When you are starting a startup or a business you are not starting with “an idea”. You are starting with a solution to a problem. “Idea” is a sterile word that adds noise to your thinking. Even startups like Snapchat are not ideas, they are solutions to privacy.
In the process of looking for a repeatable business model, a startup does not only speak of a value proposition, but seeks to build capacity to produce value.
A startup should build capacity that will enable it to serve value to its customers, in an incremental manner until it meets its vision.
What do I mean by capacity?
It can be:
- Your proven record to generate money (revenue).
- Having a Secret that can disrupt business. (Mesosphere)
- Having a habits hooked in users life(Facebook, Twitter)
- Being the center of transactions. (Paypal, Square, Ebay)
- Having an unbeatable logistics chain (Amazon).
- Popular culture success stories(Kickstarter)
- Community with trust Metrics (AirBnB)
- Transportation fleet automated with Data (Uber)
- Cheery picked Community (Product Hunt, Quora)
Your ability to build capacity, and the capacity you have built gives you your valuation. Lets illustrate this with a seemingly difficult challenge.
When you tackle an immense challenge with limited resources, you are forced to optimize the results. Hence you start unconcisously building “foundations” and “fail-safe” building blocks, that can help you grow your business, and pivot anytime you want.
The core of your business, its foundation and backbone, is what I call in this article “capacity”.
Capacity can be a revenue stream, customers, partners, a user base, logistical chain, market access, or anything that makes you fail-safe, antifragile, or that makes you able to pivot with minimum costs.
Let me give you an illustration with this hardcore challenge.
How Do You Bootrap An Airline?
Royal Air Maroc | Eelke
1. Create a travel aggregation service that is better than Chipmunk and Expedia, by finding a really difficult user experience problem that is not addressed yet and try to win the market.
2. Then become a travel middleman and open offline travel agencies for your aggregation service. Spread through the country, to have no middle man with your customers. You will use your user base and web reach to increase your sales.
3. After that, become the UBER for city-to-city travel with on demand travel, with a huge fleet of buses and cars. you will use your offline travel agencies for troubleshooting and better process management.
4. Next possible step then is becoming a shipping provider and build upon your legacy to increase revenue and your capitalization and to write super-duper in-house optimization software.
5. Then experiment with private jets first, or rent airfares for shipping, just to master the Airfare logistics.
6. Raise capital or use your accumulated money to build your airline business.
Now you have built a company that handles so much capacity, from field knowledge, to troubleshooting, to air fleet management, you would have a huge audience that is accessible, and your own travel agencies, no middle man, you can get to a point to predict flights, and you can get to cut down the costs of travel up to 60% then beating every single airline in your country.
It may take you up to 15 to 20 years, to achieve this. But hey, you would be a real godfather of the airline business hence then.
The Way You Should Think
I hear many startups trying to “go viral” or “acquire users” or “give services/product for free” or “launch kickstarter” campaign.
You build your capacity not only to increase your valuation, but to be able to pivot easily, change business model from one to another,
Any step that you are trying to take, makes sense if it will help you build initial capacity, that will enable you later on to move forward and test different directions.
Capacity (some call it competitive advantage, or barrier to entry) is the thing that should be as lasting as possible.
Business As A System
Model your your business as a system, a space shuttle with multiple engines, and your purpose is to make sure that that system grows, and grows when you fuel it each time.
Is the fuel users, revenues, technology, partnerships, acquisition channels, employees, special skills, raising capital, or some of these at the same time?
Bootstrapping is the simple art of building capacity incrementally with the few resources at hand. There is a <a href="http://steveblank.com/2013/11/25/its-time-to-play-moneyball-the-investment-readiness-level/" target=_blank">guideline by Steve Blank on the topic of measuring the readiness for investment. You can get inspired from it to understand your readiness for hiring, acquiring users, partnering, etc.
Most startups lack “understanding of the market”, or “technological skills”, or partners and network, and they should try to redefine the way their startup engine is designed, and how does it fit the market.
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