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Method

Value proposition

Initial idea validation and market testing where we look at the applicability of a specific idea to the particular market and target demographics.

Read on

1. Finding and Defining Ideas

So you have a startup idea? Nice! But you’ve got to be prepared for your idea to change several times. Maybe you’ll find that someone else has already realized your idea, or there’s a lack of interest in it. Let’s introduce you to some ways to prevent these issues and also determine how much money is necessary.

Find a problem and try to solve it

Is there a problem out there that makes you angry or emotional? Obviously, you’re not going to fix the world’s problems by yourself. But you can contribute and make a difference, which is ultimately what’s most important for your own happiness and fulfillment. The problem you tackle could be related to your everyday life or previous experience, but it doesn't have to be only about you. It could be something your friends and family deal with, or the community around you or, as mentioned, world problems

Incorporate your experience, strengths, and knowledge into your ideas

Maybe you once had an exciting idea and maybe you even told your bosses about it. Maybe there were other priorities, or the company was too big to change quickly, or wasn’t interested in adding new features. Don't throw away all those years of experience. Think about what you learned and what you saw that was being overlooked, or issues with how your company operated on the market.

Has anyone beat me to it?

You’re drinking your morning coffee and all of a sudden you’re blessed with a great idea. First, you need to do a bit of research to see if similar ideas already exist. At U+ we use https://www.crunchbase.com/ where you can quickly find similar launches. Crunchbase is also a great tool for getting ideas, and we recommend spending a few hours studying the site.

Ok, so you’re sure that your idea hasn’t already been developed by someone else. Sweet! Now you can start writing a description.

Define primary motivation or personal goals for inventing your idea

Understand what you want from your business. It could be:

  • A hobby-based business, like making soap to sell on Etsy.
  • A part-time lifestyle business that could become full time, like a wine investment club, or a full-time startup hoping for acquisition in a few years.
  • A large, cash-flow positive business (e.g., B2B furniture import and delivery business).
  • A path to industry credibility and networking over financial gain (e.g., a scriptwriting peer-training exchange for aspiring comedy writers).

Business Model Canvas

If you’re sure that your idea hasn’t been developed by someone else, you can start writing a description of it. This step is important because you’re trying to figure out who your target group is and the value you can offer them.

A form that has proven to work at this stage is the Business Model Canvas. You can see a short introduction about how it works in this video here. There is also a great paid tool. However, you can simply use a printed canvas and put notes on it.

It’s important to note that the next phase is the validation of your canvas, and much will change, so don’t write anything permanently on it.

For us, the categories of “value propositions” and “customer segments” are the two most important items and need to be given a great deal of attention. Value proposition is the reason to buy your product. If this category is weak, it will mean the end of your startup.

The customer segment is the person who buys your product. Try to be as specific as possible. If you think your clients are all in the demographic of 30 to 40-year-olds, you’re probably wrong. You have to define your customers in detail, not only demographic data, but how they behave and what problem you’re solving for them. For example, the problem of sleeping at night.

Value Proposition Canvas

The value proposition canvas was created to better map value and target group. You can download a helpful free template here.

  • Great value propositions
  • Are embedded in a great business model.
  • Focus on jobs, pains, and gains that are the most important for customers.
  • Focus on unsatisfied jobs, unsolved pains, and gains not yet achieved.
  • Do a great job at targeting a select few jobs, pains, and gains.
  • Address emotional and social jobs beyond typical paid careers.
  • Figure out how customers measure success and align with it.
  • Focus on the jobs, pains, and gains people are willing to pay for.
  • Differentiate from their competitors on how to alleviate these issues.
  • Beat the competition in at least one area.
  • Are special and difficult to copy.

Other fields on the business model canvas are not important yet, so you can skip them and go back to them after value validation and target groups.

2. Idea Validation and Prototyping

Validation is important to do right from the start, and you should keep doing it throughout the life of your company. Having a prototype is a great way to validate because it puts your ideas in the realm of the usable, making feedback easier for all sides.

