Tag: startup

  • Value for Money

    There’s one observation that I pretty much always bring to the table when I discuss the rates for our work at Lunar Logic. The following is true whenever we are buying anything, but when it comes to buying services the effect is magnified. A discussion about the price in isolation is a wrong discussion to have.

    What we should be discussing instead is value for money. How much value I get for what I pay. In a product development context, the discussion is interesting because value is not provided simply by adding more features. If it was true, if the following dynamics worked—the more features the better the product—we could distill the discussion down to efficient development.

    For anyone with just a little bit of experience in product development such an approach would sound utterly dumb.

    Customers who will use a product don’t want to have more features or more lines of code but they want their problem to be solved. The ultimate value is in understanding the problem and providing solutions that effectively address it.

    Less is more mantra has been heard for years. But it’s not necessarily about minimalism, but more about understanding the business hypothesis, the context, the customer and the problem and proposing a solution that works. Sometimes it will be “less is more”. Sometimes the outcome will be quite stuffed. Almost always the best solution will be different that the one envisioned at the beginning.

    I sometimes use a very simple, and not completely made up, example. Let’s assume you talk to a team that is twice as expensive as your reference team. They will, however, guide you through the product development process, so that they’ll end up building only one third of the initial scope. It will be enough to validate, or more likely invalidate, your initial business hypothesis. Which team is ultimately cheaper?

    They first team is not cheaper if you take into account the cost of developing an average feature. Feature development is, however, neither the only nor the most important outcome they produce. Looking from that perspective the whole equation looks very differently, doesn’t it?

    This is a way of showing that in every deal we trade different currencies. Most typically, but not necessarily so, one of these currencies is money. We already touched two more: functionality or features and validation of business hypothesis. We could go further: code quality, maintainability, scalability, and so on and so forth.

    Now, it doesn’t mean that all these currencies are equally important. In fact, to stick with the example I already used, rapid validation of business hypothesis can be of little value for a client who just needs to replace an old app with a new one, that is based on the same, proven business model.

    In other words in different situation different currencies will bear different value for a purchasing party.

    The same is true for the other side of the deal. It may cost us differently to provide a client scalable application than to build a high quality code. This would be a function of skills and experience that we have available at the company.

    The analogy goes even further than that. We can pick any currency and look how much each party values that currency. The perception of value will be different. It will be different even if we are talking about the meta currency—money.

    If you are an unfunded startup money is a scarce resource for you. If at the same time we are close to our ideal utilization (which is between 80% and 90%) additional money we’d get may not even be a good compensation for lost options and thus we’d value money much less than you do.

    On the other hand, if your startup just signed round B funding abundance of available money will make you value it much less. And if we just finished two big projects and have nothing queued up and plenty developers are slacking then we value money more than you do.

    This is obviously related to current availability of money and its reserves (put simply: wealth) in a given context. Dan Kahneman described it with a simple experiment. If you have ten thousand dollars and you get a hundred dollars that’s pretty much meh. If you have a hundred dollars and you get a hundred dollars, well, you value that hundred much, much more.

    Those two situations create a very different perception of the offer one party provides to the other. They also define two very different business environments. In one it is highly unlikely that the collaboration would be satisfying for both parties, even if it happens. In the other, odds are that both sides will be happy.

    This observation creates a very interesting dynamics. The most successful deals will be those when each party trades currency that is low-valued for the one that is valued highly.

    In fact, it makes a lot of sense to be patient and look for the deals where there is a good match on this account than to jump on anything that seems remotely attractive.

    Such an attitude requires a lot of organizational self-consciousness on both sides. At Lunar Logic we think of ourselves as of product developers. It’s not about software development or adding features. It’s about finding ways to build products effectively. It requires broader skills set and different attitude. At the same time we expect at least a bit of Lean Thinking on account of our clients. We want to share understanding that “more code” is pretty much never the answer.

    Only then we will be trading the currencies in a way that makes it a good deal for parties.

    And that’s exactly the pattern that I look for whenever I say “value for money.”

