Mastering scale – doing things that don’t scale is the path to scaling!

Masters of Scale - doing things that don't scale

Masters of Scale Episode 1:

“In order to scale you have to do things that don’t scale.”

Brian Chesky of AirBnB

 

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The purpose of this blog is to offer a summary of the key points of each of the episodes of Masters of Scale, together with a few insights. In the first of the series, Reid Hoffman talks to Bran Chesky of AirBnB about getting early customers.

I think it is a great example because we all know AirBnB as a tech-industry giant now, but like most startups it was not easy in the beginning. The founders had maxed out on their credit cards and only had a bout ten to twenty users. Their strategy: really get to know these users and what they wanted (and did not want) and hunt down new users one by one. Was that scalable? Definitely not - but it allowed them to build a firm platform off which they could then find more automated ways of getting new users - and they could not do that until they were sure they knew what their customers really wanted and loved.

Key lessons:

1 Get personal  and detailed feedback from you early customers as early as possible - that mens talking to them.

2. Use judgement in terms of what you take on board - you should not try and implement everything you hear.

3. Understand what might be the perfect user experience - and then try and build in an appropriate level of "magic" to your product. (Click the link if you would like a free tool to help you design the experience: "the 11 star customer experience template"

4. Do not start with a product that is immediately scalable (it will probably be wrong anyway), but using Chesky's words: "Do everything by hand until it's painful". There are plenty of examples of founders using their own phones or emails as the primary customer service touchpoint.

5. Designing a customer experience and scaling that experience are two different skill sets.

6. When you finally do reach scale, do not lose the ability to innovate as you did in the pre-scale phase. Large organisations quickly kill innovations that do not look operationally efficient.

7. I really like this final point they make as it resonates with so many of our early stage entrepreneurs. If you are "pre-traction" - do not despair. This is the best opportunity you will have to really design a product that your users will love. The impact you can make at that pre-traction stage has the potential to have a massive multiplier effect on the future of your business.

Pulling these ideas into "lean startup" thinking, we offer the basic diagram below as a guide:

 

Steps to scale

For those looking for another example of gaining customers in a non-scalable way, have a look at this article (and the additional material below):
"Why I spent hours conducting research for my first clients - before I was paid a dime"


Tip for university entrepreneurs/professors:

If you are going to start a business at university (while you are studying), select your initial market in close proximation such as other university students, people in the community or local businesses. This will allow you to far more easily "do things that don't scale" with early customers than if they are difficult to get to.
For more about our programmes for universities, visit: Mashauri for Universities.


 

Look out for our next article from the Masters of Scale podcast, coming soon:

"Always raise more money than you need."


You can listen to the podcast by subscribing at Apple iTunes or the Android store; but you can also go to the website at Masters of Scale and listen to the podcasts.


 

Additional material only for those seeking more in-depth knowledge and cases on doing things that don't scale.
(This material is not part of the podcast.)

Doing things that don't scale - part II

A few years ago, Y Combinator launched an excellent video series on starting startups. In our old Mashauri site, we ran a series of blogs on the series (similar to what we are doing on Reid Hoffman's podcast). One of their videos was on "doing things that don't scale" - so we have reproduced the article (with video) below for those readers who want an even more in-depth look at the topic.

 

This is an interesting video lecture with 3 different speakers:

> Stanley Tang from DoorDash – a company that undertakes deliveries for small businesses. Stan discusses doing things that do not scale.

> Walker Williams from Teespring, a startup that makes T-shirts for organisations without “risk, cost or compromise” – you can see our previous blog on Teespring at Teespring Case Study. Walker also discusses doing things that do not scale

> Justin Kan, founder at Kiko and Justin.tv, talks about the tactics of getting publicity.

 

If you are short of time, I would listen to Walker Williams first, then Stanley Tang and finally Justin Kan. Although Justin has some interesting views, most are pretty straightforward and may be less relevant for early founders – but you can skim our notes below and make your own call on what you watch.

