How You Can Build Your Entire Company With This Step-by-Step Framework: Disciplined Entrepreneurship
As this survey from Babson college (2019) denotes, 55% of Americans have started at least one business in their lifetime. By the same token, about 50% of businesses close within their first five years of life (Bureau of Labor Statistics). A business may be a deceptively simple-looking activity (i.e., offering something of value to a group of people who truly need it). Except, it is not simple. Business is complex by definition.
Complexity stems from the many factors interacting together at the same time, making things challenging to fully conceptualize. One of the key reasons for such a high failure rate is the lack of a systematic approach to business analysis and taking calculated risks.
When starting a new venture, it is difficult to even envision all the components you need to get up and running successfully. This is why I believe disciplined entrepreneurship is a valuable framework for assessing the value of your idea, its feasibility, costs, revenue estimates, and product specifications—and then act on it or shut it down and try again (hence saving your time on implementing non-feasible ideas).
Disciplined entrepreneurship is a framework for innovators, entrepreneurs, startup founders, or product managers taught at MIT and developed over time by prof. Bill Aulet. Disciplined entrepreneurship is not a shiny tool that can do the work for you. It is a 24-step framework that holds your hand and guides you through all the steps it takes for you to establish a solid, long-lasting business or innovative product. It is also a great tool to find out if it’s better for you to quit your idea and pursue a different one, which is an amazing benefit because quitting an idea feels almost impossible to almost everyone, especially when you have the idea yourself and are emotionally attached to it.
What it is for
Disciplined entrepreneurship is for anyone who is looking to explore their innovative idea in depth to find out (a) if it’s actually an innovative idea, (b) if it’s a good idea from a customer, business, and technical perspective, (c) how to implement the idea to create new markets or innovate existing ones.
Disciplined entrepreneurship is a framework that takes cognitive effort, authentic emotional detachment from the idea, and some time. With those three ingredients accepted and in place, it can provide you with a life-enhancing trajectory and mental model to validate, test, and implement your ideas from the very early stages to having a product that’s ready to use.
The framework explained
Disciplined entrepreneurship (DE) is composed of 6 major themes, each of which is broken down into steps, for a total of 24 steps. You must take each step sequentially, following the order proposed in the original framework. The core focus of the entire DE journey is to take the perspective of the customer and get out of your own way. When you build an innovative product, it is especially crucial to do customer research to validate or falsify your hypotheses of what your target customers want.
It is true that sometimes customers do not know what they want until you put the thing in front of them and market it in such a compelling way that it sticks in their minds (e.g., Ford, Apple). It is also true that this is the exception, and customer research with early adopters can go a long way in helping you get a sense of the value of your innovative idea.
By implementing the DE framework, you back up your business with real-life customer research, systematically. This is already a competitive advantage for you, because most businesses and startups do not go through this phase, and they are more likely to fail within their first five years of life. You put in more work upfront to reap the benefits in the near future.
Theme 1: who is your customer?
Everything starts with the customer. You develop a product because you want to serve your customers and solve one of their most pressing problems. Your entire startup is focused on the customer first and foremost because without a real interest from the customer there is no business. It is necessary to honestly go through the market analysis in this stage so that you can find out if there is real interest in your idea/product and proceed accordingly.
step 1 —> market segmentation
In this step, you begin the journey by building your product back from the customer. To find the customer persona, you need to begin by brainstorming market segments. Market segments are the end-users for the market segment, rather than broad industries. Within an industry, there are many market segments. “The automotive industry” is an industry and not a good fit for a market segment. “Individuals who own at least one supercar” is a good market segment.