What is validation?

Before you build anything, you should do your homework. This may seem like a drag, but it will actually save you huge amounts of time and money down the road. In the bluntest terms: you need to make sure that your idea will interest people enough to bring you money. Maybe your idea came on like a bolt of lightning, and you feel the world should be exposed to it as soon as possible. Still, validate.

Ask the right questions

Whether you have an idea based on years of personal experience, or a eureka moment about something entirely foreign to you, you need to understand the market and the problem you’re solving. Any startup can do exactly what it’s supposed to, the question is whether its function is connected to a strong need. If entrepreneur and investor Dave McClure is right, that you must “pitch the problem, not the solution,” then it truly behooves you to have a great problem on your hands.

Get out more

After designing your business canvas (see previous article), you should “hit the streets” and talk to people. Don’t be afraid to share your idea. You should be talking about it all the time, asking for as much feedback as possible. Entrepreneur Steve Blank points out that each encounter might not mean all that much, but it’s the cumulative knowledge you gain that gives you the information you need to take your idea in the right direction. Listening is most important. At this stage, you have to reach the problem/solution fit. You need to know that most people are enthusiastic about your solution and willing to pay.

Research methodology

Find out about your competition (see previous article). While you want to make sure your idea doesn’t already exist, it is possible to disrupt a market that already seems to be taken care of. Facebook came after Myspace. With potential competitors, consider the following: how they communicate, what tone of voice they use, name, colors, style of photos, prices, social media, EVERYTHING.

You can be blinded by your own passion and obsession without admitting that the idea is not that good. Know when to stop and shelve it or put it away. Set a point for when you’ll decide the world is not ready for it and move on. Having said that, we’ll now move to prototyping.

Building a prototype for idea validation

You’ve done the research and now you’re ready to build something that users can actually interact with. Why should you make a prototype before you start selling your idea to investors? Because prototypes diminish the risk in creating a digital product.

The benefits of prototypes:

  • Fail quickly and cheaply

    Prototypes give you the ability to iterate ideas to achieve your product/market fit. You can iterate as many times as you want, based on feedback from potential customers and investors, which helps to quickly improve your product.

  • Learn from feedback

    Users of your product tell you stories of what they expect, which features they’d welcome, how they feel when using your prototype, what they understand and what they don't get. If you’re seeking potential investors, a prototype will show them you’re serious.

  • Make your case visually

    Showing your users or investors what your idea looks like in reality rapidly increases your chances of success. To have something in your hand is easier for people to understand than merely imagining it. Guy Kawasaki, renowned author and VC, said he prefers a prototype to a really good pitch.

Process:

  • Prepare content

    The goal of most websites is to get visitors to the content they seek as quickly as possible. Simple content accompanied by beautiful, intuitive design is the best way to accomplish that. The general attention span is about 3 seconds. Forget long paragraphs of text, no one’s going to read it. Make it short and to the point. But don't exclude our favorite thing… emotions!

  • Sketching

    Write everything you know: content, user flow, pages you’ve had in your head. Then start wireframing sketches, page by page. You’ll be surprised how many things you forget: on-boarding, log in, mid-steps, etc. Each page. Then think about different cases and journeys of your users. Are they covered in your sketches?

  • Wireframing

    The creation of wireframes. Putting each element in its right place. Here it’s going to be tricky without UX (user experience) knowledge, because just putting content on the page doesn’t make it efficient and user-friendly. There’s a reason why a UX designer made a particular button a certain width and put each element where it is.

  • Design

    Transforming wireframes into visually appealing creations. Here come colors, shapes, photos, emotions, fonts, aesthetics, and playing around with elements

Landing page

AKA “product page” is a fake page with value propositions. User’s iterations will be required. A PPC campaign is set up to track how many people have come to the site and how many have done a certain action. For example, if they click on a button to buy, they’ll be informed that the product is still in development and they can leave an email.

