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Disciplined Entrepreneurship

Summary

Disciplined Entrepreneurship strives to teach you how to be an entrepreneur. It breaks down the necessary processes into an integrated and comprehensive 24-step framework to help you develop an innovative product.

The Rabbit Hole is written by Blas Moros. To support, sign up for the newsletter, become a patron, and/or join The Latticework. Original Design by Thilo Konzok.

Key Takeaways

  1. There are Six Core Themes. Who is your customer, what can you do for your customer, how does your customer acquire your product?, how do you make money off your product?, how do you build and design your product?, and how does your business scale?
    1. Who is your customer
      1. Market Segmentation
        1. Brainstorm
          1. 6-12 industries (focus on end users, not necessarily the one who pays)
          2. What are their tasks, problems, pain points, struggles, opportunities?
        2. Narrow the field
        3. Primary market research
          1. You have to do this yourself – encourage the flow of ideas, don’t restrain or try to get a commitment
          2. Goal is to understand their pain points and later design a solution that will be of great value to them
          3. Ideally watch them work (actions > words)
          4. You don’t have the answer at this point and neither do the customers – this is a fact finding mission
          5. Trying to learn about end user (who would use your product) application (what would the end user be using your product for?), benefits of using your product / service, lead customers (influencers, early adopters, thought leaders), market characteristics, partners/players, size of the market, competition
          6. Organize as a matrix to keep track
          7. Spend a few weeks or until you can fill out the matrix with some accuracy
      2. Select a beachhead market
        1. Analyze top 6-12 market opportunities and choose 1 to pursue – focus! Ignore the rest along the way until you disprove your beachhead
        2. Further segment that market to determine your beachhead
          1. Is the target customer well-funded?
          2. Is the target customer readily accessible to your sales force?
          3. Does the target customer have a compelling reason to buy?
          4. Can you, today, deliver a whole product?
          5. Is there entrenched competition that could block you?
          6. If you win this segment, can you leverage it to win other segments?
          7. Is the market consistent with your values, passions, and goals?
      3. Build an end user profile
        1. Use primary research to flesh out a detailed description of the typical end user within your market segment
        2. End user is the one who uses the product. The decision-maker is the individual who decides whether the customer will buy your product (champion, primary economic buyer, influencers / veto power / purchasing dept)
        3. End user profile might include
          1. Gender
          2. Age range
          3. income range
          4. geography
          5. what motivates them
          6. what do they fear
          7. who is their hero
          8. where do they go on vacation? for dinner? before work?
          9. What do they read? websites? tv? newspapers?
          10. What is the general reason they’re buying this product? savings? image? peer pressure?
          11. what makes them special and identifiable
          12. What is their story?
        4. It is a huge advantage if someone from your founding team fits the end user profile
        5. The benefit of this is that it helps with positioning, knowing which features to develop, what their messaging should look like, how to accelerate word of mouth
      4. Calculate the TAM for the beachhead market
        1. Use demographics from end user profile to determine how large your beachhead market is
        2. Use this market size number to determine whether you need to further segment to have a more appropriately sized beachhead market
      5. Profile the persona for the beachhead market
        1. Choose one end user from one potential customer to be your Persona (a real person, not an abstract group)
        2. Build a detailed description of that real person
        3. Make the Persona visible to the whole team so that it gets referenced on an ongoing basis
        4. A great persona will make nearly any decision easier for the company – what to do but also what not to do
      6. Identify your next 10 customers
        1. Find 10 customers (on top of your persona) who fit the end user profile
        2. Contact them to validate their similarity to your persona and their willingness to buy your product
    2. What can you do for your customer?
      1. Full Life Cycle Use Case
        1. Describe in detail how your persona finds out about your product, acquires it, uses it, gets value from it, pays for it, and buys more and/or tells others about it. What the product will do for your customer and what your customer will do with your product
        2. Understand why this expanded use case is important to identify and resolve problems in the most timely and cost-effective manner
        3. Gain additional clarity and alignment throughout your team by detailing the various aspects of the full life cycle use case
      2. High-Level Product Specification
        1. Create a visual representation of your product
        2. Focus on the benefits of your product created by the features and not just the features
        3. This aligns your internal team on what you’re building, eliminating this risk of misalignment in the future
        4. Storyboards – user’s logical flow from one screen to the next
        5. Don’t have to build product – just high level
        6. Not selling, merely iterating with customers so that you better understand the strengths and weaknesses of the product spec
        7. Benefits to customer first, then tie features into function
        8. Write a 1-pager press release or brochure aimed at persona
        9. High level without 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 product
      3. Quantify the Value Proposition
        1. Determine how the benefits of your product turn into value that the customer gets out of your product – concrete understanding of the measurable benefits your product will bring to your target customers
        2. Calculate the quantitative metrics (in most cases) to show this value to the customer
        3. Better – faster – cheaper – in a way that aligns with your customer’s top priorities. What customers want to gain rather than going into detail on tech, features, or functions
        4. Compare the ‘as-is’ state that does not involve your product and then compare to the ‘possible’ state you are confident will exist when your customer is using your product. Make it as quantifiable as possible and the difference between the two states is your quantified value proposition
        5. Calculate the quantitative metrics (in most cases) to show this value to the customer
      4. Define Your Core
        1. Explain why your business can provide customers with a solution other businesses cannot nearly as well – your secret sauce, your crown jewels that cannot be easily duplicated (must be concrete and specific)
        2. Network effects, customers service, lowest cost, user experience
