A step-by-step guide for building a startup (or 'The four steps to epiphany' mini-summary)

Business Sep 26, 2021

Quite a lot of people have heard "The lean startup" book and movement. But fewer people have heard about "The four steps to epiphany". This was the inspiration for the lean startup way of thinking and worth a read.

The main premise of the book is that building a startup is not a mysterious process that no one knows how works. The author claims that after building and advising a few startups, clear patterns had emerged that if followed can give "structure" to the journey of building a startup.

Traditional companies follow what is known as the product development model: Concept -> Product Development -> Alpha/Beta Test -> Launch. Although this works great for companies that are doing something more "conventional", it's not a good model for "innovative" startups. Instead, a 4 step customer-centric and feedback-centric approach is proposed by the author that incorporates early feedback before actually building anything.

Step 1: Customer discovery

Every business starts with an idea, a hypothesis that must hold for the company to be successful. This is the step where you clearly define and then test the problem, product, and customer hypotheses.

First, write down the mission of your company, that incorporates the problem assumption (i.e. the problem that your potential customers have and you will solve).

Then you need to test:

this problem exists that
the potential product can solve the problem
that customers are willing to pay for your solution

You will do this by getting out of your office and comfort zone and talk to potential customers. Because this is easier said than done, check out other resources on how to talk to potential customers.

Remember that the aim of this step is not to sell anything. It's to verify your assumptions.

Step 2: Customer validation

Ok, so you validated the problem exists and the solution can work. Now you don't need to just sell. You need to figure out a repeatable and scalable sales process.

You will do this by working out your value proposition: a clear message on why someone will choose your product.

You will sell to early adopters/visionaries: they know they have a problem and they tried (hopefully unsuccessfully) to solve it themselves. They are open to accepting for a solution (or a superior solution). Get their feedback and improve your positioning.

Don't confuse the selling to early adopters with give-aways. You need to get actual orders to verify that you have a sales process.

Would you deploy the product if it was free?

Asking this question reveals the extent to which customers find the product valuable.

If the customer is willing to use the product if it were free, continue by asking, “Actually I cannot give it away for free. I will need to charge $1 million for it. Would you buy it?” The customer might reply, “There is no way I will pay more than $250 000 for it.” You have just discovered how much they think the product is worth to them.

[...]

This leads to the observation that products should be sold, and not given free, to beta customers so that a realistic, replicable sales roadmap can be developed.

If you are happy with the results of this step, proceed. Otherwise, back to step 1.

Step 3: Customer creation

Now you will need to execute that plan you created in step 2. There's no marketing team and no sales team. The entire company is executing the plan until you get to the next step.

Depending on the type of market you are trying to enter (i.e. existing market, resegmenting, new market), you will have different goals (e.g. getting marketing share, or, educating customers). Don't forget to position your startup according to your market type (e.g. do not go for "brand awareness" in a new market - no one knows what you are doing).

There are four different types of startups, defined by market type:
- Startups entering an existing market. For example, a new brand of pizza
- Startups creating an entirely new market. For example, a pizza flavoured meal replacement.
- Startups that want to re-segment an existing market as a low-cost entrant. For example, discounts for bulk buys.
- Startups that want to re-segment an existing market as a niche player. For example, organic pizzas.

Launching a product into an existing market has the advantage of existing customers but faces greater competition. A product in a new market has no competitors, but there are no well-defined and known customers either. Growth in an existing market could be a linear upward path, while in new markets it will take a few years before steady growth kicks in, when the product becomes mainstream.

Therefore, customer education is the focus in new markets, while branding and positioning will be important in existing markets.

Step 4: Company building

This is for converting the small startup (where everyone is doing everything) into a proper company (with specialized departments).

Clearly craft each department mission and goal. This easy-to-digest mission should be understoodby everyone in the department, not just the leadership (e.g. asking a salesman what it the missions department should not be "to sell").

Create a culture of information gathering and analyzing. All the "superstar" employees should be groomed and positioned as models and coached within the organization.

Hopefully, this was a useful and quick summary of the Four steps to epiphany. If you have the time, it's worth a read!