I have just finished reading Disciplined Entrepreneurship by Bill Aulet, Managing Director, Martin Trust Center for MIT Entrepreneurship. Published in 2013, it is a superb book.
This review does not seek to summarise the book – for that I suggest you read this excellent post ‘A book in 5 Minutes : “Disciplined Entrepreneurship: 24 Steps to a Successful Startup” on Tech.co by Kira Newman.
So I am going to focus on what I liked about the book:
#.1 Entrepreneurship can be taught : a 24 Step Process
From working with hundreds of startups each year, I can attest that every promoter wants to know that there is a Process that they can follow and they want tools for each step.This book presents 25 steps from Step 0: Getting Started to Step 24: Develop a product plan, which collectively present a how to guide to launch a Great Product whether in a Startup or Large Company.
click images to enlarge /play slideshow
Each chapter is fairly short (circa ten pages), self contained and includes examples. They build on each other such that one can see how a business is built – with a balance between planning, research and action in the forms of real world experiments. The book divides the chapters into six themes which are colour coded as below:
The author makes the point that the steps are not necessarily linear – an earlier step may have to be revisited as you learn more about the market.
This book is from pre-startup to market testing to launch i.e. it does not specifically address how to scale a business.
Please note that the author purposefully uses the word ‘disciplined’ as he wants people to acknowledge that there is a lot of hard work involved in Startups.
#.2 Getting Started doesn’t mean that you have to exclusively focus on identifying ‘The Problem’
Acknowledging the massively growing interest in Entrepreneurship, the author broadens the discussion on the genesis of a business concept to include: an idea to change the world; a technology; or a passion.
I am frequently told that an entrepreneur cannot start without knowing a ‘customer pain’ – a problem that bothers someone enough that they would be willing to pay to alleviate the problem. But that approach can be discouraging to someone who is unfamiliar with entrepreneurship. Furthermore, it discounts the importance of starting a company in line with the entrepreneur’s values, interests and expertise. … p.17
The author say that in time the business can find a customer with a pain, or opportunity, where the customer is willing to pay for a solution. He concludes that the key question is:
#.3 The Single Necessary and Sufficient Condition for a Business
The author makes distinction between SME Entrepreneurship which are small companies that tend to stay small. They make a hugely valuable economic contribution but this book focuses on Innovation Driven Entrepreneurship which look to do something great, build products, raise investment and target global markets. [for more see this 6 minute YouTube video]
He also poses the question, “What is the single necessary and sufficient condition for a business?”
It is not a product, a technology, a customer need, a business plan, a vision, a CEO, money, investors, competitive advantage, or company values.
#.4 Quantify the Value Proposition
The author explains that the goal of the Quantified Value Proposition is to clearly and concisely state how your product’s benefits line up with what your customer most wants to improve. The Value Proposition can be created by mapping out how a customer could solve the problem using your solution compared to how they currently solve the problem. The author explains that in a simple view of the world, benefits fall into 3 categories: ‘better’, ‘faster’ and ‘cheaper’. You need to help customers to justify the investment in your solution by quantifying how much your product will make or save for them, or how it will improve their life or business in a way that really matters to them. SensAble Technologies is used as a case example. Customers typically have a 4 stage process, and in two stages, the new product could save 70% of time leading to a 50% reduction in total time required for production. When presented visually (figure 8.1 in book) this is a powerful message for potential customers.
#.5 Define your Core
Every business needs a secret sauce referred to as ‘Core’ by this book – something that allows you to deliver the benefits your customers value with much greater effectiveness than any other competitor. There is a very good discussion of Core in Chapter 10 explaining that your customers will very likely not see your Core as the reason they buy from you and as such how (with examples) it is different to Competitive Position. [Ash Maurya in the Lean Canvas talks about the difference between Unique Value Proposition and Unfair Advantage]
#.6 Design a Business Model
The book explains that the amount of money your venture gets paid is based on how much value the customer gets from the product. A business model is required to ensure that value created for customers translates into a profitable business. Chapter 15 briefly discusses 17 general categories of business model. New models or hybrid versions can be adopted but don’t spend so much time being clever with your business model that you lose focus on creating value. The book recommends not to focus on pricing in this step:
Your choice of business model has a far larger influence on profitability than your pricing decisions.
