“Most businesses don’t need more cash, they need more brains.”
Startups spend their time on three things: building product, acquiring customers, and building their team. The customer’s checkbook pulls a product out of the company. The product’s requirements pulls a team into place.
Everything else startups do (raising money, patents, press, regulatory compliance, recruiting…) only exists to serve this triad:
Startup = Customer + Product + Team
This article describes a process where customers, product, and team all move forward, together, to rapidly reach predictable profit by:
- Building a product customers love.
- Creating profitable distribution channels.
- Selling the product in volume.
In that order.
This strategy is particularly useful for startups with significant market risk. It’s hard to distribute a product customer don’t love, so the business achieves product/market fit first. Then it creates profitable distribution channels so it can print money to acquire customers as quickly as it likes. Finally, it spends the money to acquire those customers. (The opposite strategy is documented in Achieving a failure.)
This is a strategy to Get Big Fast — rationally. The business may break even at any time in this process. If it likes, it can even move back-and-forth between profit and loss.
(Note: We don’t define terms in this article; click the links for definitions. There’s a gem behind every link — we’ve curated years of readings for this article.)
1. Build a product customers love
“Growth starts with the right product.”
In it’s infancy, a startup releases a Minimum Viable Product (MVP), puts it in the hands of a few customers, incorporates their feedback into the next MVP, and repeats this cycle indefinitely, perhaps pivoting along the way. The company keeps iterating until (1) the product has achieved measurable product/market fit and (2) the company has taken some money out of earlyvangelists’ pockets. The team is organized into product and customer development teams consisting of founders, technical engineers, and marketing engineers, with no other titles. The product team works forward from the founder’s hypotheses, the customer team works backwards from the customer’s problems.
This approach reduces the manifold risks of building a startup to the problem of building a product that is a must-have for a large market. When this step is complete, the company will be immensely more valuable than when it started.
Ignore everything else
To complete this step, a startup needs to take some money out of the customer’s pocket — somehow — to prove customers will pay for it. But we ignore the problems of acquiring customers profitably, in quantity, or with the right business model or pricing. How could you know what the right business model will be when you don’t even know what the product will be? Wait til the people walk until you pave the paths.
Most important, this step ignores the problems of building bullet-proof, bug-free products that scale; getting press; acquiring customers beyond the bare minimum required to determine fit; setting up distribution channels; viral loops; implementing the right business model; designing a grand strategy; hiring VPs; building a sales organization; marketing; business development; creating departments; raising money from VCs unless your team has a track record or an amazing demo (you probably have neither); and so on.
Everything is subordinated to the task of achieving fit. Startups spend a lot of time putting the cart before the horse. Don’t put the cart before the horse.
Finding time and money to achieve fit
Achieving fit takes an indefinite amount of time. You can’t put a date on a calendar and say “That’s the day I’ll have fit.” It also takes an indefinite amount of money and resources.
And you have close to zero money, zero time, and zero resources. Fortunately, evidence indicates that startups do better with less time and money on their hands — probably for psychological reasons.
Still, how do you get fit with limited resources? Use some or all of these tactics: keep your day job, speed up your learning but keep your burn constant, decrease your burn but keep your learning constant, raise a little bit of money, keep typing (you can’t die if you’re typing), do whatever you have to do to not get demoralized, avoid common mistakes, break even so you’re master of your destiny, bootstrap, and, most important, do whatever is required to get to product/market fit.
2. Create profitable distribution channels
Working on this.
3. Sell the product in volume
Working on this.
A repeatable model for building startups
Building a startup and planning to be the next Google is like going to a roulette table and betting everything on 22 black. If you want to gamble, you’re better off using a system for playing blackjack. You won’t win every time, but the system certainly helps.
The triad is a synthesis of models from Steve Blank, Eric Ries, Sean Ellis, Paul Graham, Marc Andreessen, 37signals, and others. It is a repeatable, actionable, and measurable model that increases the chances of startup success.
Thanks: To Jim Pitkow, George Kassabgi, and Sean Ellis for feedback.