The Plunge: An integrated metric for shall-be entrepreneurs

Posted on by Bart Doorneweert

Entrepreneurship is attracting attention from a lot of people. Many are choosing or thinking to pursue the entrepreneurship function. It is part of what Steve Blank calls the democratization of entrepreneurship. Building a company has become more openly accessible because of the falling cost of technology, access to information, and capital. On top of that entrepreneurship methods like customer development are revealing the blue print of entrepreneurial discovery and business development. The field of entrepreneurship itself is accelerating.

While the environment is becoming more conducive to entrepreneurship, it should not be overlooked that there is also a pivotal personal side to the entrepreneurial conduit. If you don’t have an anchored personal foundation to pursuing entrepreneurship, you could end up becoming the constraint to your own ambition. You could be costing yourself and anyone you approach for support in your pursuit a lot of time and effort in vain. You stand to lose a lot.

In the name of saving yourself and others around you from the adversity of making a half-baked decision to become an entrepreneur, I have reflected a bit on my own experience (failure rather). I took a look back at the friction that I have caused by wasting other people’s time with half-bakedness, and discussions that followed on what this “anchoring” would be.

I have come up with the several topics , or a set of metrics if you will, to frame a discussion between founder, friends, family, and mentors, to help determine whether you are still a wish-be entrepreneur -in need of a bit more foundation- or that you are definitely a shall-be. I call this assessment “the plunge” because it is a discussion you should have, before taking it.

To my understanding, a plunging assessment would contain the following elements:

Taking a decision
Naturally there is a line of thinking underlying the choice to become an entrepreneur. It is a balanced assessment between history of a person, their current situation, and a logic to why entrepreneurship would be a potentially fruitful option. This is not only a decision based on “do you have what it takes”. Equally so you need to consider whether your life (health, kids, state of mind, debt, etc) is currently ordered in such a way that you can scrape together the time to pursue your dream. – Can you take the decision in the first place?

Irreversibility
The decision must contain an element of irreversibility. One of the hard aspects of going for “it” is that “it” doesn’t easily allow for a way back. When you intentionally leave a window open to return, you suppress your pursuit. But most importantly you will also most likely back down from your initial decision, because, well, you can. When you make an irreversible decision, you create room to focus on your goals, and give your external support the confidence that you are really putting your skin in the game. Choosing for something irreversible doesn’t mean burning your bridges. Rather it means actively taking a step in a new direction and accepting that the path you choose will never bring you back to the situation you leave behind. – Are you ready to stop looking back?

Pursuing an ambiguous opportunity
The opportunity is something that lies external to yourself. Entrepreneurship is not a structured opportunity like a job opportunity; it is a decision you’re making here, a journey you begin at, not a choice where you select according to preference. Entrepreneurship is deep ambiguity which can only be cleared up by embarking on the journey. So the question here is if the value you can create is worth the effort of battling ambiguity: – do you have enough understanding of your opportunity to determine the known-unknowns and whether they, at least, are worth the pursuit?

Ultimate responsibility
Taking the entrepreneurship journey entails picking up a huge responsibility. This responsibility is not only for yourself, but also for your family, friends and their well-being. If you get caught in a rut, there is no one else to turn to but yourself. When facing a choice for a job-offer, then the risk for the opportunity is spread over at least 2 people: yourself, and the person who hired you. When you become an entrepreneur it’s just you. So regardless of the ambiguity, the difficulties it will create, the failures you will encounter, the ultimate responsibility for the consequences will always lie with yourself. This is unlike any job responsibility. So if that sort of pressure would cloud your judgment and cause inertia you should ask yourself: – can you take the responsibility?

Take-away
In this post I have attempted to highlight some of the topics that could be addressed in a discussion between someone who is thinking of becoming an entrepreneur and their close circle of personal and business supporters. I have gradually learned about the value of this discussion from my plunges in the past, and will use it for those to come. Regardless of whether the questions above are of use to you, please take some time and determine whether you are ready to take the plunge. Prevent adversity as much as possible, save yourself and others time and effort. And, if you find the questions useful do tell me:

Are you ready to take ultimate responsibility for an irreversible decision to pursue an ambiguous opportunity?

Let me know your thoughts. And… good luck!