Here are my key take-aways from the video lecture:

Stanley Tang: DoorDash

> Get the most minimum “minimum value product” out there – especially if you are not sure if there is a real market (and that goes for most of us).

> Mashauri caution – we recognise that not all products can be entirely basic if that does not allow you to deliver a good customer experience; so work out what really is the minimum for you. The advice in this video though is that your product requirements are probably far more basic than you think.

> Remember that if customers do have to struggle a bit to do what you want them to do, if they still try then it is probably a stronger sign of an underlying, unmet demand.

> Do not worry about automating your product or delivering seamless service at first. Rather use the method of simply doing it yourself. Not only is this cheaper in the short-term, it also prevents you from building things that people do not want. The example is the founders taking calls and making all the deliveries themselves.

> Another big advantage in doing it yourself is you get to understand what is really required before you build the model. It plays to a previous lecture where the advice was to become a real expert in what you are doing.

> Finally, Stanley reminds us that doing it all yourself is a competitive advantage you have against more automated customers. You have the chance to deliver a really tailored service and get instant feedback.

Walker Williams: Teespring

Walker focussed on three areas - we summarise each in turn below:

Finding your first users
Turning those users into champions
Finding product/market fit

Finding your first users

It is really tough to find your first users and there is no silver bullet. It all boils down to the founders spending time and effort. It could be sending hundreds of personal emails, sitting on the phone or trawling events for people to talk to. It is simply a hard slog – but “scrappiness” is what makes good entrepreneurs.

Do not think in terms of ROI when winning these customers – you will spend huge effort for limited numbers in return. Just make sure that you have users who really value your product (if possible, DON’T give it away for free).

You are probably going to be bad at selling, you will not really understand customers pain points and do not even have testimonials or cases to help you. Tough it out. (Or as I overheard a friend saying to his daughter: “suck it up princess”)

It will get easier as you get more users; but certainly for a long time the way that you win new customers will not be a scalable strategy.

Turning your first users into champions

Delight your users with an experience they have never had before and will remember – do whatever it takes to make this happen.

Spend as much time talking to customers as possible – and really listening. Answer all mails and queries yourself. Scan social media to find out what they are saying about you – and if something goes wrong: make it right!

Proactively reach out to those customers who leave. If you cannot get them back, at least you can find out what was wrong and do something to stop others leaving for the same reason

Finding product/market fit

Realise that the product you finally ship is unlikely to look much like the one that takes you up to the point where you think about scaling – so do not get too fussed about perfection. Speed is more important than a clean product.

A rule of thumb is only to worry about the next order of magnitude of customers – so when you have ten users, think about the next 90, not the next 900!

Do things that do not scale for as long as possible – keep talking to users, keep iterating as fast as possible; only give up doing un-scalable things when it is finally “ripped from you”.

Justin Kan: Kiko and Justin.tv

> Be aware of what you are trying to achieve with public relations – that should guide everything from resource spent to the media that you target.

> Remember, outside of achieving specific goals (eg awareness in a certain town among a certain sector), the rest of publicity is just vanity. Something that makes your mother happy.

Justin is a successful entrepreneur and his advice is not bad, but unless you are specifically looking for publicity now, you can probably skip this part of the lecture.

 

 

Mastering scale – getting from startup to corporate

Masters of Scale - an introduction

Reid Hoffman - LinkedIn boss

 

A while ago we produced a series of articles around Y-Combinator's excellent series on how to start a startup. Now I am pleased to say that we are starting a new series based on Reid Hoffman's (co-founder at both PayPal and LinkedIn) new podcast "Masters of Scale.

First acknowledgement to Tim Ferris (4 hour workweek, etc) whose podcast highlighted the series for me - it is well worth listening to Tim's series too.

