Be honest. When you think of Silicon Valley start-ups, you probably think of clever tech, billion dollar buyouts and quirky CEO dress codes. But it’s not just the tech that’s being innovated. These west coast tech gurus have been applying their scientific minds to the problem of how to effectively build and sustain a busines, all underpinned by some clever tech tools. So what are these lessons and how can you apply them to your business?
Enter any technology accelerator, start-up or tech venture capitalist’s office and you’ll hear phrases such as ‘minimum viable product’, ‘build’, ‘measure’, ‘learn’ and ‘pivot’. They are all phrases from a 2011 book, The Lean Startup. It’s the bible for tech start-ups. The basic principle of The Lean Startup is one that turns more traditional business thinking on its head. Usually you create an exhaustively researched business plan before investing your money to create a ‘perfect’ first product, which you launch with enormous fanfare with the rest of your money. Then you sit back as your customers empty their pockets. Only that’s not how it works.
A business plan is theory, not proven practice. What if that product feature you slaved over just isn’t wanted by the majority of your customers? The Lean Startup advocates doing as little as possible upfront, until you know it will work. Get a minimum viable product out into a limited release in the market, even if it’s incomplete. Your customers then give you feedback – data – from which you refine your product. You build something, then you measure its performance, from which you learn. It’s an agile and iterative process.
So set up a simple web page promising a new product or service and see how many people sign up. If no-one does, then maybe it’s not such a great idea. If they do, then make it happen. Web apps like Unbounce allow you to rapidly create marketing pages without a developer – so you can test literally hundreds of ideas to see which gets the most interest. If people don’t like your ideas, then you pivot – you change direction.
All that matters is that you fit your product with your market, even if this means dumping your carefully crafted business plan in the bin.
Test like the best
Serial entrepreneur and Epiphany co-founder Steve Blank is leading the way in creating a more scientific model for generating new businesses. You should get acquainted with tools such as the Business Model Canvas, which allows you to conceptualise your own scalable business model (as distinct to your business plan) on one page. This is available in an easy-to-use iPad app, which I find is a great way to channel and map your thinking. It even generates a spreadsheet of forecast profit and loss based on the model you build.
As Blank says, “a start-up is an organisation formed to search for a repeatable and scalable business model”. But to find the right business model, you need to try things out. Not all of these ideas will work, so you need to get used to failure, albeit the right kind of failure: failing fast. If you treat your business activity as a series of hypotheses which you test, you will see quickly which are working and which aren’t.
How about the design of your website? You may love it but does it perform? Most people create a design, which remains fixed in time until the next website is built. If you have sufficient amount of traffic to your site you should consider testing your site design and employing advanced analytics to understand exactly who is visiting your website.
A technique called A/B testing means that you test multiple page designs simultaneously. So you set a control page (for example with a blue ‘buy’ button) yet also direct traffic to a different page (with a red ‘buy’ button) and then measure which performs best. Web apps like Optimizely or Visual Website Optimizer turn the design process into a quantifiable series of experiments. Advanced analytics platform Kissmetrics lets you see exactly who has visited your site. This means that you can contact them and ask why, for example, they have visited your web site 100 times, but never actually bought anything.
Act like a pirate
One of the problems with measuring your activity is that it creates a lot of data. To cut through the fog you should focus on only a handful of essential metrics –in other words data that you have measured – the ones that show whether you are moving towards, or away from, your objectives.
I’ve learnt a good deal about this from a man called Dave. Dave McClure is a profane and swashbuckling tech investor, who heads up the very well respected Silicon Valley tech accelerator, 500 Startups. McClure has his own start-up development method: Startup Metrics for Pirates: AARRR!
AARRR stands for acquisition, activation, referral, retention, revenue. McClure says that you should map all these points in your business and brutally test them until you have created your world-beating money making machine. It’s worth googling and watching some of his AARRR! talks to get more insight.
A key activation tactic that can apply to a non-web-based business is the utilisation of lifecycle emails. Using platforms like Aweber or Hubspot, you can automate communications to different customers as they move through the sales funnel.
McClure recommends drilling down to a handful (at most) of key metrics. You then track these week in week out, and take action based on what the information tells you: they become ‘actionable metrics’.
If the data is positive, do more of it. If it’s bad, then you stop. Ask yourself how many customers you have to call before you close a deal? How many days does it take for your biggest customers to pay you? What percentage of people visiting your site actually make an enquiry?
My company, Techdept, sells a service to clients. We exchange our time and skills for money. So how we manage our time is the single biggest driver of our profitability. We use a cloud platform called AtTask to log, in detail, all the tasks within the company, while logging time against them. This allows us to quickly trouble shoot projects that have over-run, and diagnose why. A simpler tool is Harvest, which lets you easily track time from your desktop, in a browser and by a mobile app.
Getting clarity on your company’s actionable metrics means you can move heaven and earth every day to get them better.
I find that these Silicon Valley start-up lessons are liberating. They mean that you can worry less about your untested plans. They focus you on getting real world data on what your customer really wants, rather than pursuing your own preconceptions. And if you can find out what your customer really wants, you’re one big step closer to that billion-dollar buyout. 