——–
This post is dedicated to my wife, and life venture partner, Anne, whom I’ve fought with much to come to truly understand what’s at stake. I thank you for sticking with me through hardship, never giving up on me, and still allowing me to pursue my dreams

Private Sector Development projects and “the Pivot”

Posted on by Bart Doorneweert

A pivot is a change in strategy without a change in vision – Eric Ries

Development projects are not really known for their effectiveness. There is much discussion on what works, and what doesn’t. One of the big hypotheses out there is called Private Sector Development (PSD). The thought here is that government can create public goods by supporting the development of private enterprise in developing countries to contribute to social/economic empowerment of the population, creating jobs, stimulating other enterprise, achieving sustainability, etc.

PSD, a problem of project management
Despite the initial clarity in logic, there are many issues with this form of enterprise development. For one, enterprise, government, and civil society have not found a common language on their projects and can’t properly communicate their respective objectives and priorities. What aggravates the lack of common understanding is that government and civil society have a domineering role in organizing development projects. Therefore, such projects are still very much designed according to government and civil society principles: principles of the logical framework (activity to output schemes), budget lines, and spending targets.

The result is that PSD projects are required to commit to pre-planned project outputs to obtain funding. Even though business ideas are still in a hypothesis phase at the start of project, funding requirements impose an implicit assumption that the basic business model is known, and that the project can start at the point of execution of that model. A project is considered to be completed if it has neatly run through all the activity lines and depleted its’ budget.

It should come as no surprise that these projects regularly tank when the pre-conceived business idea with its’ underlying mechanical execution assumptions is floated onto the bustle of the market. Worse even is that success or failure in this context is determined by whether or not the implemented plan has led to any meaningful market traction. Unfortunately this result tells only about the plan. It rarely tells anything about the business idea itself, and whether there was actually evidence for market uptake potential or not.

On a positive note, the academic community sees this problem with PSD, and is wakening to the challenge in project management design. Scholars are creating workarounds for the mechanistic approach through developing new impact assessment methodologies. Theories of impact are jointly formulated between all project initiators, and project performance indicators are defined based on common understanding of the impact which is to be achieved.

Despite these project management innovations, assessment methodologies themselves face the challenge of execution: academic priorities lie with methodological novelty, publishability, and gathering of rigorous data. As a consequence, assessment learning loops are stretched out over too long a period- not feeding into real time project decision making. They are too burdensome for commercial ventures to apply. In an attempt to patch such deficiencies, even more innovations are appearing, like running multiple/parallel experiments, and using judgmental decision making to enhance agility and adapt to changing circumstances during project execution. But these measures can’t take away the reality that methodologies provided are still too cumbersome to apply in a PSD setting where one is starting up private enterprise in a difficult market.

A PSD project is actually a startup project….
Regardless of the methodological work-arounds, PSD remains stuck with a faulty premise in basic project management design. Unless this is addressed, all PSD projects will be incessantly running futile attempts to blindly bash innovation complexity into linear bounds. To break with this problem, we should come to realize that PSD is actually more an entrepreneurial endeavor than an execution plan. PSD projects aim to develop an often “sort of known” product for a currently non-existing market. Customer needs are usually unknown, and as such the solutions for that market. Key decision making in PSD is thus fraught with fundamental uncertainty.  Under such conditions a different project logic applies, namely that of progressive learning in a search for a scalable, repeatable business model. This is completely different from executing on a known business model. In other words, what a PSD project should come to grounds with is that it needs to run more like an entrepreneurial startup. In all modesty ,PSD, as “any startup on day-0, is a faith-based initiative” (Steve Blank & Bob Dorf, 2012, Startup Owner’s Manual). Such projects are not yet ready for execution.

The  interesting thing about the comparison between PSD in startups, is that world of startups has had to traverse the same type of project logic problem as PSD is currently facing. Startups have by and large been applying waterfall design logic, where the objective is to spec a product for a known market requirement, to a setting where the market requirement is in fact deeply unknown. Development success in this manner can be explained more by good luck, than by good judgment.

The result of faulty application of project design logic, is that large investments are made in execution activities when even the basic premise of the startup remains unanswered: Who is your customer?, What is the job your customer is trying to get done?, What (part of) their job do you solve?, and What is your sales plan for reaching out to that market? These are the first steps you need to get validated in the startup development process. You test these questions to find out whether you have a scalable repeatable busines model, before actually investing in scaling it up. The startup world has only over the last decade come to realize that confusing search priorities with execution objectives leads to catastrophic results. If you don’t respect this difference, you will end up burning a lot of money based of a set of wild assumptions.

