is radical enough to change the rules and shape of an existing market. See Chan Kim and Renee Mauborgne’s work on “Blue Ocean Strategy” for another way to think of re-segmenting a market.
Cloning an existing business model is a powerful technique when an existing business has been proven in one country but has not yet been introduced in another. Startups in Russia, India, Indonesia, Brazil, Japan and China (each with its own large local market and language and cultural barriers) can adopt, borrow, or copy a successful American business model and customize it for local language and buying preferences. (Soon ideas from those countries will be cloned in the U.S.)
For example, Baidu in China and Yandex in Russia are the equivalent of Google in their respective markets. And Qzone, RenRen, PengYou and Kaixin are the Facebooks of China, while Vkontakte and Odnoklassniki play the same role in Russia.
Startup companies generally enter one of these four market types and ultimately must commit to one. The consequences of a wrong market-type choice will prove to be severe in the customer creation stage. While market type is ultimately a “late-binding decision,” a working hypothesis helps frame early customer discovery issues. Market-type decision-making is explored in greater detail in Chapter 3.
…the few financial metrics to track: cash-burn rate, number of months’ worth of cash left…
Rule No. 8:
Startup Metrics Differ from Those in Existing Companies
We now have several centuries’ worth of performance metrics for existing businesses —P&Ls balance sheets, cash-flow forecasts and line-of-business analyses, plus scores of others. Here’s hoping your startup becomes big enough to need them someday. In the past (not so long ago), we used these tools with startups because we didn’t know what else to measure. We now know that startup metrics should focus on tracking the startup’s progress converting guesses and hypotheses into incontrovertible facts rather than measuring the execution of a static plan. It’s critical that board and management continuously test and measure each hypothesis until the entire business model is worth scaling into a company.
If the company is venture-backed, management and investors must agree on a set of metrics that truly matter and work toward a report or “dashboard” that essentially replaces the P&L, cash flow, and balance sheet as centerpieces of early board meetings.
Startup metrics track the results of pass/fail tests and the iterations they lead to:
Have the customer problem and product features been validated?
Does the minimum feature set resonate with customers?
Who in fact is the customer, and have initial customer-related hypotheses on the likes of value proposition, customer segments, and channels been validated through face-to-face customer interaction?
Customer-validation questions might include: average order size, customer lifetime value, average time to first order, rate of sales pipeline growth, improvement in close rate, and revenue per salesperson.
In addition to the startup metrics above, the relatively few financial metrics that a startup board should be tracking are cash-burn rate, number of months’ worth of cash left, short-term hiring plans, and amount of time until the company reaches cash-flow break-even.
Make sure decisions are fact-based, not faith-based.
Rule No. 9:
Fast Decision-Making, Cycle Time, Speed and Tempo
Speed matters at startups where the only absolute certainty is that the bank balance declines every day. While Rule No. 4 addresses iterations and pivots, it doesn’t specify how long they should take. Unequivocally, the faster the better, since the faster these “learn, build, pivot” or “iterate, build” cycles happen, the greater the odds of finding a scalable business model with the cash on hand. If cycles happen too slowly, the startup runs out of cash and dies. The biggest impediment to cycle time is psychological: it requires the admission of being wrong or even of suffering a short-term tactical defeat.
While pivots and iterations are about speed outside the building, speed also matters inside the company. Most startup decisions are made in the face of uncertainty. There’s seldom a clear-cut, perfect solution to any engineering, customer or competitor problem, and founders shouldn’t agonize over trying to find one. This doesn’t mean gambling with the company’s fortunes on a whim. It means adopting plans with an acceptable degree of risk and doing so quickly. (Make sure these decisions are fact-based, not faith-based.) In general, the company that consistently makes and implements decisions rapidly gains a tremendous, often-decisive competitive advantage.
…startups should make reversible decisions before anyone leaves the CEO’s office.
Startup decisions have two states: reversible and irreversible. A reversible decision could be adding or dropping a product feature or a new algorithm in the code or targeting a specific set of customers. If the decision proves a bad one, it can be unwound in a reasonable period of time. An irreversible decision such as firing an employee, launching a product, or signing a long lease on expensive office space is usually difficult or impossible to reverse.
Startups should as policy, make reversible decisions before anyone leaves the CEO’s office or before a meeting ends. Perfect decision-making is both unimportant and impossible, and what matters more is forward momentum and a tight, fact-based feedback loop to quickly recognize and reverse bad decisions. By the time a big company gets the committee to get the subcommittee to pick a meeting date, most startups have made 20 decisions, reversed five, and implemented the other 15.
Learning to make decisions quickly is just part of the equation. Agile startups have mastered another trick: tempo—the ability to make quick decisions consistently and at all levels in the company. Speed and tempo are integral parts of startup DNA, and a great startup’s tempo is often 10 times that of a large company.
Rule No. 10:
It’s All About Passion
A startup without driven, passionate people is dead the day it opens its doors. “Startup people” are different. They think different. In contrast, most people are great at execution. They work to live, do their jobs well, and enjoy their family, their lives, their hobbies and often even enjoy mowing the lawn. They’re terrific at executing fixed tasks, and it’s a wonderful life for almost everyone.
The people leading almost every successful startup in history are just different. They’re a very tiny percentage of the world population, and their brains are wired for chaos, uncertainty, and blinding speed. They’re irrationally focused on customer needs and delivering great products. Their job is their life. It’s not 9-to-5, it’s 24/7. These are the people who found high-growth, highly-successful scalable startups.
Startups demand execs who are comfortable with uncertainty, chaos and change.
Rule No. 11:
Startup Job Titles Are Very Different from a Large Company’s
In an existing company, job titles reflect the way tasks are organized to execute a known business model. For example, the “Sales” title in an existing
