Agility appears to be the trait that describes the successful entrepreneur. Marc Andreeson sees the need to adjust until you find the right product/ market mix.
Fred Wilson blogged recently about how VC can kill what otherwise would have been a promising business idea: spending lots of money before getting that product/ market mix right.
But where you really see the value of being nimble is in the failures. All but one failed to transform their business and all but one were unable to do that because of the large unsustainable burn rates they had built up. Even the one business that did transform itself, it went from a low cost business model to a high cost business model and they put themselves in a pickle when the transformation didn’t pan out.
To go back to Dick’s analogy, you can go down lots of blind alleys if the cost of doing so is low. But if you are spending a million dollars on each blind alley, you’ll be out of business in no time.
So it’s pretty clear to me that most venture backed investments don’t fail because the business plan was flawed. In my experience at least 2/3 of all business plans we back are flawed.
Most venture backed investments fail because the venture capital is used to scale the business before the correct business plan is discovered. That scale/burn rate becomes the cancer that kills the business.
So how does that impact the approach that we’re taking at Health Shoppr? Well, we know we have a marketplace that will take some time to gain traction– so we found means of bootstrapping at low burn vs. raising money and having one chance to get it right before running out of money.
The biggest issue I’ve seen for an early stage business is technology development. There are two primary options up front: in-source vs. outsource. We decided pretty early on to outsource technology because we’re not developing new technical approaches for our solution– so we wanted to find people who have worked on the different approaches we’ll be putting together.
- Insourcing requires employment of engineering talent up front, which either requires a technical co-founder or sufficient resources to hire employees familiar with what you’re trying to do. If you have green talent trying to do something new, good luck– I’m not sure you ever get where you want to go.
- Outsourcing: Licensing technology or using an outsourced development firm to build it for you. Why would you want to use a contractor? Generally, if technology isn’t your differentiator, its going to be hard to pull together the requisite talent in house.
Within technology, how you develop is another major choice. Most vendors (and established companies) will push you toward the Waterfall method of development.
The waterfall model is a sequential software development model (a process for the creation of software) in which development is seen as flowing steadily downwards (like a waterfall) through the phases of requirements analysis, design, implementation, testing (validation), integration, and maintenance.
As you might expect, this is the most efficient way to work if you’ve nailed the product/ market mix up front and nothing will change from the existing spec. This often is the approach used in big companies, because they believe that all their R&D and market research work up front gives them everything they need to know about what they will be launching.
For the rest of us, who think that conditions on the ground may change, an iterative approach is more messy and creates uncertain deadlines, but takes the mentality that the build is likely to change– and you don’t want to have to throw out 3 months of work to make those changes. This approach is now reflected in the development philosophy known as Agile.
Some of the principles behind the Agile Manifesto are:
- Customer satisfaction by rapid, continuous delivery of useful software
- Working software is delivered frequently (weeks rather than months)
- Working software is the principal measure of progress
- Even late changes in requirements are welcomed
- Close, daily cooperation between business people and developers
- Face-to-face conversation is the best form of communication
- Projects are built around motivated individuals, who should be trusted
- Continuous attention to technical excellence and good design
- Self-organizing teams
- Regular adaptation to changing circumstances
In my search for an outsourced tech vendor who could do agile well, its been pretty tough to develop the trust on both sides required to do agile, and not get stuck in waterfall. With my current developer, we’ve sketched out what we think the end-state looks like, they have thus far been able to pull together a contract that reflects complexity/ ability to change, and a platform that allows for small modules to be built–creating an incremental approach to getting something out fast that can be modified as we continue to get customer and advisor feedback.
As you develop, its important to be Agile. I’ll look forward to reporting back how this approach to development works as we put together HealthShoppr’s alpha product helping consumers find the right health services from the right providers at the right price.