How to Start a New Business Using the Lean Startup Method (part 2 – value proposition)

Launched in tech university entrepreneur programs in California, the Lean Startup Method is expanding to other universities across the United States. After studying the failures of tech startups, the main goal of the Lean Startup Method is to eliminate all time, energy and money spent on creating products or services that nobody wants to buy. This method is intended for startup businesses, but it can also apply to existing businesses that want to grow.

Proponents of the Lean Startup Method say that most startups fail from a lack of customers. If you don’t understand your customer, you don’t know what products or services to build, or what features to include. So the first steps of Lean Startups involve identifying the potential customer and what problems your company will help them solve, or what opportunities your company will help them take advantage of.

The second step is to create a value proposition, a description of the product or service you will develop that will help the potential customer solve their problem or take advantage of their opportunity better than any other alternative. Your value proposition will explain what the product or service is, what it does, and how you believe it meets the important customer need. Your ‘deliverable’ at this stage might be a drawing of the potential product, a flyer outlining the main features and benefits, screen shots of simple software output, or photos of a simple mockup prototype.

Now go back out into the world and talk to more prospective customers. Ask them if they have the problem or opportunity you want to address, and confirm how important the problem or opportunity is to them. What is it worth to them to be able to solve this problem or seize this opportunity? You don’t want to build something the customer thinks is nice to have but has no priority in their purchase decisions. Then show them the deliverable. Do they think the product or service will meet their need? Do they see enough of a benefit to actually pay for the product or service? Get them to tell you what the product or service needs to deliver for them to use it now and pay for it.

After the number of customer meetings grows and the evidence builds up, you should be able to focus on a solution that has the minimum features needed to meet the customer need and get them to open their wallets. This minimum-feature solution is called the minimum viable product or MVP.

The other outcome could be that the potential customers don’t agree on what will meet their product or service need, or don’t show any real enthusiasm for your proposed solution. If that happens, it’s time to go back and re-think your customer base and product/service set. Are you talking to the right customers? Would another segment – different consumer or business demographics – have the need you’re attacking and be ready to pay for your solution? Or are you approaching the right customer base with the wrong product or service?

How to Start a New Business Using the Lean Startup Method (part 1 – target customer)

Launched in tech university entrepreneur programs in California, the Lean Startup Method is expanding to other universities across the United States. After studying the failures of tech startups, the main goal of the Lean Startup Method is to eliminate all time, energy and money spent on creating products or services that nobody wants to buy. This method is intended for startup businesses, but it can also apply to existing businesses that want to grow.

Proponents of the Lean Startup Method say that most startups fail from a lack of customers. If you don’t understand your customer, you don’t know what products or services to build, or what features to include. So the first steps of Lean Startups involve identifying the potential customer and what problems your company will help them solve, or what opportunities your company will help them take advantage of. And once you have an idea, you need to reach out to actual prospects and test whether they actually have those problems and opportunities, and will pay you to help them. Don’t let your product launch be the first test of customer acceptance the way so many tech failures have done.

So: no more theoretical business plans. Test and verify every one of your assumptions before you spend a lot of time or money creating a product or service that nobody wants.

Step 1 – Target Customer

Who are your potential customers? If they are consumers, what are their demographics and where are they located? If they are businesses, what industries are they in? What size is your target business? Where are they located? Who in the business makes the decision to buy?

What are their important problems (“pains”) or opportunities (“gains”)? Pains could be high cost, poor performance, or time spent to do something. Gains might be saving money, saving time, increasing income, or increasing status. The problem or opportunity has to be important enough to get the customer to take action and spend money.

How will the decision maker measure success – cost, product/service performance, speed performing a task, effort needed to perform a task, social visibility, or some other measure? How much of an improvement will you need to offer to get them to buy your product or service?

After you have answered these questions for yourself, go out and talk to members of your  target market and make sure they really have these problems or opportunities, and whether they will be willing to pay for them.

Armed with this information, you can develop your value proposition.

SBA and AARP Host Encore Entrepreneur Mentor Month in April

The U.S. Small Business Administration, SCORE and AARP are teaming up to host National Encore Entrepreneur Mentor Month in April, targeted at entrepreneurs over the age of 50. The organizations will match “encore entrepreneurs” with successful business owners and community leaders for advice and assistance.

“Many new entrepreneurs are saving their best acts for their encore performance,” said SBA Administrator Karen Mills. “They’re using their decades of expertise and their contacts to start new businesses and to finally pursue that venture that has been stirring their dreams for all these years.

