In the past year we took helping startups to a whole new level with Firmhouse. We have supported the majority of Dutch accelerator programs with workshops and mentoring, including Rockstart, Utrecht Inc, YES!Delft, ING, Unilever and Philips. On top of that we tracked the progress of approximately 50 of the teams diligently based on our sessions as well as those of other mentors and coaches.
This led to insights about how these teams progress and what makes them spin their wheels. All of these topics deserve a blog post of their own to carve out the details and how put those teams back on track during our mentor sessions. In this post we’ll describe what we’ve observed.
1. Customer understanding is still the hardest nut to crack
So many things stand in the way of entrepreneurs and intrapreneurs to get them into a situation where they truly understand their customer’s needs. It’s a topic of concern in 1 out of every 2 mentor sessions.
At the same time customer understanding is a fundamental driver for sustained traction once a team nailed it. Everything else becomes easier:
Most entrepreneurs don’t walk the last mile when it comes to this and it’s mainly an attitude problem. Even great, seasoned entrepreneurs think this is counterintuitive. This is exactly the point.
Only a very few entrepreneurs naturally do this right. These happen to be people like Drew Houston (Dropbox), Jessica Alba (Honest Company) and Jack Ma (Alibaba). The mindset is what makes the difference. These people thrive on a close connection with their customers with the right mix of passion, self-reflection and domain expertise. They’re not afraid to be wrong about their idea as they realise that customers are first and last when it comes to success.
Here’s a great video about this from Y-Combinator Startup Class in which Aurora Chueng (Homejoy) goes as far as to work for a potential customer to learn all there is to know:
2. Data-driven decisions are rare
Data and metrics are rarely at the heart of the discussions. Most mentors and coaches do not ask for data and most founders do not share the data in preparation of a session. Despite all the common knowledge about how companies like Google are data-driven I’ve rarely come across a startup which makes data-driven decisions.
When we teach the teams about Lean Startup, Customer Development and Experimentation they typically do collect qualitative data and set their expectations to compare it with the real outcomes later. Very few teams then adopt that way of working and pick a so-called north star metric as an indicator as they’re making themselves ready to ship the product and scale up the business.
3. Iterating fast is almost impossible
Almost every team we’ve personally mentored will hit a slump at some point. They will decrease their pace of working. In some cases they completely stall for several weeks or months. Sometimes this is caused by obvious stuff such as vacations. More often, it’s because teams have not nailed customer understanding and not collecting data from their experiments. They are all of sudden left with no more options to progress.
Another common cause is a flaw in weaving of their team. Many teams have at least one founder who is not fully on board and sooner than later the entire team dynamic goes south because of this.
4. Unknown unknowns in the business model
Let’s go back at ms Chueng and her company, Homejoy. It went down in a blaze after raising over 64 million dollars. It turned out that it was too expensive to acquire customers and as the company grew, their losses mounted with the larger amounts of customers they acquired. At the same time, lots of operational issues emerged on the supply side, which led to poor customer service.
This example amplifies what I typically come across often. Once a startup as progress beyond problem/solution fit, it will now have to do the math on whether the business model works out at scale. I draw a mini business model canvas in 30% to 40% of my sessions where we do some number crunching on cost versus revenue. Many founders ignore significant cost factors such as their own unpaid time.
One founder told me:
“We acquire our customers for free.”
So I asked them how they do that.
“Other customers tell them about it.”
- “Ok, so your product and operation is accommodating that?”
“Yes”
“You’re not paying these engineers?”
“…”
Worse so, founders often think the next batch of hires are going to work for the scrappy salaries they take of the table in favour of equity. These unknown unknowns can make or break the business model.
However, initially almost all mentors and startups focus on customer segments and value proposition.
5. Intrapreneurs struggle to be entrepreneurial
This might sound obvious to some, but it turns out to be an item worth addressing. We had the luxury to work with both corporate innovation teams and startups simultaneously. We were not the first to observe that corporate employees and entrepreneurs operate in different environments with different mindsets.
Years before Lean Startup emerged, Saras Sarasvathy published a research and introduced effectuation. It consists of 5 principles of entrepreneurial thinking, which oppose the common approach in companies to work towards a preset goal. Entrepreneurs work with what they have and identify multiple possible goals. They treat bad news and surprises as potential clues to opportunities.
It’s not hard to imagine that the entrepreneurial mindset is in conflict with the ultimate performance indicator of any large company, which is predictability. Managers are trained on this and experience a mental shock once they immerse into a corporate innovation team which is supposed to operate like a startup.
Due to this, corporate teams typically take more time to ‘warm up’ and get into the action and we spend much more time convincing teams that visiting customers and doing experiments is what it takes.
The successful entrepreneur was not making landing pages
By the time Eric Ries noticed that his message resonated with people he started to scout for examples to prove the methodology. And he found them. He found them, because out of the many traits successful entrepreneurs have, one of them is that they love to share their successes.
This spawned a ton of blog posts from entrepreneurs who claimed their landing page was the Minimum Viable Product and as such building landing pages became the textbook example on how to apply Lean Startup. This is also because it’s an easy skill to obtain and it provides instant gratification as soon as your visitors start converting. I’ve had teams high-five each other after seeing the first email addresses trickling in, while I was having a conversation with them as a mentor.
However, the common mistake of all the wannabe’s who wanted to copy on the growth hacking tactics of the first movers, is that these tactics only work in certain situations. Despite all the Lean Startup hype, the most important skills for being a successful entrepreneur haven’’t changed. It’s to make good decisions fast. It’s about assessing risk and being able to over-invest beyond what’s rational. It’s to take chances and pull something off which is against all odds. And foremost, it’s about establishing a strong connection with your customers to understand them deeply.
