If you aren't failing, you aren't trying hard enough.

I have been working on this for a long time.  I would appreciate any feedback people may have.

Spiral, Invest, Create, and Capture (SICC) Framework

The SICC is a framework for early stage startups.  It is seeks to minimize risk and maximize success.  It is predicated on the notion that there are far more unknowns than knowns in entrepreneurship.

The ICC Chain

At its most fundamental level, to have a successful startup, three criteria must be met:

Invest

Time and or money must be invested 

Create

Something of value must be created

Capture

Sufficient value from that creation must be capture to pay back the investment.

This seems pretty basic (and it is), but it’s generally overlooked.  While many frameworks focus on one or two of these concepts, all three must be met in order to succeed.  For early stage ventures, this is critical.  Unfortunately, there is no way to know how to do that before the launch of the business.  This is especially true in the area of innovation—nowhere is this more true than in startups, where entrepreneurs succeed or fail.

Successful entrepreneurs have to create extraordinary value.  This is well known and documented (in startups, almost no one talks about the invest and capture fundamentals). Value creation is so available because that is what is visibly different when a startup is successful, but that is only part of the story. A startup must survive while it figures out exactly how to create extraordinary value.  Most startups fail because of insufficient capital, they go broke before they complete the ICC loop by either over-investing or under-capturing.

If a startup invests too little, it can’t create enough value to capture. If it creates something cool, but something the customer’s don’t value, then customers won’t pay for it.   If it tries to captures too much value, then customers won’t come or they will leave it after they tried it. Or stated in the negative, if it creates more value than it can capture, it won’t be able to pay its investors and fund it’s operations.  Afterall, creating infinite value is easy with infinite investment (think dot-com bubble).  It’s a balancing act. Invest, Create, and Capture must all be satisfied for the business to succeed.  So, the question remains how much should you invest to create what type of value so that you can pay off your investment?  Tough question.

The short answer is: there is no way to answer before actually making something and selling it to a customer.  

The painful truth is that most products fail—even the products of great companies.  Your products (while I am sure are much better than everyone else's) are also likely to fail—even if they are excellent. The only thing that is certain before a product launch is that the initial product is at best sub-optimal (think MacBook Air) and at worst not remotely viable (think Newton). But this is actually good news.  It allows you to innovate.  Small businesses can innovate much cheaper than large ones, so try a lot of products cheaply until you find success.

The only real way to establish that the Create step of ICC is valuable to the customer, is to sell it to the customer.  If they won’t buy your creation, then you did not create enough real value for them.  It will not work in its current configuration (good thing you didn't loose all your capital figuring that out)! So, make a small investment in an idea and see where you are wrong and where you are right.

Spiraling

Spiraling is the process you use to validate your business idea.   The process is simple, invest the minimum amount to make the smallest product the customer will buy, sell it, and find out how much value you can capture.  Once you do this, you will actually know what your customers want.  Before this, you are just guessing (hopefully with style). 

Once you have gone through this loop the first time, you can add more investment in time or money to create more value and the capture more.  By iterating around this process, you risk the minimum and give yourself the best chance of success.

Minimum Viable Product

The key to Spiraling is to create the Minimum Viable Product, or the MVP.  The MVP is the smallest thing you can make that the customer will buy from you.  You can’t reliably predict what that ideal product would be, so make sure to ask a lot of people if they would buy your idea.  Then make your MVP and sell it.  This is not to say that the MVP is a crappy or bad product; it isn’t. It’s just the minimum product that someone would be willing to purchase. It is different for different businesses (the MVP could be one really nice and expensive ring if you sell to a high-end jeweler, or 1 really crappy ring if you sell to a small costume jewelry store). The important thing is its the easiest thing you can make that someone will buy. Once you sell the first one the customer will tell you what they like, and you can refine it later. 

Here is how to do it

Iteration 1. Ideation

Create an idea for something valuable for someone.  Remember, you are not creating something that is just cool, someone has to want to buy it (if no one wants to buy it, you have a hobby, not  a business). 

Ask yourself, what itch are you scratching?  Your idea needs to solve a problem, it needs to have a customer who has that problem, and you need to have a rough idea about how much it costs per item (10€ or 10 million).  Remember, you will need to sell it for more than it cost you to make it.

invest

Come up with a product idea using any brainstorming method you want. Identify possible customers, how much it costs you to make the item or service, and how much you think it should cost.

create

Make a prototype (could be a screen shot, could be a paper cutout, could be anything, that actually shows the product.  The faster it is to make, the better) 

capture

Ask a dozen people what they think.  

Ask three potential customers if they will buy it if you make it.  Ask them what they like about it.  Ask them what they hate about it. Ask them to order it in advance (they won’t, but it will give you a better idea if they would buy it if you had it!). 

Iteration 2. MVP

Based on the feedback from the ideation, now you want to actually create something to sell.  Remember, the goal is not to be perfect, the goal is to be sellable.  In this stage someone must by the product for you to move on.

invest

Find the minimum amount of money to create the MVP (friends/family/early stage investors).  

create 

Create the MVP based on feedback from Ideation.  Don’t worry about how you are going to sell a million of them.  You won’t.  Worry about how to sell one, and then another.

capture

Sell the product.  If you can’t sell it, make a new MVP—you are barking up the wrong tree. 

Iteration 3. Launch (iterate frequently)

Once you have sold a MVP, sell more.  Make them better. Keep growing until you can’t evolve the MVP without significant investment. Then make a plan for the real product launch. 

Invest

Reinvest your earnings—you are cash flow positive after all. Or, reinvest your earnings and find an angel investor

create

Make your product better based on the information given to you by your customers

capture

Raise prices and pay your suppliers less. If you don't know how to do this, get an MBA.  Enjoy a fat paycheck.

Iteration 4. Exit (a real strategy)

While this may look like a joke, it’s not.  Most entrepreneurs make the most money selling the company.  Big things (even if they suck) sell for more than small profitable ones.  This is the high-stakes game played by the VCs.  Go big or go home.  If this doesn’t appeal to you, go back to Iteration 3 and get PE investors or grow through profits.  Remember, M&A always destroys value from the acquiring company and creates value for the purchased company.  This means you will always be paid too much for your business.  It's a great savings plan, but it almost always destroys your company.  It's a sexy game, but you have been warned.

inves

Raise VC money

create

Lower prices to below cost and grow like crazy

capture

Sell your large struggling company for a huge multiple to offset operational losses.  Retire and become a VC (iterate as a VC).

Conclusion

By using a spiral approach to growing a business, the risks of the unknown are greatly reduced.  The minimum investment is used at each stage when uncertainty is high.  This allows the largest investments the best chance of succeeding.  You make small , baby steps, until you know enough to be bold.  When viewed through the lens of time, it looks like you knew what you were doing all along.  Don't worry, I won't tell.

 

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