Throughout April, SBA District Offices, state AARP Offices, and SCORE (and other SBA partners) will host more than 100 events around the country. Events include speed mentoring, which allows mentors and entrepreneurs to share information for five-minute sessions, and mentor lunches for entrepreneurs to learn best practices from successful small business owners.

Pinellas County SCORE’s free event will be presented from 1 PM to 3 PM April 25 at Schiller International University, 8560 Ulmerton Road Room 131, in Largo. To register for this free event, go to http://alturl.com/kiycg.

Can I raise money for my startup on Kickstarter ?

Since its creation in 2009, Kickstarter has raised about $540 million for about 38,000 projects. This is around 45 percent of the projects that were submitted. The great majority of successful projects raise $10,000 or less. The funding deadline for a project can be up to 60 days, but setting a limit of 30 days to raise the money is often more successful.

Kickstarter raises money for projects – activities that have a beginning and an end, and will produce something. Writing a book or preparing a music video is a project. Starting a business is not a project and doesn’t qualify for Kickstarter.

What kinds of projects can we submit for funding ?

Kickstarter’s current categories are art, comics, dance, design, fashion, film, food, games, music, photography, publishing, technology and theater. Art projects, comics, dance videos, iPhone docks, movies, window farms, video games, music albums, photography books, and 3D printers have all been successfully funded.

Are there other restrictions ?

The list of ‘prohibited projects’ is really long. Charity or cause funding projects are not accepted (see Indiegogo). They won’t accept requests to pay tuition or bills (not a project). Projects involving cosmetics, energy drinks, firearms or other weapons, personal care or medical products, nutritional supplements, real estate, or projects endorsing or opposing a political candidate are also prohibited. Check their web site for the complete list.

And Kickstarter can’t be used to solicit investments or loans.

Is that all ?

There’s more. People who submit projects in the US must be permanent US residents, at least 18 years of age, with a social security number (or EIN), a US bank account, US address, US state-issued ID (driver’s license), and major US credit or debit card. You will also need to create an Amazon Payments account.

People who pledge money to Kickstarter projects can live anywhere as long as they have a major credit or debit card.

What does it cost to submit a project on Kickstarter ?

Submitting a project to Kickstarter is free … that is, Kickstarter doesn’t charge a fee to submit a project. You will probably need to invest in a video explaining your project, and other  development or promotional material.

If you receive the pledge amount that you targeted, Kickstarter will charge you 5 percent. Payment processing fees are generally between 3 and 5 percent. On the other hand, if you don’t reach your targeted amount, you won’t receive any money and Kickstarter will charge you nothing. Kickstarter does not take any ownership position in your project.

People who fund your project expect a reward if your project is successfully funded. You define the rewards in your project description. Rewards are usually a product of the project –  for example, a copy of the CD, a print of the photograph, or a copy of the book. Donors may also be offered a chance to participate in the project by being a member of the crew, an extra in the cast, or to have their names listed in the book.

By the way, you can’t charge extra for postage or delivery charges. Keep that in mind when you are creating your rewards.

What happens if the project is funded ?

In the US, if your project is successfully funded, money goes from the backers’ (donors’) credit cards to your Amazon Payments account. Amazon Payments allows 14 days to collect and process pledges. After that, you can transfer money from your Amazon account to your bank account.

Is the project originator legally obliged to fulfill the promises of their project ?

Yes. Kickstarter’s Terms of Use require creators to fulfill all rewards of their project or refund any backer whose reward they do not or cannot fulfill. Kickstarter created these terms to create a legal requirement for creators to follow through on their projects, and to give backers a recourse if they don’t.

It’s pretty common for the project to take longer than expected. There can always be technical problems, and no one can anticipate all of the difficulties that can arise. Project originators are expected to keep the backers up to date, and if the project team is making a good-faith effort, donors will usually be patient. If the project team can’t finish the project (this happens too), the project team may be able to offer some refunds, or give an accounting of how they spent the donors’ money.

Anyone who donates to a Kickstarter project is rolling the money dice to some extent. Be prepared.

Oh! Who decides if a project is worthwhile and will be completed successfully ?

On Kickstarter, backers (donors) have to decide for themselves whether a project will be successful before they make the decision to contribute. Kickstarter doesn’t investigate a project team’s ability to complete the project.

Donors should focus on project creators who have a clear plan tor completing their project and have some experience with this kind of project. The project description should include background information on the development team and links to previous projects or existing businesses. If the project doesn’t have this kind of information, it’s probably high risk. As they say in Latin, caveat emptor.

Where can I go for more information ?

kickstarter.com/help/faq/kickstarter+basics