Alt opening — I am excited to share my vision on Startup Design based on my personal experience. I co-founded three startups, took one public, and sold the last two. I am still a General Manager of a fund that invested in 54 hand-selected startups.
Let me share my vision on Startup Design.
For me, every single startup interaction, whether it’s a quick question, a deeper conversation, or a full-on pitch, is an instructive input into an ever better understanding of how startups succeed, and more often fail. As a rational individual, I work best by organizing my thoughts into an analytical framework that ensures I gather all I need to know about the startup to inform an objective investment decision. I have been obsessing with what to do with this accrued knowledge and approach which I believe could benefit so many budding entrepreneurs, and so I have decided it should be shared, in the form of a Startup Design canvas, a decision-making tool to help all startups be better. I share it with you here hoping you find it interesting and useful.
Everything we use has been designed, some things better than others. Designing means creating a plan or codifying a specification before building an object or a system. Design is critical to reach a goal within a framework of well-known constraints. Without a design, there is no plan, no direction, no goal, no timeline…no hope!
We are comfortable saying that we will design a house, a piece of software, or a rocket ship, but a lot less likely to say that we will design a startup. It’s time to change that! Startups are entities that need to be designed and the sooner we act on that recognition the more likely success will ensue.
A startup is generally perceived as a very fragile entity, requiring little or no rules, where experimenting is the norm and outcomes are difficult to predict; this does not have to be true. I believe that from the earliest nebulous stages of a startup it can be designed such that positive outcomes are more likely. The question is — How best to design something that is still a vague concept, where boundaries and constraints are not defined or sometimes unknown?
“Designing a startup does not need a clear, strong idea of the outcome” — this may seem paradoxical, but it’s a critical insight. Designing a startup is about understanding the core elements that need to be anticipated, even though many will not yet be formalized. I see way too many startups being designed around product development and not around the startup itself. A starting idea is enough to jump into product development BUT a startup is not a product! A good product is a consequence of good startup design.
Designing a startup is a constant process that should start very early and continually refine until the start-up is humming, recognizing that design may need to start over if circumstances change. It’s like building a rocket ship, planning and executing a perfect launch but being ready and able to change the design as it traverses space towards its destination. Get ready for a ‘pivot’ if you like and in space travel that happens — Apollo 13 was probably the biggest pivot ever. However, with time and inertia it becomes harder to change and adapt so it’s excellent discipline to design something effective from the get-go. In my experience, the core design can, and will be re-arranged in the first 3 to 4 years, until Series-A, after that it gets much harder.
Let’s be clear, designing a startup is not The road to success; it’s more like a map to be aware of the road ahead. Success cannot be designed!
The Elements of Design
In my experience, there are seven elements, and each and every element is related. Like a space odyssey, you need to decide where you want to go to design the correct rocket ship and load enough rocket-fuel. If you don’t you might come up short. The elements have a specific order of priority. You build the rocket engine first, then the rocket ship, then the launch pad, and so on.
Here is my Startup Design canvas. I detail each section below.
This is the rocket engine proving the drive and power. It’s cliché to start with the founders. However, it could not be more true. Founders bring skills, a culture, grit, passion, a vision, all essential to propel and guide the startup. In the beginning, a startup is just a daring dream; the founders are the engine that will realize and keep the dream alive.
Designing a founders’ team is a vital foundational step. It’s about sharing and creating a culture, assembling complementary skills, and defining clear roles and responsibilities that will last. A lot has been written and said about Founders, but they are the most critical decision in the design process.
That’s the planet you’re aiming for. This is the North star, the guiding principle, that any founders can revert to, so they can objectively decide to say “yes” or “no.”
Without a strong purpose, there is no hope to create something substantial. It is the answer to why founders start crazy projects, even with the likelihood of not earning meaningful money short term. The purpose needs to resonate with all the founders; otherwise, as things get complicated and painful, they will give up. It is the founder’s purpose fit, which is, in my opinion, more critical than the product-market fit.
That’s the launch pad. A startup is not built-out of a vacuum. It evolves in a dynamic marketplace. If there is no market, or one cannot be created, then there is no startup.
The Market design comprises four elements: Size, Customers, Competition, and Timing.
- Size — Understanding the market size by completing a top-down and a bottom-up analysis is critical to begin quantifying the total addressable market (TAM) — how big is the prize? Taking it further, to analyze what part can realistically be captured (SOM) by the startup’s offering is even better. If your SOM is not between 1% and 5% of your TAM, you are probably a forever optimist or a trust-fund baby.
- Customers — Defining your primary customer target is fundamental. Who is more likely to buy your product? Why? Where? Creating a customer persona creates comfort! It helps portray customer behaviors and renders the Marketplace less theoretical. Go deep here and ensure that the ‘voice of the customer’ is heard clearly inside the startup.
- Competition — Awareness of the Competition is a must. Most startups don’t have it and are delusional enough to believe that they are “just better”. Without competition, there is no market; competition is smart and should be learned from. Find and hone a unique value proposition and clearly decide which market segment you will address. The startups who win are able to uniquely position their product at a clearly defined target cohort, sharing a common need that is accessible through the same channel.
