The Keys to Startup Success: The Methodology

The Keys to Startup Success: The Methodology

Surely you have read Eric Ries’ Bestseller called The Lean Startup Method. It has some interesting concepts but… how are they put into practice?

In this article, I will expose some key points of the Lean Startup methodology adapted to the European business reality and I will add some systems that have served me well when launching an online business.

1. DON’T CREATE A COMPANY

WTF? But I thought that was the main goal of building a Startup! Yes, you will have to create a company… but do so in a couple of months’ time.

The problem in Europe is that it isn’t easy for entrepreneurs. In Spain, where we are, it’s particularly terrible. For starters, apart from the 3000€ of shares capital that you have to contribute, constituting a limited partnership can cost you 600€ due to notary costs, registers, etc. and it takes a month for the company to be fully functional.

And then if we add the fact that the administrators have to become Freelancers (paying 310€/month per person… In other European countries they only pay 50€ per year!), added to the fact that you have to present countless forms to the Tax Office, Social Security and Trade Registry, at the end of the day you get more worried about being OK with the Tax Authorities than with your company’s growth or getting clients.

Freelance rates in Spain are prohibitive

Bear in mind another thing: it might take some months for you to invoice your first customer, therefore, I’d recommend proving your Startup will have success (validating your product, having recurring customers) before you register a company.

Legally, it is necessary to register as a freelance or as a Limited Company to send invoices, so if you have to send a first invoice and you are still not sure about your revenues being recurrent, surely you have a friend or a family member who is a freelance or has a company through which you can send invoices until your first clients are consolidated.

2. DON’T QUIT YOUR JOB

At least until you truly know your product is going to work. Launching a business without having an income from a job or some savings might mean confronting an economic uncertainty that not everybody is able to endure.

Developing and launching a Project while you are working requires plenty of extra hours (I’ve worked more than 80 hours/per week during several months) but believe me, that is better than not knowing if you are going to be able to pay the bills.

3. HIT THE MARKET ASAP

Fear of failure is the main reason an entrepreneur postpones the launching of his product.

Many Startups think their product won’t be successful until reaching perfection and if it doesn’t succeed it is because it has mistakes and that it needs a new design, functionalities, etc. This usually ends up with the postponement of the launching (months or years) for fear that it might not be of the liking of the customers.

Let me tell you two secrets:

1. Your product will never be 100% ready. There will always be mistakes and there will always be new ideas for you to improve it.
2. It’s possible that what you created isn’t liked by people. The sooner you admit this reality the sooner you will abandon the fear you have to confront the market.

The Lean Startup methodology fosters the use of a Minimum Viable Product to test the market. And what is this Minimum Viable Product? It’s a minimally functional prototype used to validate the hypothesis of a business as soon as possible.

The idea is to start receiving customer Feedback as soon as possible. This will allow you to optimize the product according to REAL customer needs rather than our own assumptions.

4. VALIDATE YOUR PRODUCT

Before optimizing your product and adding new functionalities to it, it is necessary to check if there are customers or companies willing to pay for what you are creating. This is what I meant before when I said we had to validate the hypothesis of a business, the main object of a Minimum Viable Product is analyzing if there is a market for it.

Once you have launched the Minimum Viable Product and checked the market’s liking you will have to take the decision of perseverating (optimizing the product), pivoting (changing the business’ strategy) or search for another business idea.

Believe me, there are times in which it is better to admit the failure and start again from scratch rather than wasting your time improving a product that won’t succeed. Your time is the most valuable resource you have and wasting it isn’t worth it.

5. MAXIMIZE YOUR RESOURCES

Invest your time in what really is going to bring revenues. This goes for other important resources, as money.

For example, in order to sell an e-book or an Online course you don’t need to create a professional website with a customized design. With a simple Blog created with a free theme you’ll have all you need to concentrate in what really matters: creating and spreading quality content to get an audience.

6. LOOK FOR RECURRING INCOME

What is more interesting as a business model for you? A company that charges 199€ to a customer once for an Online course or another company that charges 9€ every single month for a Premium subscription? Of course this depends on the aims and objectives of each and everyone but I prefer the second business model.

In the long run, subscription models are more profitable and the cash flows are more stable on a monthly basis. Also, the selling processes are less tedious and the number of complaints decreases considerably in comparison to other types of products.

7. CUT DOWN YOUR EXPENSES

Plenty of Startups shut down because they run out of money.

One of the lessons learned from the 2007 financial crisis is that now we think much more about the need of reducing costs. Fixed costs are the ones you need to analyze firstly, the ones you have to pay every single month, as they are a recurring expense.

For example, is it necessary to rent an office for your Startup or can you work from a co-working space? Is it really necessary to have a secretary to manage your things or could you just work with a Virtual Assistant and pay him/her per hour?

This «minimalism» can also be applied to your personal life with excellent results. Removing superfluous things let you save money and gives you security and financial independence.

8. MINIMIZE THE SALES PROCESS

Ideally, we should be able to automate all the sales process and provide Online documentation (FAQs, etc) to reduce pre-sale enquiries.

Nevertheless, we should be ready to provide customer service and assistance to the purchasing process if necessary.

This takes me to the next point…

9. SPEAK TO YOUR CLIENTS

Furthermore, don’t limit yourself to only speaking to your clients (the ones who pay) but also to your users (the ones who haven’t paid yet). They will give you a very valuable Feedback of your product, identifying weaknesses, improving points, etc. By speaking to them you will learn a lot, something that will let you create new products that will meet their requirements and needs.

But the most important thing is that you will establish a trust relationship with them. It’s crucial because trust is the most important thing in any relationship, may it be personal, a working relationship or a business relationship. For example, who would you give 20€ first? to a friend or an unknown person?

The closer the relationship is with your clients, the more willingness they will have to pay for what you are selling.

10. DO THINGS THAT DON’T SCALE

As Paul Graham (Y-Combinator founder) explains on his article called Do Things that Don’t Scale: although the aim of a Startup is to scale the products and services it offers through process’ automating, business partners (and also the workers) of a Startup should be ready to execute non-scalable actions.

The reason for this is that although plenty of people think Startups «grow virally», it’s necessary to have somebody behind to help it take off. Two things that must be done manually at the beginning are the Customer acquisition and Customer support

11. FOCUS ON SELLING

No, I don’t mean you have to go door-to-door trying to sell your product. That would be very inefficient.

What I mean is that you need to invest less time on developing the product and more on Marketing. As I already mentioned on the How to get 1000 daily visits to your blog in 6 months, it is important to apply the Principle of Pareto or the 20/80 rule to the online businesses.

People aren’t going to find your product by themselves. You should dedicate 20% of your time to developing the product and 80% to promote it.

12. GET READY FOR CHANGES

The idea of your initial product will vary several times (we call this Product Optimization) thanks to your clients’ feedback. It’s possible that several changes in your product end up with a radical change in the Startup strategy. This is what we call pivot.

The Lean Startup philosophy says that pivots are unavoidable in the life of a Startup and that the aim should be to reach the pivot point as soon as possible. This will provide us with insights about what the client really wants and what is he ready to pay for.

Product’s cycle of life

My question for you is… what methods or systems do you apply when launching a Startup?