Friday, December 28, 2012

Burn Your Business Plan – Before It Burns You

Entrepreneurs around the globe are already practicing this method mix with great success from Silicon Valley to Switzerland, Colombia to Kenya, Singapore to Shanghai. These entrepreneurs avoid three common pitfalls:

1 – Falling in love with your first idea, without exploring alternatives

The same products, services or technologies can fail or succeed depending on the business model you choose. Exploring the possibilities is critical to finding a successful business model. Settling on first ideas risks the possibility of missing potential that can only be discovered by prototyping and testing different alternatives.

When Nespresso, a corporate start-up by food giant Nestlé, launched their revolutionary single portioned espresso machines they almost went bankrupt. Only after the introduction of a new business model did they grow to a 3 billion USD business.

When Xerox launched the first photocopier they couldn’t sell their technology until they found a business model that spread the machine through leasing and earned profits from small amounts of a large amount of photocopies. Entrepreneurs who understand business model design explore extremely different alternatives, rather than falling in love with their first idea.

2 – Not listening to customers hard enough

Constantly talking to real potential customers from the very inception of your ideas all the way to their execution is a prerequisite for any serious founder. Great entrepreneurs are often great listeners and they can spot patterns and pick up on small details in customer stories.

For example, good listeners try to get beyond what customers ”want”, towards understanding the jobs customers are trying to get done and the pains and gains they encounter related to them. Clayton Christensen, one of my favorite academics, often quotes legendary Harvard professor Theodore Levitt to illustrate this: ”People don’t want to buy a quarter-inch drill. They want a quarter-inch hole!” As an entrepreneur you want to figure out what the pains and gains related to getting that quarter inch hole are. That’s where you will create value for customers.

3 - Not testing hard enough