What Is A Startup (Or A Startup Idea)?

Pirate

Is a startup all about the idea? Is it a bunch of people hacking together? It is not quite a company in the traditional sense of the word (at least not yet). I like to think of a startup as a series of assumptions. Your startup idea is just one assumption or alternatively there are many assumptions inherent in your idea. Let's take a simple one we're all familiar with:

"People want to connect with their friends online"

The main assumption is that people actually DO want to connect with their friends online (of course we know now that they do, but a few years ago it wasn't so obvious). Some of the inherent assumptions might be:

  • People want to know what their friends are doing right now
  • People want to see interesting links from their friends
  • We have a way to acquire users in the initial stages
  • People will want to let their friends know about our service
  • People will want to pay for our service
  • etc.

Your startup is really just a means to validate all those assumptions. If you can do it, then you may pronounce your startup a success (it's not necessarily a success yet, but the rest is really just optimisation), if you can't then it is a failure. Of course things are a bit more complex than that. 

If you follow the Lean Startup movement at all, you're probably aware of pirate metrics (the pirate says 'AARRR'). We have Acquisition, Activation, Retention, Referral, Revenue. The thing about those metrics is that they are a funnel and they are all about users. We start with lots of users in the Acquisition stage and we end up with less users in the Revenue stage. 

AARRR

All the assumptions inherent in your idea are a funnel too (think of them as a more specific version of the pirate funnel) – you start with a bunch of potential users at the top and validating each of the assumptions will whittle away some of those users. Let's take this simplified example:

Assumption funnel

The more people you can get through that funnel successfully the more sure you can be that you're onto a good thing, but if you end up with zero users before you get to the end of your funnel then you have a problem. If no-one wants to click the red button, then people are unlikely to ever tell their friends or upgrade their accounts. Your assumption is flawed and you need to adjust. Perhaps it's as simple as making the button green, or you may have to think of a way to achieve the same result without a button, or there might be a fundamental flaw in the model, in which case you might need to go back to square one, or pivot, or abandon the idea all together. 

Of course your assumption funnel is not strict, you can work on any assumption at any time, but you need to be fully aware of what you're doing. Firstly, it is easier to test the assumptions at the top of the funnel. You can figure out whether or not you can drive some initial traffic with nothing more than a dummy landing page, but to test retention you need to have built something. Secondly, there is 'Danger, Will Robinson!' every time you work on one of the assumptions lower down in the funnel first. You may optimise your big red button with 3 of your mates (the only users you have), but if you can never get anyone to come to the site at all, what's the use? It can still all work out, especially if you're flush with money and have all the time in the world, but it's probably faster and easier to prove those assumptions in order. 

Incidentally this is very similar to the problem we ran into with CrowdHired forcing us to essentially rebuild the site (in a much slimmed down fashion) and to try and bootstrap (userbase-wise) from the YOW! developer conference. Since we're not flush with time and money it was a costly lesson, but one well learned.  

The relevant concept is this, even without building anything you can easily figure out the key actions you and your potential users will have to take in order for your idea to work. You can then come up with a set of assumptions relating to each of those actions and arrange them into a funnel. You can then build the minimal amount of stuff to try and prove each assumption in turn. As you follow this process it can potentially give you some guidance regarding a number of things, such as user behaviour, where to take your idea next, when to pivot, when to get some more funding (e.g. the only way to prove this next assumption is with 10 people working for a year :)) etc. 

It goes without saying that depending on the type of startup your trying to build (network effect, B2B, B2C, etc. – see what I did there, heh), the mechanics will need adjustment. It also goes without saying that you need to validate all assumptions properly, asking 2 of your friends if they would click a button you just drew on a napkin is not an indicator of anything. In-fact this is one of the things I'd like to explore further, but I guess I'll leave it until next time.

Image by spaceninja