WEBVTT 00:10:00.000 --> 00:00:18.000 Welcome to episode 9 of nzangels.com, a guide to raising angel investment in Aotearoa New Zealand. 00:00:18.000 --> 00:00:23.000 I'm Dave Moskovitz, one of New Zealand's most experienced angel investors. 00:00:23.000 --> 00:00:27.000 And this is episode 9, the science of building startups. 00:00:27.000 --> 00:00:40.000 Back in the olden days, before the turn of the millennium, to be a great entrepreneur you needed to have a sixth or even seventh sense about how to hustle a business into existence based on your own beliefs of what the market wanted. 00:00:40.000 --> 00:00:47.000 It was a bit like alchemy or even magic at the same time as being potentially high cost and high risk. 00:00:47.000 --> 00:00:52.000 Steve Jobs was such a magician, but there aren't many Steve Jobses around. 00:00:53.000 --> 00:01:02.000 Then, in the 2000s decade, Steve Blank and Eric Reis burst onto the scene with their customer development and lean startup methodologies. 00:01:02.000 --> 00:01:08.000 These were codified in their respective books, The Four Steps to the Epiphany and the Lean Startup. 00:01:08.000 --> 00:01:18.000 Blank and Reis took a dark art and turned it into a scalable, repeatable process using the power of the scientific method. 00:01:18.000 --> 00:01:21.000 You may remember the scientific method from high school. 00:01:21.000 --> 00:01:33.000 Formulate a hypothesis, construct an experiment to validate or invalidate the hypothesis, analyze the data from the experiment, and come to a conclusion about whether that hypothesis was true. 00:01:33.000 --> 00:01:42.000 Rinse and repeat, changing your hypothesis and or the experiment based on what you learned until you have a solid result. 00:01:42.000 --> 00:01:46.000 Your startup is a science experiment. 00:01:46.000 --> 00:01:52.000 You need to run experiments to validate your hypotheses about what your customers will pay for. 00:01:52.000 --> 00:01:56.000 Steve Blank's central idea is encapsulated in his most famous quote, 00:01:56.000 --> 00:02:01.000 "There are no facts inside the building, so get the hell outside." 00:02:01.000 --> 00:02:11.000 And here we are, nearly 20 years later, and I still meet plenty of wannabe entrepreneurs who have built a thing without much reference to real customers. 00:02:11.000 --> 00:02:15.000 That only works if you have Steve Jobs level magical superpowers. 00:02:15.000 --> 00:02:22.000 It's much better to get out of the building and find out what your desired customers and market really need and are willing to pay for. 00:02:22.000 --> 00:02:28.000 You can't learn that with any accuracy without talking to a significant number of customers. 00:02:28.000 --> 00:02:38.000 And if you don't validate your hypotheses by talking to customers, you run a significant risk that you're wasting time and money building something that the market does not want. 00:02:39.000 --> 00:02:48.000 Eric Ries took these ideas much further, building a methodology around how to test your hypotheses by building a minimum viable product, or MVP, 00:02:48.000 --> 00:02:54.000 and using it to learn as much as you can, as quickly and cheaply as you can, without wasting resources. 00:02:54.000 --> 00:03:04.000 He says, the goal of a startup is to figure out the right thing to build, the thing customers want and will pay for, as quickly as possible. 00:03:05.000 --> 00:03:14.000 Before you get to product market fit, any resources you spend on anything else other than reaching product market fit are potentially wasted. 00:03:14.000 --> 00:03:21.000 Validated learning happens through a build, measure, learn cycle, echoing the scientific method. 00:03:21.000 --> 00:03:25.000 Now, you don't even need an MVP to test some things. 00:03:25.000 --> 00:03:31.000 You can do a smoke test before you build anything to determine if there's any interest at all in what you're proposing to do. 00:03:32.000 --> 00:03:38.000 Spend a small amount of money, run some Google or Facebook ads advertising the product that you haven't built yet. 00:03:38.000 --> 00:03:44.000 Getting any clicks? No? Maybe think about framing your ad or the whole concept differently. 00:03:44.000 --> 00:03:48.000 This tactic has been called "sell it before you build it". 00:03:48.000 --> 00:03:55.000 It would be a real pity to spend a lot of time and money building something, and then finding out that nobody wants what you've built. 00:03:55.000 --> 00:03:59.000 This is a leading cause of death for startups. 00:04:01.000 --> 00:04:14.000 In the previous episode of this series, episode eight, we talked about the Lean Canvas and how you can use it as a tool to discover the assumptions or hypotheses inherent within your business model that you need to validate. 00:04:14.000 --> 00:04:20.000 In the early stages, this is a great place to start applying the scientific method to build your business. 00:04:20.000 --> 00:04:27.000 And you need to learn to adapt, iterate and pivot as you validate and learn. 00:04:27.000 --> 00:04:35.000 Paraphrasing von Moltke the Elder, Steve Blank says that no business plan survives first contact with a customer. 00:04:35.000 --> 00:04:41.000 Ries says you need to know when to pivot and when to persevere with your existing strategy. 00:04:41.000 --> 00:04:50.000 I'll add to that. You also need to know when to piss off and do something else entirely. Pivot, persevere or piss off. 00:04:50.000 --> 00:05:02.000 In the early stages, the real measure of your runway isn't how much cash you have left. It's how many pivots you have left before you either get to product market fit or have to shut down. 00:05:02.000 --> 00:05:10.000 Like any good scientist, keep a lab notebook, it could be a spreadsheet, of the experiments you run and the results. 00:05:10.000 --> 00:05:15.000 You can then go back over the data and learn from the patterns that you observe. 00:05:15.000 --> 00:05:24.000 Making good decisions, especially business changing decisions like whether to pivot, persevere or piss off, depends on having good data on which to base that decision. 00:05:24.000 --> 00:05:39.000 We'll have a detailed discussion of metrics in our next episode. Spoiler alert: it's tempting to choose vanity metrics, things that are easy to measure or make you look good, but these are not the numbers that are going to move your business forward. 00:05:40.000 --> 00:05:51.000 Your homework for this session is, if you don't have an MVP yet, to figure out what the smallest thing that you can put into the market to start testing your assumptions with real people. 00:05:51.000 --> 00:06:00.000 If you have an idea for an MVP that you've been delaying building, can you strip that back substantially? It might even be as tiny as a smoke test. 00:06:00.000 --> 00:06:07.000 In all seriousness, what's stopping you from having that in market in the next few days? 00:06:08.000 --> 00:06:13.000 If you do have a product in market already, figure out what is the next thing you need to learn? 00:06:13.000 --> 00:06:18.000 What experiments can you run to learn that thing from actual interactions with real people? 00:06:18.000 --> 00:06:23.000 Can you instrument the capability to run experiments directly into your product? 00:06:24.000 --> 00:06:26.000 Let's finish up with Eric Ries. 00:06:26.000 --> 00:06:32.000 Startup success is not a consequence of good genes or being in the right place at the right time. 00:06:32.000 --> 00:06:38.000 Startup success can be engineered by following the right process, which means it can be learned. 00:06:39.000 --> 00:06:45.000 And just before we go, we have some bonus content for you in this nzangels.com episode page. 00:06:45.000 --> 00:06:53.000 It's an eight-minute crash course on problem solving for startups that I made in 2021, which reinforces many of the concepts in this episode. 00:06:54.000 --> 00:07:04.000 This will give you some tools for punching through those difficult issues on your way to startup success, including divide and conquer, the five whys, rubber ducking, and more. 00:07:05.000 --> 00:07:11.000 I look forward to seeing you in our next episode about metrics. Until then, ka kite!