There are a lot of really rubbishy articles, videos and podcasts that come out of Silicon Valley - many misleading, often overly-hyped and some frankly dangerous to a new founder who might take them to heart. But Reid is clearly different. He has been part of a number of incredibly successful businesses, part of a number of failures and has an eye for angel investing that is almost magical - some of his early investments include Facebook, AirBnB and Flickr. His insights are sharp and he is not afraid to take a contrarian view and so you will generally find his work really interesting. The excellent part of this series is that it takes place through interviews of top entrepreneurs who share their own experiences and wisdom including the likes of Mark Zuckerberg (Facebook), Eric Schmidt (Google / Alphabet) and Brian Chesky (Air BnB).

The focus of the Masters of Scale series is about scaling i.e. rapidly growing a business where the business model has been tested. However,  there is plenty (maybe 50%) of information around the startup phases as well i.e. where you are searching for and trying to find the business model that works. In Tim Ferris' podcast he briefly goes through all "ten commandments" - listening to this is a useful way of getting an overview. The commandments (and time in Tim's podcast where they appear) are: 

Commandment 1: Expect rejection. [09:14]

Commandment 2: Hire like your life depends on it. It does. [19:26]

Commandment 3: In order to scale, you have to do things that don’t scale. [25:37]

Commandment 4: Raise more money than you think you need — potentially a lot more. [36:18]

Commandment 5: Release your products early enough that they can still embarrass you. Imperfect is perfect. [44:45]

Commandment 6: Decide. Decide. Decide. [1:00:16]

Commandment 7: Be prepared to both make and break plans. [1:03:13]

Commandment 8: Don’t tell your employees how to innovate. [1:07:21]

Commandment 9: To create a winning company culture, make sure every employee owns it. [01:12:32]

Commandment 10: Have grit and stick with your hero’s journey. [1:23:22]

Bonus Commandment 11: Pay it forward. Use the momentum of your own success to move the success of others. [1:26:03]


You can listen to the podcast by subscribing at Apple iTunes or the Android store; but you can also go to the website at Masters of Scale and listen to the podcasts. Finally, for fuller immersion, I recommend the Entrepreneur.com site where they host the series and add some of their own perspectives as well - Entrepreneur Masters of Scale.

I know many of you are time-strapped and would like to get an overview of the episodes before investing your time in listening to them - and so over the next few weeks, we will produce short summaries here to give you episode highlights peppered with our own views. Look out for our next blog:

Masters of Scale Episode 1: “In order to scale you have to do things that don’t scale.”


Note to university professors and faculty heads: Mashauri work hard at ensuring our programmes for students contain the type of material that is encompassed in this series. Not only do we believe that the practical experience we give student entrepreneurs in their courses is essential, we also believe that exposure to true entrepreneurial experts is a critical part of the learning process. For more about our prgrammes for universities, visit: Mashauri for Universities.


 

How to start a business – the no BS step-by-step guide

1. Introduction
Given my background, you would be forgiven for thinking that I was probably an ideal person for starting a business. Good university degrees in statistics, economics and an honours in marketing. An MBA with a strategy and finance focus. Real jobs in finance and accounting (6 years); in brand marketing with the multinational Kimberly Clark (3 years) and then over 25 years of consulting to major corporates around the world mostly as a partner at a top tier firm (Deloitte; Braxtons). Within that time I also launched two consulting businesses of my own and advised countless friends and family members on their own enterprises. And I even lecture at a top business school on strategy, decision making and M&A!

Jargon buster business modelHowever, it was only when I started researching my latest venture over 3 years ago, did I find that I really did not know the best way of launching a business in the 21st century. You see my training and experience had mainly been around growing and developing existing businesses. That really entails optimising a known business model to best serve a known market. In the majority of new businesses, especially where founders have new ideas or are harnessing new technologies – launching a business is more a process of designing or discovering a business model; and only then optimising it.

Over the last few years, I have worked hard at taking my existing 30+ years of training and experience; and integrating it with the latest best practice in startup thinking to have developed a framework that can assist founders in successfully launching a new business. I do not claim for one moment that I have all the answers or that I am some amazing startup guru – and frankly acquiring these new “startup best practices” has included learning from our (my co-founder and myself) own failures, mistakes and diversions. But now I do have a much clearer perspective of the critical success factors and many of the potential pitfalls that must be addressed in developing a new business from conception to paying customers – and beyond.