Building startups using “Customer Development”
 One of the pioneers of this discovery is former serial entrepreneur, and current professor of entrepreneurship Steve Blank. Blank describes a startup as a temporary vehicle, dedicated to the search for a repeatbale, scalable business model. The objective of the startup is to learn what its’ market is. Within a search objective the methods applied in tracking performance differ significantly from execution. The performance questions are not about “sales volumes”, and “market share”, but rather about “who is interested in what specifically, and for what purpose”, and “what would be a systematic approach to this customer”.  Once the startup has learned about its’ market and the solution it provides, can it seriously substantiate investment in execution.

The method Blank has developed, called customer development, distinguishes 4 discrete steps in startup development from

  1. initial customer discovery to
  2. validation of customers for a product or service,
  3. market development, and
  4. company building

The prior two steps hold a search priority, the latter execution. Each of the steps is considered as an iterative learning process, where the net result of learning from success and failure determines whether the project is able to proceed to the next step. (see figure below)

One of the most fundamental development process maneuvers in customer development is called “the pivot” (a term coined by the protagonist of the “lean startup” movement, Eric Ries). Upon making the decision to pivot, the entrepreneur comes to realize that her vision needs a different strategy. The business model which the entrepreneur was pursuing contains too many faulty assumptions. However, based on process learnings through applying functional learning metrics, their is a good cause to argue that the business idea can be realized through correcting the business model design. This done by fundamentally altering one or more of the building blocks.

The pivot does not mean that the entrepreneur was incompetent, or wrong. Rather the pivot allows the entrepreneur to redeem (or even leverage) the costs of previous failure. To startup venture capitalists the pivot can be so obviously logical, that they will often agree to follow the entrepreneur in this fundamental change, without losing faith in the entrepreneur and her idea. By tracking learning in startup projects according to the customer development process, business development process is thus provided with a structure to deal with fundamental uncertainty inherent to entrepreneurial venture discovery.

The Customer Development process, based on Steve Blank

Managing and funding PSD like a startup will be key
When you compare the customer development process with PSD, the project trajectories which are followed are strikingly similar. PSD projects start with “value chain, stakeholder, and needs assessments” before they move towards project implementation, scaling up, and institution building. PSD projects subconsciously follow the customer development line, but more in waterfall fashion, with little room for iteration at best, and definitely without the pivot (if you’ve ever considered changing a budget heading in a development project to a different purpose, you will know what I mean).

Again, a lot of the mistakes that were previously made in the startup scene, are currently being made in the development sphere. One of the key aspects which will need to change in PSD project management design is that the performance metrics used should focus on learning about what the market for a business idea is and what works in that market. Metrics should be designed in such a manner that they facilitate learning, and not so much academic publication. Execution and delivering on its’ metrics are of later concern. In this way project reporting will focus on feeding decision making on what to do in the next iteration of development, rather satisfying government or donors’ spending ambitions. If project teams are relieved of the pressure to deliver on execution metrics when they are actually in a learning phase, then more focus can be put on entrepreneurial learning, and actually building a successful product.

If PSD wants to change anything about its’ meager track record, it will need to build in room for dealing with entrepreneurial uncertainty in project decision making. This starts with shifting investment priorities from execution to search, and dealing with performance metrics that respect the difference. Allowing room for this won’t be easy, because it provides a challenge to transparency in the spending of public money. But, we need to treat PSD more like business development in a developing world context, and provide these projects with an allowance to learn as an entrepreneur learns. Otherwise we will needlessly keep burning money on wild guesses, and write off potential high-impact ideas that don’t deliver the initial execution plan, as completely failed initiatives. We need this allowance, because in the end, the result of PSD should be to deliver functional enterprise that solves customer problems, just like a startup. What else would be the point?

Take aways:

– PSD is stuck with a problem of trying to force market based innovation onto a government planning logic

– PSD tries to achieve much of what a startup tries to achieve: to find a scalable repeatable business model.

– Many of the mistakes which have been made in the development of startups, are currently being made in PSD. This is a learning opportunity

– Funding flexibility, and business development based on learning metrics will be key to dealing with these mistakes. Most importantly, PSD funding mechanisms need to build in conditions that allow project teams to make a pivot on project objectives. They can do this based on insights they obtain through progressive learning from failure on previous attempts.