Adopt the New Startup Model: Nail It Then Scale It

I see more and more entrepreneurs who seem to have everything going for them – vision, motivation, passion, even a good business plan, product, and money, and yet they can’t close customers. Maybe it’s time to look harder at the mantra of a new breed of gurus and successful entrepreneurs, including Steve Blank and Eric Ries, called “nail it then scale it” (NISI).

You can review all the specifics of this approach in a new book by Nathan Furr and Paul Ahlstrom, appropriately titled “Nail It then Scale It: The Entrepreneur's Guide to Creating and Managing Breakthrough Innovation,” but I will net it out here. I found their five phases of the process to be compelling, based on my own years of experience mentoring startups:

1. Nail the pain. Great businesses begin with a customer problem that has a big and monetizable pain point. Avoid the three big mistakes, of guessing but not testing the pain (on real customers), selecting a low customer pain (solution is only nice to have), or selecting a narrow customer pain (small number of customers willing or able to pay).

2. Nail the solution. Neither breakthrough technology nor maximum features will assure that “if we build it, they will come.” In fact, NISI recommends starting with the minimum focused set of features and technology that will drive a customer purchase. Success demands testing the solution early and quickly in the market, then iterating to get it right.

3. Nail the go-to-market strategy. In parallel with nailing the solution, you need an in-depth understanding of your target customer’s buying process, the job they are trying to get done, the market infrastructure, and a stable of serious pilot customers. Do real tests with real pricing to see if customers will pay you, without being pushed.

4. Nail the business model. Leverage your customer conversations to predict and validate your business model. For example, when you think about distribution channels, revenue streams, or the relationship with the customer, ask customers what they expect. Don’t forget a viable financial model of costs, margins, customer acquisition, and break-even.

5. Scale it. Don’t attempt to scale it until you have a proven repeatable business model that predictably generates revenue. Only then is it time to focus on the get-big-fast strategy, and the transformation of three key areas from startup to a managed growth company. These areas include market, process, and team transitions.

These pragmatics and points of focus can effectively counter three core myths which trap too many enterprising and capable entrepreneurs today:

• Hero myth: Why believing in your product leads to failure. All too often, founders fall in love with their products or technology, ignore negative feedback from customers, and spend years building a product based on a vision that no one else shares.

• Process myth: Why building a product leads to failure. Conventional wisdom is that after a great idea, the next steps are raise some money, build a product, then go sell the product. This doesn’t work when attacking unknown problems with untested solutions.

• Money myth: Why having too much money leads to failure. The old saying that “it takes money to make money” isn’t so simple. Money allows entrepreneurs to execute a flawed business plan far too long, rather than stay focused on the market and adapt.

At the heart of it, to be a successful entrepreneur you have to be totally customer centric, and learn to change and adapt as fast as the market. The pace of change in the marketplace is escalating, so entrepreneurs have to improve their ability to deal with change.