        3. Has to translate directly to value to the customer (based on their top priorities), which then leads to a better competitive position
      5. Chart Your Competitive Position
        1. Show how well your product meets the Persona’s top two priorities
        2. Show how well the Persona’s priorities are met by existing products in comparison to your product
        3. Analyze whether the market opportunity you have chosen fits well with both your Core and your Persona’s priorities
    3. How does your customer acquire your product?
      1. Determining the Customer’s Decision-Making Unit
        1. Learn who makes the ultimate decision to purchase your product and who will be advocating for purchasing it. Champion, end user, primary economic buyer
        2. Meet the influencers who have sway over the purchasing decision.
      2. Map the Process to Acquire a Paying Customer
        1. Map out the process by which a customer decides to map out your product
        2. Estimate the sales cycle for your product
        3. Identify any budgetary, regulatory, or compliance hurdles that would slow down your ability to sell your product
        4. Process
          1. How customers will determine they have a need and/or opportunity to move away from their status quo and how to activate customers to feel they have to do something different (purchasing your product)
          2. How customers find out about your product
          3. How customers acquire your product
          4. How customers will install your product
          5. How customers will pay for your product
          6. Why customers will remain and come back to your product
          7. Why customers will tell others about your product
      3. Map the Sales Process to Acquire a Customer
        1. Develop short, medium, and long-term sales strategies for your product
          1. How does your target customer become aware they have a problem or opportunity?
          2. How will the target customer learn that there is a solution to this problem they have, or learn there is the opportunity they did not previously know about?
          3. Once the target customer knows about your business, what is the education process that allows them to make a well-informed analysis about whether to purchase your product?
          4. How do you make the sale?
          5. How do you collect money?
    4. How do you make money off your product?
      1. Design a Business Model
        1. Examine existing models across industries for capturing some of the value your product brings to your customer
        2. Use the work you have done in other steps to brainstorm an innovative model for your venture – Google and Dutch auction. Aim to implement something that your competitors cannot easily copy to match
        3. Value-based and not cost-based
        4. Consider customer and what willing to do, value creation and capture, competition, and distribution
        5. Free is not a business model
        6. Categories (typically a combination)
          1. One-time up front charge plus maintenance
          2. Cost plus
          3. Hourly rate
          4. Subscription or leasing model (annual, multi-year, month-to-month)
          5. Licensing
          6. Consumables
          7. Upsell with high-margin products
          8. Advertising
          9. Reselling the data collected or temporary access to it
          10. Transaction fee
          11. Usage-based
          12. “Cell Phone” Plan
          13. Parking Meter or Penalty Charges
          14. Microtransactions
          15. Shared savings
          16. Franchise
          17. Operating and Maintenance
      2. Set your pricing framework
        1. Use your quantified value proposition and business model to determine an appropriate first-pass framework for pricing your product
        2. Costs shouldn’t be a factor in deciding price
        3. Use the decision making unit and the process to acquire a customer to identify key price points
        4. Understand the prices of the customer’s alternatives
        5. Different types of customers will pay different prices
        6. Be flexible with pricing for early testers and ‘lighthouse customers’
        7. Always easier to drop the price than raise it
      3. Calculate the lifetime value of an acquired customer
        1. Add up the revenue that you can expect to receive from an individual customer. LTV is the net present value of your profits from years 0-5
        2. LTV:CAC of 3:1 is what you’re aiming for
        3. Discount the revenue based on how much it will cost you to repay investors over time
        4. Key inputs
          1. One-time revenue streams (if any)
          2. Recurring revenue streams (if any)
          3. Additional revenue opportunities
          4. Gross margin for each revenue stream
          5. Retention rate
          6. Life of product
          7. Next product purchase rate
          8. Cost of capital rate for your business
      4. Calculate the cost of customer acquisition
        1. Determine how much it costs to acquire a customer over the short, medium, and long-term, based on your sales process
    5. How do you build and design your product?
      1. Identify key assumptions
        1. Determine which assumptions about your business have not been thoroughly tested
        2. Rank your top 5-10 assumptions in order of importance
      2. Test key assumptions
        1. Take your list of key assumptions and design empirical tests to validate or refute them
        2. Perform the empirical tests, moving quickly and efficiently to decrease the risk of your startup
      3. Define the minimum viable business product
        1. Integrate your assumptions into a systems test, consisting of the minimal product that a customer will pay for. The goal is straightforward – make a list of all your key assumptions, narrow your assumptions to the most important, put it/them into a product the customer can use, and see if they will buy it
        2. 3 conditions of the MVBP
          1. The customer gets value out of use of the product
          2. The customer pays for the product
          3. The product is sufficient to start the customer feedback loop, where the customer can help you iterate toward an increasingly better product
      4. Show that ‘the dog eats the dog food’
        1. Demonstrate qualitatively that customers will pay for the MVBP
        2. Develop metrics that indicate the level of word of mouth your MVBP is creating among customers
    6. How does your business scale?
      1. Calculate the TAM for follow-on markets
        1. Consider which follow-on markets you will expand to after dominating your beachhead market – upsell to current customers or same basic product to adjacent markets
        2. Calculate the size of these follow-on markets
      2. Develop a product plan
        1. Go beyond the MVBP to determine which features you will build out for the beachhead market
        2. Determine which adjacent markets you will sell to after dominating the beachhead market, and how your product will have to change for each new market

What I got out of it

  1. Probably the most practical book to find product market fit that I’ve ever come across. Insanely specific and detailed step by step process. Obviously creating a product or service that works can’t be reduced to a ‘formula’, but this at least gives you a framework

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