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How we build startups from 0 to 1

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Jerolim Dragojević
11 min read
12.01.2023
How we build startups from 0 to 1

Introduction

Building a successful startup from scratch is a complex process that doesn’t work on the concept of a blueprint - there is no magic way that guarantees success if you just blindly follow and check things off a list. However, someone’s experience of building a startup can be useful - you can get insights into how someone else sets up their team, which methods they used to prove product-market fit, what challenges were their biggest obstacles, and how the transition from the MVP phase to phase of building a startup looked like.

1. Setting up a strong core multidisciplinary team

The whole process of building a startup most often starts with an idea from an opportunity field - an area where there are further development opportunities. However, the venture studio begins this process by forming a strong multidisciplinary core team that works to identify opportunities and solve problems. It has to have covered capacities and expertise from two sides: product (design and engineering) and distribution (marketing and sales).

In addition to a multidisciplinary team that will come up with ideas and lead product development, it’s essential to have a good understanding of the market where the new product will be launched, so it is crucial to find a founder with experience in the chosen industry. Finding a founder who responds to the idea (and vice versa) is often the key item that increases the chance of success exponentially. This is a person who understands the market, "pushes" the idea, and has complete ownership and responsibility over it. In the later stages of the startup's development, other team members who would form the core team of the startup are also sought through the venture studio.

2. Idea conceptualization and validation

The second step is an extensive process that consists of two main parts - idea conceptualization and validation. It is suggested not to skip this stage as it can be crucial for the product’s further development. With a clear problem and solution that is confirmed by the target audience as helpful, the product development costs can be significantly reduced and the number of hours can be reduced since, from the start, the product that the audience wants was being developed. Here, it is crucial to set up a good framework and define clear testing criteria in order to confirm whether the idea is interesting to the target audience, i.e. whether it could be successful on the market.

Idea conceptualization

When we talk about an idea, we are talking about a problem, not a product. More specifically, we are looking for a solution from which the product would be developed. Conceptualization of an idea is a process that is carried out with the help of a prevalidation checklist (POC checklist), which contains the problem that needs to be solved, a potential solution, as well as the research of the market potential.

Generally, there are two approaches to idea definition. The first, fairly safe approach is finding a problem that needs to be solved, be it one's own or someone else's. The second is finding large and growing markets - figuring out what can be built and tested there, and what might not be covered as well.

Researching the market potential is crucial - you need to focus on finding a clear vertical that enables great growth, that is, understanding the volume of the market and its growth. For venture studios, that is, for startups, the real opportunity lies in markets that are not highly digitalized - they are slow enough and leave enough room to find a niche and disrupt it. For example, same-day last-mile operating systems in logistics or Slack chat for construction workers.

It is also useful to find out the number of unicorns, corporations, and early-stage startups operating in the selected vertical. As a rule - if there is a lot of competition, you don't enter that field. Unicorns and scaleups are simply more agile and stronger, and fighting them is a fight that is almost impossible to win. The optimal area is one with a smaller number of startups that have raised a few million in funding or an area with a lot of slow corporations that need to be disrupted.

In order to build good foundations, it is necessary to identify the target audience who will have the most value from the product or service, and define the geographic market where the idea will be tested.

After defining the target audience, it is necessary to define the unique selling proposition (USP) - what makes that idea objectively different and better. To help you determine if you have a well-defined USP, ask yourself 2 key questions:

  1. Did we speed something up (did we reduce the time and number of steps needed to complete the action)?

  2. Have we made something expensive cheaper (have we made the product more affordable)?

If the answer to one of those two questions is yes, go back to the idea conceptualization process.

After defining the USP, it is time to prepare the hypotheses that you want to test on the selected market and target audience (e.g. young business people from Berlin want a hairdressing service in their own home), so start by defining the product/service and the main features. Do not forget to check how complex it is to make a product from an idea and whether there are any challenges in the development process. Finally, think about business models that you could use to monetize your product.

Idea validation

The entire process of validating an idea on the market usually takes 2-6 weeks and is carried out before the product development and the creation of the MVP, while the idea is still on paper. In this phase, obsession with the customer and confirmation of the reality of the problem begins - you want to find out the opinion of the target audience about the idea, whether they consider the proposed concept/product worthy of their attention, what they don't like about the concept and whether they would be ready to use the product.