- Timing — Overanalyze timing. Startup success is deeply related to timing. Some would argue it’s everything. A mediocre product launched into the right Market at the right time can succeed. The question you need to ask yourself is: Are you too early or too late? Are you in the right place at the right time? This is probably one of the most complex questions. Please do not shy away, obsess on it.
This is the trajectory, a measure of potential, and the ability to achieve that.
It's impossible to quantify potential and measure progress without having analyzed the Market first. Newly formed startups will avoid setting scale goals as they think it is too early to think about it. No, it’s not!
The Scale design comprises four elements, Distribution, Go-to-market, Customer experience, and Hiring.
- Distribution is the new King! Ideally, products should fit within established distribution channels, that is a path of least resistance, and the offering should be commensurate with the chosen channel if it’s to monetize; you won’t sell a $12,000 bicycle at Walmart! Why build something if there is no place to sell it? Fortunately, distribution options abound, could be Amazon, a Salesforce API, or an AppStore. Think hard about it early on. Make sure your monetization strategy is compatible with the distribution channel. Make sure you can enter the distribution channel you target. Be clear on the costs and constraints to do business in a given channel. Plan well so you build a business model that works!
- Go-To-Market — Conquering a market with meager resources is a daunting task. Design a smart and viable go-to-market blueprint to create early success that can be leveraged as you scale — this is almost the only way at the outset. It should not be complicated, it’s basically a subset of the Market that is easily addressable, and where your value proposition resonates the best.
- Customer Experience — ‘Walk in the shoes’ of your customer to understand/visualize the overall customer experience. Look at every possible touchpoint along the customer journey, starting from the on-boarding or out-of-the-box setup, and ask yourself ‘is this as good as it could be? Is it better than my competitors’? Customers are fickle and growth will be stalled by churn if you are not careful. Attention spans are getting shorter and shorter, most users would rather quit and move on than go deep into understanding a really bad UI or navigating a crap checkout experience.
- Hiring — Last, but certainly not least, put a hiring strategy in place from the outset. Codify what you desire the company culture to be, the work environment, the values and the qualities you look for in the team. ALWAYS be thinking about your hiring strategy and only striving to attract the best talent. Without the right team, you cannot grow. With a bad team, you will fail.
This is the rocket ship hurtling towards its purpose. Products have myriad different forms and challenges. Some are technically ambitious, such that feasibility is a core challenge but once overcome is an enormous competitive advantage.
Others are easy to build, but the knowledge around it to make it right is not trivial. Finally, some products are easy and quick to assemble but only succeed with great marketing and distribution. Products used to be the core defensibility of the startup, not so much anymore. A product’s success is enabled by the supporting elements around it.
A product is the first connection to the brand. The product needs to deliver what the brand promises. Think carefully about it, onboarding, user interface, look and feel, stability, or built-in support, convey a strong message as to what your brand is about.
More importantly, a product measures user engagement. Are users completing the core action? Is retention acceptable? are key questions. The “time to value” is also essential, so obsess the onboarding and the user experience.
Most of the time, startup founders are excellent product managers. Consequently, building products is often the most well-designed part of a startup.
This is your Command Control. Without analysis, it's impossible to know what is working and what is not and so nothing can be improved.
Designing what and how you will measure and monitor your business at large is vital. Consider the earliest flying machines — flown with an altimeter, airspeed indicator, and a compass. A judiciously chosen, critical shortlist, is far better than an exhaustively laborious long list — no-one can ever digest and use that.
The Analytic design comprises three elements, Assumptions, Metrics, and Feedback loop.
- Assumptions — As you design your startup, you make assumptions that you’ll want to validate. You need to prioritize assumptions from the riskiest, and de-risk as you go. Validations will force you to change things at all levels in the startup. That’s fine. But to do it the right way, you need to have a list of critical assumptions, get out, test it, and update it daily.
- Metrics — You need to think about the core metrics; in other words, decide what is worth following and what is not. Facebook does not need to analyze individuals with less than 10 friends, that’s not where they can bring value. This will help you formalize what is essential to the product/customer experience and what is not.
- Feedback Loop — Lastly, make sure you design a customer feedback loop so that you can easily gather input and data from the stakeholder that matters the most — your user. Obvious, isn’t it?
This is the rocket fuel. You can’t build something without money and resources.
The Finance design comprises two elements, funding and monetization
- Funding — You will need investors. Aim for a business plan that charts to an 18–24 month horizon. It does not need to be right. All business plans are wrong, and some are really wrong. It needs to convey how you think about your business. How many engineers do you need, how much do you spend on marketing, does your marketing spending actually drive sales, is your growth credible, do you generate enough margin, how can you reach profitability, what is your anticipated CAC and CLTV, and so on.
- Monetization — You need a monetization strategy, even if you did not start monetizing yet, you cannot build a business without it. Make sure your monetization strategy is compatible with your distribution channel.
I hope this Startup Design Framework will help founders. Remember, it’s ok to not have a clear answer to all the elements but it’s not ok to be unaware of which elements you need to address.
Final thoughts. You will also need a little bit of luck. You can design a rocket launch up to a point, but you are going into the unknown, you will uncover situations that you could never predict. So good fortune will be a big piece of your success, as most successful entrepreneurs know.
Build a rocket ship, aim for a suitable planet and go… 3–2–1-TAKEOFF!
That’s it, folks! It was a long article, and I hope you got something out of it. I enjoyed writing it!