Discover the business before you scale the business

Was watching this short discussion panel regarding strategic advice from Angel investors (Ron Conway and Mike Maples) to start-ups.

Here are some take aways:

1. Keeping your burn rate extremely low buys the company the added probability of getting lucky.
1. The luck from a low burn rate comes from having the cash to experiment with various ideas until you find the right model/combination/technique/strategy. Whereas with a high burn rate, it’s all or nothing.
2. Once you find that right idea/model, you can then hone in on it and maximize it’s usage, which then drives more of what’s working (cash flow, sales leads, profits, etc…). With a now working business model, the profits come in, and you now have the ability to grow and take on more opportunities.
2. $1M should last you a year.
1. Starting with a team of 3 people, growing up to maybe 5 or 6 people.
2. Companies are the most productive when they’re less than 10 people. When you grow beyond 10, productivity goes down. So that first $1M is a team that’s lean and mean, and each individual contributes an enormous amount of productivity.
3. Have a Product Development Strategy and a Customer Development Strategy.
1. Most Silicon Valley start-ups describe an engineering project: Alpha, Beta, Limited Availability, General Availability, etc…
2. Author Steve Blank wrote a book called “Four Steps to the Epiphany“, the thesis of which is companies should have customer development milestones in parallel to the product development milestones such as customer discovery validation, creation, and scaling.
4. Discover the business before you scale the business
1. The companies that pursue the path of low burn experimentation dramatically add probabilities in their favor.
2. With off-shore labor, low/no cost open source technology stacks, and search engine marketing, companies easily have the opportunity to conduct low cost experimentation.
3. Use a business strategy of low cost experimentation done a lot to find out the winning answers, discard the losing answers, and don’t scale until you’ve figured out your business model.