3. Vision Statement

The most common mistake in defining the vision of your startup is that it isn’t reachable. Such a vision doesn’t motivate anyone—quite the opposite. Visions must be understandable, memorable, and have an impact. At the same time, your overall vision shouldn’t be innately tied to current trends or minute specifics. It’s a delicate balance, but the right ingredients will help you build your team.

Vision statement or mission statement?

Simply put, a mission statement is based in the present. A vision statement should be for the long term. This statement of purpose should be used to attract the best employees who can identify with your idea and begin to breathe life into it. Personal connection with future employees and investors is very important. Meet them, go out, have a drink. Your vision statement isn’t a little wish written on a scrap of paper in your desk drawer, but something you live as your company begins to grow. But the vision statement doesn’t have to be too specific. A later article discusses this with OKRs.

4. How and Why to Do User Testing

User testing is the necessary green light for every project to have a usable product and a satisfied client.

Nowadays there are a lot of companies that try to make apps to make life easier. The difference is that not all of these companies deliver good digital products that are actually useful for end users. This can be caused by several factors, but an important one is that skipping user testing may deliver a product that is not user-friendly.

What is user testing?

User testing is actually done whenever people use a product, but here we’ll look at when a specific user goes through a task and a reviewer observes how they use it, what their difficulties are, what is missing, how easily they can navigate it, etc. Every feedback given is recorded and may be used for every step of development.

How to do user testing

It is very important to have a scenario before starting with a description for the task. The following are the ways user testing can be applied.

Moderated user testing

This is a planned meeting to monitor how the client goes through the task. The client may talk out loud during every step or just keep notes during the testing. There may be a lot of questions from both sides, which are good to keep as notes to prevent further mistakes. But this may not be the best way because it is time-consuming.

Remote moderated user testing

This can be done by screen sharing or other external tools where you can follow and record how the client goes through the app. This is a good possibility because everything can be tested and you can see if additional features need to be added. Remember not to force the user in any direction, let them be free to navigate the site or app because observing their behavior is the most important part.

Eye tracking

This is an advanced method of user testing. The user gets a sensor that knows where his eyes are focused on the site. By the time the user finishes, the reviewer will have a map of the site with a lot of details about the user’s actions. Analyzing this map can help understand if the user had trouble understanding certain sections of the site, and it’s also good for checking different behaviors. Only a few companies apply this method because it can be expensive for the client.

Expert review

Done by experienced staff who evaluate the product. Users will go through the tasks and detailed notes are taken about some predefined conditions pertaining to the usability.

Recommended methods

Often, our first step is to create personas (users with some personal details) from the UX team. Test cases should be created in advance to cover every possible feature to be tested. In the meeting, the client might be with some of his employees or even some random people who don’t know anything about the product. The average number is around to three to four individuals. The role of the facilitator in the meeting is very important. He will be keeping notes, recording comments, and maybe giving a hint if the user needs it, but not helping the user check the task. During this time it is necessary to observe how the user behaves. Keep in mind that every time you ask the client constructive questions in order to get detailed answers, it will lead to some helpful changes for the user. It is always a good idea to test every feature, but this requires a lot of time and a lot of money.

5. Business Plan Creation

Just as any long journey needs some form of navigation, your startup needs its own guidelines. The business plan involves answering key questions that help define what you’re trying to do and how you’re going to do it.

How to write a business plan

Keep it short and to the point—online templates for business plans can be intimidating with examples of really long documents and detailed analyses. We recommend using this template: http://100startup.com/resources/business-plan.pdf. It is important for you to have all the detailed information handy, but it should not interfere with what you are trying to accomplish. Always include an executive summary for those with little time to browse through your whole plan.

Your business plan should be first and foremost your guide to building your company that others, potential investors, can understand as well. It will work as your roadmap going forward.

There are a couple of touchpoints you should definitely include:

  • Value proposition
  • Customers
  • Roadmap of execution
  • Team
  • Financing needs

Value proposition

This is the definition of why your company is special and what value it brings to its customers.

