Posted by & filed under Entrepreneurship, Funding, Startups.

It’s the beginning of a new year, and time to start working on those new year’s resolutions (if you stumbled upon this post later in the year, even more reasons to get to work NOW! :)). This post won’t help you lose weight but take care one other important resolution: having your precious startup finances in check. Here I will give you 7 tips on how to master one building blocks of startup finances: cash flow management.

In my previous post, I talked about the reasons 4 out of 10 startups fail (spoiler: it’s also related to cash-flow management). In this post, I will give 7 tips to master your cash flow and NOT be one of the 4. Some of the tips sound very simple & obvious, which they are, but they are still forgotten way too often. 

  1. Make it a habit to stop for a couple of minutes once every two weeks, and check the money coming in and going out – cash flow. Preferably do it with an outsider to get an unbiased view. And remember to do it properly! You don’t want to go bankrupt because of a silly calculation error. Tweet about it!
  2. Understand when the incoming money will really be in your account. If you sign a deal today, it doesn’t mean the money will be in your account tomorrow. It could come next month, next year or even later if that is what you agreed! So, understand when you will get the money, and make sure you won’t be out of cash before that. Tweet about it!
  3. Remember that not everyone pays their bills in time. There also might be other problems delaying the payment like dealing with reclamations. So, don’t count on that one payment too much! Tweet about it!
  4. It usually takes 2-3 years before your company is cash-flow positive. Most first-time entrepreneurs believe they can do it less than 6 months. And that obviously means trouble. So, a bit of pessimism will be a good aid in your journey. It is better to be pleasantly surprised than the opposite, especially if it means you will be out of money and business. Tweet about it!
  5. Pivot fast. Startups usually pivot, i.e. change from plan A to plan B or even D 3-5 times at the beginning. And every time you pivot, your revenues will be further and further in the future. So, the faster you pivot the faster you will get money coming in. Tweet about it!
  6. Multiply your estimated need for funding & time frames by 3 (or π/pi if you want to get precise), and you will get much closer to reality. Why three? You just read the reason for it: pivoting. That makes even the best estimates unrealistic. Based on our experience, multiplying the estimates by three gets startups closest to the reality more often than not. So, if you estimate that your product will be ready in 3 months, it usually takes 9 months in reality and so on. Tweet about it!
  7. Understand what you are selling, to whom and for what price. Before you yourself understand what you are doing, it will be hard to convince others to buy. It doesn’t mean your product/business has to be perfect, but no one is going to buy it if it is only almost ready. Tweet about it!

And that’s it! All in all, it usually takes longer and costs more to get your startups going than you’d think. It all might sound pessimistic, but think of it this way: the better you are prepared, the more likely you are going to be one of the success stories!

 

Related post: Why 4/10 startups fail: the realities of cash-flow management

 

Posted by & filed under Entrepreneurship, Product development, Startups.

All communities have their jargon, and startups are no different. Probably one of the most used terms is Minimum Viable Product, MVP for short. It’s considered one of the core messages of Eric Ries’ book The Lean Startup. If you hang out with entrepreneurs long enough, you’re likely to hear the acronym used for almost anything that people patch together.

According to Eric Ries, MVP is a “product which has just those features [that solve the core problem] (and no more) that allows you to ship a product that resonates with early adopters; some of whom will pay you money or give you feedback”. It’s necessary to learn quickly whether your idea makes sense to your customers. And if it doesn’t, you want to “fail” quickly, when you haven’t yet invested lots of resources! You build an MVP with the purpose of learning from your customers and understanding your market.

The problem with this is that most people get the meaning of MVP’s completely wrong! And probably the biggest reason is that every single word in that term is misleading. No wonder people misuse it!

Firstly, it might not be a product.

This word is loaded with meaning that does not apply to MVPs. We generally understand products as something that is manufactured or refined for sale. Even if you extend this to a service, the purpose of the MVP is not sales, but rather learning. And MVP is a tool that we use in order to experiment, to find out if the market really behaves like we assume it does. Of course, part of the assumptions we need to validate are whether people would pay for our product, but the mindset is completely different. What you build to validate that people will pay clearly does not include all the things that a final product would.

Using the word “product” makes people think that they have to build something that looks like the final product already, which might not be the case! Later MVPs will indeed be products (or product-looking), but early ones are likely not to be.

Think about the case of Buffer. They built a landing page to test whether people were interested in the product at all, and after that they modified to check whether people would be willing to pay for it. That was before they wrote a single line of code! Most people would not call that a product, but rather an experiment. You can read more about the story here.

Secondly, it’s only viable for the purpose of learning.

This is probably the most criticized word in the MVP term. Andrew Chen proposes to focus on a Minimum Desirable Product instead, to make the “product” more human-oriented. This gets a bit closer to the real purpose of an MVP: to test whether the value proposition is powerful enough to engage your early adopters.

The word viable tends to make people think of whether the business model holds together, and whether the product is technically feasible… which are not the first assumptions that you’re testing! If you’re testing your value proposition, early MVPs might not have a business model behind them. Most of them do not work as a complete business model — for example, if you’re building one side of a two-sided market-place — and are likely not to be viable… except for the purpose of testing your value proposition.

An example of this is Angellist. To test whether people would be interested in a service that connected startups and angel investors, they started by introducing them through email! That would definitely not be a scalable business, but thanks to that they found that there was quite some demand for it. You can read more about their initial launch here.

