Summary: Disciplined Entrepreneurship By Bill Aulet
Summary: Disciplined Entrepreneurship By Bill Aulet

Summary: Disciplined Entrepreneurship By Bill Aulet

Once you have identified an idea or technology as the basis for your innovation-driven business, you must rigorously test and flesh out your proposal through the 24 Steps.

Each step should be done in numerical order with the understanding that in each step, you will learn things that will prompt you to revise the work you have done in earlier steps.


Step #1

The market segmentation process identifies multiple potential market opportunities. Once you have a list of potential markets, direct market research-based analysis on a finite number of market segments will help you determine which markets are best for your idea or technology. The goal of the research is not to provide a perfect solution, but to present a wide spectrum of market opportunities as you start to think about where you will focus your business. Primary market research, which involves talking directly with customers and observing them, is by far the best way to identify good market opportunities. This research will help you select a beachhead market in the next step.


Step #2

Choose a single market to pursue; then, keep segmenting until you have a well-defined and homogenous market opportunity that meets the three conditions of a market. Focus is your ally.


Step #3

Your analysis of your target customer is nowhere near complete, but the End User Profile points you in the right direction for future steps. The journey is only beginning, but you are starting off with the right focus—a well-defined target customer. This is a critical step in your search for specificity and starting to make your customer concrete and very real. It is also a critical part of the process to help ingrain the mentality that you should build the company around the customer’s needs, not based on your interests and capabilities. The latter does matter, but it is secondary to how you should think about your business.


Step #4

The TAM is how much annual revenue you would accumulate if you achieved 100 percent market share. This is used only for your first beachhead market. A bottom-up analysis, where you can show how many potential customers you have identified from your primary market research and extrapolated to the broader market, will give a more accurate picture of your market. Complementary to this, but much less compelling on its own, is a top-down analysis where you are working with market analysis reports and extrapolating without direct interaction and validation. Often, very important subtleties are missed in top-down analyses, so you need both


Step #5

The process of developing a Persona provides specific details about the primary customer within your beachhead market. You are now selling not to some “end user profile,” but to a specific individual. Your whole team should be involved in this process to ensure everyone is on the same page and truly understands the Persona, so they can maintain a customer-based focus. An important detail to understand about the Persona is his or her Purchasing Criteria in Prioritized Order. You should really understand your customer and what makes them tick, not just at a rational level, but at an emotional and social level as well. The better you understand your Persona’s needs, behaviors, and motivations, the more successful you will be at making a product and a new venture to serve them. Once you have made a picture or visual of your Persona and fleshed out the fact sheet, make it all visible within your business so that everyone works toward the same common goal.


Step #6

Creating a visual representation of the full life cycle of your product enables you to see how the product will fit into the customer’s value chain and what barriers to adoption might arise. Just showing how the customer uses the product (the typical definition of “use case”) will not provide an accurate enough picture to fully understand what obstacles will come up when trying to sell your product to your target customer.


Step #7

Visually laying out your product will allow your team and your potential customers to converge around an understanding of what the product is and how it benefits customers. Staying at a high level, without too many details or a physical prototype, allows for rapid revision without investing too much time and resources this early in the process of creating your new venture. Building a visual representation of the product will likely be harder than you think, but will get everyone on the same page, which will prove extremely valuable going forward. A brochure with features, function, and benefits to the customer further clarifies your product offering and is a great complement to the pictures you create.


Step #8

The Quantified Value Proposition is framed by the top priority of the Persona. You first need to understand and map the “as-is” state in a way familiar to the customer, using the Full Life Cycle Use Case. Then, map out the “possible” state of using your product, clearly indicating where the customer receives value based on the Persona’s top priority. A visual, one-page diagram is best, because the customer can easily see the Quantified Value Proposition and can show it to others for validation. When done well, this will be of immense value to you throughout the process of launching your business, so extra effort spent to get this optimized is well worth it.


Step #9

Identifying and interviewing your Next 10 Customers now ensures that your Persona description and other assumptions hold true for an array of customers. If you have completed this step properly, and made modifications to the other steps from what you learned here, you should have great confidence moving forward to build the plan for your new venture.


Step #10

Defining the Core is the first step where you spend a lot of time looking internally, in contrast to the strong customer focus of many of the other steps. The Core is what you have that your competitors do not, that you will protect over time above all else, and that you continually work over time to develop and enhance. Once you agree on a Core, it should not change without a great deal of thought; instead, you should continually make your Core stronger. If it changes often, this is a bad sign because it means you are likely not building it effectively. However, it can change as you discover what your customers value most and what you do best. Defining your Core is not easy and may seem abstract, but it is an essential step to maximize the value of your new business.


Step #11

Defining your Competitive Position is a quick way to validate your product against your competition, including the customer’s status quo, based on the top two priorities of the Persona. If you are not in the top right of the resulting chart, you should reevaluate your product, or at least the way you are presenting it. This will also be a very effective vehicle to communicate your qualitative (not quantitative) value proposition to the target customer audience in a way that should resonate with them.


