Summary: There is so much good information and advice available to startups, but deciding what to do today can be overwhelming. For Web and Mobile startups, first answer 3 critical questions about your business: (1) What Problem am I solving, (2) How will I make Revenue, and (3) do Channels exist to acquire customers? Problem, Revenue, Channel: these are the 3 biggest risks to your startup.
I Want to Be Lean – But Where Should I Start?
Entrepreneurs today are blessed with fabulous offline and online resources about how to build our products and run our companies. Unfortunately the availability of so much free information has created a dilemma for us: it is easy to get overwhelmed.
In my startup help calls a frequent problem I hear is, “I want to be a Lean Startup but where should I start?” It is a good question.
The Challenge of 1-Page Model Canvases
As I’ve written previously, 1-Page Canvases like Ash Maurya’s Lean Canvas and Alexander Osterwalder’s Business Model Canvas are huge improvements over traditional business plans.
These canvases greatly simplify the presentation of information, but discovering what information goes in each box takes months and years of work. The key is starting with the areas of biggest risk first.
All Web & Mobile Startups Have Similar Risk Profiles
All businesses have risks, but drug discovery obviously has very different risks than a mobile dating app. Over time I’ve realized that all web and mobile startup risks are very similar. Using Ash Maurya’s Lean Canvas we can see the key risks in the Problem, Revenue, and Channel Boxes.
Risk 1: Does Your Product Solve a Real Problem?
Most startups never get past this seemingly simple question. I use the term “seemingly” because identifying a real problem is extremely hard. The Problem block should be the very first block you fill out and you should start testing problem assumptions on day 1 though unstructured interviews with potential users and customers.
Until you find a problem to solve, working on the rest of the canvas is an academic exercise.
Risk 2: Can You Get Paid (Revenue) to Solve the Problem?
It would be wonderful if every problem lead to a business opportunity, but the world is rife with problems that are not cost effective to solve. For often seemingly irrational reasons, people simply won’t pay for a solution to their problems so Revenue Streams is the second block you should complete. Charging for a solution before it is built is the best way to answer initial questions about revenue but this isn’t always practical. You can test revenue by asking potential customers for Letters of Intent, offering Free trials with pricing sheets, or generating landing pages with payment calls-to-action.
Pricing is a dynamic, complex attribute to model, but in the initial stages we’re just looking for indications that people will pay us. If nobody wants to pay for a solution you can ignore the rest of the canvas unless you want to think of your startup as a hobby.
Risk 3: Is there A Cost-Effective Way (Channel) to Acquire Customers?
For some reason web and mobile startups don’t like thinking about the cost of acquiring questions, but many a startup has died when it discovered that the paying customers are too expensive to acquire. Face-to-face customer development is critical for getting problem insights but few web and mobile startups can charge enough to support the costs of a direct sale.
The best way to identify Channel risks is to model and test them. Most web and mobile startups do this by running Google Adwords or content marketing campaigns.
Problem THEN Revenue THEN Channel
Theoretically could solve all at once, and a business needs to solve all of these problems. Practically speaking, I tackle these risks in order because each one takes an intense amount of time and focus. If you can’t find a way to earn Revenue from solving a Problem then you need to find a different Problem to Solve. Similarly, you’ll have to rethink Problem and Revenue if you can’t find a scalable Channel to customers.
Next Comes Solution, Competition, and Everything Else
Are Solution, Customer Segments, Unfair Advantage, and Cost Structure important? Of course.
However, most of these boxes will be easier to complete once you answer the key questions about Problem, Revenue, and Channel.
Most web and mobile startups are not developing innovative technology, so the Solution is a matter of getting the right resources and executing and the Cost Structure is mostly people. Similarly, Customer Segments become clear once you know the Problem – the customers are the people who have it.
What Matters TODAY: The Biggest Risks
Most entrepreneurs – and unfortunately too many startup advisers – focus on risks but not the most critical risks.
It is easier to talk about Solution (i.e. product features) and Unfair Advantage (i.e. competition) because these parts of the business are plainly in front of us – we can see them.
Save yourself (and the startups you help) a lot of time and heartache by focusing instead on the most critical risks that will make-or-break the company.
- Am I solving a real problem?
- Will people pay me to solve the problem?
- Can I acquire customers cost effectively?
Problem. Revenue. Channel. These are the 3 key risks to web and mobile startups.