The role of a startup/transformative entrepreneur consists of changing the world in a better way, making the world a better place.
We often confuse the sentence “changing for the better” with “creating something new”. We are used to ask the question “What does influence the success of a startup entrepreneur?” but I do believe that the right question should be “What a startup/transformative entrepreneur can do to influence the success of his own company?”.
The second one sounds more interesting, doesn’t it?
At 42Accelerator we have a couple of answers in mind. They are not ours, we borrowed them from the American entrepreneurial culture, then we filtered and validated them on a daily basis through our experience. Our job consists of updating and refining them every day, in order to be able to transfer them to teams we invest in. Here is what a startup entrepreneur can do to change the world. Going ahead with this article, you’ll realize why this topic is related to science and why I call it Startup Science instead of Startup Crystal Ball.
1. You can build models to represent the world, as it is and as it should be.
As scientists do. The transformative entrepreneur continuously produces models: business models, models of metrics, model of growth because he wants to own the power of changing things in a time-persistent way and with a scalable impact.
How can we produce models? Disfluency.
It starts from recognizing the pattern in the reality. A pattern is a recurring scheme, a repetitive structure of causes and effects, very complex.
The reality returns data and information in the form of events and being able to recognize the scheme is a skill that psychologists call disfluency. Not all the schemes can be reproduced (or the opposite, avoided), so recognizing the scheme doesn’t necessary imply that it can be used, but it’s an important starting point and the disfluency is a requirement for the entrepreneurial success. Too many people ignore it. Too often business ideas focus on what it’s possible to do with technology and not on the observation of the reality that drives you to what it takes to do that. After that, it’s necessary to identify the behavioural model of the events involved into the scheme, the reason why things happen in a certain way. Here comes the funny part of those who choose to do this job: the reality produces schemes, making hypothesis and validating the model in order to reproduce it in a very systematic way to look like a determinist model is up to you.
It’s not a coincidence that a startup team gains high credibility to the eyes of the investors once it proves to have a stable traction, that is being able to modeling the acquisition process and service in a way that is so accurate that it can be mechanically reproduce into the reality with no unexpected events.
Mark Zuckerberg has transformed Facebook into the biggest photo sharing platform because he obsessively observed the behavior of its early adopters and noticed a pattern: they often changed their profile picture, with apparently no reason. He identified what it’s called “unintended use of technology”.
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This is the first reason why the entrepreneurial success has a scientific root: “science” refers to that systematic process of building and organizing the knowledge in the form of objective descriptions and with a predictive trait of the reality and the laws that rule it.
The practical advice that we suggest to you is: train your disfluency. Train yourself to understand meanings from information that the rest of the world see as an inconsistent amount of data. This is your real competitive advantage: not the patents, not the solution idea, but the ability to read the real world through new lens. Be hungry of schemes.
An idea is nothing, an idea with an observation behind is the beginning of a change.
2. You can validate models.
There’s a difference between entrepreneur and startup/transformative entrepreneur. When talking about entrepreneurship, if we ignore this difference, it’s easy to misunderstand. A traditional entrepreneur, who follows a plan and who doesn’t innovate, he doesn’t necessary need to acquire the habits and the behavior of a startup entrepreneur that allow him to reach his goal of changing the world. To describe this difference I use the metaphor of poker. I’ve never played poker, but the way a poker champion described the difference between an intermediate player and a professional one inside this book really impressed me.
At an intermediate level, your goal is to know as many rules as you can, you are greedy of certainties. To become a Pro, you have to start to see the bets as a way to ask questions to the opponents. <<Wanna fold? Wanna raise? How often do I have to provoke you before you start acting impulsively?>>. Only when you get an answer, only in that moment, you are able to predict the future in a more accurate way. The art of poker consists of using your chips to gather unreleased information, before anyone else.
The art of starting a company consists of using your limited resources to gather useful information from the market before anyone else (so unreleased). The day-by-day of an entrepreneur consists of asking the right questions, at the right time, in the most frugal way possible, and being able to accept the answers.
Because questions refer to hypothesis on the models that you formulated during the previous step. The process of constantly questioning the market with the aim of gathering useful information is called validation process and consists of verifying those hypothesis.
If the answer stultifies the hypothesis, you have to put yourself in a position of asking another question, and another one. That’s why I said frugal, because you have to make sure to always keep a few chips in your pocket.