The purpose of this article (and subsequent ones) is to share my thoughts with those people who are in the early stages of developing, or considering starting, a new business venture. It will include theory, practical cases, tools and links to important blogs, books and other startup resources. My wish is that it will give you a better than average chance of being successful, provide some useful support – and perhaps put the occasional smile on your lips too – because if you do not learn to enjoy the journey (or “camino”), it may be best if you do not start at all.
Business launch

This introductory article will cover, at a high level, the overall process from conceiving an idea to scaling and growing the business. I will also touch on some of the hype (read BS) around the entrepreneurial environment and then some of the truisms that hold for established businesses and startups alike! I will finish off with some links to some useful resources.

 

I do not yet have the rest of the articles planned out in detail and to an extent I will be using your feedback to structure the themes, but they will almost certainly include:

  • Business models, value propositions and lean thinking;
  • Market segmentation, personas and the customer journey
  • Design-thinking and product development;
  • Funding and finance;
  • The entrepreneurial mind-set with a commentary on depression and optimism.

They will NOT include:

  • The 7 things that successful entrepreneurs eat for breakfast
  • The 5 character traits that guarantee startup success
  • The 10 reasons why venture capitalists have bad sex lives.

Lastly, I am not going to try and keep the articles to 500 words or whatever the behavioural psychologists believe our nano-concentration spans can handle. I am hoping that they will be valuable enough for anyone with a real interest in creating a successful business to want to read through in total – maybe even twice! On the other hand, if you do not – well, I will never know!

 

2. Stepping through idea to growing business
We can break down the development of a new business into phases. In a later article we will cover these in more detail, but for now they are:

Mashauri startup steps

Jargon buster value propositionNote several good authors have described the steps to build a business – probably the best being Steve Blank in his book “The Four Steps to the Epiphany”. The steps I describe above integrate well with his ideas, but Steve tends to use terms that may be a little cryptic unless you read his book (see recommended reading below) so I have tried to use more familiar terminology.

Google garbageGoogle Garbage alert: if you google “x steps to build a business”, you will find a lot of useless, some downright dangerous, advice.

Probably the biggest learning point a corporate business person-turned-entrepreneur will have to get to grips with is that, up until there are paying customers (red blocks in the diagram above), their business idea is basically one big experiment.

The way this experiment is run has also been covered by a number of people, but the most popular must be Eric Ries in his book “The Lean Startup” (see recommended reading list). His underlying theme is that when you start your new business, your concept is at best a set of hypotheses that describe how you think your business will work in the future. Using “lean startup, the founders should build a set of experiments around these hypotheses and test them via learn-build-measure loops that test the underlying hypotheses of the business.

As an example, one of the major assumptions (hypotheses) that the AirBnB founders had was that people would rent their homes out to strangers. The only way to really test this was by testing this idea in the real world. In the process they got to understand under what circumstances this might (and might not) happen so they were able to build this into their product offering.

We will cover more of this in the next article. It is also the underlying methodology we use in our Mashauri programmes and so if you want to start using it right away, you could sign in to our Launch Programme if you liked.

 

3. Navigating the hype.
If the previous section guided you through the right steps, this section is to help you navigate through some of the rubbish that you can find on starting a business on the web.

Perhaps the best way to do this is by busting some of the “myths” you might read:

  • jargon investorsMyth: Everyone should try and get a venture capitalist or business angel (see jargon buster) to fund their business.
    • The chances of getting funded are really slim. Far less than 1% of new ventures get funded (see our blog on “Holy Grails, unicorns, VC funding and other fabled creatures” for more facts). In addition, if you are one of the few that might obtain funding, not everyone likes the loss of control that goes with it – see later article on funding.
  • Myth: Social media is the answer to all your marketing prayers
    • Social media may be a useful channel for many new businesses and can certainly be an inexpensive way to reach customers. But, as in most startup spaces, it requires clear objectives and strategies. Far too many founders launch Twitter accounts, Facebook pages, LinkedIn company pages, etc and then spend mega-hours on trying to get likes and followers with no real idea why or how. One hundred people who willingly register on your website is worth thousands of FB likes or Twitter followers!
  • Myth: You have to offer things for free, especially if you are selling web-based services.
    • Someone using your services for free is a user, not a customer. Once again, there may be a sensible strategy as to why you might have a free version of your product, mainly as a way of allowing them to experience your product before buying a paid-for version. If you cannot persuade someone to part with money for your service, then you probably have not got an appropriate value proposition.
  • Myth: You should attend all the startup events you can find so as to “network” with investors and the like.
    • There are a ton of events on the go, frequently based around pitching competitions, motivational talks and startup “experts” sharing their wisdom. They can be fun, motivational and occasionally useful contacts can be made – but don’t confuse them with work. Generally, founders attending these events, even if they pay, are the “products” on offer to the vendors. (I suspect I may pick up some flak for this comment and, to be fair, there are some great events like South Summit, but you should pick your events carefully and attend with clear objectives in mind.

 

4. Some truisms
Although I started the article explaining how starting a business is not the same as running a going-concern, especially in the early stages – there are plenty of business laws that still apply. Many people holding themselves out as entrepreneurial gurus seem to want to ignore these. Frankly in this day of sky-high valuations on young businesses that are yet to turn a profit; and the rock-star status of some of the founders, it is easy to think that the business version of the laws of gravity can be defied.

jargon unicornMy list of truisms that may seem to be getting trampled to death by unicorns (jargon buster) are:

  • Cash is king – positive cash flows derived from customer revenue will always remain the lifeblood of a business (to mix my metaphors). Even if you can convince an investor to temporarily allow their cash to be that flow, they expect your business to get there – and get there quickly.
  • A startup is a temporary organisation seeking to become a permanent business through finding a workable business model. A business is an enterprise with paying customers.
  • Business strategy is still important. The teachings of gurus such as Michael Porter and Clayton Christensen are as relevant for new ventures as they are for large corporates, even if there are different interpretations.
  • Following the above point, it is essential that you are able to articulate your basis of competitive advantage if you wish to survive. By the way, being first is not a long-term competitive advantage.
  • Not all ventures must have plans to become massive, change-the-world institutions. Lifestyle businesses that simply provide a living or even bolster a salary are just as important – in fact most economies depend upon them.
  • You and/or your co-founders need to be an expert in the business sector in which you are competing and in the underlying technology or process that makes you different. For instance, if you are going to provide a highly customised tourism experience based on big data analysis of customer behaviour, your team must have deep tourism knowledge and excellent big data expertise.
  • Providing true perceived value inside an excellent customer experience in a way that is different to your competitors, will always be at the heart of any long-term business venture.

 

5. Some recommended reading
There is more new business venture reading material out there then you will ever have the time to read. Frankly for most of my readers, you just need enough knowledge of the new venture process to successfully launch and your business, not become startup specialists. I would therefore recommend the following books:

Important reading

Great to have reference books:

6. Conclusions and questions
If you find this article to have been of value, please let me know either via the comments section or direct to my email at simon.gifford@mashauri.org In addition, if you have any suggestions as to how the style may be improved (eg shorter, more examples, etc), please use the same media.

Our objective is to help you to be more successful in launching and growing your business. The Mashauri process, mentors, training and community are part of that; but should you decide not to use our programmes we hope that at least these articles will be of some value. If you do want to fast track your business to success, then I suggest the LAUNCH programme which is mentor-backed and about to commence.


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The scientific approach to entrepreneurship – standing on the shoulders of giants

Leading the thinking on entrepreneurial strategy

In the development of the Mashauri concept and our current work in development of our acceleration programmes, we have conducted significant research – both primary and secondary. In the latter area, we have come across some brilliant work: authors/entrepreneurs who really form the basis for much of the advanced entrepreneurial thinking of today. Continue reading “The scientific approach to entrepreneurship – standing on the shoulders of giants”