It is not suggested to create an MVP version of the product until you are sure that you have a good understanding of the target group and the correct positioning of the product in the market. The process of idea validation can reduce the cost of product development because from the beginning it is possible to start developing a product that users really want.

There are a large number of different methods of idea validation - from setting up a landing page through which traffic is collected to live user interviews, but one is the most effective - Fake it until you make it. The essence of this approach is to convince users that the presented product has already been developed in order to get clear feedback and sincere emotions.

After the end of the validation, check which hypotheses you have validated, and in accordance with all the data collected, make a decision whether it is worth starting with the construction of the MVP (minimum viable product) version of the product, whether you should pivot the idea into a different version of the product, or give up altogether from the idea.

3. MVP and fast traction

You enter the phase of building the MVP (the simplest version of the product that users can use) with a validated idea on the market and demonstrated interest from the target audience. The formation of the first version of the product lasts approximately 2 to 3 months (depending on the complexity and the technology used), while in the background (e.g., via the landing page) data and traction are collected all the time, which is the core of the Fake it until you make approach.

The goal of the MVP phase is to quickly build the simplest version of the product to test the product on the real market and with real data, before defining the features in more detail. You want to get user feedback early in the process and see how the market reacts to the product so you know if you need to make changes, pivot the product, or continue development.

Although there is a defined process that must be followed, it is important to note that the MVP construction process adapts to each idea and problem it solves. Venture Studio does not work according to the blueprint - you will not create a unicorn if you blindly follow all the steps in the process.

During the MVP development process, in addition to product development, work is also being done on the strategy of placing the product on the market (marketing and sales), which ends the MVP phase.

4. Learn, repeat, push yourself and decide

After the launch and its trial period, it is important to look at several items that can be used to validate whether the product works on the market. Since the goal is to sell a product or service, it makes sense that the amount of revenue generated (MRR/ARR) is one of the most important things.

The next significant thing is to find out how much people are willing to pay for a service or a product. Through user interviews, feedback on product versions that users would be willing to pay for is collected, as well as the frequency of its use, and the chances of stopping its use.

Based on the obtained data, through various iterations of the product, emotions are also examined in order to find out what bothers the users the most - to distinguish whether the problem is in the product or in the distribution channel. For example, if the product doesn't work, and people don't complain, that feature is obviously not important enough to them and it should not be changed. People will either praise or hate the product and that is totally fine. Everything in the middle is nonsense.

When you get close to the product market fit and when it becomes interesting to investors (with revenues of approximately 50-100 thousand euros per month), an organization slowly starts being built around the product.

5. Development of new entities and organizational structure

Every startup is different, so every formal process of putting together the organizational structure of a new entity is different. It usually takes 3-9 months to form organizations with a new in-house team. The venture studio and the in-house team work together for a while, after which the venture studio withdraws and starts working on a new idea.

You may be wondering why the company develops after the iteration phase. It’s because the focus is on the product market fit and not on the company and other accompanying corporate issues. However, most classic companies do exactly the opposite - first, they set up a company, and then develop a product that has no value and no product fit on the market, after which they get surprised by the failure of the product on the market.

To avoid such a scenario, make sure you first have something people want and something that can scale.

6. Scaling

Once there is a clearly defined Product Market Fit and when we understand what works on the market, other processes begin. First of all, it is necessary to collect enough funding - here we are talking about amounts of 10 to 20 million euros.

As for the structure of the organization itself - in this phase, the senior team, VP, and C-level managers come in, and the structures and processes of employment, public procurement, and IT security guidelines are set. Venture Studio provides support, everything else is up to the startup itself, that is, it has to function by itself. At this stage, the venture studio is "outside" - possibly remaining on the board, helping, providing support, and solving ongoing problems. Business scales to generate more revenue, and for more revenue, processes, organization, and scalability are needed.

Conclusion

A professional venture studio must be fast enough to develop and deliver a complete startup to an in-house team within 2 years. In order to be successful in this, you need to stick to a certain process because without established foundations, discipline, and structure, it is very easy to lose focus and deviate from the right path. The startup development process does not work on the principle of a blueprint - the development adapts to each idea and problem that is being solved. The process is not a program that will magically create a unicorn, but it can help you significantly when building a startup.

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