Strategy eats Lean Startup for Breakfast

Many startup founders are a bit reluctant of the thought that their startup is effectively a searching effort with experimentation at its core. The connotation of the word ‘experiment’ is about some scientists in a lab coat holding up and looking at test tubes, while they carefully measure outcomes and make sure their findings are statistically sound.

You might miss the link between Lean Startup and some of your particular startup challenges. Such can be:

• My product is very ‘technology-heavy’. It will take at least two years todevelop the first version.
• I need to close partnerships with a variety of large companies, government entities or alike to get this of the ground.
• My customers will only buy the fully working product.
• My customers are large companies with 6 to 12 month sales cycles

If you have any of such big hurdles, it’s even more relevant to have strong vision and a good strategy. They can turn into competitive advantages once you overcome them.

Good entrepreneurs have a habit of doing this naturally. They manage their risks and (sub)consciously test this cleverly. This is the behavior folks like Eric Ries and Steve Blank have studied and collaborated with to produce their books.

Market types

The more you overcome large hurdles for business success, the more you need to have a strategy. The most important element to form your strategy around is to find out what market type you’re in. Steve Blank defined these as follows:

(I’m leaving the Clone Market strategy out of this overview)

Conquering a new market is the most challenging one for startups. It can take years to decades for revenue to grow to a significant size in these markets. To add insult to injury, a new market which starts to take of is going to see a lot of competitors, who can potentially outperform you.

Set your Priorities based on Market Types

A good sense of focus and a sense of strategy will make it much easier for your startup to set priorities on what needs to get done first. This varies depending on your market type.

Many startups get stuck at the Discovery phase of Customer Development, because they overlook the market type they’re in. Your priorities depend on this.

What to discover in an existing market:

• What is the basis of competition in this market
• How satisfied are your potential customers with the incumbents
• What would it take to get their business

What to discover in a new market:

• The day in a life of your customer today
• If there’s a problem worth solving and how your product is going to make their daily lives better
• What changes need to happen, such as buying habits or technology shifts

What to discover to resegment a market:

• What needs are the incumbents not fulfilling
• How important is the incumbent’s feature set

Following Michael Porter, there are two strategies to resegment a market. This is either by:

• serving a niche in a much better way, so you can own that niche entirely.
• building a low-cost version of the product

Many have quoted Dropbox’s experiments as an MVP. Very few people understand what they were finding out exactly. Dropbox entered the file sharing market at a late stage. The market existed already. Drew Houston knew this and his initial test was to find out if he could punch a hole in that market by advertising a better file sharing product.

The Dropbox case — a few experiments will cut it

Watch this video in which Drew Houston of Dropbox explains which few experiments they ran.

The best markets to resegment are monopolies or duopolies. Markets who are dominated by sleeping giants are relatively easy to resegment, because the incumbents won’t bother until it is too late.

You need this information to be able to find out where you need to focus on and what the strategy is. Your first priority is to discover this.

If you’re on to new market with the risk of a long road ahead or a long technical roadmap this might go well hand-in-hand, but requires you to keep your team small for as long as you can.

Analogs & antilogs

Another element of your strategy is to look for predecessor companies which are worth mimicking in some way. These are called analogs. Additionally, you can look for antilogs; predecessor companies to which you choose to do things differently.

A startup needs to either enter a new market or resegment an existing market in order to have success. In both situations your team will have to stay fairly small and you’ll have to experiment on the elements which make or break it. Pick analogs or antilogs in order to prevent yourself from experimenting the obvious parts of your new business.

Book tip: Getting to Plan B — John Mullins & Randy Komisar

A great book about how and when to change your plan in realtime, including the analogs and antilogs which this chapter refers to.

The textbook example for picking your analogs and antilogs is about the introduction of the iPod by Apple. Apple figured out through the* analog* of the Sony Walkman that people appreciate to listen to music anti-socially (with earplugs in) and focused their effort on offering music for sale via iTunes, for which it had an antilog, Napster. Here’s a video in which this explained.

Every successful startup has started out small

List your three favorite companies. Think of companies you think set an example. Now go online and check their history.

Resources:

https://www.wikipedia.org/ (see what’s objectively written about their history)

http://archive.org/web/ (check out early versions of their website)

http://crunchbase.com/ (check out news, founders, investors)

The fourth market type: Clone Strategy

If you want to learn about how to clone successful businesses from other geographical areas, please check out the story of Rocket Internet:

http://knowledge.wharton.upenn.edu/article/can-clo...