Step #12

Having determined how you create value for the customer, you must now look at how the customer acquires the product. To successfully sell the product to the customer, you will need to understand who makes the ultimate decision to purchase, as well as who influences that decision. The Champion and the Primary Economic Buyer are most important; but those holding Veto Power, as well as Primary Influencers, cannot be ignored. B2B situations are easier to map out, but the process is still important in a consumer situation; large consumer goods companies like Procter and Gamble have been doing this process for many years.


Step #13

Determining the Process to Acquire a Paying Customer defines how the DMU decides to buy the product, and identifies other obstacles that may hinder your ability to sell your product. From elongated sales cycles to unforeseen regulations and hidden obstacles, selling a product can sometimes be far more difficult than simply meeting the Persona’s needs. This step makes sure you have identified all the potential pitfalls in the sales process.


Step #14

The Calculation of the Broader TAM should be a quick validation that there is a bigger market and should reassure team members and investors that your business has great potential in both the short term and long term.


Step #15

The business model is an important decision that you should spend time focusing on. The decisions you make here will have a significant impact on your profitability, as measured by two key entrepreneurship variables: the Lifetime Value of an Acquired Customer (LTV) and Cost of Customer Acquisition (COCA). Do not focus on pricing in this step, as your choice of business model has a far larger influence on profitability than your pricing decisions.

Once you have established a business model, it is possible but generally not easy to change to a different model. Therefore, choose a business model that distinguishes you from competitors and gives you an advantage over them, because they cannot easily change their business model to match yours.


Step #16

Pricing is primarily about determining how much value your customer gets from your product, and capturing a fraction of that value back for your business. Costs are irrelevant to determining your pricing structure. You will be able to charge a higher price to early customers as opposed to later customers, but be flexible in offering special, one-time-only discounts to select early testers and lighthouse customers, as they will be far more beneficial to your product’s success than the average early customer. Unlike your business model, pricing will continually change, both as a result of information you gather and as you progress throughout the 24 Steps, as well as in response to market conditions.


Step #17

The Lifetime Value of an Acquired Customer calculation is the profit that a new customer will provide on average, discounted to reflect the high cost of acquiring capital that a startup faces. It is important to be realistic, not optimistic, when calculating LTV, and to know the underlying drivers behind LTV so you can work to increase it. You will be comparing the LTV to COCA. An LTV:COCA ratio of 3:1 or higher is what you will be aiming for.


Step #18

Mapping the sales process is a thoughtful first pass at how you will enter the market, refine your sales strategy over time, and ultimately establish an inexpensive long-term strategy for customer acquisition. The sales process includes creating awareness, educating the customer, and handling and processing the sale. The sales process drives the COCA, one of the variables—along with the Lifetime Value of an Acquired Customer—that shows your business’s profitability.


Step #19

At this point, you have completed the important steps of determining whether the financials of your business will work. The LTV and COCA analysis can kill many new businesses by identifying problems early in the process; but more often it highlights the importance of keeping an eye on key factors to make the business successful. It provides a simpler scoreboard than financial statements and allows you to make adjustments and refine your business. It makes your path to success more transparent. Don’t let your optimism blind you in doing the calculations. Make the numbers real and not what you want them to be.


Step #20

Identifying key assumptions is the first part of the process to validate your primary market research by looking for customers to take specific actions, which will happen in the next step. Before the assumptions can be tested, they need to be broken down into their component parts, so that each assumption represents a specific, narrow idea that can be empirically tested in the next step using a single experiment design. Do not worry about how you will design the experiment yet. Focus on breaking out all the key assumptions, because if you skip over an assumption fearing that testing it is difficult, you will neglect a potentially important factor in your business’s health.


Step #21

Testing key assumptions, particularly the most significant assumptions, such as cost targets and interest of lighthouse customers, prepares you well to sell your product because it complements the primary market research–based approach you have already taken. The convergence of your market research with empirical results from your experiments prepares you to put together a first-pass product and sell to customers.


Step #22

You have previously tested individual elements of your business; however, the Minimum Viable Business Product (MVBP) represents a systems test of a product that actually provides value to the customer. The paying customer can use this to start a feedback loop that helps you iterate better versions of the product.


Step #23

Take your Minimum Viable Business Product to the customers to see if they will actually use and pay for the product. Collect data to see if they are really using it and how engaged they are as users. Determine if they, or someone associated with them, will pay for it and also if they are advocating for your product with word of mouth. After you collect data over time, analyze it and especially look for trends and understand underlying drivers. Make sure you are intellectually honest and rely on real-world data and not abstract logic.


Step #24

Establishing a product plan is similar to the step to calculate the broader TAM. The idea is to get you thinking ahead so you raise your sightlines and don’t get too bogged down in your beachhead market, which is only your first step as a business. You want to expand from the beachhead. It gives you a long-term vision that keeps you reaching and thinking ahead, especially in the design of your product and organization. Do not spend too much time here, though, because you still need to get the dogs to eat the dog food today, or else you will run out of money long before entering adjacent markets. Plans will change as you learn more from the beachhead, but to not have a plan is to put yourself in the hands of luck as opposed to your own methodical process.