35. A tool for choosing the best business direction and strategy for your startup. Part 1

This installment will be a bit different because I am talking about a work in progress. Over the last couple of months, several of the companies I advise needed help with identifying their ideal business model. They had to choose a problem to solve, identify their customers, and settle on the solution they would bring to market. So, I created the following process and this worksheet.

This tool can also be useful for thinking about your pivot options if your current direction is failing.

This blog explains the first part of the process where you develop a large number of possible business directions, then systematically narrow it down to a few best candidates. In part 2, you will learn how to drill down and analyze those finalists to pick the one business model most likely to succeed.

As you work through this process, you will uncover your optimum business direction.

For each potential path, you will consider the following criteria:

·      What is the need, pain, or unfulfilled desire?

·      Who needs that, and how would they use it?

·       How many people fit that description, and how urgent is their need?

·       Your proposed solution

·       Why that solution is better than competitors, alternatives, or workarounds

You should be able to do this initial exercise in a day. After that, you will need to do some more research and conduct tests to see if your guesses and assumptions are right. Using this worksheet is a navel-gazing activity, but you can’t navel-gaze all the way to your final destination.

One thing I did not include in the worksheet is your passion. Because startups are all-consuming, make sure whatever direction you consider is something you would love to spend all your time doing for a long time. Don’t write down an option if you are not willing to do that thing at maximum intensity for years.

Collect your options

The first step in this process is to capture your options. I envision three possible approaches: Starting with a specific idea, looking at your skills/abilities, or considering your experience/insight. Come to this with a wide net and an open mind about your potential business directions. Avoid assuming the correct answer or jumping to the final step. Brainstorm as many business models and strategies as you can, without pre-judgment. There will be a lot of bad ideas in there. That’s OK.

If you already have a specific idea.

You may have an idea for a business buzzing around in your head. But is it the best idea? There might be related business models that would be even more effective. Your current business plan is the starting point when you realize you need to pivot, but don’t know what new direction to pursue.

Consider other potential user populations for your idea that might be a better target, at least initially. Look for variants of your solution that would be more effective, easier to sell, or easier to adopt. Try to come up with a constellation of other business ideas adjacent to your original direction.

Starting with your skills and abilities.

We all have skills and interests. Start with what you know how to do or what kind of solution would you like to build. For example:

·       I’m a skilled cryptographer and adequate coder.

·       I’m an expert in complex real estate financing and

·       I have experience with automation and robots.

From that general solution or technology starting point, think of all of the pain points and use cases that you could address using those kinds of solutions. Some quick search engine work may uncover applications you had not considered before. Beware, this path is vulnerable to the “solution in search of a problem” kind of business model.

To demonstrate how the tool works, let’s follow Liz, a hypothetical founder, as she goes through the process. She is a recent graduate with an engineering degree specializing in robotics/automation, so she would like to do something around that kind of technology.

Starting with your insight into unmet needs and pain points.

Often the seeds of a business come from personal experience of a need. You, your colleagues, or your customers are struggling with the lack of some capability. Alternatively, they might be hungering for the ability to do something new. Experience in the industry not only helps you identify those pain points but also to understand the likely challenges and opportunities of working with those customers. For example:

• You might see some vast inefficiency in electronic medical records systems and know-how you could motivate hospitals to replace their current solutions.

• You see that companies are falling to a particular kind of cyber-attack with no defenses available and know that customers could integrate your solution without significant engineering effort.

• You are frustrated that there are no fantasy turtle racing platforms, and know that this would find an instant consumer audience of millions.

For this case study, Liz is also passionate about beauty, personal care, and grooming. She is frustrated by the time and effort involved in achieving the looks she sees on social media. She thinks there would be a large population of people who want to obtain the height of appearance and grooming, without significant effort or expertise, using high tech assistance.

Filling out the worksheet

The worksheet formalizes this process of capturing your options. It makes sure you consider the critical aspects of each idea so that you can compare and rank them later.

Liz wants to create a business combing robots and home grooming.

You should try to come up with at least a dozen ideas, but for our example, Liz has just three.

1.     Home Haircut Robot

2.     Makeup Printing System

3.     Laser-Powered Shaver

Structure of the Worksheet

You will put each of your business ideas in a row of the table.

The worksheet has seven columns:

1. Problem - What is the general issue, problem, or need you plan to address.

2. Who wants to do what? - Describe a specific use case. One problem might have many use cases.

3. Level of pain. - How significant a need is this? For each user, how much impact would solving this have on their lives?

4. Market and size

5. Current solutions – How are people dealing with this need now, either through alternative products or workarounds?

6. Your solution – What are you proposing to do about this need?

7. Advantage & Comparison – How does your solution stand up to those alternatives?

For the Home Haircut Robot concept, Liz might write:

For the Makeup Printing System, she might say:

She would then do the same for the Laser-Powered Shaver, as you can see in the worksheet.

Identify your best options

Some of the ideas you captured may be obviously bad. Look through your completed worksheet and eliminate the losers. Remove any with a weak need, small market, uncompetitive price, or highly effective alternatives.

Liz thinks that few men care enough about grooming to want to buy the Laser-Powered Shaver. Besides, existing razors seem to work well for almost everyone. So, that business is out.

We could eliminate all my silly ideas because there are excellent alternatives, but we will ignore that for this exercise.

Next, look at each option and ask yourself: are you the person to solve the problem? Do you have the necessary knowledge, experience, or insight to create this thing? If not, can you recruit a team to implement your solution? For startups, execution risk is enormous. If you don’t have some advantage because of who you are, you might want to eliminate that option.

Look at all the remaining options and weigh their respective strengths and weaknesses. There is no simple formula for scoring each idea. The perfect direction would have a big market in an underserved space, with significant need, and a solution that is substantially better than the existing options. Do your best to rank order the list and pick the top few for more in-depth analysis.

For our toy example, there are only two options left, and Liz thinks that the Makeup Printing System is the best. She has the skills to create a prototype. She understands the market. Both the value and the market are significant. Liz knows she needs a marketing co-founder because she lacks that skill, but is confident she can get that quickly.

Digging deeper on your top options

Part 2 of this blog covers how to look more closely at your top contenders and pick the one strategy you want to pursue for your business.

A work in progress

I am using this tool with some of my portfolio companies, but it is not as mature as most of my other advice and methodologies. If you try it, please give me feedback about what worked and what you think needs to be adjusted. Thanks!