  • Value of MVP and Knowledge Discovery Process

    By now Minimal Viable Product (MVP) is for me mostly a buzzword. While I’m a huge fan of the idea since I learned it from Lean Startup, these days I feel like one can label anything an MVP.

    Given that Lunar Logic is a web software shop we often talk with startups that want to build their product. I think I can recall one or maybe two ideas that were really minimal in a way that they would validate a hypothesis and yet require least work to build. A normal case is when I can easily figure out a way of validating a hypothesis without building a half or even two thirds of an initial “MVP”.

    With enough understanding of business environment it’s fairly easy to go even further than that, i.e. cut down even more features and still get the idea (in)validated.

    A prevalent approach is still to build fairly feature-rich app that covers a bunch of typical scenarios that we think customers would expect. The problem is it means thinking in terms of features not in terms of customer’s problems.

    Given that Lunar is around for quite a long time – it’s going to be the 11th birthday this year – we also have a good sample of data how successful these early products are. Note, I’m focusing here more on whether an early version of a product survived, rather than whether it was a good business idea in the first place.

    Roughly 90% of apps we built are not online anymore. It doesn’t mean that all these business ideas weren’t successes. Some eventually evolved away from the original code base. Others ended up making their owners rich after they sold the product to e.g. Facebook. The reasons vary. Vast majority simply didn’t make the cut though.

    From that perspective, the only purpose these products served was knowledge discovery. We learned more about business context. We learned more about real problems of customers and their willingness to pay for solving them. We learned that specific assumptions we’d had were completely wrong and others were right on spot.

    In short, we acquired information.

    In fact, we bought it, paying for building the app.

    This is a perspective I’d like our potential clients to have whenever we’re discussing a new product. Of course we can build something that will cost 50 thousand bucks and only then release it and figure out what happens. Or maybe, we can figure out how to buy the same knowledge for much less.

    There are two consequences of such approach.

    One is that most likely there will be a much cheaper way to validate assumptions than building the app. The other is that we introduce one more intermediate step before deciding to build something.

    The step is answering how much knowing a specific thing is worth for us. How much would we pay to know whether our business idea would work or not. This also boils down to: how much it will be worth if it plays out.

    I can give you an example. When we were figuring out whether our no estimation cards make sense as a business idea we discussed the numbers. How much we may charge for a deck. What volumes we can think of. The end result of that discussion was that we figured that potential business outcomes don’t even justify turning the cards into a product on its own.

    esimtaion cards

    We simply abandoned the productization experiment as the cost of learning how much we could earn selling the cards was bigger that potential gain. Validating such a hypothesis wasn’t economically sensible.

    By the way, eventually we ended up building the site and made our awesome cards available but with a very different hypothesis in mind.

    In this case it wasn’t about defining what is a Minimal Viable Product. It was rather about figuring out how much potential new knowledge is worth and how much we’d need to invest to learn that knowledge. The economic equation didn’t work initially so we put any effort on hold till we pivoted the idea.

    If we turned that into a simple puzzle it would be obvious. Imagine that I have 2 envelopes. There is a hundred dollar bill inside one and the other is empty. How much would you be willing to pay for information where is the money? Well, mathematically speaking no more than 50 dollars. That’s simple.

    If only we could have such a discussion about every feature that we build in our products we would add much less waste to software. Same thing is true for products.

    Next time someone mentions an MVP you may ask what hypothesis they’re going to validate with the MVP and how much validating that hypothesis is worth. Only then a discussion about the cost of building the actual thing will have enough context.

    By the way the more unsure about the outcomes of validating the hypothesis they are the more valuable the actual experiment will be.

    And yes, employing such attitude does mean that many of what people call MVPs wouldn’t be built at all. And yes, I just said that we commonly encourage our potential clients to send us much less work than they initially want. And yes, it does mean that we get less money building these products.

    And no, I don’t think it affect the financial bottom line of the business. We end up being recommended for our Lean approach and taking care of best interest of our clients. It is a win-win.

