Update - 06/10/2020

by Shafique Pappa

Our next steps...

After 40 workshops and thousands of attendees, we’re excited to introduce the future of the Houston Lean Startup Circle (1).

First off, it has been one hundred and thirty-seven days since the last in person meetup and our last workshop. Since then, we have conducted 3 online Zoom workshops, but it's just not the same as meeting you in person and getting to know you. I wanted to take this time to share with you how we are going to transform the Houston Lean Startup Circle meetup going forward. Yet before I do, let’s reflect on what we have accomplished together as a startup community.

Several years ago, my partner Stephen and I were sitting where you are.

We were struggling with our own startup focused on a collaboration tool for educators.

The problem was that we didn’t know how to engage early adopters.

When we sought advice, most of it was focused on topics that had nothing to do with helping us acquire customers.

Worse, following that advice caused us to waste a considerable amount of time and money.

So, we abandoned targeting schools and universities - that’s where we thought our initial customers were - because it was clear that we didn’t have the reach. We quickly changed our focus to a local community that we knew we could engage with our collaboration tool. 

We re-launched the Houston Lean Startup Circle to collaborate with founders and help them to avoid the mistakes that we had made.

Since the relaunch, we have conducted 40 workshops and have helped over 3000 founders, we’ve built one of the largest lean startup communities in the world. Along the way, our workshops have received over 1,000 reviews which have helped us revise and improve the content. We also interviewed over 300 founders during the last three years, coached dozens of startup teams, and helped a select few build their startup from scratch. 

We met some of the smartest, hardworking, and tenacious entrepreneurs in Houston.

Like us, many early-stage founders believed that designing and building the solution was the same as building their startup.

Most founders spent significant energy building out their products in isolation with little or no customer feedback. More importantly, they had not figured out how to get feedback from a statistically large number of initial customers to rapidly improve their product. They assumed that their product needed to be of a “good” enough quality BEFORE they engaged their customers. By skipping Problem-Customer Fit (2), they did not understand that “good” was only achievable with direct customer feedback and that working in isolation was a slow, cumbersome, and risky process.  

Figure 1. Sales Engine Funnel Design

Far too often, we found startups with solutions that were marginally better than existing alternatives. Even when founders were able to identify compelling problems and a solution that was 10x better than a competing solution, they struggled to communicate the difference to the targeted customer segment.

The inability to effectively communicate value to early adopters prevented these founders from acquiring customers and moving through the Product Rapid Improvement Cycle (3). All these findings, and many more, informed our finding that a vast majority of founders suffered from the same problem. We lacked a large number of engaged users for our respective products BECAUSE none of us had figured out how to establish a beachhead market by implementing an effective sales engine.

We also encountered many founders that achieved market validation by selling their product to customers through either Kickstarter campaigns, or through direct face to face sales. Alas, most of these founders seemed to struggle with moving past the initial sales.

Figure 2. Buyers Journey

Instead of proving how to take a prospective customer through the Buyer’s Journey (4) into a sales conversion, many successful early sales campaigns reflected outreach through a founder’s personal network, which limited the startup’s maturation. After reviewing more than 50 startups that had sold initial versions of their product, it was clear that many founders struggled to build key business functions (5), like the lead engine, sales engine, and production and delivery engine, that would enable them to rapidly improve their product for scale.

How did the local ecosystem in Houston help these founders?

Based on our own experience as well as feedback from over 100 founders that had attended our workshops, we found that the local ecosystem placed a heavy emphasis on fundraising and pitch events, which prevented founders from focusing on acquiring customers and building their key business functions. Many founders spent a significant amount of their energy chasing investors too early (6) in the market validation phase.

Even those startups who had successfully raised a round of funding struggled to make progress towards Product-Market Fit and stalled out around $1-2M USD in annual sales.  These startups had not eliminated the fatal flaws suffered by most ideas. It was only through the sheer hustle of the founders that the startups got as far as they did.

Twelve months into our workshops, we had learned enough about the struggles faced by founders to start experimenting with some solutions. 

