In this post, Benjamin Eha, the alumnus of Global MBA in Digital Business shares with us the story of his unsuccessful startup venture. He gives a brief introduction to the methodology and explains how it helped him to get away from an idea that didn’t fit his personal goals. So without further ado, let Benjamin set the scene:
The story starts right at the end of the hellish ride. 2.5 years prior, I started working for a startup as the first employee. We managed to scale the company to 25 employees and finally to an exit. Usually working long hours in several key roles and doing the Zigurat MBA in parallel was an intense but also very inspiring time.
Whilst studying I developed several business ideas. Nevertheless, after the exit, it was the perfect time to pursue some of these ideas and apply my prior learnings. Together with another colleague and former fellow student, we decided to give it try. Thus, I quit my job and started working on an idea full-time in May 2020.
Goal-setting and time-boxing
Looking back, it is very important to understand your goals, what are not your goals, and the time frame. These goals and non-goals will guide you and a time-box will prevent you from investing too much time.
When setting goals, figure out what drives you. For me, it always was the thrill of constant problem-solving. I am great at dealing with problems in all facets, working with a team on tough challenges, and finding creative solutions to solve them.
Moreover, I always valued having purpose by creating something – a product. The thing with developing a product is, as it grows, you have to grow. The challenges you face with a new product are entirely different than the ones you face with a matured product. Hence, you need to learn constantly.
Thus the goals were:
– Solve tough problems
– Build a product
– Grow with the product
– Constant learning
On the other hand, money and fame were never a driver. Don´t get me wrong, it is not as if I would not need money, but in my opinion, it buys you predominantly time. Time to work on something you like to and not something you have to.
Thus, the non-goals were:
Next, set a time-box. This is not necessarily a strict deadline, rather it is a date where to conduct a deep and honest assessment of the current state. Even though one might think, you´re reviewing your current state constantly, stepping back and assessing the current state with some emotional distance and sufficient time is different. For me, it was six months.
Having heard about Customer Development during the MBA I started reading a lot about the methodology. Two books I want to recommend are “The Four Steps to the Epiphany” by Steve Blank and “Lean Customer Development” by Cindy Alvarez. A brief overview of Customer Development is given in the illustration below.
Figure 1: Customer Development (Source)
Customer Development is all about getting out of the building and talking to your potential customers. Therefore, you write down some initial hypotheses on who might be the customer, what are the customer’s problems and how to solve them.
After that, you start talking to these potential customers. Keep in mind, these hypotheses are only opinions until you validate them. And I want to point out, it is about talking to customers. Questionnaires will not do the job at this point. Expect your hypotheses to be wrong. Thus, it is important what additional information is provided by your interview partners.
Moreover, to sum up, some of the hypotheses, the Lean Canvas described in the book “Running Lean” by Ash Maurya is a good tool. In short, Lean Canvas is a modification of the Business Model Canvas to fit startups better. The illustration below shows the Lean Canvas and its elements.
Figure 2: Lean Canvas (Source)
Especially the “Problem” and the “Unfair Advantage” elements are important. For success, it is essential to achieve a product-market fit. Therefore, you have to nail the customer’s problem. Thus, adding this to the canvas helps to focus on this aspect. In order to scale and be interesting to venture capitalists, it is important to have an unfair advantage. This is something that cannot be copied easily like technology or network effects inherently to your business model.
Intentionally, we did not want to start building software early on. Rather we wanted to focus on understanding the customer’s problems deeply and then sketching out possible solutions. This is faster without actually building software but rather using mock-ups. Moreover, throwing away software is harder than a slide deck. Always be cautious about sunk cost fallacy.
Hypotheses and preparations for the interviews
Our main hypothesis, in the beginning, was, that most of the solutions in digital transformation are already out there and project managers just need to find them. Please note, this was the main hypothesis. There were a lot of others besides this one.
Thus, the goal was to reach out to managers in digital transformation. A good way is to start is by mapping out all first and second-degree contacts in a spreadsheet and contact them. Afterward, you either contact these people directly or ask the first-degree contact for an introduction. Especially with second-degree contacts, referrals work great.
The interviews themselves should not be longer than 30 minutes. However, I did not always manage to stay in this time-box.
To get a feeling on what questions to ask, a comprehensive list of questions is available here.
Interviews and iterations
During the course of roughly 65 interviews, we developed and re-iterated the idea. At first, we thought about a transactional platform, that collects problems through workshops, calls, and a web frontend. Subsequently, the data would have been structured and ideally processed by a machine learning engine, matching the problems against data available on the internet, like white papers, websites, and videos. From this, possible solutions would have been derived and software vendors matched. To earn money, we would have taken a service commission of the project cost.
However, there would have been the constant problem of platform leakage – the two parties just work a deal around the platform. Thus, we iterated.