  • Minimal Indispensable Feature Set

    Minimal Viable Product (MVP) is such a nice idea. Let’s build something that is as small as possible and at the same time viable, which translates to “provides value and thus make sense to build it.” Two adjectives in a mix where one counterbalances the other and vice versa.

    Since I currently run a web software house I hear the term MVP very frequently. Or to be precise I hear the term MVP being abused very frequently. On some occasion the viable part would be ignored. Much more frequently though the way people understand MVP has virtually nothing to do with the minimal part.

    During the early discussions about products our potential clients want to build I would typically ask about a business case behind a project or an app. It’s not about what it is that someone wants to build. It’s about why it is worth building that thing in the first place.

    Note, I’m not judgmental. We contributed to better or worse ideas but I don’t reserve the right to know what’s worth building and what’s not. In fact, my questions have a very different purpose. What I want to achieve is to learn the value behind the app so that we can have a meaningful discussion about stuff in a backlog.

    Now, this is the part where typically I’d really like to have people read Lean Startup before they are even allowed to talk to any software shop about building their product. And then, read it once again to understand what they are reading in depth.

    The reason is that most of the time I can instantly come up with a batch of work that is one third, one fifth or one tenth of what was labelled an Minimal Viable Product by a potential client and it would still validate a business hypothesis behind a product. It likely means that with a bit of effort and better understanding of the context our clients would be able to cut it down way further than that. It may mean that they’d be even able to validate the basic idea without writing any software at all.

    These so called “MVPs” wouldn’t recognize a real Minimal Viable Product even if it kicked them in the butt.

    A sad part is that most of the time discussion around what really is minimal is futile. While I can provide my insight and encourage to learn more about the topic an argument often boils down to “we really need to build it all because, well, we don’t believe anything short of that would work.”

    The long story short, I believe that MVP is in the top 5 most abused terms in our industry. By now referring to MVP is mostly meaningless unless you ask a series of questions to understand what one means by that. We could have skipped he MVP part, have the same discussion and we’d save a little bit of time.

    That’s why I believe we need another frame for discussing what the initial increment of a product is.

    What I caught myself on a number of times was proposing our clients a different constraint. Let’s step aside from discussing what is minimal and what is viable. Let’s figure out which features will be the part of the product in every single, even most crazy, scenario that we can think of. And I really mean every single one of them.

    What I try to achieve with this discussion is to find the set of features that is a common denominator for all the options of building the product. There’s always something like that. A core process that the app support. A basic idea that the app is built upon. An ultimate issue that the app attempts to solve.

    What I don’t expect is to see the full solution, even the most basic one. It would be an MVP on its own and we’d be back to the square one. What I expect is just a bunch of bits and pieces that are required to eventually build the app.

    It is neither minimal nor viable.

    It is indispensable though.

    There are a couple of reasons to do that. The first one is that it reframes how both parties, the client and us, think of a product. We don’t try to settle on what is viable and what is minimal. We simply go with something that we know will be useful.

    The other one is that it addresses the huge challenge of building a relationship. In fact this part goes really deep. It typically starts with a question how much building something would take. Some sort of an estimate. Well, it’s another thread. I’m not fundamentally against the estimates and see value in understanding generally how much something would take. At the same time I acknowledge that humans are simply not well equipped to estimate as we can’t learn to assess stuff in abstract measures. At the end of the day though, the smaller the batch size of work the smaller the potential risk and the smaller the estimation mistake.

    In other words the smaller the initial batch of work the easier it is to start working.

    It is true from another perspective as well. The most important modifiers of the cost of building a product in a client-vendor scenario isn’t anything related to the product itself. It is the quality of collaboration. It’s about both parties feeling like they’re the part of the same team. It’s about short feedback loops. It’s about working together toward the goal.

    Unless it is about lack of transparency, distrust, and exploiting the other party.

    The tricky part here is that you don’t know where at this spectrum you are until you start working. Building the smallest possible batch of work together pretty much gives you all the knowledge you needed. Seriously, you don’t need more than just few weeks to get a good feeling where collaboration part is going.