Customer definition

It’s important to understand the type of business and target audience for the company’s products. Also, for specialized VCs, this is an easy signpost to understand if they bring any additional value to the company on top of the money.

Roadmap of execution

Will it take two years? 6 months? What are the necessary steps and critical path for the company to be successful? Lay it out as clearly as possible and identify potential issues and solutions.

Team

Who are your co-founders and what is the division of labor among them? What roles are currently missing? Who will you need to hire? In what timeframe?

Financing needs

This includes the amount of money you require, for what purpose, and when you’ll break even. If this is the bedrock of your business plan, you should include detailed calculations and justifications, which can be in an appendix.

6. Types of Financing

You’ve got some choices here. Depending on which market you’re entering or your own location on planet earth, you’re going to have different sets of options when looking for capital. The following covers these options and discusses when to use them.

Investors

There are many good online resources for finding investors, such as angel.co, where you can find a cross section of the investment landscape. If you’re looking for something specific, here are a few categories:

  • FFF/3F - Friends, Family and Fools
  • Angel investors
  • Seed investors
  • Later stage investors
  • Friends, Family, and Fools

These are the people you know - you should go to them in the beginning when you have little to show apart from yourself. The people who will invest are those who know you (except for Fools - who don’t have a better option to put their money in) and that’s what matters.

Angel investor

This is a person who invests in a business venture, providing capital for startup or expansion. Angel investors are typically individuals who have spare cash available and are looking for a higher rate of return than would be given by more traditional investments. An Angel usually looks for a return of 25x or more on his investment.

Seed investors

Seed capital is the initial capital used when starting a business, often coming from the founders’ personal assets, friends or family, for covering initial operating expenses and attracting venture capitalists. This type of funding is often obtained in exchange for an equity stake in the enterprise, although with less formal contractual overhead than standard equity financing.

Later stage investors

Capital provided after commercial manufacturing and sales but before any initial public offering. The product or service is in production and is commercially available. The company demonstrates significant revenue growth, but may or may not be showing a profit. It has usually been in business for more than three years

When to find a loan

When you’re down on cash and need to survive. Also, when you have a business model that shows recurring revenue, signed contracts for the future, or you need to finance a development and marketing push, and are really certain you will succeed and don’t need to give up equity.

Borrowing money from parents/family

Family monetary transactions can be tricky, because the reciprocity is usually unknown and may become problematic somewhere down the line. Also, if your parents aren’t Bill and Melinda, and the money they give you is the only money they have, be cautious of how you are using it.

How to ICO

An Initial Coin Offering (ICO) is a relatively new, sometimes controversial option involving cryptocurrencies. Companies may raise funds by offering digital coins to investors. Read more here.

How much money will you need?

As much as fulfills the business plan for the amount of time you need the money. For example, if you ask for $1 million and there’s a roadmap attached to it, when fulfilled, your company has a higher value and you’re more trustworthy for future investors. Thus you will raise money for a higher valuation. If you ask for too much and you are successful, you gave up too much equity at a lower valuation.

How big should the investor’s share be?

This should be governed by the valuation of your company at the moment of the investment.

Who to contact if you want a US investor?

Ideally your national investment agency can connect you with the right people and give you free advice. If you don’t have this option, join online groups that revolve around that subject and ask for help.

7. How to Pitch

With a business plan laid out, and some idea of where you’ll seek financing, the next step is presenting your fledgling startup to the world. Here we lay out some great practical tips for pitching and the mindset you should have before going into meetings.

How to prepare a pitch deck

You should check off the following:

  • Product
  • Market
  • Business model
  • Customers
  • Team
  • How much you are asking for
  • What you’re going to spend it on/roadmap

When you have these, and know in-depth information about every category, you are OK. What’s important is your audience. A lot of startups come to the investors ambivalent about needing money. Even if that is the situation, you shouldn’t show it. Investors see your startup as an investment vehicle—disregarding every other motive, they are interested in giving you a $1 and getting a multiple of that some time down the line. That’s the perspective from which they will be judging your company and you as the founder.