Finally, it’s not about the minimum set of features, but rather about the core value that it provides.

Don’t get me wrong: MVPs must be minimalistic and beyond. So much that you should be embarrassed about them when you show them around. But because of using the word “minimum”, most entrepreneurs tend to think about the complete product, and then start cutting things off. They often try to boil down their final product — their idea — to the minimum version they’d be happy with.

This is because the purpose of an MVP is to learn as fast as possible. Therefore, the train of thought should not be “what is the minimum set of features” — to which startups add all sorts of stuff — but rather “what’s the quickest way I can find out if this is good business”. As Steve Blank says, a minimum viable product (MVP) is not always a smaller/cheaper version of your final product. It’s something that helps you validate the core.

If the entrepreneur is thinking about several value propositions at once, they will be convinced that the “minimum” set of features is… well, a lot of things. And all of them are important, therefore they’re “minimum”. Instead, it pays off to ask the question of “where does the customer get the core value from”, and then build something that validates only that.

One often mentioned MVP is that of Dropbox. To validate whether people would use their product, they created a video showing the product. They didn’t have a product with any features when they put the video out, but the video went viral and they realised they had a really good case ahead of them! You can read more about their story here.

Even if the words we use to describe MVPs are not accurate, the concept of MVPs is clearly useful. So what would be a better way of calling it? Some have even proposed calling it Minimum Viable Experience. Some others, as we mentioned, favour the term Minimum Desirable Product. However, they only address part of the problems.

We think that we can correct each one of the words. And we think we can even do some word juggling so that you can continue using your acronyms comfortably!

Enter… the MVP: Main Value Proof! It’s the entity (product, service, experience, you name it) that lets you test the core value of your business. It’s not only minimal: it focuses on the main ideas, and only on those, so that you can validate them — or disprove them. It revolves around your value proposition, and not around other technicalities that you business concept might have — unless you’re in a later stage, in which you’re testing the value of those technicalities. You can have different MVPs to test your value proposition — which will be far from products — or the way you plan on delivering it — which will actually look a bit more like minimalistic products. But we’re not calling it product, since that could make you fall into innovator’s bias!

So next time you read the acronym MVP, think about the main value proof instead!

Dr. Daniel Collado-Ruiz, @ErCollao

What did you think about the content? Do you disagree? Are you interested in hearing more about other related stuff? Drop us a line in the comments or on twitter, and let’s chat!

 

Beyond startups hype: how collaborating with startups can improve your organization in three key areas

Posted by & filed under Entrepreneurship, General.

Entrepreneurship is being hailed as the key to economic growth in the future. It has become an acceptable or even a somewhat glorious way of making a living. Still, our view on entrepreneurship is out-dated and one-sided. With that we’re leaving too many opportunities on the table. To attract even more people to become entrepreneurs, we should widen our perspective. We should talk more about it also as a practical way to achieve your goals rather than just as a goal in itself.

entrepreneurship is a toolThe World Bank and European Commission see entrepreneurship as the way spur economic growth. Everyone loves to hear about the superstar entrepreneurs like Elon Musk and Richard Branson and how they’ve changed the world through entrepreneurship. Especially in the world of the high growth startups, serial entrepreneurship has become the way to do it: grow fast, make an exit and start again. And it is important have the serial entrepreneurs, because you certainly come out of each experience with a lot of new learnings. The accumulated learnings of the serial entrepreneurs are an importan part of the impact entrepreneurship has on the growth. But we need to look beyond these popular views.

Two faces of entrepreneurship

For some of us entrepreneurship itself is important. The ideas and business may change over time, but being an entrepreneur and working for yourself is an important part of working. As Niklas Zennstrom said

If you want to be an entrepreneur, it’s not a job, it’s a lifestyle. It defines you.
Niklas Zennstrom, the Skype co-founder and VC

For others entrepreneurship is just one of the tools in the toolbox. You pick it up, if it helps you to achieve your goals. Still, you are just as happy to work for someone else if that enables you to achieve what you want. Just like Matt Rogers said:

I never wanted to be an entrepreneur. I wanted to build things that are easy to use.
Matt Rogers, Founder and VP of Engineering at Nest (acq. by Google)

Even serial entrepreneur and Twitter co-founder Jack Dorsey has said that he never wanted to be an entrepreneur.

We need to embrace the a broader view of entrepreneurship

Over last year, I’ve worked with hundreds of early stage startup founders and others who have been considering entrepreneurship. For many it seems to be a really scary choice. There are already lots of un-necessary hurdles for people who consider entrepreneurship, including all kinds hurdles in legal issues and taxation. On top of that, the one-sided view makes people think that entrepreneurship is the final choice for the rest of your life. Switching back to some other form of working is too many times seen as a failure. This prevents many people from pursuing great business ideas by using entrepreneurship as a tool.

I think we have a much bigger opportunity in entrepreneurship than we’re thinking. Yes, regardless of our definition, it requires a lot. “The reality is years of hard work, throughout which you usually have no idea if you’re even moving in the right direction.” as Facebook co-founder Dustin Moskovitz has said. Still, it can be a really useful tool – not a goal in itself. It enables many more people to achieve their dreams, make a living, make an impact in the word or whatever it may mean for each of us.

Topi Järvinen, @topij