    That’s why this the idea of Minimal Indispensable Feature Set is so useful whenever more than a single party is involved in building a product.

    Minimal Indispensable Feature Set is perfectly aligned with building an MVP. In fact it is a subset of an MVP. At the same time it addresses the part of the setup that goes way beyond simply defining of what product is.

    We live in a world where more and more frequently the building part is outsourced to another party. Getting the collaboration right at least as critical as getting the product idea right.

  • Role of Leaders in Startups

    Who should be a leader of a startup? An easy question. One of founders. Or even better each of them. They are naturally predestined to leading role. They got the idea. They own the company. They keep all things running.

    Now the more important question: what kind of leaders are they?

    Why is it so important you ask? Well, having a great idea, being a CEO of a company and managing it on a daily basis tells you nothing about leadership. You can end up working either for a great leader or for a sick asshole. No matter which one is true as far as the startup has money leaders won’t change anytime soon.

    Because of a small size of the startup role of leaders is defined a bit differently. Not only they motivate their teams and set up a strategy of the company but they’re also personally responsible for building company culture and enabling company growth.

    In a big organization one asshole doesn’t make much difference – you either work for dozens of them or he’s going to be the only low-performer among great leaders. In a big organizations company culture is already set and it takes a lot of effort and a lot of people to change it (for better or worse). In a big organization one person won’t hamper growth even if that’s CEO who believes leadership is all about yelling at people.

    In a startup one person makes a difference if he leads the company. If he’s a sick weirdo don’t expect healthy atmosphere all over the place. If he makes working for him a hell you won’t see many long-runners in the team as everyone comes and goes as soon as they realize things just won’t change with that kind of boss. In small organizations poor leaders are the main reason why companies suck.

    If you worked for a person who is physically unable to build anything bigger than a couple dozens of people or creating healthy atmosphere at work you exactly know what I’m talking about. Big corporations can be filled with these types and they’ll manage. Startups don’t have luxury to be lead be them.

    That’s a final post of Entreprenurs Time series. I hope you’ve enjoyed it. Please leave your feedback and let me know whether I should post this kind of series in the future.

     

  • Lessons Learned: Startup Failure Part 2

    Last time I shared mistakes we made while working on Overto – startup which was closed down some time ago. Today another part – things we did right and are worth replaying next time I’ll be engaged in a startup.

    Setting up a company behind

    Setting a company, which is quite an effort in Poland, from the very beginning was really a good idea. All founders knew each other well so lack of trust wasn’t the main reason standing behind the decision. We just wanted to give ourselves a bit of motivation making it a real business. However thing we didn’t really plan was that we gained much credibility showing company’s details instead of letting people think the whole thing was created by some student during holidays and won’t be supported in any way in future. Seeing a company behind a service doesn’t guarantee you it won’t die but at least you can be sure someone cares.

    Long discussions before start

    Before launching the project we had very long discussions about what we plan to do and how we want to do it. Of course not every detail was checked but when I compare Overto to other startupish projects I was working on it was really well-thought at the beginning.

    Wide range of roles covered with our experience

    We had really good pack to run an internet service. Development, administration, user support – in all those areas we had experience from the past. There weren’t many things which could have surprise us. We weren’t forced to look for a specialist in any technical aspect of building our application.

    Working in the same place

    For some time we worked in the same building which helped much in decision-making process. We could all meet ad-hoc whenever something important had to be decided. After some time we spread among different places and suddenly we saw how much value was in working in the same office.

    Despite we invested some money to fund the project I don’t treat it as a loss. For experience I gained it was a low price. Another time when I’ll decide to jump to that kind of project chances of success will be bigger.

    First part of lessons learned from startup failure

    Whole Entrepreneurs Time series.

  • Lessons Learned: Startup Failure Part 1

    Some time ago we closed down Overto – startup I was involved in. It was a failure – pretty obvious thing since we’ve closed the service. Since we learn much on our mistakes I think a reliable analysis why the business have failed should be valuable for you. For the beginning things we screwed.