Tips for pitching

Make sure you’re prepared

This sounds obvious enough, but it’s one of the most common mistakes. You might be a great natural speaker, but coming unprepared will turn you from great to mediocre. (Prepare even more if you’re going to speak in a language that isn’t your native one).

Speech and body language

You don’t have to be an award-winning actor, but speaking too quickly or too quietly can really put the crowd to sleep. Pay attention to your body language. For example: don’t gesture to the presentation wall with the wrong hand. You can end up turning your back to the audience and talking to the wall.

Speak elegantly and confidently

Avoid throwaway words— “basically”, “like”, “you know”, etc. Don’t ask the crowd for affirmation with the word “right?” at the end of your sentences, it weakens the power of your presentation. Don’t apologize, don’t promise to go through it quickly, don’t speak badly about yourself. Even if you’re not confident, try to project an aura of control.

Stay cool

Don’t panic if you lose your train of thought. The audience wants to see you succeed. If you lose track, just stop for a second, breathe in, breathe out and continue. You have more time than you imagine.

Tell us what YOU can do

Don’t remind everyone how big the market is—that’s a common refrain. You have the stage, so tell us more about your product and how exactly you want to disrupt the given market. Of course, a big part of this comes from fully researching your competition, which is essential for any stage of your startup journey.

Know your audience

You should have different approaches for investors with and without knowledge of your field; for startup people; for just presenting your idea without the need for investment; for hiring; and, for example, if it’s a US or Japanese crowd. In addition, tread lightly with regard to political and sexual jokes or swearing.

Show them the money

Discuss your revenue model. If you pitch an investor, their primary concern is how you’ll get them $16 if they give you $1.

Keep it humble

Don’t be offended by criticism that’s what it’s all about. Judges and experts are here to help you by providing helpful feedback based on their experience with startups. Nobody can force you to agree with their advice, but be open enough to listen.

Craft a narrative

Follow a narrative order. Begin with the name of your startup and your name, then proceed to the what, why, and how; your business and revenue model; why you; what you’re looking for; how to reach you (contact page). Make sure your slide design is clear and elegant, especially if your target customers care about visuals. The main purpose of your pitch is to generate interest for the next meeting.

8. MVP Definition

This is the first time you will have something to show users.

What is an MVP?

MVP stands for Minimum Viable Product. This is the smallest version of the product that still captures the essence of your company’s value to your customers. It also needs to be usable in its entirety. For example, if you’re building a mobility company to take people from place A to place B and you dreamed of building a car, the MVP would not be one or two wheels of your car. It would be a skateboard or a scooter for a very specific place-A to-place-B combination.

Said differently, MVP is a “mindset that says, think big for the long term but small for the short term.” You might have a million ideas from super-talented team members, but if you add features, really understand why you are adding them based on the needs of your users. However, you should also make sure you are catering to a good cross-section of customers, not just a select few early adopters. The key here is to always be validating the idea. Talking to users is a must.

Finding a balance point between what to include and what not to include in the MVP might be hard. But you have to keep an eye on the schedule—an MVP must be released fast to mitigate possible losses if the idea turns out to be unprofitable. If you are in doubt whether to include a certain feature or not—do not include it. It is much easier to implement it later, in a running product, than releasing your MVP too late. Anyway, there is some inertia, and it will take time for more customers to start using your product. Thus, you’ll have some time to implement other features, or decline them according to analytic data from the early stages of running your MVP.

Agile thinking

A more systematized method of doing the above is with the Agile software development manifesto. In short, success doesn’t depend on doing everything perfectly, all at once, but rather doing many fast iterations to fine-tune your product. Frequent releases of working products is the fastest way to learn what your company needs to succeed. See our separate article on Agile development for more information.