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Jul 10 2010

Lean startups: Find the business' core, then build the periphery

In a useful technology, there's a scientific principle at the core, then engineers build the periphery around that to make a useful device. Take the cell phone, specifically its communication means. First came the scientific discovery of radio waves (in 1865 by Maxwell) and their propagation through air (in 1887 by Hertz). Then, engineers realized radio waves could be used for communication, and in 1973 Martin Cooper of Motorola figured out how to make a practical handheld device for everyday people.

Core and periphery

What if it were done in the opposite order? In other words, if radio waves hadn't been discovered, but someone wanted to make an interpersonal communication device and assumed a technology existed to transmit signals. They could spend all kinds of time and money designing the handset, the user interface, and the communication protocols. But the whole thing wouldn't work because there was no known way to transmit messages.

Nevertheless, a slick salesman can talk endlessly about the peripheral stuff – the features of a handheld wireless communication device – and obscure the fact that there's no core. This is especially likely if the audience doesn't have domain expertise or doesn't ask enough hard questions. And sometimes a company unintentionally fools itself: as recently posted on Ginzametrics, "When a company is trying to figure out what customers will pay for, it can be a handicap to build too much without knowing the answer to that question."

In other words, the entrepreneur has a grand vision for a product, but he hasn't discovered the core of the business – a profitable business model. Rather than prove his business model first, he gets obsessed with doing the engineering (periphery) that will surround the business model (core) once the model works. So he wants to hire lots of engineers, hire managers and give them fancy titles like Vice President of Sales, and buy servers and rent office space. Well, that requires outside funding, so he spends a lot of time looking for an angel investor or seeking venture capital funding. With all those distractions, how much is he focusing on the actual product and business model?

Rather than invest all that time and money to build the engineering around a business model that may or may not work, wouldn't it make sense to invest a much smaller amount in proving the business model? For example, figure out what the core function of your iPhone app is; develop it; then prove that a good number of people will pay money for it. If that doesn't work, maybe advertisers will pay enough for ads to reach your audience. If that doesn't work, maybe you can modify your idea, or "pivot," to meet a need you've discovered during the process, perhaps from your users or beta testers.

The Entrepreneur´s Guide to Customer Development

If none of your business models work, maybe the core idea just won't work. That's disappointing, but it's much better to find that out cheaply because:

  • you haven't spent too much of your time and money,
  • you haven't spent a lot of other people's time or money, and
  • you can move on to the next idea.

For more about lean startups, see the work of Steve Blank and Eric Ries. Ries recently recommended a new book called The Entrepreneur’s Guide to Customer Development by Brant Cooper and Patrick Vlaskovits.

Image credit: Dendrimer depiction adapted from Wikipedia.

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