#.7 How to set Pricing
Having worked in depth with hundreds of early stage startups, most founders have significant concerns about Pricing particularly how to set the price when the first product is launched. I like the approach adopted in this book in referencing other steps such that pricing does not seem so daunting:
Use the Quantified Value Proposition and Business Model to determine an appropriate first pass framework for pricing your product.
So only after settling on a business model, should one set the pricing framework. Improving pricing can have a big effect on profits – citing the book The 1% Windfall which shows that a price which is 1% higher would lead to an 11% increase in overall profits, because once costs have been paid, the remaining revenue is all profit. The point is made that Pricing can change as the business evolves – as you try to strike a balance between attracting as much revenue as possible and attracting as many customers as possible.
The chapter explains that the goal at this stage is to create a first pass strategy that will allow you to calculate the Lifetime Value of an Acquired Customer (LTV), which along with the Cost of Customer Acquisition (COCA) is an important variable that indicates the profitability of your business.
An LTV of three time greater than COCA is what you will be aiming for.
#.8 How to calculate the Lifetime Value of an Acquired Customer (LTV)
Every business must be profitable over the longer term to be sustainable. The key question is:
Can you acquire customers at a cost that is substantially less than their value will be to your new venture of the customer’s lifetime?
Chapter 17 provides step by step direction with worked examples on how to calculate LTV.
#.9 Calculate the Cost of Customer Acquisition
Chapter 19 continues with the Entrepreneurial Math providing a formula using a top down perspective and examples for calculating Cost of Customer Acquisition (COCA). There is a very serious (warranted) warning presented on page 205 that COCA is extremely important and that care and attention is required to understand and calculate correctly.
The LTV and COCA analysis can kill many new businesses by identifying problems early in the process; but more often it highlights the importance of keeping an eye on key factors to make the business successful.
#.10 Define the Minimum Viable Business Product (MVBP)
The MVP of Lean Startup is refined in Disciplined Entrepreneurship. Chapter 22 states that there are three core elements necessary to have a Minimum Viable Business Product – all three must be present:
► The customer gets value out of use of the product
► The customer pays for the product
► The product is sufficient to start the customer feedback loop, where the customer can help you iterate towards an increasingly better product.
Your MVBP should balance simplicity with sufficiency. As Einstein said, “Everything should be as simple as possible, but not simpler.” The goal is straightforward – make a list of all of your key assumptions, narrow your assumptions to the most important, put it/them into a product the customer can use, and see if they will buy it.
The example of Home Team Therapy perfectly illustrates this point – presented on page 238.
Finally, the Cartoons at the start of each chapter are thought provoking. This one is from Step 7: High Level Product Specification – makes point that until you scope out a product at a high level to include represent it visually, that your potential customer may not fully get it!
All the cartoons can be accessed via Safari Books Online as it shows the first page of each chapter.
To conclude : Top of the Book List?
This a 5 star book. I would recommend any startup founder to add this book to their Reading List.
I am a great fan of Lean Startup as per this blogpost which lists the best 4 books in the Lean Startup areaand the order in which they should be read. I am on record as selecting Running Lean by Ash Maurya as my Most Recommended book for early stage startups.
Bill Aulet is not part of the Lean Startup brigade – he specifically mentions a few scenarios when he disagrees with Lean Startup principles. But I don’t think that means we have to select one over the other. The views on both sides are valid and mainly complementary, so the key requirement for any startup is to think about and discuss the key startup issues identified with your team (and mentor) so that decisions can be made.
So yes, I would now recommend adding Disciplined Entrepreneurship to the top of the reading list – in joint first place with Running Lean. I would probably read Ash’s book first as it does a better job of selling the idea that startups require a roadmap for their startup that is not based on traditional business management theory. So Running Lean has a stronger opening while Disciplined Entrepreneurship has a very strong finish when discussing how to calculate the financials of the business to determine viability.
As always, I hope you enjoyed this post. I would love to hear your comments ….