Whether they're entirely original ventures or new divisions in existing companies, many startups lack awareness of who they are, what they want to do, or how they'll do it. Here's a framework to help them.
One of the confusing things to entrepreneurs, investors and educators is the relationship between customer development/business-model design and business planning/execution. When does a new venture focus on customer development and business models? And when do business planning and execution come into play?
Here's an attempt to put this all in context.
SEARCH VS. EXECUTION
I was in Washington D.C. last week presenting at the ARPA-E conference. I spent the next day working with the National Science Foundation on the Innovation Corps,
and talking to congressional staffs about how entrepreneurial
educational programs can reshape our economy.
One of the issues that came up is whether the new lexicon of entrepreneurial ideas -- Customer Development, Business Model Design, Lean, Lean LaunchPad
class, etc. -- replace all the tools and classes that are currently
being taught in entrepreneurship curriculums and business schools. I
was a bit surprised since most of what I've been advocating is
complementary to existing courses. However, I realize I've primarily
written about business model design and customer development. Given that
I'm speaking this month in front of entrepreneurship educators at the NCIIA conference, I thought I should put it in context before they throw tomatoes at me.
One of the things startups have lacked is a definition of who they were. For years we've treated startups like they are just smaller versions of a large company. However, we now know that a startup is a temporary organization designed to search for a repeatable and scalable business model. Within this definition, a startup can be a new venture or it can be a new division or business unit in an existing company.
If your business model is unknown -- that is just a set of untested hypotheses -- you are a startup searching for a repeatable business model. Once your business model (market, customers, features, channels, pricing, Get/Keep/Grow strategy, etc.) is known, you will be executing it. Search versus execution is what differentiates a new venture from an existing business unit.
1) Strategy. The primary objective of a startup is to validate its business model hypotheses (and iterate and pivot until it does.) Then it moves into execution mode. It's at this point the business needs an operating plan, financial forecasts and other well-understood management tools.
2) Process. The processes used to organize and implement the search for the business model are Customer Development and Agile Development. A search for a business model can be in any new business - in a brand new startup new or in a new division of an existing company.
In search, you want a process designed to be dynamic, so you work with a rough business model description knowing it will change. The model changes because startups use customer development to run experiments to test the hypotheses that make up the model. And most of the time these experiments fail. Search embraces failure as a natural part of the startup process. Unlike existing companies that fire executives when they fail to match a plan, we keep the founders and change the model.
Once a company has found a business model (it knows its market, customers, product/service, channel, pricing, etc.), the organization moves from search to execution.
The product execution process - managing the lifecycle of existing products and the launch of follow-on products - is the job of the product management and engineering organizations. It results in a linear process where you make a plan and refine it into detail. The more granularity you add to a plan, the better people can execute it: a Business Requirement document (BRD) leads to a Market Requirements Document (MRD) and then gets handed off to engineering as a Functional Specifications Document (FSD) implemented via Agile or Waterfall development.
3) Organization. Searching for a business model requires a different organization than the one used to execute a plan. Searching requires the company to be organized around a customer development team led by the founders. In contrast, execution, (which follows search) requires the company to be organized by function (product management, sales, marketing, business development, etc.)