The central theme of my Harvard Business School class, Launching Technology Ventures (LTV), is that startups are experimentation machines and the choice and design of experiments during a finite envelope of time and money is the central strategic decision that founders make. In other words, founders should test the experiments that matter most.
If done correctly, these early experiments eventually lead to finding product-market fit. But finding product-market fit in the context of a dynamic system that makes up the startup business model is complex and nuanced. Each component of the business model is linked to the other. Thus, experiments should be run that hold certain elements constant and focus on testing the most important, critical path business model elements first.
To help frame those decisions, I have developed a simple framework that builds off Professor Tom Eisenmann’s work on business model analysis for entrepreneurs to communicate the early strategic choices in experiment design. Founders need to answer two simple questions:
- Which experiments should I run between testing the Consumer Value Proposition, the Go To Market and the Cash Flow formula (sometimes also referred to as the business model)?
- What organization should I build to execute each of these experiments in the most efficient fashion?
The following two slides summarize these two questions visually:
The other day, my friend Ed Zimmerman of Lowenstein asked me to “speed present” my entire course in 5 minutes in advance of a panel that he hosted as part of his VentureCrush series. Here is that presentation, where I cover the experiments as well as the metrics that help determine where you are in your quest for product-market fit:
I welcome hearing about feedback from your own experiments!