step 2 —> select a beachhead market
Your beachhead market is the market segment that’s most suitable for your product/service. In this step, you conduct primary market research (i.e., get in touch with real people that are part of your market segments and interview them). A solid market needs to have the following characteristics, according to prof. Aulet:
End-users in the market will buy the same product
There is a similar sales process (persona, value prop)
Word of Mouth (WOM) exists
step 3 —> build an end-user profile
The end-user profile is a description of a typical person from the beachhead market you selected and analyzed in step #2. You will depict the end-user profile by describing their demographics, psychographics, as well as watering holes (i.e., places where the end-user gathers with other people, which fosters word of mouth).
step 4 —> calculate the TAM size for your beachhead market
TAM stands for “total addressable market”. This is your calculation of the total amount of people you can address with your offering, in the beachhead market you picked above. TAM calculation is a sanity check to validate or falsify your beachhead market choice and current direction.
step 5 —> profile the persona for the beachhead market
A persona is similar to the end-user you depicted in step #3 but much more detailed. A persona is a story-driven representation of the typical end-user you identified in the previous steps.
Theme 2: what can you do for your customer?
If you “pass” theme 1 (who is your customer) and find out that there is a market opportunity and you have identified your customer persona, you can move on to theme 2 in Disciplined Entrepreneurship. This theme is still taking the perspective of the customer (the entire framework is heavily focused on your customer rather than your product). At this point, you have validated the value of the market and the opportunity. Now, it’s time for you to understand how you can serve your customer in an effective way.
step 6 —> life cycle use case
The life cycle use case will help you understand how your customer will accept, reject, or never know about your product. This step provides you with the awareness needed to understand how your customer currently solves their problems, how they would find out about your product, and how your product can help them improve their situation.
step 7 —> high-level product
In this step, you define your product from the customer’s perspective. You draw a simple, visual representation of your product and how it aligns with the persona you depicted in step #5.
step 8 —> quantified value proposition
Your value proposition is the unique angle of your offering that makes you stand out from the crowd and attract the attention of the persona. In step 8, you can quantify your value proposition by giving things real numbers and analyzing the difference between the current and possible states of the customer.
step 9 —> identify your next 10 customers
Your “next 10 customers” are people you want to interview in order to get their opinion on your offering and listen carefully to what they say. This is a step that builds on top of primary market research (step 2) and takes things a step further. The main aim of this step is to draw lessons from chatting with your next 10 customers.
step 10 —> define your core
Your core is the unequivocal, internal competitive advantage that sets you apart from any competition in the market. In this step, you will define your core by thinking deeply about the unique assets you have. These can be connections, personal skills or attributes, intellectual property, or something else that lasts long-term and can’t be replicated by your competitors easily.
step 11 —> chart your competitive position
Charting your competitive position in the market enables you to gain perspective and self-awareness. You can then reflect on how your core helps you or doesn’t help you stand out from the competition.
Theme 3: how does your customer acquire your product?
If you made it through themes 1 and 2, you can move on to depicting the customer acquisition cycle. This theme takes the perspective of the customer, their decision-making influencers, and processes to become aware of and purchase your offering.
step 12 —> determine the customer’s decision-making unit (DMU)
The customer’s decision-making unit (DMU) is the group of people you want to focus on in order to gain traction in the market. There are two types of DMUs: primary and secondary. Primary DMUs include the end-user, economic buyer, and champion (the person who advocates for and recommends your product). Secondary DMUs include influencers, people with veto power, and purchasing departments.
step 13 —> map the process to acquire a paying customer (DMP)
The decision-making process (DMP) of your customer is composed of the steps your customer follows to buy your product. This step helps you manage your expectations and deeply understand your process and plan of action for customer acquisition. Note how this is step #13 in the Disciplined Entrepreneurship framework. You can only focus on customer acquisition once you have a clear vision in mind, your market is validated, and you internalize your unique value proposition.
step 14 —> map the sales process to acquire a new customer
This step builds on the DMU and DMP (steps above) to get into the tactical sales processes you will implement in order to acquire new customers. Key topics include “what are your sales channels?”, “What does your sales funnel look like?”.
Theme 4: how do you scale your business?
