From a Software Idea to an Actual Business

So you have an idea for a cool new software product. You feel there might be a huge potential in it, you are enthusiastic, nay passionate about it. Great. What next steps are you going to take now?

If you are like me, a (would be) techie that knows how to code, you will probably open up your IDE and start coding. After all, it can't be that difficult to code up the idea. Non-technical people will start making slides and drawings on how the product would have to look like. They might even try to sell it already. Most of those people will be blocked however on the technical stuff. I know a couple of examples of non-technical people that even learned how to code themselves —guided by the numerous tutorials, screencasts and blogs out there— and built that first prototype themselves.

Building a business

You could wonder though if those steps are really the ones you should take if you are serious about your idea. Is a good product the only thing you need in order to build a successful business? It will certainly be one of the elements, but surely won't be the only one. You will need to wonder about how you will make money with that cool new product of yours. You will need to be able to reach customers. There is a lot more to figure out than just the product alone. And even if you truly understand that you are in the company building business as opposed to the product building business, you'll quickly realize (and/or learn the hard way) that your original ideas about markets and customers are not exactly in line what markets and customers are really thinking.

One remark on the side: this whole story does not only apply to startup companies. Established companies that are about to venture into a new market, with a new product are in a similar situation.

So, you have this great idea for a software product, and you realize all the above, what to do next? Luckily there is some guidance out there. Especially in Silicon Valley, people started realizing that the adagio "Build it, and they will come" is not true. Recent books like Steve Blank's "The four Steps to the Epiphany" (Amazon), or Eric Ries' "The Lean Startup" (Amazon) sketch how you move forward in ways that minimize the risk of investing too much time, effort and/or money in an idea nobody will ever buy.

Entrepreneurship as a science

The essence of their approach is deceptively simple: you should treat your idea as a research project!

  1. You describe your vision and highlight your business hypotheses.
  2. You define experiments to test your most critical hypotheses, you execute your experiments thereby collecting data, and then you analyze the data, thereby (in)validating your hypotheses under test.
  3. If the outcome is positive, you persevere; if not, you slightly change your vision (pivot) and start over again. Whatever amount of "product" you need to conduct these experiments is enough.

The idea loop

So, let's zoom in on those steps.

Document your idea

A simple yet extremely effective tool to document your idea is Osterwalder's business model canvas (you can find your free copy of the canvas here). This canvas describes 9 building blocks for a business model. (I recommend watching this video for a 2 minute overview). Filling out a couple of them for your cool software idea can already be a sobering experience. Based upon your canvas, highlight those elements that you are most uncertain about. Blank suggests that in the very early stage of an idea, your whole canvas is one big assumption in need for testing.

Testing your hypotheses

A good place to start your testing is the right hand side of the canvas: your customer segments, value proposition and revenue. Is the segment you'll be targeting really experiencing the problems you think you're solving? Do customers in this segment recognize your solution as a viable solution to those problems? And would these customers be willing to pay for your solution? You don't need a whole lot of product to test these hypotheses. In the very early stage, a few 30 minute interviews with potential customers can already provide tons of information. (Look here for some info on customer interviews). Important here is to make sure that whatever experiment you do, you do it consistently, recording the data you need.

Pivot or persevere

If your experiments validate your hypotheses, you are on the right track and can continue to refine your idea more. If the experiments invalidate your hypotheses though, you will need to slightly alter your vision. This is often called a pivot. Mind that a pivot is not a random walk, it is a well considered change of a certain aspect of your vision, not a change to something completely new. Examples of pivots: you might target a (slightly) different customer segment, highlight a different value proposition or rethink your revenue streams.

 

Although all of this sounds very reasonable and intuitive, having been in a startup myself, and coaching many others, I can say without hesitation: it is not! You often need a lot of creativity to define good experiments and interpret the data. Most of this will be new for you. This is why Sirris decided to sponsor a Lean Startup Circle Brussels. This initiative will allow entrepreneurs and intrapreneurs to share experiences on how to document and test your business hypotheses. More information on the meetup page.

I'm looking forward to your stories on how you go from idea to successful business (unit).