The first step in planning your start-up involves thinking about the underlying
assumptions involved in your entrepreneurial venture.
Any entrepreneurial venture requires assumptions,
because you haven't built the thing yet.
So you have to assume that certain things are true about the world for
your startup to work.
And there could be many different kinds of assumptions.
You could assume that customers will operate in a particular way,
your competitors will react in a particular way, that once people see
the product they'll understand the need for it, that they'll tell their friends.
These are the assumptions that your startup is based on.
And many times, these assumptions are unspoken, and
this can lead you into trouble because it means you haven't actually thought through
what things in your startup you know, and what things you're assuming you know.
And a failure to understand these underlying assumptions
can lead to failure, or even missed opportunities.
The picture that you seen on the screen is of ChargeItSpot.
So ChargeItSpot is a startup that started in one of my classes.
And the idea was to build a cell phone charging tower.
So, you'd put this in various retail shops and
when your cell phone was running low on batteries,
you'd bring it to the charger spot and charge it for free while you shopped.
And the idea is very good, the company's been very successful so far and
raised quite a bit of venture capital.
But they have learned that some of their underlying assumptions are wrong.
They thought the main benefit of the charging spot
would be that if people would be charging their phone in it, and therefore
they'd spend more time walking around the store, waiting for their phone to charge.
And that indeed turns out to be a benefit.
But one of the big sales factors for the charge it spot has been that
registration screen that you see in the middle.
So when you put your phone in to charge,
you type in your email address in case you lose it.
And you type in a secret code.
And it turns out the ChargeItSpot is the most effective way
of getting email addresses from people in store who
are interested in potentially buying in the future.
And that's been one of the major values.
And because they didn't think to ask about that, it took them a while to recognize
that there was actually a large growth opportunity that was missing.
So these sorts of assumptions, can hobble your business, and thinking about them,
becomes a really critical point of startup planning.
There are a number of different ways that you can bring assumptions that
are normally unspoken to the surface.
And there really isn't magic associated with one way or another.
Essentially it's,
servicing assumptions is about asking a list of questions about your startup.
And trying to get answers, and think hard with your co-founders if you have them
about the underlying factors that are going to make your business successful.
So, I'm going to give you one method base on the work of Tom Eisenmann of
Harvard Business school, who grouped assumptions into
four different categories, and I'm using a solely different version of this.
But the basic idea is the same.
So the four categories are, Customer Value,
how you're delivering value to the customers.
How are the customers going to know that value is being delivered,
how are you going to deal with competition.
Technology and Operations.
What do you actually have to do in your business to make it succeed.
What kind of operational steps you need to take, what technology you need to develop.
Who's going to do what?
Sales and marketing.
How are people going to know about your product?
How are they going to be able to buy it?
And then finally, the financials and the profit formula.
So how are you going to actually generate revenue for your business?
What's the underlying formula that's going to make you
profitable in the long run?
So this is a very easy technique.
You're going to go through each of the categories, and
we'll talk about them more in a second, and you're going to ask yourself key
questions and figure out whether or not you can answer them.
So what are these four key categories?
The first is the customer value area.
So you start off by thinking about your customer needs.
And the most important question in some ways to ask for your entire
entrepreneurial venture is do you know what customer needs you're solving,
and how do you know?
If the answer is I'm one of those customers, that's a great starting point,
but do you know the market's large enough, and how do you know this?
What facts are you drawing from?
Are there particular market segments that you're addressing?
And if you've seen Professor Wong's talk on customer segments,
this is a good way to think about the segmentation issue.
Competition.
How are different from other products and services?
And how do you know that you are?
If you are different, how do you keep your advantage, and
how do you protect your intellectual property so other people don't copy it?
And, in the longer term,
how do you sustain that advantage by dealing with competitors?
So how do you think they're going to react to you entering the market?
Do you have any knowledge of this?
How are you thinking about responding to that?
On the pricing side, how are you going to price your product and
service, there's many different pricing techniques you could use.
You could do fixed pricing.
You could do bundled pricing.
You could price by the month.
You could do value based pricing,
where you're getting a percentage of the savings that people have.
What's your pricing method?
And how are you figuring out what the right price point is?
And who's paying, is it a customer, or is it something insurance companies
are paying for, or is something being done in hospitals,
where the hospitals paying for it, and not the doctors?
You need to understand who the payer is.
And partners.
Who do you need to work with to make you successful?
Are there companies that need to cooperate with you, and
how are you going to give them enough value to convince them to join you and
partner with you as you go forward?
So this is an exhaustive list, but if you can't answer these sets of questions
you have a major assumption that you need to deal with within your business.
The second set of questions deal with technology and
operations, how you're actually going to run the business.
So first these are about planning,
what tasks need to actually be done in your business.
So when you start this, what are you actually going to be doing?
What jobs do people do every day?
What jobs are people doing in the short term?
And how will you structure your tasks so
that you learn as much as possible as you move forward with the business.
What drives your costs?
Many times it's the people involved with the company.
But it could be outsourced technology.
It could be hardware.
It could be rent.
How are you thinking about these sets of issues, and
how do you know what your cost drivers are?