    No one working full time

    From the very beginning we knew none of people engaged is willing to leave their daily jobs to commit fully to the startup. We thought we’d able to run internet service after hours. To some point that was true. As far as nothing bad was happening with the servers and the application it was all fine. We were working on new features when we had enough free time. Problems started when we faced some issues with our infrastructure. We weren’t able to resolve issues on the fly and had several downtimes. You can guess how it influenced user experience. That also backfired on service development since we had to focus on current problems instead of adding new functionalities. Lack of person working full-time and being able to deal with maintenance and bug fixing was the most important reason of failure.

    Catching the market

    That’s partially a consequence of the previous point. Since we spent majority of our limited time on trying to keep the service running we weren’t able to catch the changing market. We needed to cover new areas to move the application to another level but we couldn’t complete ongoing development. The whole project stopped in beta version and for users it didn’t look like anything was about to change.

    Lack of marketing skills

    Thin line between life and death of internet service is a number of users. For the initial period of time the numbers were growing systematically. Then we hit the ceiling of what we could achieve effortlessly. It was a time to do some marketing. Unfortunately no one of us was skilled in that area. Even worse, no one had enough time to fill the gap. That would be another stopper if we dealt with the problems mentioned above.

    Business model

    We hadn’t checked very well a business model we set up on the beginning. We were surprised a couple of our features weren’t as unique as we’d initially thought. Ironically that wasn’t a big problem since we had a bunch of ideas how to adjust the strategy in a new situation. Anyway, you should plan to change your initial business model.

    Screwed chance of selling the business

    After we’d decided we won’t be able to maintain the service in the long run we had a chance to sell it. To make a long story short we screwed negotiations starting with way too high price. We thought more about how much work we put into the project than how much it can be worth for potential buyers. Things are worth as much as one’s willing to pay for them, no matter how long it took you to produce them.

    Waiting too long with final decisions

    I think that one is a bit sentimental. Since the service was our child we were reluctant to make a decision about closing it faster and limit losses. We’ve been tricking ourselves thinking that everything would be fine while we couldn’t get the application back to work properly.

    Second part of lessons learned from startup failure

    Whole Entrepreneurs Time series.

  • Almost Completed

    One of projects I’m contributing to is a micro-ISV service. Maybe it’s not the perfect example of micro-ISV, because at least several people are engaged. It’s not single-person business, but the basis is the same. Whole idea was in its origin a world-changing service (or close). The main person working on the idea is a guy who loves it and strongly believes that the service will be great success. The rest of team keeps adding new brainstormed ideas to current concept, keeping ourselves on fire.

    Just like most of micro-ISVs. Just like most of micro-ISVs which failed. I wrote some time ago that faith and will to contribute in the long run are essentials when trying to build a product or service as the micro-ISV. But that’s not all. Another factor which is probably even more important is consistency.

    I’ve seen different “micro-ideas” (like you can call micro-ISV’s ideas for products or services) which had potential at least to earn for themselves. I played my role in those projects as a co-author, as a supporter, as a user. Range of ideas was wide – from a very fresh look on Internet entertainment services to yet another communicator. All of them I can call (more or less) failures. None of them fulfilled author’s expectations in area of revenue, number of customers or users etc. Many weren’t even born to be shown to the world – they died during pregnancy.

    When you have your application completed in 90% it’s usually much less than halfway to successful release. And when you’re 90% completed all the fun is the past. You developed the most enjoyable and the most challenging parts of a code. You exploited all your creative ideas during design. Now you have to focus on boring little improvements of website. Now you have to force your creative soul to think how to make your customers happy instead of thinking how to enjoy yourself with the work. Now you have to fix all those unrepeatable tiny little bugs which allow your frustration to grow. Now you have to deal with The Boring Time. And if you allow yourself to become bored – you lose.

    90% of completeness is just the beginning of the road. In this case 90% finished often means 100% failed.