Our free workshops were intended to provide a how-to practical process for proving out the key business assumptions. However, after a few months of helping over a dozen founders, it became clear that generally, founders were unable to organize their activities to systematically (7) work through each assumption on their own. Based on feedback and testing, our workshops did help founders understand the validation process. However, they weren’t able to organize their day to systematically work through each assumption. Founders would easily get distracted by service providers eager to sell them services. We found many founders were prematurely engaging service providers on issues that were completely irrelevant and unnecessary given the development stage of the original idea.    

As an example, we found one local founder who was given an offer by an app developer outfit that offered to invest $30K in services for a 20% stake in the startup. But they would only invest if the founder matched the $30K investment in cash which would be used to pay for the remaining $30K in app dev services. The founder was ready to pull the trigger when they had not even performed basic customer discovery.  Effectively, the founder was taking the high stakes Field of Dreams approach of “If you build it, they will come” without knowing how to reach the customer or what the customer wanted in a solution. Many inexperienced founders were regularly targeted by unscrupulous salespeople eager to meet their quotas.

To solve the problem of founder focus and the noise in the mentor marketplace, we introduced the project guides that helped founders understand the how-tos and the necessity of building their business in stages.

Figure 3. Startup Development Phases

Figure 4. Project Guide Structure

Using this approach, we were able to help focus their energies by making sure founders did not spend valuable time and energy on things that just did not matter during the market validation phase of their startup.

Figure 5. Fatal Flaws

To help founders who were pursuing marginal ideas, we developed the fatal flaw analysis tool. This helped founders evaluate if their idea suffered from a fatal flaw tied to each of the Five Key Business Assumptions.

When it became apparent that there was no easy method for helping founders understand the value they’ve created by solving the problem when compared to existing alternatives, we developed the Relative Value Index (8) (RVI) to quantify a solution’s relative value to the customer. The RVI was also useful in focusing founders on specific dimensions of the problem that would enable the founders to deliver a game-changing solution. We coupled the RVI analysis with lean Solution Ideation Methodology (9) to help founders identify the product roadmap.

To help founders operate more effectively, we implemented a series of coaching experiments that would help founders recognize the skill gaps. We worked with founders to help them improve their analysis, decision making, and prioritization skills.  These coaching sessions helped the founders become far more effective in working through the process.

Through all of these experiments, we had identified three variables that determined the successful conversion of ideas into thriving businesses.  These variables were:

• Startup Process: Do the founders follow a systematic approach to convert their idea into a thriving business?

• Idea Quality: Is the idea centered around a compelling problem unsolved by existing alternatives AND is the problem solvable given current technical limitations?

• Founder Skills: Does the founder possess analysis, decision making, and organizational skills?

Of course, along the way, we learned that our customers didn’t want yet another collaboration tool, but wanted the knowledge, tools, and expertise to help them build their own businesses.

We realized that we had found our beachhead market.

In the fall of 2019, we soft-launched the LeanMastery Incubator to help founders convert their ideas into a thriving business. Since then, we have helped over 30 founders successfully complete the market validation program within 12 weeks. We defined success as either finding market validation in 12 weeks or discovering there was no market for the idea as conceived. Of the 30 startups, 27 founders successfully completed the program in 12 weeks. The remaining three founders abandoned the effort due to a lack of available time to work on their idea.

As much success as we found in helping founders, we still heard from many of you about the challenges with access to participate in the program. Many of you were struggling with taking advantage of our FREE workshops as well as taking advantage of our coaching sessions primarily due to timing and geography. Houston traffic was cited as the single biggest reason for many of the people simply not being able to make it to the workshops. Fast forward to 2020, and the Coronavirus has exasperated the problem even further.

To address the access challenge, we have embarked on digitizing all of our resources so you can access them anytime, anywhere. Which brings us to our go-forward plan.

During the next 12 months, we are launching new shows on our YouTube channel. We begin this month with “Building Lean”, a weekly program that features our select workshops to help you understand the optimal process of building your startup. You can participate in these workshops by submitting your questions in advance of each week’s episode through our link here.

We are also accelerating virtual access to our tools and dedicated experts by expanding the LeanMastery Incubator to accept more members each month. This will compensate for those in-person conversations that we all miss from our workshops.

Finally, we are planning to transition the meetup from live workshops into “Product Day”. The monthly Product Day will feature three local startup product-pitches, presented by their founders. Founders will receive direct feedback about their sales pitch and solution from myself - Shafique - and Stephen, meet industry experts, as well as find potential customers in the audience. We will only feature products that have achieved market validation. Our goal for Product Day is to help founders find a sufficient number of early adopters that can help them rapidly improve their product through direct engagement.