This is called “execution”, and it’s so hard and difficult that startups fail because of “lack of execution” (that is “lack of validation”), not because the market of investments doesn’t work correctly. So, if this is the art, where is the science? The science adds the method. The method helps intermediate players developing the art of the choice in conditions of uncertainty, that only pro players have. When the method enters into the muscle memory, it becomes habit and mindset, and only at this point it becomes art. This is an aspect that the majority of entrepreneurs (those who end up by not excelling) ignores (because of lazyness, of course). The startup entrepreneurship, the innovation, is not a job for lazy and undisciplined people. The method is exactly the scientific and experimental one: as Charles Duhigg said:
The paradox of learning how to make better decisions, is that requires developing a comfort with doubt.
If it’s true that you are doing something new, that no one has done before, then it’s also true that you live into the uncertainty domain. Almost by definition, you start from assumptions. The experimental method teaches you to:
- recognize the assumptions
- isolate the most risky ones for your model
- formulate an experiment that stultify them (using the entrepreneurship language, this is called MVE - minimum viable experiment)
- formulate some goal metrics that help you to objectively compare the results
- making experiments to gather results
- decide if you need to stultify or validate the assumption and what this implies for the model, using an entrepreneurial language it’s called “Pivot or Persevere?”.
This is the process followed by biologists, physicists and inside the Google innovation laboratories, where everyone who has an idea accept the challenge of stultify it and prove that it’s wrong. Everyone involved in the innovation space should use the same approach. Following this process there’s no success or failure, just learning and the winner is the one who learns the most in the fastest way. As in the poker.
3. You can be coherent
The basic rule of the validation process is consistency.
This is related to science too, because the correlation between consistency and success has been scientifically validated by applying the finite state machine model of Markov to the life-cicle of over 600 startups (see: Startup Genome). The rule of consistency is extremely important from a practical perspective because it suggests to you which questions ask to the market, and when ask them.
In fact, it’s very important to have some kind of answers since the beginning. But there are other ones that it’s useless to get in the first stage because they just let you waste your time in finding them and they could be misleading.
The ones related to the market (who) and the problem (why), have to be got before the ones related to the offer (how) and the product (what) or the financial sustainability (how much).
The reason is apparently obvious: developing the product is useless if you don’t know the market very well and the important problem you aim to face for that market. I said “apparently” because focusing on the development of the product first and then try to put it on the market is the most human, arrogant and common thing that I see happening.
Innovating is neither a right nor an obligation. It’s a privilege, a permission that the market agrees with the entrepreneur, before he starts developing something new.
To make it easier for the entrepreneur to ask the right questions at the right time, different kinds of meta-models have been developed and they allow you to recognize - with more precision - in which stage you are, and let you to know what to do.
To mention a few of them: The Customer Development model (Steve Blank), the Startup Genome stages of growth (Max Marmer, Steve Blank et al.), The Disciplined Entrepreneurship model (Bill Aulet, MIT). Everyone offers a quite strict definition of thresholds and milestones that go from problem-solution fit, to product-market fit and beyond.
The experience and the science prove us that an entrepreneur moving organically from a step to the next one has way more chance of success compared to the one who acts incoherently against the development stage.
With all that said, inconsistency is still the main cause of failure.
To better understand what it means, let’s think about the startup as 5 dimension object.
- team: the founder, the employees
- product: the first tests, prototypes, the industrial version
- finance: the personal one, pre-seed, seed, next rounds and IPO
- market: early adopters, large majority
- business model: you have to validate it starting from the right side to the left side (del cosiddetto business model canvas)
The symptoms of the incoherence can be different, these are the most frequent ones:
- A team that is not balances against the market
- A product that is too big against the market
- Too much money (or too little) against the real validation of the business model.
Yes, too many, raised too early, are bad for your company.
The majority of the exclusions from our acceleration program are due to inconsistency, because our experience proves that is too hard to recover it.
Because inconsistency puts you in a loop of wrong decisions. It doesn’t mean that the decision is wrong, but the focus of your decision is and so the startup is completely out of focus.
The practical advice that we like to provide in these cases comes from an ancient Turkish proverb that says: “No matter how far you have gone on the wrong road, turn back.“.
Train yourself to come back, or even better, to frequently check if you are on the right way.
In a situation where you have to draw your own path, it’s objectively hard, and that’s why it’s very important for a founder to have the support of other people that know the nature of the journey you are going through and that are able to keep his focus on the right goals at the right time.