reality kicks in and shows you that starting is easier than finishing and money does not come as easily as your dreams. Being an entrepreneur is a lonely pursuit because, in many ways, it is you against the world.

When you are starting a business you will inevitably talk to other people, most of whom will tell you that you will not succeed. They are almost always correct because  it is very unlikely you will succeed. However, success cannot be impossible or else there would be no companies in business today. So the question is not if you can succeed, but will you succeed or will it be the next person. Everyone will tell you it’s the next person.

The best defense against the harshness of reality is perseverance. Since the world is telling you that you will not succeed, you have to believe in your heart that you will. This is not denial because the belief in your heart is based in facts. You don’t just believe, you know. You have done your homework and designed a great product. You have studied your market and have a clear vision for the future. You have surrounded yourself with a great team that works well together.

Does that guarantee success? Of course not, but it ensures that you play the game as best you can. Even the best baseball players will only get a hit at 1 out of every 3 at bats but they approach the plate every time convinced that they can get a hit. That inner strength, born from perseverance and knowledge, is what gives you a chance to succeed. That chance is the most life will offer, so take it and use it as best you can.

So every morning, with complete conviction, repeat after me:

My product is great. My vision is sound. My team is amazing. 

———–

Note: This post was originally on my personal blog. 

Are You Sure You Are Solving a Problem?

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“So, what’s your idea?”

If you’ve ever talked about starting a company, that is the first question you always hear. It’s a simple question, but implies that companies are built from ideas – moments of inspiration where you see something no one else has seen. In reality, that is almost never true. Almost every kind of business model has been tried at some point in history. With 7 billion people on Earth, chances are that there are a few people with the same ideas that you have.

What, then, are great companies built on? There are billion-dollar companies being started right now, somewhere, by someone who is most definitely not a billionaire yet. What is their secret?

Great businesses are built by solving problems. A problem is the difference between what a person wants/needs and what they can get today. Some example problems and the companies that were built to solve them:

  • I can’t find anything on the internet. Google
  • I don’t have time to stay in touch with my friends. Facebook
  • I can’t figure out how to file my taxes by myself. Intuit

Even video game companies are solving a problem – they help you avoid being bored and make you happy. Some of these might not seem like problems because they have been solved so well by these companies, but if that company disappeared the problem would reappear. Not all problems are created equal, as problems can range from minor inconvenience to life threatening. You can often tell the difference by understanding how much a person is willing to pay to make the problem go away. For example, someone might be willing to pay $0.99 for a mobile game to entertain them for a few hours, but they would pay thousands of dollars for a new chair that relieves their back pain.

Almost all problems have solutions that already  exist but can be improved. For example, in the early days of the internet the biggest problem was how to find anything. Yahoo solved this problem with their directory. Then Alta Vista, et al, solved the problem more effectively with search engines. Then Google solved the problem even more effectively with a more advanced search engine. I expect sometime soon that there will be an even better solution, continuing the cycle of solution improvement and company creation.

If you can solve a difficult problem in a way that is cheaper, easier or better than existing solutions then you create value and can make money. The more acute the problem and the more valuable the solution the more money you can make in solving the problem.

But wait, you say, what about Snapchat and Facebook? They were started by teenagers and solve no obvious problems, yet have become huge! Well, the irony of life is that you don’t need to be aware of a problem (or how big it is) in order to solve it. In many cases, companies that are overnight successes hit upon problems that no one else was aware were problems (or that could be solved). No one understood a huge problem with existing social networks until Snapchat provided an alternative, surprising even the Snapchat team themselves. You can get lucky in this way, but it’s rare.

Starting from a problem provides a very useful framework for focusing your business as you grow. By always starting from the problem:

  • It is easier to formulate your marketing messages and sales pitch. Instead of trying to explain what your company does, you can explain the problem and how you solve it.
  • It is easier to identify your key customer segments by ranking potential customers by how much they suffer from the problem. You can avoid a lot of wasted time in exploring various customer segments.
  • It is easier to measure your performance by choosing metrics that indicate how well you are solving the problem. If you are trying to save people money on buying cars but the average customer only saves $5, then you are not effective in your business.

After you choose your problem, I suggest posting it somewhere prominently in your office. Reminding everyone on your team, day in and day out, what problem you are solving will bring focus to everything you do.

So, what problem are you solving?

Set Your Goal Before You Begin

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If you decided to build a house the first thing you would do is hire an architect to design the house. From the blueprints provided by the architect you would know what the house will look like, how it will be built and what materials you will need even before work begins. The blueprints of the house is your goal, and then your process of building the house is focused on achieving that goal.

That sounds obvious, right? Would you build a house without blueprints? Probably not. Surprisingly, many people spend significantly longer (and more money) building companies but do not set a goal before they start. When starting a company, it is common for founders to plan for the next few days, weeks or months and postpone any further planning until later. They never sit down and think about what their business would look like years into the future and if that business is worth all the effort. In some cases they have an amorphous vision or strong feeling of what the goal will look like, in other cases they simply focus on the first few steps with faith they can figure out the rest later.

The problem with not having a goal when you get started is that you don’t know what success will look like. Yes, you can still build a house without a plan but you can’t be sure it will be a house where you want to live. You won’t know how much the house will cost to build or how long it might take. Having a goal gives you the confidence that all the hard work will lead to something you think is worthwhile.

When starting a new company, take some time to lay out your goal. The elements of a good goal plan would include:

  • Number of customers. How many customers would you have if you were a success? Are there 100, 1K, 1M or 10M people who would use your product? You want to be sure that even in your most aggressive models there are enough customers to build a profitable business.
  • Total revenue. How much money would you be making? Could you make $1M, $10M or $1B per year if you were wildly successful? The last thing you want is to build a huge company that cannot make enough money to support itself.
  • Cost of operations. How many employees do you need? How much does it cost to provide your product? You need to understand how much it will cost to operate your business to understand how much investment you will need and how profitable you can be.

The simplest goal assumes everything goes perfectly and all of your assumptions are true. In that perfect world, is your company as big as you want it to be? Could you raise investment if you need it? Would anyone want to buy the company from you? By answering those questions now you can save yourself some hard decisions later.

These goals should be easily measurable as well, providing a head start in setting up key indicators for your business. If you know that success looks like X customers, Y revenue and Z costs you can track your daily, weekly and monthly progress against that goal to tell how close or far away you might be getting. You won’t hold yourself to the goals you set, as those goals will change, but it does help you know the direction you are going.

I have been told that this flies in the face of the Lean Startup movement that is so popular today. I disagree, the Lean approach is designed to quickly answer if your assumptions are correct. Before even launching into a lean effort to verify your assumptions you should spend a little time deciding if it is worthwhile. Otherwise, you are pursuing a random walk which is not a good way to find an optimal outcome.

Your goals will change as you build your company, they always do. However, by setting out a goal when you got started you will know that the hard work you put in is driving in a direction that makes you feel that effort is well spent. There is nothing worse than working very hard and regretting the destination that you reach in the end.