You may be wondering how is this different from the typical Demo Day. The main difference is the intended outcome. Demo Day is about founders trying to raise money.  Product Day will be about founders trying to find early adopters to generate revenue. If you are a founder and already have a small number of customers, and want to find more customers, submit your product to be featured on Product Day here.

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FOOTNOTES:

1. Houston Lean Startup Circle is our flagship Lean Startup Circle, Meetup group. We also lead Lean Startup circles in five other cities (Austin, Dallas/Fort Worth, Denver, New Orleans, San Antonio). Originally launched in 2011, the meetup group had gone dormant for several years prior to re-launch.

2. Problem-Customer Fit comes from understanding the compelling problem your customer wants to solve as well as the negative emotions a customer experiences when attempting to solve their problem. Understanding can come through interviews, surveys, and observation. Problem-Customer Fit occurs when a founder can activate early adopters by concisely describing the problem a customer segment experiences on a regular basis. Achieving Problem-Customer Fit is a prerequisite to finding Problem-Solution Fit. Without the ability to activate early adopters, you cannot determine if the solution you are describing will be accepted by early adopters, e.g. through a purchase or subscription transaction.

3. Product Rapid Improvement is a virtuous cycle that occurs when a startup is able to monitor the results of actual customers becoming aware of a solution, purchasing the solution based on the value promised, and using the solution to resolve the customer’s compelling problem. The data collected through monitoring, helps the team resolve issues along each customer stage, expedite solution changes that lead to high rate of product adoption and achieving Problem-Solution Fit.

4. The Buyer’s Journey documents the five stages customers move through prior to purchasing a solution to their problem. Customers can become “stuck” at a stage which creates leakage in a company’s sales funnel, resulting in slow or expensive sales. A startup can better triage issues by understanding how their funnel addresses each stage and associated key questions along with whether it's able to achieve a stage’s metrics.

5. Every business has three key business functions that support operations, the Lead Engine, Sales Engine, Production and Delivery Engine. These three engines take customers from being a prospect through to qualified lead and sales conversion to product or service adoption, and finally, referral. Through automated infrastructure, these three key business functions comprise the “machine that builds the machines” that an entrepreneur must focus on to grow sustainably.

6. Lean Time Management guides a founder to devote their resources to tasks or activities that are critical to achieving the next milestones or completing a current startup development phase. For example, devoting significant time and money upfront to secure a patent for a product prior to proving whether that product is market viable would be wasteful. While a startup may be reasonably concerned with securing its intellectual property (IP), market validation can occur with a small sample of customers that makes it unlikely that the IP would be exposed to competitors. Likewise, founders can take alternative preliminary steps to protect their IP through NDAs or copyrights to manage their risk. NOTE: We are not attorneys. Please consult your attorney prior to taking any action that could negatively impact your business.

7. Many founders struggle to understand why investors fund early-stage and unproven ideas from experienced entrepreneurs. A primary driver is an investor’s confidence in a seasoned founder’s ability to work a proven plan rather than to “learn on the job”. Additionally, an experienced entrepreneur often has a network of former team members who can become instant contributors due to shared prior startup experience. Occasionally, failed experienced entrepreneurs are able to articulate what they had learned from their previous failures and how they’d operate differently when raising investment. New founders can quickly overcome this “experience deficit” by demonstrating to potential investors their ability to follow a proven framework or methodology by generating early customer traction and market validation. An investor's confidence in the ability of an inexperienced founder to execute a framework and plan through data-driven results is highly correlated to a startup's potential for securing an investment.

8. Relative Value Index quantifies a solution’s value when solving a customer’s compelling problem. By normalizing the monetary, time, and quality costs, a startup can determine whether their product or service will be 10X better than existing alternatives or a marginal improvement. This measurable insight is predictive of rapid growth potential or slow and costly sales traction.

9. Lean Solution Ideation Methodology aids a founder in identifying weaknesses inherent in competing solutions and fixing those weaknesses through the application of lean ideation techniques appropriate for the type of weakness (cost too much, takes too long, poor quality, or incomplete) inherent in the existing alternative solutions.