You can now take the view of your business and future-proof it. Theme 4 helps you figure out the future scalability of your business and how you can build on top of your target market segment to capture additional markets.
step 15 —> calculate the TAM size for follow-on markets
In step 4, you calculated the TAM size of your beachhead market. In step 15, you build on top of that and calculate the total addressable market size of follow-on markets. Follow-on markets are market opportunities outside of your beachhead market that are somewhat related and whose end-users can gain value from your offering. Calculating the TAM size of follow-on markets doesn’t mean that it’s already time to think about “scaling”. First, you will need to nail down your beachhead market and provide great value. Only then can you think about scaling.
Theme 5: how do you make money off your product?
With the customer-centric perspective refined and complete, you can now move on to figuring out the financial feasibility and details of your venture. Step 5 helps you understand how to successfully monetize your offering and provide true value to the beachhead market.
step 16 —> design a business model
Your business model is how you deliver your product to your customers, and how you get paid for that. This step prompts you to reflect on the key value you are offering and how you go about it.
step 17 —> set your pricing framework
Pricing needs to be value-based, not cost-based, at least at the beginning of your journey. In this step, you will factor in the DMU and DMP, the competition, the nature of your customers as well as your core. All of those factors help you shape your pricing and develop a solid, long-lasting business model.
step 18 —> calculate the lifetime value (LTV) of an acquired customer
The lifetime value of a customer is how much a new customer is worth for your business over the lifetime with you. In this step, you will get a general range in order to gain perspective on this component of building a solid business.
step 19 —> calculate the cost of customer acquisition (COCA)
The cost of customer acquisition is the amount of money you spend to acquire one new customer. This includes all marketing and sales costs.
Theme 6: how do you design and build your product?
It is now time to get into the more technical aspects of building a business and define the characteristics of your product. Theme 6 consists of validating the market and creating a roadmap for your product so that you and your term can kick off the development cycle.
step 20 —> identify key assumptions
As Bill Aulet asserts in his book, a key assumption is “singular, important, measurable, testable.” This step of Disciplined Entrepreneurship is lighter compared to the other previous ones. At this stage, you are to identify the key assumptions for your product and customer preferences. You are building the foundations for effective product development.
step 21 —> test key assumptions
Once you lay out your key assumptions and rank order them in order of priority, it’s time to test your assumptions. In this step, you want to describe your key assumptions more in detail and define what would validate your key assumption. Then go out into the world and test your key assumptions with real people to gather data.
step 22 —> define the minimum viable business product (MVBP)
Your minimum viable business product provides great value to the customer. The economic buyer pays something for the product, and your MVBP enables you to establish a meaningful feedback loop with your end-user.
step 23 —> show that “the dogs will eat the dog foods”
This step requires you to think through key metrics to test for specific time periods in order to get objective feedback on whether your MVBP is gaining the desired traction. Key metrics include the cost of customer acquisition, lifetime value, and gross margin per customer.
step 24 —> develop a product plan
This is the last step in Disciplined Entrepreneurship. Developing a product plan means writing down your product’s features, prioritizing them, and defining product versions and their technical specifications. This step also enables you to think beyond the features of your beachhead market and reflect on what will be next.
All of that may feel overwhelming to you. You can always reduce the sense of overwhelm when you break things down into small components and tackle each step of Disciplined Entrepreneurship by itself, paying close attention to your emotional reactions and sensations. Disciplined Entrepreneurship is a framework that truly takes you out of your emotional attachment to your startup idea, and puts you in the customer’s shoes. This can be immensely beneficial because you will quickly understand if your idea doesn’t work, or how you could improve it to serve potential end-users better.
All the while, you may not want to forget that ideas are worth nothing without a proper analysis of the market, real-life data, and a clear plan of action. All of which Disciplined Entrepreneurship can help you achieve. Finally, there is a very solid essay by Paul Graham from Y Combinator on “how to start a startup” that you can read here.
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