The last iteration was a service, similar to a chatbot, that takes in problem statements, helps to make them more precise, finds root causes, suggests solutions, and matches them with software vendors. This time, a subscription model.
However, the interviews showed that demand would have been low. One interview partner said: “Most likely it would be used similarly to Sky during soccer season. You have it during the season and end the subscription shortly after the season ends. I would imagine using it during the planning quarter and stop afterward.” Since other interview partners indicated similar things and prior iterations were dropped, because of the same issue, we knew, there was a problem. All iterations failed to generate constant and recurring revenue. Ideally, you want a lot of small transactions. Something, this model failed to deliver repeatedly.
Furthermore, the six months were nearly over and we had a decision to make. Still, we saw an opportunity. Become a consulting business and use the engine to become more efficient and look what happens from there. However, as stated in the goals, it was always about building a product and scaling this product – a non-linear growth. Not because of money, but because of the incredible challenge. Consulting on the other hand, even though challenging, scales linearly. Thus, it was clear, that this is not a path I would want to take, neither did my colleagues. Therefore, we called it quits.
The funny, yet tricky thing is, we might have gotten an investment. Some VCs seemed to be intrigued by the idea. This is something I saw over and over again in the past. Companies get funded although having not the greatest business model. From there, they move on several years as a Zombie – not dead, but far from being a striving company. I always wanted to prevent this, because as soon the company’s growth stops your learning also converges.
Some further tips for conducting interviews
Especially during the Corona pandemic, every company introduced some form of online meeting tool. Video conferences are a great tool for conducting interviews. It saves a lot of traveling time, but still provides you with important information like body language.
Keep in mind, the first thing you want to figure out is the validity of your identified problem. Therefore, as much as a crude text file might be sufficient. Do not put too much work into it. You most likely will rework it anyways. In the beginning, I used just a PowerPoint with three problem statements. The less work you put in, the easier it is to throw it away later. Again, sunk cost fallacy is always around the corner.
Later, when you want to make your idea a little more real, a PowerPoint mock-up works just fine. Again, something you can create in a few hours. Following, a mock-up I used during interviews is illustrated.
Figure 3: Enhanze product idea (Source: Benjamin Eha)
An additional thing to validate your hypotheses is creating a landing page. Even though times are over where you build a webpage and thousands of people will visit, it still might provide some feedback. We, for example, put our problem hypotheses on the site, a vague solution paired with a contact form. Just to see if someone is interested. But to be honest, it did not generate a lot of feedback. Learning WordPress was fun though.
What generated more buzz was an article published on LinkedIn. Put your hypotheses along with some findings in an article, publish it and look at what happens. I wrote one on how lack of time is killing digital transformation. Moreover, I encouraged people to debate me. Through the comment section, I got some more interview partners. This actually worked pretty well. Additionally, to write an article you have to boil down a lot of ideas to their essence. This helps focusing on the core aspects of your business idea.
Finally, the most powerful thing is asking for referrals. Ask every interview partner to suggest two or three other people. To reduce their effort, send them a pre-written introduction text. Ideally, this is a copy-paste text where only names need to be inserted. This really scales after some time.
Why it still was a success
So even though, I do not have my own business now, I still would call it a major success. Through the interviews, I got in contact with a lot of great people, learned a lot on the field, and grew tremendously as a person. A few of these successes are listed below
Through all the interviews I got pretty good in active listening – be not the one who is talking a lot, but the one who engages in the right moment and asks questions to keep things going. This is something that comes with practice and is helpful everywhere. I still use it all the time.
As mentioned before, I grew tremendously as a person. Although I was always good under pressure, it got me to a whole new level. It is nearly an art to go from “everything is over” on one day to “we’re fully on track” the other day. I think this video by Jocko Willink sums up the mentality you need pretty well.
It is something that can be practiced. Challenge yourself to find the opportunity in something seemingly bad. For this, I started a personal journal that forced me to recap these moments. This elevated my personal development further. I committed myself to review these bad things and search for opportunities on a daily basis through the journal. After a while, you develop the capability to do this automatically. This really is a superpower.
Moreover, the venture landed me a phenomenal job, which I probably would not have gotten without the work I put into the startup. Nothing proves an entrepreneurial mindset more than actually being an entrepreneur. Funny enough, the person who introduced me to this job was one of my interview partners.
Finally, it made the year 2020 -otherwise overshadowed by Corona- one of the best in my life. Even though missing out on a lot of valuable aspects like time with friends and family, it was incredibly inspiring and I will always look back with joy.
Since this is just a quick overview of a wonderful and intense experience, this article is kept superficial intentionally. Therefore, if you have any questions, please reach out to me on LinkedIn or through the Zigurat Alumni Platform.
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